Jersey Unreported Judgments

[2008]JRC046

royal court

(Samedi Division)

17^th March 2008

Before     :

M.C. St. J. Birt, Esq., Deputy Bailiff, and Jurats Le Brocq and Le Breton.

 

Advocate H. J. Heath for the Appellant.

Advocate J. Harvey-Hills for the Respondent.

judgment

the deputy bailiff:

1.             This is an appeal by the second defendant, Mrs Toothill, against the decision of the Master on 16^th January, 2008 to grant summary judgment on claims brought against Mr and Mrs Toothill as first and second defendants by HSBC Bank plc in respect of three loans and an overdraft facility granted by HSBC to the defendants jointly between June 1999 and November 2001.  The total amount for which the Master gave judgment was £985,371.09.

2.             The defendants defaulted on the loans during the course of 2002 and 2003 since when nothing has been paid.  Eventually proceedings were issued by HSBC against both defendants in August 2007.  The matter first came before the Royal Court on 7^th September at which time the first defendant submitted to judgment but the second defendant ("the appellant" or "Mrs Toothill") placed the matter on the pending list.  Following pleadings HSBC applied for summary judgment against the appellant and, as already mentioned, this was granted by the Master on 16^th January, 2008. 

3.             The arguments before the Master and repeated in the Notice of Appeal were fairly wide ranging.  In addition certain criticisms were made by the appellant of the procedure before the Master.  However this is a re-hearing and during the course of argument before us the issues were narrowed down considerably.  Accordingly we propose in this judgment to deal only with the arguments as they were maintained before us. 

The background

4.             Judgment was entered in respect of four different transactions whereby HSBC advanced sums to Mr and Mrs Toothill jointly.  These were as follows:-

(i)        A loan of £395,000 in June 1999 ("the June 1999 loan) to enable the defendants to purchase in their joint names the property 61 Elizabeth Avenue, St Brelade ("the property"). 

(ii)       An overdraft facility granted to the defendants jointly in 1999 in the sum of £85,000 and increased to £150,000 in March 2001 ("the overdraft facility").

(iii)      A loan of £200,000 in May 2001 ("the May 2001 loan").

(iv)      A further loan of £100,000 in November 2001 ("the November 2001 loan").

In respect of each of the advances there was provision for HSBC to register the advance against the property with the appropriate authorities to register being obtained at the time.  Registration in fact took place during the latter part of 2002, so that HSBC has judicial hypothecs over the property in respect of the various advances.

5.             In view of the potential defences raised, it is necessary to rehearse the facts as they emerge from the affidavits sworn by Mr Andrew Chapman (Commercial Banking Manager of the relevant branch of the HSBC) and the appellant. 

(i)      The June 1999 loan

6.             On 1^st May, 1999 Mr and Mrs Toothill submitted an application for a mortgage facility in order to purchase the property.  The purchase price was £495,000 and the amount that they sought to borrow was £470,000.  The application set out what the monthly repayments on such a sum would be.  The form also indicated that the defendants proposed to refurbish the property at a cost of £75,000.  The independent survey report obtained at the time stated that £495,000 was a fair reflection of the market value and that the £75,000 of improvements or repairs would enhance the value of the property.  At the time Mr Toothill was a senior manager employed by HSBC. 

7.             The 'Loan to Value' ("LTV") ratio (i.e. the amount of the loan as a percentage of the value of the property) was 95% which was higher than HSBC normally allowed.  Their standard figure at the time was 80%.  At that stage Mr and Mrs Toothill intended to contribute only £25,000 of their own capital.  The papers annexed to the affidavit of Mr Chapman show that HSBC was not happy to lend as much as £470,000.  After some discussion the final arrangement agreed was that the loan would be in the sum of £395,000 (which was within the 80% LTV), Mr and Mrs Toothill would contribute £100,000 of their own capital and there would be an overdraft facility of £75,000 to enable them to carry out the proposed improvements. 

8.             A formal loan agreement was executed by both defendants on 14^th June, 1999.  The agreement was a standard two-page document and it included specific confirmation as to the purpose ('house purchase'), the fact that there would be a first charge on the property, details of the monthly payments and that the agreement had been entered into by HSBC on the basis of the information and financial details supplied by the defendants.  Similar statements as to the truth of the information supplied were contained in the application for the mortgage and are also to be found in the documentation for the May 2001 loan and the November 2001 loan.  Ogiers acted for the defendants and were also instructed by HSBC in connection with the obtaining of the signature of both defendants to the documentation necessary to register the loan against the property in due course.  The loan went ahead and the property was duly purchased in the defendants' joint names.

9.             The internal approval sheet of HSBC dated 20^th May, 1999 suggests that the loan fell outside the bank's standard internal guidelines in two respects.  It failed the salary multiple requirement and also the life assurance requirement.  This meant that the loan had to be referred to higher authority within the bank than if it fell entirely within the guidelines.  In this case it was approved by Mr Gibbons on 20^th May.  In addition Miss Heath referred us specifically to a manuscript note on an internal memo from Mr Gibbons to two of his managers which appears to have been written at a time when the contemplated borrowing was £470,000 which reads:-

"James Toothill - he is, will be your direct report.  My stance could have a motivational impact.  May we please first discuss".

(ii)      The overdraft facility

10.          Although an overdraft facility of £75,000 was agreed in principle at the time of the June 1999 loan, it does not appear actually to have been put in place until October 1999.  The formal documentation is apparently no longer available but there is a file note dated 26^th October, 1999 from which it appears that there was an existing overdraft limit on the defendant's joint account of £10,000 and that they had exceeded this so that the overdrawn amount as at October was £24,484.  The writer notes that the £75,000 facility needed to be put in place and this appears then to have been done.  The stated purpose of the £75,000 facility remained as expressed in June, namely to carry out improvements to the property.  Following this occurrence, the total overdraft facility available to the defendants was £85,000 made up of the pre-existing facility of £10,000 and the additional agreed facility of £75,000.

11.          Mr Toothill left his employment with HSBC on 31^st December, 2000 and set up his own business.  In March 2001 the defendants applied for an increase in the overdraft facility from £85,000 to £150,000 i.e. an increase of £65,000.  The stated purpose of the increase according to a memo dated 19^th March 2001 was to assist with the funding of the business start-up.  The bank agreed to the increased overdraft which was entered into on 22^nd March, 2001.  The memo of 19^th March recorded that the application conformed with the bank's current lending guidelines. 

(iii)    The May 2001 loan

12.          On 20^th March, 2001 the defendants submitted a written loan application (known as an equity release loan because there was already a mortgage on the property) in the sum of £200,000.  The purpose was stated in the application form as being 'home improvements'.  The application made reference to a professional valuation which was sent direct to HSBC.  This valuation was dated 19^th March, 2001 and was prepared by Gillborn Associates.  The valuation stated that some basic repairs and decoration had been carried out since the purchase by the defendants and that, in its present condition, the property was valued at £525,000.  The report carried on to say that the writer had seen the architect's drawings of the proposed refurbishment works which he had been advised by Mr Toothill would cost in the region of £150,000.  The report went on to say that, following the proposed works of refurbishment, the property would be worth £850,000.  The application again contained a representation that the statements made by the defendants in relation to the loan application were true and complete to the best of their knowledge and belief.  The form also stated in bold type immediately above the signatures of Mr and Mrs Toothill "your home is at risk if you do not keep up payments on a mortgage or other loans secured on it."  

13.          The application appears to have been approved on 19^th April, 2001 and the relevant 'mortgage approval form' was signed by Mr Collier, head of Personal Financial Services.  The approval form noted that the application did not conform to the bank's standard internal guidelines in three respects.  Firstly, it failed the salary multiple requirement, secondly it failed the employee requirement (by which appears to be meant that Mr Toothill was no longer an employee of HSBC) and thirdly it exceeded the maximum term requirement in that it would not be completely repaid by retirement age.  A loan agreement reflecting the additional loan of £200,000 was sent to the defendants and they both signed it on 10^th May, 2001.  As before, this agreement set out the amount borrowed, the monthly payments and the security.  The loan was released in tranches of £50,000 to the defendants' joint current account during the course of 2001.

The November 2001 loan

14.          On 21^st October, 2001 the applicants submitted a further loan application.  This time the sum applied for was £100,000 and the stated purpose on the form signed by both applicants was 'complete refurbishment'.  The application was approved by Mr Collier but he appears to have been given additional information to that contained in the application form (presumably by Mr Toothill) because he wrote in the box above his signature "Full and final assistance to allow house refurbishment and business injection." Again the mortgage approval form states that the application was outside the internal guidelines in two respects.  Firstly, it failed the salary multiple requirement and secondly, it failed the employee requirement.

15.          The defendants' joint current account (to which the various loans were paid and the overdraft debited) had a standard mandate for a joint account, namely either joint account holder was entitled to instruct HSBC to make a payment from the account.  According to the affidavit of Mr Chapman, banks do not monitor the use of joint accounts to ensure that the wishes of one joint account holder with regard to the use of the funds in that account are observed by the other account holder.  HSBC did not do so in respect of this account but, given the suggestion by Mrs Toothill that money was used to support her husband's company, Mr Chapman has, for the purposes of this application, reviewed the bank statements of the joint account and of the account of Mr Toothill's company, which was also held at HSBC.  The statements do not give details of the recipients of payments but he has found certain debit entries on the joint account statements which appear to correspond with credit entries on the company's statements.  These total £284,000 and are as follows:-

                Date                                                                 Value

                8th August 2001                                    £40,000

                16th October 2001                                             £45,000

                26th October 2001                                             £4,000

                20th November 2001                                           £50,000

                4th December 2001                                            £20,000

                17th December 2001                                          £25,000

                19th February 2002                                            £100,000

The total amount borrowed (not including the amount borrowed under the June 1999 loan) was £450,000.

16.          As already stated the defendants failed to keep up the payments on the various loans and the Master gave judgment as follows:-

(i)  £459,730.99 in respect of the June 1999 loan;

(ii)  £247,046.57 in respect of the May 2001 loan;

(iii) £122,744.43 in respect of the November 2001 loan; and

(iv) £155,849.10 in respect of the overdraft facility.

In each case interest continues to accrue until payment.

The Law

17.          It is not disputed that Mr and Mrs Toothill agreed jointly and severally to borrow the various sums referred to above from HSBC.  There was therefore a contract between each of them and HSBC.  In the absence of some 'vice de consentment', that contract was binding upon both defendants - 'la convention fait la loi des parties'.

18.          The law recognises that, in certain circumstances, an apparent consent to a contract can be set aside because of a 'vice de consentment'; for example, if A has been induced to enter into a contract with B by reason of a misrepresentation of fact by B. 

19.          In this case, Advocate Heath argues that HSBC has been guilty of misrepresentation towards the appellant.  In this area of the law of contract, there is no material difference between English law and Jersey law.  A misrepresentation is a false statement of fact, past or present, as distinct (generally) from a statement of opinion, or of intention or of law.  Whilst most representations are express, they may also be implied.  A person may also be guilty of misrepresentation by conduct.  Thus a person who sits down in a restaurant and orders a meal is representing thereby that he has the means to pay.  Advocate Heath argues that HSBC was guilty of misrepresentation by conduct and we deal with this below when considering her submissions on the facts. 

20.          Secondly, Advocate Heath submits that HSBC has been guilty of 'réticence dolosive' (or 'dol par réticence') by failing to disclose to the second defendant that the May 2001 and November 2001 loans fell outside the bank's normal lending guidelines.  In support of the suggestion that silence can give rise to a remedy in these circumstances she cited only the following extract from the judgment of Bailhache, Bailiff in Steelux Holdings Limited v Edmonstone [2005] JLR 152 at para 13:-

"As a matter of general principle, under the law of Jersey the parties to a contract are expected to defend their own interests.  The maxim is 'La convention fait la loi des parties'.  But fraud is a flexible notion.  Silence can, in certain circumstances, amount to fraud.  If one party, particularly a party who is more experienced and worldly-wise than the other, is silent as to a material fact which, if it had become known to the other party, would have led to a refusal to enter into the contract, that may well amount to fraud, which may lead to a setting aside of the contract.  In French law, the concept is known as 'réticence dolosive'.  We would characterize it as dishonest or fraudulent silence.  Although Poingdestre did not expressly refer to dishonest silence, he did state (Les Lois et Coutumes de Jersey, at 206 (1928)) that, in the context of a contract between persons of unequal bargaining power - "tout contract ou transaction extorqué par ...... persuasions indirectes est presume fraudeaux principallement quand la personne induite est foible de jugement ou d'aage .....".  In this case, it is unnecessary to decide whether or not there was dishonest silence, but, if there had been, the obligation to pay interest would have been set aside."

21.          The above dictum is clearly obiter as the Court in that case did not need to consider the issue further.  The position under English law is expressed somewhat differently.  It is summarised in Chitty on Contract (29th Edition) as follows at para 6-013:-

"Non disclosure.

The general rule is that mere non-disclosure does not constitute misrepresentation, for there is, in general, no duty on the parties to a contract to disclose material facts to each other however dishonest such non-disclosure may be in particular circumstances.  So, for example, in Percival v Wright, a company director who had inside information about certain facts likely to enhance the value of the company's shares was held to be under no duty to disclose this fact to a shareholder from whom be bought some shares.  For the same reason it is not possible to set up an estoppel on the basis of an omission to disclose unless a duty to disclose can be established in the particular circumstances of the case.  Tacit acquiescence in another's self-deception does not itself amount to a misrepresentation, provided that it has not previously been caused by a positive misrepresentation.  But there are exceptions to the general rule that there is no duty to disclose.  First, there are many statutory exceptions.  Second, there are exceptions at common law where the contract is within the class of contracts uberrimae fidei, where there is a fiduciary relationship between the parties, and where failure to disclose some fact distorts a positive representation......"

22.          This Court would wish expressly to leave open the question of whether the law of Jersey should recognise a duty of positive disclosure in the wider circumstances envisaged by the Bailiff or whether a duty of positive disclosure should be confined to those circumstances where it exists under English law, even if, jurisprudentially, it is preferred in this jurisdiction to treat it as dol par réticence.   Such a decision would be a matter of considerable practical importance to those who contract under Jersey law and should be the subject of full argument and consideration.  However, we are today concerned only with the question of whether the appellant has shown an arguable defence.  In the light of the dictum of the Bailiff, it is obviously arguable that, if HSBC may have been guilty of 'dishonest or fraudulent silence', the appellant may have a defence to the claim and leave to defend should be given.  

23.          Both of the above possible defences involve alleged wrongdoing on behalf of HSBC as the opposite contracting party.  A third possible defence relied upon by Mrs Toothill is somewhat different.  It is contended that, in relation to the additional £65,000 overdraft facility in March 2001, the May 2001 loan and the November 2001 loan, she was acting under the undue influence of her husband, the first defendant.  However, no allegation of undue influence is made against HSBC itself. 

24.          This raises an issue which has given rise to important judicial decisions in England, namely Barclays Bank Plc v O'Brien [1994] 1 AC 180 and Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773.  In each of these cases the wife had entered into a guarantee of a loan to her husband and had agreed to security for the loan being given over the jointly owned home.  The problem was clearly explained in the judgment of Lord Nicholls in Etridge:-

"34   The problem considered in O'Brien's case and raised by the present appeal is of comparatively recent origin.  It arises out of the substantial growth in home ownership over the last 30 or 40 years and, as part of that development, the great increase in the number of homes owned jointly by husbands and wives.  More than two-thirds of householders in the United Kingdom now own their own homes.  For most home-owning couples, their homes are their most valuable asset.  They must surely be free, if they so wish, to use this asset as a means of raising money, whether for the purpose of the husband's business or for any other purpose.  Their home is their property.  The law should not restrict them in the use they may make of it.  Bank finance is in fact by far the most important source of external capital for small businesses with fewer than ten employees.  These businesses comprise about 95% of all businesses in the country, responsible for nearly one third of all employment.  Finance raised by second mortgages on the principal's home is a significant source of capital for the start-up of small businesses

35  If the freedom of home-owners to make economic use of their homes is not to be frustrated, a bank must be able to have confidence that a wife's signature of the necessary guarantee and charge will be as binding upon her as is the signature of anyone else on documents which he or she may sign.  Otherwise banks will not be willing to lend money on the security of a jointly owned house or flat. 

36   At the same time, the high degree of trust and confidence and emotional interdependence which normally characterises a marriage relationship provides scope for abuse.  One party may take advantage of the other's vulnerability.  Unhappily, such abuse does occur.  Further, it is all too easy for a husband, anxious or even desperate for bank finance, to misstate the position in some particular or to mislead the wife wittingly or unwittingly, in some other way.  The law would be seriously defective if it did not recognise these realities. 

37  In O'Brien's case this House decided where the balance should be held between these competing interests.  On the one side, there is the need to protect a wife against a husband's undue influence.  On the other side, there is the need for the bank to be able to have reasonable confidence in the strength of its security.  Otherwise it would not provide the required money.  The problem lies in finding the course best designed to protect wives in a minority of cases without unreasonably hampering the giving and taking of security.  The House produced a practical solution.  The House decided what are the steps a bank should take to ensure it is not affected by any claim the wife may have that her signature of the documents was procured by the undue influence or other wrong of the husband.  Like every compromise, the outcome falls short of achieving in full the objectives of either of the two competing interests.  In particular, the steps required of banks will not guarantee that, in future, wives will not be subjected to undue influence or misled when standing as sureties.  Short of prohibiting this type of suretyship transaction altogether, there is no way of achieving that result, desirable although it is.  What passes between a husband and wife in this regard in the privacy of their own home is not capable of regulation or investigation as a prelude to the wife entering into a suretyship transaction."

25.          Following Etridge, a wife seeking to set aside security over the jointly owned home has to prove the following:-

(i)        that she was unduly influenced by the husband to give the security or was induced to do so by misrepresentation on his part;

(ii)       that the bank was put upon inquiry as to the existence of undue influence or misrepresentation; and

(iii)      that the bank did not take the reasonable steps laid down by the House of Lords in Etridge to draw the potential consequences of giving security to her attention and as a result is fixed with notice of the undue influence and/or misrepresentation so that it can not enforce the security against the wife.

See the judgment of Lord Hobhouse at para 101 of Etridge and para 20 of the judgment of the Court of Appeal in Chater v Mortgage Services Number Two Ltd [2002] EWCA Civ 490.

26.          As to when a bank is put 'on inquiry' it will invariably be so when the wife gives a guarantee for a loan to the husband or the company through which he conducts his business.  That is because such a transaction is on its face disadvantageous to the wife, who obtains no direct benefit from it.  However, where there is a joint loan to the husband and wife, the wife will normally benefit to the same extent as the husband and therefore the bank is not put on inquiry.  The position was summarised by Lord Nicholls at para 48 of his judgment in Etridge as follows:-

"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 that 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 [1994] 1 AC 200." (emphasis added)

27.          During the course of the hearing, Miss Heath conceded that, not being aware of any Norman or French principles which might come to her aid as against the bank where the husband had been guilty of undue influence or misrepresentation, she needed to argue that the principles laid down in O'Brien and Etridge formed part of the law of Jersey.  Mr Harvey-Hills also submitted that we should hold the law of Jersey to be similar to that of England as outlined in these two cases. 

28.          The law of undue influence in Jersey is similar to that of English law and we find that the principles underlying the decisions in O'Brien and Etridge are entirely consistent with those of Jersey law.  Furthermore, there are strong policy grounds for thinking that the law in this jurisdiction should be the same as in England.  The majority of banks who lend money on the security of immoveable property in the island are UK owned.  Their guidelines and procedures have been established in accordance with the clear judicial guidance offered in Etridge and their personnel will have been trained accordingly.  Furthermore, the competing policy considerations referred to by Lord Nicholls in the passage referred to above at paragraph 24 are equally applicable in Jersey and a solution which addresses both considerations needs to be found.  In our judgment the position established in Etridge achieves a proper balance between these competing considerations and we hold the law of Jersey to be like effect.  It follows that, taking the conventional situation of a principal debtor and a guarantor, where those two parties are in a close, emotional relationship or non-commercial relationship, the risk that the principal debtor will improperly exert undue influence over the guarantor or will misrepresent the position to the guarantor is sufficient to fix the bank with constructive notice of any such impropriety unless the bank can show that it has taken 'reasonable steps' to minimise the risk of the guarantor having entered into the guarantee under any misapprehension or as a result of undue influence on the part of the principal debtor.  The 'reasonable steps' which banks should take in future are those laid down by the House of Lords in O'Brien as amended in Etridge. 

Summary judgment

29.          The test for considering whether to grant summary judgment is well established - see for example paragraph 8 of the judgment of Bailhache, Bailiff in Tomes v Coke-Wallis [2002] JRC 131A.  In his judgment the Master quoted at length from paras 14/4/3 - 14/4/5 of the 1999 Edition of the White Book and we agree that those passages correctly describe the relevant principles.  In short the Court must consider whether the defendant has shown an arguable defence i.e. whether there is a triable issue.  If so, leave to defend should be given.  We would however refer specifically to the passage at 14/4/5 of the 1999 White Book which states:-

"The defendant's affidavit must 'condescend upon particulars' and should, as far as possible, deal specifically with the plaintiff's claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it......." 

As is stated later in the same passage:-

"Indeed, in all cases, sufficient facts and particulars must be given to show that there is a triable issue."

The defences

30.          The Master described the Answer of the appellant as being 'in a somewhat convoluted form' and it clearly raised a number of matters, many of which have not been pursued.  For example it was pleaded that, in relation to the overdraft, the May 2001 loan and the November 2001 loan, HSBC did not pay the monies advanced to the parties' joint account but paid them instead direct to Mr Toothill's business account.  The appellant has now conceded that this was not so and that HSBC paid all monies advanced into the parties' joint account.  It was also pleaded that the appellant never signed personally the documents necessary for registration of the June 1999 loan but that these had been signed under a power of attorney.  It is now conceded that this is not so and that she signed the relevant documents at the time.  It was also pleaded that Mr Toothill misrepresented the position to the appellant although no particulars were given as to the nature of the alleged misrepresentation.  In her affidavit sworn for the purposes of the application of summary judgment, no mention is made of any misrepresentation and Miss Heath quite properly did not pursue the matter before this Court.  Finally the Answer suggests that, by the time of the May 2001 loan and the November 2001 loan, the defendants had ascertained that the proposed refurbishment to the property would cost £300,000.  This made the work uneconomic and they had decided not to proceed.  This meant that the statements in the mortgage application forms  signed by both defendants for the May 2001 loan and the November 2001 loan that the monies were required for 'home improvements' and 'complete refurbishment' respectively were completely false.  In her affidavit, the appellant did not pursue this point.

31.          What does emerge from the appellant's affidavit is that she left all financial matters to her husband.  He carried out all the negotiations with the bank and she simply signed the relevant papers when he requested her to do so.  This usually involved her going down to the bank to sign them.  For the purposes of this application, we proceed on the basis that this was indeed the position. 

32.          With that introduction, we turn to consider the defences raised in relation to each of the loans and the overdraft. 

(i)     The June 1999 loan

33.          The money from the 1999 loan was clearly used for the benefit of both defendants as it went towards the purchase of the property.  Miss Heath relies upon only one line of defence in relation to this loan, namely misrepresentation on the part of HSBC. 

34.          She puts her case this way.  She points out that the documents show that the loan eventually granted (i.e. £395,000) exceeded the bank's internal guidelines in two respects.  First, it exceeded the salary multiple requirement i.e. the amount loaned was more than the normal multiple of the borrowers' combined salary.  Secondly, it failed to the life assurance requirement.  Although this is not specified in the documents, it presumably means that the amount of life assurance carried by the parties was not as large as the bank would normally require.  In addition, Miss Heath relied upon the suggestion that one of the reasons for the bank agreeing to the loan was a motivational reason i.e. it wished to do nothing to de-motivate Mr Toothill by refusing the loan or alternatively wished to motivate him by agreeing to the loan (see para 9 above).

35.          She contended that HSBC was guilty of misrepresentation by conduct.  By proceeding with the loan without saying anything to the appellant, the bank was impliedly representing to her that the loan was in accordance with its internal guidelines and that there was nothing unusual about the loan, when the bank knew that this was not so. 

36.          Even assuming for these purposes that the loan was indeed outside the bank's internal guidelines in these two respects and that the bank was influenced in its decision by a desire to motivate or not to de-motivate the husband, we find this to be an untenable defence. 

37.          A bank and a borrower are on the opposite sides of the contract.  The bank owes no duty (whether in contract or in tort) to advise the borrower (or a guarantor) either on their financial position or on whether they should take independent legal advice.  The bank is entitled to have regard only to its own interests.  It is under no duty to advise the borrower (or guarantor) on whether the loan is sensible or appropriate from the borrower's point of view.  As Warne and Elliott  'Banking litigation' put it at para 3 -007:-

"The O'Brien principle is concerned with notice and not with duty.  It does not place any duty on a bank either to advise the guarantor or to advise the guarantor to seek independent legal advice.  The bank owes no contractual or tortious duty to the guarantor to arrange any such private meeting or to advise the guarantor to take independent legal advice.  Accordingly, it does not conflict with the long line of decisions which hold that there is no such duty."

See also Barclays Bank v Khaira [1992] 1 WLR 623.

38.          The internal guidelines of a bank in relation to its lending policies are just that.  They are guidelines for the bank to evaluate the risk of extending a particular loan.  They are for the protection of the bank.  They are not absolute and can be departed from, as Mr Chapman said in his affidavit and, in any event, it is a matter entirely for the bank as to the level of risk which it is willing to take in connection with a particular loan.  Given that it has no duty to advise the borrower on his financial position, it must follow that there cannot be any duty on a bank to disclose to a borrower whether the lending does or does not fall within its normal lending guidelines, which are discretionary in any event.  Miss Heath was unable to point to any authority which suggested that any such duty might exist. 

39.          It must follow that the fact that a bank agrees to enter into a loan cannot carry with it any representation as to whether the loan does or does not fall within its internal lending guidelines.  In some cases the loan will fall within those guidelines; in others it will fall outside them because they are only discretionary guidelines and the relevant senior manager will have decided to proceed in any event.  It is for the borrower to decide whether he is willing to borrow the particular amount and not for the bank to advise him upon it.  The application form signed by both defendants in this case set out the proposed monthly payments arising from a loan of £470,000.  The loan agreement which they actually signed (for the lesser sum of £395,000 which was eventually agreed) also set out the amount of the loan, the monthly payments, the security and the fact that the monthly payments would be made from the parties' joint account.  There was no arguable misrepresentation by HSBC towards the second defendant.

40.          This being the only defence raised in relation to the June 1999 loan, it follows that HSBC is entitled to judgment in respect of that loan.

(ii)           The May 2001 loan

41.          In respect of this loan Miss Heath raises three possible defences, namely misrepresentation by conduct by the bank, dol par réticence on the part of the bank, and undue influence by the appellant's husband coupled with the bank having constructive notice of the same.  We shall consider these in turn.

42.          In relation to misrepresentation, Miss Heath's argument is essentially the same as in connection with the June 1999 loan.  However, in this case, the loan was outside the internal guidelines in the three respects referred to para 13 above.   Furthermore, she argued that it was outside the guidelines in two additional respects, namely the LTV valuation and the defendants' outgoings as a percentage of income.  She accepted that the figures on the Mortgage Approval Form suggested that these two aspects were within the guidelines but she contended that the figures were wrong.  Thus, in relation to the LTV, the value taken in the form was £850,000 (the value after the proposed refurbishment) instead of £525,000 (the value at the time before the work had been carried out) and the existing borrowings were understated because they did not include the overdraft facility.  The bank did not accept that the figures were erroneous and conceded only that the loan of £200,000 was outside the internal guidelines in the three respects referred to earlier.

43.          It is not for us to resolve any factual dispute of this nature on an application for summary judgment.  However, for the reasons given in relation to the June 1999 loan, even if the May 2001 loan fell outside the bank's internal guidelines in the five respects referred to by Miss Heath, this does not avail the appellant.  The fact that HSBC entered into the May 2001 loan agreement carried with it no representation that the loan fell within the bank's internal guidelines.  There was accordingly no misrepresentation, whether by conduct or otherwise.

44.          As to dol par réticence (or réticence dolosive as it is referred to in Steelux), Miss Heath relies upon essentially the same facts as in connection with misrepresentation.  She argues that to keep silent about the fact that the loan fell outside the bank's internal guidelines in five respects amounted to fraud (dol) on its part.

45.          We have already expressed reservations about whether Jersey Law should be developed so as to incorporate a form of misrepresentation by silence as envisaged in the concept of dol par réticence which goes beyond the circumstances where silence gives rise to a remedy under English Law.  However, accepting for present purposes that it is arguable that it should be so developed, it nevertheless requires, as the Bailiff said in Steelux, a dishonest or fraudulent silence; otherwise it cannot amount to dol.  Is it arguable that the bank's silence in this case was dishonest or fraudulent?  In our judgment it is not.  We have already held that it is clear law that a bank does not owe any duty to advise a borrower on the financial wisdom of entering into the loan.  It is for the borrower to look after his own interests.  Furthermore it is not contested that the internal guidelines are intended for the bank's own protection and are discretionary in the sense that, if it so wishes, the bank may move outside them.  In those circumstances, it is in our judgment not even arguable that a failure by the bank to inform the borrower (or a guarantor) that a particular loan falls outside these discretionary guidelines can amount to a fraudulent or dishonest silence.

46.          We turn therefore to the question of undue influence and constructive notice.  As mentioned at para 25, the appellant must show that:-

(i)        she was unduly influenced by Mr Toothill to agree to the loan and security;

(ii)       HSBC was put on inquiry as to the existence of undue influence; and

(iii)      if it was, it did not take reasonable steps to draw matters to her attention.

47.          Mr Harvey-Hills concedes that, if in relation to any particular loan, the Court is satisfied that there is a triable issue on (i) and (ii), then summary judgment should not be given, as he accepts that the question of whether HSBC took reasonable steps is a matter which is arguable and should accordingly go to trial.  We therefore concentrate on issues (i) and (ii).

48.          In relation to the May 2001 loan, we propose to consider first issue (ii), namely whether HSBC was put on inquiry that there might have been undue influence.  If it was not, then it does not matter whether there was in fact undue influence; the bank is entitled to enforce its security.

49.          We begin by repeating part of para 48 Lord Nicholls' judgment in Etridge quoted at para 25 above;

"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 that the loan is being made for the husband's purposes as distinct from their joint purposes............"

50.          We have been referred to two cases where the English courts have had to consider whether a bank was put on inquiry in the context of a joint borrower (as opposed to a guarantor).  The first is CIBC Mortgages Plc v Pitt [1994] 1 AC 200.  In that case the husband and wife jointly owned the matrimonial home with a small outstanding mortgage on it.  The husband informed the wife that he wished to obtain a loan on the house to purchase shares on the stock market which would improve their standard of living.  The wife was reluctant but he embarked on a course of conduct putting pressure on her which the trial judge held amounted to undue influence.  In consequence, she agreed to the suggestion.  The application form was for a loan of £150,000 described as a re-mortgage and the purpose being stated as "proposed purchase of holiday home".  The application form was signed by the husband and the wife although the wife said she did not read it and was not aware of the stated purpose of the loan.  The loan was approved and the offer confirmed that it was understood that the proceeds of the advance were to be used to purchase a second property.  The transaction went ahead and the money was paid by the bank into the parties' joint account.  The husband then used the money to buy shares in his own name.  These subsequently declined in value and the bank sort to repossess the property pursuant to the security which the parties had given.

51.          The House of Lords accepted that there had been undue influence but held that the bank had not been put on inquiry.  There was nothing to indicate to the bank that this was anything other than a normal advance to husband and wife for their joint benefit.  The security was therefore enforceable. 

52.          In Chater v Mortgage Agency Services Number Two Ltd [2002] EWCA Civ 490, a mother agreed to borrow money on the security of her home in order to provide capital for her son to establish a business.  They made a joint application to the plaintiff for a loan secured on the home.  On the application form, the purpose of the loan was described as "purchase".  The plaintiff duly offered a loan and the purpose was said in the offer document to be "other home improvements".  The house was transferred into the joint names of the mother and her son and the loan was secured on the property.  The monies were advanced by cheque made out to them jointly but the mother endorsed it over to the son. 

53.          In due course there was a default and the plaintiff sought to enforce its security against the home.  The trial judge held that the son had been guilty of undue influence and that the plaintiff had been put on an inquiry as to the existence of such undue influence.  The Court of Appeal overturned the judge's decision on this second point and held that the plaintiff had not been put on inquiry.  We would quote some of the passages from the judgment of Scott-Baker LJ in order to show the approach of the court to this issue.

"57 At this stage the court is considering whether the respondent was put on inquiry as to some equitable wrong.  Here the court is not concerned with what was actually happening between mother and son but with what the bank knew about it or, by making appropriate inquiries, ought to have known about it.  In the first place this is neither a debtor/surety nor a husband/wife case.  What is the information that was available to the respondent?  That is the crucial question.  Was it sufficient to put it on inquiry as to some equitable wrong?  The starting point is that this was a joint application for a joint loan.  The net loan eventually arrived in the form of a cheque payable to the appellant and her son jointly from their solicitors Humfrys and Symonds.

58 The stated purpose of the loan in the application form was "purchase".  The fact that this was not true is nothing to the point if the respondent did not know it was not true.  The reference to "purchase" as the stated purpose of the loan in the case of a remortgage is explained by Mr Bishop's evidence (see para.56 above).  There is nothing on the documents to suggest this was a loan exclusively for the son's purposes.  A lender is not obliged without more to make further inquiries.  Even if the respondent was told (see para 54 above) by Mr Terry that the son was purchasing  part of the equity in the mother's home there was nothing in that to concern it.  The respondent knew the application was by a mother and son, but there are many reasons why a mother, (even if the advance was for the son alone which on the facts known to the bank this advance was not), might perfectly justifiably wish to help him financially and without there being any unfair pressure on her to do so.  The respondent knew the property was being transferred into joint names but the evidence was that it would not have insisted upon it as the son was living in the property.  The mere fact that this application was by a mother and son and that it was the mother's house that was to be the security for the loan is not enough........

63 There was nothing to tell the respondent that what lay behind the transaction was a commercial loan to the son alone.  The respondent owed no duty to discover what the loan was for.  It had only its own interests to protect.  A lender is not put on inquiry by every further advance application.  There is no obligation to ask questions albeit a bank is not entitled to shut its eyes to the obvious.  On the face of it this was a joint loan and there was nothing to put the respondent on inquiry that there might be some equitable wrong, nothing to set the alarm bells ringing.  And as Lord Hobhouse observed in Etridge (No 2) at para 109 the question whether the bank has been put on inquiry has to be answered on the basis of the facts available to the bank.  One of those facts was that the appellant and her son had jointly appointed solicitors, Humphrys and Symonds to act for them......

67 In our judgment the judge was putting the respondent's obligation too high.  The respondent is not a detective and it does not matter what an alert underwriter might have inferred as a possibility.  There was no reason why the respondent should not take the loan application at face value and, as Mr Bishop said, this was an application for a joint loan and the reasonable assumption was that it was for improvement of their joint living circumstances.  There was nothing to put a prudent lender on inquiry that this might in reality be a commercial loan and that undue influence might possibly underlie the transaction.  What mattered was that the transaction could perfectly reasonably be accounted for by the ordinary motives of mother and son.  As Lord Nicholls said, where a joint loan (there to husband and wife) is made, a bank is not put on inquiry unless the bank is aware that the loan is being made for the husband's purposes rather than for their joint purposes.  Here the bank was not aware that the loan was being made for the son's business purposes rather than the mother and son's joint purposes."

54.          In the present case, the purpose of the May 2001 loan was said by Mr and Mrs Toothill on the mortgage application form to be 'home improvements'.  This was consistent with what HSBC had been told at the time of the original purchase in June 1999 and would not therefore have come as any form of surprise.  This stated purpose was supported by the report from Gillborn Associates which referred to some work having been carried out, to having seen the architect's drawings in relation to the proposed improvements and gave the opinion that, if the works were carried out, the value of the property would increase from £525,000 to £850,000.  The mortgage application form signed by both parties elaborated on the purpose by saying the following:-

"professional valuation has been sent direct to the HSBC Bank.  The valuation of the conversion of the five bedroom bungalow to a two storey five bedroom house is estimated at £850,000."

So far, therefore, there is nothing which could conceivably have put HSBC on inquiry as to whether the loan was in truth for the benefit of Mr Toothill alone rather than for the joint benefit of him and his wife. 

55.          Miss Heath relies upon the fact that HSBC was aware that Mr Toothill had started his own business following his departure from the bank at the end of December 2000 and was also aware that he needed funds for the business because, as described in para 11 above, it had been informed on 19^th March, 2001 that the increase of £65,000 in the overdraft facility was required in order to assist the funding of the business start up.  The mortgage application form was dated the next day and Miss Heath argues that the bank was therefore at that time aware that Mr Toothill was starting his new business and needed funds.  It was therefore put on inquiry as to whether the true purpose of the May 2001 loan was to support the business. 

56.          We do not consider it even arguable that the bank was put on notice by reason of these circumstances.  It is perfectly normal for a loan to be for one purpose and an overdraft facility or another loan to be for a different purpose.  As the Court of Appeal held in Chater, a bank is not a detective and is entitled to take an application at face value unless there are grounds for thinking that the stated purpose is incorrect.  In our judgment, the mere fact that the bank was aware that, in a separate transaction, the parties were obtaining a facility to borrow £65,000 by way of overdraft to assist the business comes nowhere near suggesting to the bank that the true purpose of the May 2001 loan might have been other than as represented by the borrowers.  The stated purpose of property improvements was not only consistent with what the bank had been told in 1999 but it was supported by the report from Gillborn Associates showing that architect's drawings had been prepared and that the works would increase considerably the value of the property.

57.          Indeed, if Miss Heath is correct and the bank was lending £200,000 in the knowledge that this sum was to be or might be used for the husband's business rather than for improvements to the property, it was effectively lending unsecured because the value of the property in its unimproved state (£525,000) was considerably less than the aggregate amount which, when added to the June 1999 loan, the bank was agreeing to lend.  It seems highly unlikely that the bank would have been willing to act in this way.

58.          In summary, we have no hesitation in holding that, on the evidence placed before us, it is unarguable that HSBC was aware or ought to have been aware that the May 2001 loan was not intended for the joint benefit of the parties.  It was therefore not put on inquiry as to whether there had been undue influence.  It follows that, even if there was any undue influence on the part of Mr Toothill, HSBC is entitled to summary judgment in relation to the May 2001 loan.  

(iii)   The November 2001 loan

59.          Miss Heath's case on misrepresentation and dol in relation to the November 2001 loan was essentially identical to that for the May 2001 loan, save that one of the respects in which the May 2001 loan had fallen outside the bank's internal guidelines (the normal term was exceeded because it would not be repaid by retirement age) was not breached in respect of the November 2001 loan.  It follows that our decision on this aspect is the same.  The fact that the bank entered into the November 2001 loan agreement without informing the appellant that the loan was outside its standard internal guidelines in these respects could not amount to misrepresentation or dol par réticence. 

60.          In relation to undue influence and constructive notice on the part of the bank, the position is somewhat different from that of the May loan.  In the latter case, as we have just described, there was nothing to suggest to the bank that the funds were required for the husband's sole purposes.  It was not therefore placed on inquiry as to whether there had been any undue influence.  The circumstances surrounding the November 2001 loan were somewhat different.  Although the application form signed by both applicants stated that the purpose of the loan was to 'complete refurbishment', it is clear that the bank was informed (presumably by Mr Toothill) that there was a second purpose because the Mortgage Approval Form in respect of the November loan referred to the purpose as being 'full and final assistance to allow house refurbishment and business injection'.  Mr Harvey-Hills argued, because, so far as the bank was aware, the loan was to be used partly for the joint purposes of the husband and the wife, this meant that the case did not fall within para 48 of Lord Nicholls' judgment in Etridge so as to place the bank on inquiry.  We disagree.  No allocation of the loan between the two purposes was given and in our judgment, once the bank was told that an unquantified part of the joint loan was to be used for the husband's business, it was certainly arguably placed on inquiry so that that issue is fit to go to trial.

61.          We therefore have to consider whether the appellant has produced sufficient evidence to show an arguable case in relation to the first limb of her defence in this case as described in para 46 above, namely that she entered into the November 2001 loan under the undue influence of her husband.

62.          We accept that, on the basis of the appellant's affidavit, there is evidence fit to go to trial that she placed trust and confidence in her husband in relation to their financial affairs, that he carried out the negotiations with HSBC, and that she signed all the various documents at his request by attending fairly briefly at the bank's premises.  However, there needs to be some evidence that, in doing so, she acted under the undue influence of her husband.  In this connection we would refer to extracts from the speeches of two of their lordships in Etridge.  Lord Nicholls said as follows:-

"30 I return to husband and wife cases.  I do not think that, in the ordinary course, a guarantee of the character I have mentioned is to be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband.  Wives frequently enter into such transactions.  There are good and sufficient reasons why they are willing to do so, despite the risks involved for them and their families.  They may be enthusiastic.  They may not.  They may be less optimistic than their husbands about the prospects of the husbands' businesses.  They may be anxious, perhaps exceedingly so.  But this is a far cry from saying that such transactions as a class are to be regarded as prima facie evidence of the exercise of undue influence by husbands."

Lord Scott of Foscote said the following:-

"159 Second, the passage cited appears to regard a relationship of trust and confidence between a wife and husband as something special rather than as the norm.  For my part, I would assume in every case in which a wife and husband are living together that there is a reciprocal trust and confidence between them.  In the fairly common circumstance that the financial and business decisions of the family are primarily taken by the husband, I would assume that the wife would have trust and confidence in his ability to do so and would support his decisions.  I would not expect evidence to be necessary to establish the existence of that trust and confidence.  I would expect evidence to demonstrate its absence.  In cases where experience, probably bitter, had led a wife to doubt the wisdom of her husband's financial or business decisions, I still would not regard her willingness to support those decisions with her own assets as an indication that he had exerted undue influence over her to persuade her to do so.  Rather I would regard her support as a natural and admirable consequence of the relationship of a mutually loyal married couple.  The proposition that if a wife, who generally reposes trust and confidence in her husband, agrees to become surety to support his debts or his business enterprises a presumption of undue influence arises is one that I am unable to accept.  To regard the husband in such a case as a presumed "wrongdoer" does not seem to me consistent with the relationship of trust and confidence that is a part of every healthy marriage.

160 There are, of course, cases where a husband does abuse that trust and confidence.  He may do so by expressions of quite unjustified over-optimistic enthusiasm about the prospects of success of his business enterprises.  He may do so by positive misrepresentation of his business intentions, or of the nature of the security he is asking his wife to grant his creditors, or of some other material matter.  He may do so by subjecting her to excessive pressure, emotional blackmail or bullying in order to persuade her to sign.  But none of these things should, in my opinion, be presumed merely from the fact of the relationship of general trust and confidence.  More is needed before the stage is reached at which, in the absence of any other evidence, an inference of undue influence can properly be drawn or a presumption of the existence of undue influence can be said to arise....

162 In the surety wife cases it should, in my opinion, be recognised that undue influence, though a possible explanation for the wife's agreement to become surety, is a relatively unlikely one.  O'Brien itself was a misrepresentation case.  Undue influence had been alleged but the undoubted pressure which the husband had brought to bear to persuade his reluctant wife to sign was not regarded by the judge or the Court of Appeal as constituting undue influence.  The wife's will had not been overborne by her husband.  Nor was O'Brien a case in which, in my opinion, there would have been at any stage in the case a presumption of undue influence."

63.          As mentioned above at para 29, it is incumbent upon a defendant opposing an application for summary judgment to swear an affidavit which particularises and shows clearly the facts relied upon for the alleged defence. 

64.          Like the Master, we have searched in vain in the appellant's affidavit for any evidence that she was acting under the undue influence of her husband in relation to any of these transactions.  Put simply, nothing in the affidavit suggests that he brought any pressure to bear on her, that she signed against her better inclination or anything of that nature.  Her evidence is confined to an assertion that she had trust and confidence in her husband, that she left financial matters to him and that she signed the documents at the bank when he requested her to do so.  That is a classic example of the sort of case envisaged by Lord Scott in the passages referred to above which does not of itself amount to undue influence.

65.          It would not take much additional evidence in those circumstances to raise a triable issue.  However, the present evidence alone, without even any assertion on the appellant's part in her affidavit that she acted under the undue influence of her husband, is insufficient and means that no arguable defence has been raised. 

66.          It follows that HSBC is entitled summary judgment in respect of the November 2001 loan.

(iv)The overdraft facility

67.          Miss Heath accepted that the overdraft facility had to be considered in two parts, namely the sum of £85,000 which was agreed in 1999 (being the original £10,000 overdraft plus a further £75,000) and the increase of £65,000 in the facility agreed in March 2001.

68.          During the course of her reply, Miss Heath accepted that there was no defence in relation to the £85,000.  There was no evidence that it fell outside the bank's guidelines and accordingly there was no arguable case of misrepresentation or dol on the part of the bank.  Furthermore, given that it was agreed in 1999 before Mr Toothill left the employment of the bank, she accepted that there was no allegation of undue influence or any suggestion that the bank could be put on inquiry in relation to such undue influence, if there had been any.  In short she conceded that judgment should be given in respect of £85,000. 

69.          In relation to the additional facility of £65,000 in March 2001, she did not rely on misrepresentation or dol because there was no evidence that the additional facility fell outside any of the bank's guidelines.  On the contrary the memo of 19^th March, 2001 stated that the application conformed with current bank lending guidelines. 

70.          She relies in this case on undue influence and constructive notice.  The stated purpose of the additional overdraft facility was the funding of the business start up.  It follows that, in accordance with the dictum of Lord Nicholls in Etridge referred to earlier, the bank was put on inquiry as to whether there was any undue influence notwithstanding that it was a joint overdraft facility.  However, for the reasons given in relation to the November 2001 loan, we find that there is simply no evidence put before us of actual undue influence.  There is accordingly no triable issue on this aspect.  HSBC is therefore entitled to summary judgment in relation to the overdraft.

71.          We should add, for the sake of completeness, that, although we do not strictly need to consider it because of our finding that the bank was not put on inquiry in relation to the May 2001 loan, the lack of evidence of actual undue influence is equally applicable in respect of that loan.

Summary

72.          For the reasons given we find as follows:-

(i)        There is no arguable defence of misrepresentation or 'dol par réticence' in relation to any of the loans.  No such defences were alleged in relation to the overdraft facility.

(ii)       As to the suggested defence of undue influence and constructive notice (which was raised in relation to the additional overdraft facility of £65,000, the May 2001 loan and the November 2001 loan), we find that, on the evidence put before us, there is no arguable case that the appellant entered into these transactions under the undue influence of her husband.  If we are wrong in that conclusion, we would have given leave to defend in relation to the increased overdraft facility of £65,000 and the November 2001 loan because HSBC was put on inquiry in relation to those two transactions.  However we would still have refused leave to defend in relation to the May 2001 loan because there is no arguable case  that HSBC was put on inquiry in relation to that transaction.

73.          Accordingly we conclude that the Master was right to give summary judgment on all the transactions and we dismiss this appeal.

Authorities

Steelux Holdings Limited v Edmonstone [2005] JLR 152.

Chitty on Contract (29th Edition).

Barclays Bank Plc v O'Brien [1994] 1 AC 180.

Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773.

Chater v Mortgage Services Number Two Ltd [2002] EWCA Civ 490.

Tomes v Coke-Wallis [2002] JRC 131A.

1999 White Book.

Barclays Bank v Khaira [1992] 1 WLR 623.

CIBC Mortgages Plc v Pitt [1994] 1 AC 200.