Northern Ireland High Court of Justice, Masters' decisions

	Ref:	Master46
Judgment: approved by the Court for handing down	Delivered:	26/06/06
(subject to editorial corrections)*

 

 2005/005098

 

IN THE HIGH COURT OF JUSTICE IN NORTHERN IRELAND

 

CHANCERY DIVISION

 

Between

 

NORTHERN BANK LIMITED

Plaintiff

 

And

 

JAMES MOORE

ANNE MOORE

Defendants

 

Master Ellison

 

Introductory

 

1.         This is an application by the plaintiff bank for delivery of possession of the dwellinghouse and premises 223 Ballyrobert Road, Ballyclare, County Antrim, the title to which is registered in Folio 28478 County Antrim in the ownership of the defendants as joint tenants.  The dwellinghouse is occupied by the defendants and their daughter Julie Anne Moore.  The Plaintiff’s application was brought by originating summons issued on 8 February 2005 and is based on a deed of charge dated 3 October 2001 between the defendants and the plaintiff. 

2.         At paragraph 4 of the grounding affidavit of Brian Campbell, the plaintiff’s Bank Manager in charge of Securities, Realisation and Litigation, sworn on 4 February 2005, it is stated that the plaintiff operated two current accounts in the first defendant’s sole name (“the first defendant’s sole accounts”), a current account in the joint names of both defendants (“the joint current account”), and a law costs account which is also a current account in their joint names (“the law costs account”).

3.         At paragraph 8 of that affidavit, Mr Campbell states that monies totalling £431,744.92 (being £397,025.88 for principal due when the accounts were called up on 15 August 2003 together with £34,719.04 interest thereon until the date of swearing) ‘remain outstanding to the Plaintiff on the security of the charge’.  Of that total the sum of £293,359.64 was due on foot of the first defendant’s sole accounts, £138,337.05 was due on foot of the joint current account, and a small balance of some £48.23 was due on foot of the law costs account.  As at the hearing on 31 January 2006 the total due on these accounts was stated to be £461,033.87, which the plaintiff claims is secured by mortgage against the interests of both defendants in the dwelling.

Background

4.         In the Spring of 2001 the first defendant, who had for some time operated the sole accounts in connection with his earth moving and plant hire business, approached the plaintiff to request an additional facility of some £125,000 by way of a short term bridging loan to assist him with the continued prosecution of lengthy and complex arbitration proceedings in England against a company called Miller Construction Limited.  As the plaintiff wanted to have this facility secured against the interest of both defendants in the dwellinghouse, it was agreed that a joint ‘personal’ account would be opened  so that the bridging funds would be paid into it and then used by Mr Moore exclusively for the purposes of his business.  A reason for this unusual arrangement was that in the 1990s the second defendant had successfully demonstrated a desire to disassociate herself from the banking and other affairs of her husband’s business in which she had been a (passive) partner until dissolution of the partnership in 1994 (albeit she was later and is employed in a secretarial capacity by her husband in the business).  Indeed, as recently as 1999 the second defendant’s name had been removed at her request from her husband’s current banking accounts.

5.         In this, initial, transaction in 2001 the bank also wanted Mrs Moore to execute a guarantee to provide additional security for some £50,000.  I am satisfied from the evidence (including the fact that her salary at the time was some £6,600 p.a.) that the sole or primary purpose of obtaining this guarantee was to ‘attach’ Mrs Moore’s interest in the dwelling house as security, not only for the bridging facility of £125,000, but also to the extent of £50,000 in respect of the first defendant’s sole accounts which at that stage were secured only by guarantees given by two brothers of the first defendant. 

6.         The opening of the joint personal account was requested by both defendants in an application form dated 6 June 2001, a facility letter was issued to them jointly on 14 June 2001 in respect of the bridging loan facility of £125,000 (to be repaid from the first traunch of the arbitration proceeds expected before 31 August 2001) and a deed of second mortgage (the property being subject to a first mortgage in favour of Woolwich PLC) was forwarded on 27 July 2001 together with a letter of guarantee to the family solicitors Anderson Agnew & Co so that Mrs Moore could receive independent legal advice. Contrary to representations made by the bank in correspondence I am satisfied from affidavit and oral evidence that Mrs Moore did not request or propose such a letter of guarantee.  In the event Anderson Agnew & Co advised the first defendant against signature of the letter of guarantee by Mrs Moore (but did not on the evidence before me contact her direct), but not against execution of the mortgage.  The plaintiff released £125,000 to the joint personal account without the provision of security by way of an executed mortgage or guarantee.  That amount was repaid in full on 10 August 2001 by Mr Moore and Anderson Agnew & Co were informed by the bank that the matter was no longer proceeding.  However, in late August 2001 Mr Moore informed the plaintiff that he required a further bridging loan facility in the same amount.

7.         On 17 September 2001 the two senior officials of the plaintiff who gave evidence in this matter, Mr Robert Garrett a Business Banking Manager, and Mr Brian Campbell,  Bank Manager (the deponent of the grounding affidavit), met with the first defendant at the dwelling.  Mrs Moore was also present in the house but had no involvement whatsoever in the business discussions between the bank officials and her husband.  As a result of that meeting the bank agreed to a further facility of £125,000.  

8.         On 27 September 2001 the bank sent out to the defendants jointly a facility letter in very similar terms to those of the earlier facility letter of 14 June 2001 but making clear that, as a precondition of the advance, the (only) security for the bridging loan on this occasion would be a second legal charge over the dwelling house.  There was no mention in this or the earlier facility letter of a requirement for signature of a letter of guarantee or for the taking of legal advice.  The facility letter, like that of 14 June, did however contain the following paragraphs about provision of security: -

“Security

The security for the loan will be any security which is already held by the Bank for the liabilities of you or any one or more of you together with the following additional proposed security:

 

Second Legal Charge over residential property at 223 Ballyrobert Road, Ballyclare, Co Antrim.

 

The security already held, the additional proposed security set out above and any other security that you may give to the Bank in the future, will also be available for all of your liabilities to the Bank (both present and future, whether direct, collateral or contingent and irrespective of how they arise.”

 

The facility letter was countersigned by both defendants, the date written above their signatures being 11 October 2001, and returned to the plaintiff.

9.         Also on 27 September 2001, a facility letter was sent to the first defendant alone offering an extension to the overdraft facilities on both of his sole current accounts, ie the limit on “James Moore Plant Hire Account No 82793768” was to be £158,000 (to be reduced to £133,000 on drawdown of the bridging monies of £125,000), and the limit on “James Moore Re-Builds Account No 12794225” was to be £65,000.  The provision about security in that facility letter reads as follows:-

“Security

The security for your overdraft facility will be any security already held by the Bank for your liabilities.

 

The security already held, and any other security that you may give to the Bank in the future, will also be available for all of your liabilities to the Bank (both present and future, whether direct, collateral or contingent and irrespective of how they arise).”

 

This differs from the facility letter of the same date to both defendants in omitting express reference to a “Second Legal Charge” over the dwelling house.

10. On 2 October 2001 the plaintiff wrote to the defendants inviting them to call with Anderson Agnew & Co to execute the mortgage deed.  That letter reads as follows:-

“Dear Mr and Mrs Moore

PROPERTY: 223 BALLYROBERT ROAD, BALLYCLARE, CO ANTRIM, BT39 9RL

 

We have pleasure in advising that the second mortgage has been prepared and forwarded to your solicitor Messrs Anderson Agnew & Co for completion.  Kindly call with them in the near future to execute the deed.

 

The Letter of Guarantee from £50,000 from Mrs Moore will now not be proceeding.

 

We thank you for your assistance.  Please let us know as soon as the documents have been executed in order to proceed with the case.   As discussed on the phone, Julie-Ann is no longer living in the property and will not be required to sign a letter of disclaimer.

 

Yours sincerely

Barbara Drew

 

Securities Clerk”

There is no mention in this letter, (or indeed in the letter of 27 July 2001 to the defendants in the earlier transaction asking them to call with the same solicitors to execute the mortgage and letter of guarantee) of any requirement or suggestion that Mrs Moore obtain independent legal advice.

11.       On 2 October 2001 the bank also wrote to Anderson Agnew & Co in the following terms:-

“CLIENT: MR JAMES & MRS ANNE MOORE

PROPERTY: 223 BALLYROBERT ROAD, BALLYCLARE, CO ANTRIM, BT39  9RL

 

We refer to the above and further to our letter 30 August 2001 and would advise that the second mortgage over the above property is now proceeding.  Mr & Mrs Moore have been requested to call with you to complete the documents.  Please let us or account know when the document has been executed in order to proceed.  We would ask you to fax a copy of the executed document to us at Lending Services for our inspection.

 

The Letter of Guarantee £50,000 from Mrs Moore will not be proceeding and Julie-Anne will not be required to sign the Letter of Disclaimer as she no longer resides in the property.

 

We trust that you find this to be in order but if you have further queries please let us know.

 

Yours faithfully

 

Barbara Drew

Securities Clerk”

 

Again there is no suggestion that the second defendant should receive independent legal advice as to the implications of executing the mortgage deed in circumstances where the letter of guarantee was no longer to proceed.

12.       On 3 October 2001 the defendants attended the offices of Anderson Agnew & Co where they executed the legal charge in the presence of Mr Agnew a partner in that firm who witnessed their signatures.  On the evidence before me, it appears that no legal advice was requested by Mr or Mrs Moore from Mr Agnew or volunteered by him at that meeting.  Moreover, the defendants were not, on the material before me (which did not include evidence from the solicitor concerned, Mr Agnew, who is not a party to these proceedings), invited to read the charge deed and did not do so before executing it.  In her oral evidence the second defendant stated that she did not notice the prominent warning on the same page as their signatures to the effect that a solicitor should be consulted before execution of the deed.  She also stated (and I believe) that she did not read the facility letter dated 27 September 2001. 

13.       It seems appropriate at this stage to set out in full the relevant terms of the bank’s letter of 27 July 2001 to Anderson Agnew & Co about the earlier transaction, in which it was proposed by the bank (but not by Mr or Mrs Moore) that the joint mortgage be accompanied by a letter of guarantee of £50,000 from Mrs Moore: -

“MR JAMES MOORE

 

Mrs Moore has offered a Letter of Guarantee for £50,000 to secure the accounts and liabilities of Mr James Moore.

 

We have advised Mrs Moore to seek independent legal advice before entering into a Guarantee, and completing security documents in relation to the supporting security.

 

The following security has been offered inter alia as supporting security for the Guarantee, and also as security for all the existing and future liabilities.

 

·        2^nd Mortgage

233 Ballyrobert Road, Ballyclare, Co Antrim

 

Mrs Moore has requested us to forward the guarantee, and the enclosed security documents to you and we understand she will be arranging to call with you at an early date.

 

Please advise your client of the implications of providing the bank with such supporting security in relation to any liability under the guarantee.

 

We should be grateful if you could return the completed documents duly signed and witnessed by a solicitor in due course and confirm in writing that you have advised your client accordingly.

 

Mrs Moore will sign a Letter of Guarantee to attach her interest in part of the sole borrowing of Mr Moore.  Mr and Mrs Moore have been offered £125k jointly supported by the enclosed second mortgage over their dwelling house....”

                       

(The emphasis is mine.)

                       

14.       This was the only instance in the course of both transactions of the bank suggesting that the second defendant be advised of the implications of entering into a transaction as surety and that the solicitor confirm to the bank that she had had the benefit of legal advice.  At no time in either transaction was she involved in any discussions with the bank or its representatives and at no time did she receive correspondence separately addressed to her by the bank.  Moreover, her oral evidence before me was that she did not read any letter or other document from the bank in respect of either transaction.

The Main Issues

15.       Broadly, Mr Devlin of Counsel on behalf of the plaintiff instructed by king & Gowdy solicitors  argued as follows:-

(1)        each defendant having executed an ‘all monies’ charge deed and accepted the terms of a facility letter which included an agreement to execute such a charge, they are bound by the strict terms of the mortgage and their interest in the dwelling is mortgaged jointly and severally to secure all of the first defendant’s indebtedness to the bank;

(2)        there is no evidence of wrongdoing on the part of the first defendant which would have induced his wife to execute the mortgage;

(3)        even if there were such wrongdoing, by reason of its letter in the earlier transaction dated 27 July 2001 to the family solicitors asking them to provide legal advice to the second defendant and to confirm that they had done so, the bank had taken reasonable steps to ensure that it would not be fixed with constructive notice of any misrepresentation or undue influence on the first defendant’s part;

(4)        nothing in the bank’s conduct or correspondence amounted to a misrepresentation or made it unfair to rely on the strict terms of the mortgage;

(5)        it is the bank’s almost invariable policy to insist on ‘all monies’ forms of mortgage, and its officials were under no duty to inform the defendants of the exact scope of the security to be taken;

(6)        the bank is entitled to an order for possession by reason of the default of both defendants in their joint and several mortgage obligations.

16.       Broadly, for the first defendant Mr Stephen Scott solicitor claims as follows:-

(1)        the plaintiff’s intention at all material times was that the mortgage would secure only the joint and several liability of himself and his wife on foot of the joint current account;

(2)        the omissions of bank officials to disclose in terms during negotiations and to give sufficient emphasis to the ‘all monies’ aspect in the facility letter of 27 September 2001 addressed to the first defendant alone constituted a misrepresentation on the part of the bank;

(3)        those omissions taken with the true intention of the officials and the fact that bank already had guarantees from his two brothers made it inequitable for the plaintiff to rely on the mortgage as security for his sole account indebtedness.

17.       Broadly, Mr Elliott of Counsel, for the second defendant, instructed by Harrisons Solicitors, argued as follows: -

(1)        the understanding of the defendants was that the mortgage dated 3 October 2001 would affect Mrs Moore’s interest in the dwelling only in respect of the joint current account; this understanding had been communicated to the plaintiff, which appeared at all material times to share that understanding and should not be allowed to resile from it;

(2)        in any event, assuming for the purpose that the plaintiff’s intention was reflected accurately in the ‘all monies’ terms of the facility letter and executed charge, Mrs Moore was induced to execute those documents by reason of misrepresentation or indue influence on the part of her husband and the plaintiff had failed to take reasonable steps to avoid being fixed with constructive notice of such misrepresentation or undue influence; accordingly the mortgage was vitiated insofar as it might otherwise have secured liabilities on foot of the first defendant’s sole accounts against her interest in the dwelling;

3)         the bank’s conduct and communications with respect to the second defendant amounted to a misrepresentation by the plaintiff as to the legal effect of the mortgage transaction.

The Plaintiff’s Intentions with respect to the Second Defendant

18.       It is helpful to read the plaintiff’s letter of 27 July 2001 to Anderson Agnew & Co in the initial transaction when considering the background and circumstances of the second transaction which gave rise to the execution by both defendants of the mortgage deed the subject of these proceedings. The letter of 27 July 2001 concludes as I have indicated with a statement that the second Defendant ‘will sign a letter of guarantee to attach her interest in part of the sole borrowing of Mr Moore’.  It had previously referred to the second mortgage “inter alia as supporting security for the Guarantee and also as security for all the existing and future liabilities” but as a matter of interpretation the general expression I have just quoted yields to the specific provision that the guarantee was “to attach her interest (in the dwelling) in part of” her husband’s sole borrowing. 

19.       Indeed, I have read the entire book of discoverable documents which was presented to me at the outset of the hearing and it is clear from them that the intention and understanding of the senior bank officials involved in these matters with respect to the second defendant at the time of completion of the mortgage in October 2001 and over the course of the preceding summer of 2001 was as follows: -

(a)        In respect of each transaction, joint and several liability on foot of a bridging facility of £125,000 was to be secured by a mortgage over the dwelling house executed by both Mr and Mrs Moore.

(b)        In addition, in the first transaction only, the bank wanted Mrs Moore to sign a letter of guarantee so as to provide security over her share in the dwelling house in respect of the first defendant’s sole accounts to the extent of £50,000 with interest.

(c)        The bank officials did not intend in the first transaction to capture Mrs Moore’s interest in the dwelling as security for the remaining sole account indebtedness of her husband.

(d)        In the second transaction, which was after it became clear that the proposed guarantee would not be signed by Mrs Moore, the bank officials had no intention to ‘attach her interest’ in the dwelling to secure any liability of her husband other than that arising under the bridging facility of £125,000.

20.       It is correct that the mortgage deed prepared by the plaintiff and executed by the defendants was in “all monies” terms.  Moreover the facility letter in respect of the second transaction included (as did the earlier facility letter) a standard clause flagging (albeit in legalistic language which avoids clear terms such as “guarantee”, “guarantor”, or “surety”) the intention to create an all monies charge.  However the bank’s officials held firm, both before and long after completion of the mortgage transaction, to their original understanding, ie that in the absence of a letter of guarantee signed by the second defendant, her interest in the dwelling could only be “attached” by mortgage to secure her husband’s liability on foot of the £125,000 bridging facility.   There is much evidence among the discoverable documents to confirm that this was their intention and understanding, which appear to have changed substantially only after the period covered by the discovered documents and after the bank wrote to the defendants on 4 November 2004 intimating legal proceedings. This change manifested itself at hearing when both Mr Campbell and Mr Garrett were at pains to emphasis during their oral evidence (as they had in their affidavits) that (a) it was the practice of the bank to insist on the execution of all monies charges, and (b) the defendants had not asked them for and they had not volunteered an explanation as to the scope of the security to be taken by the plaintiff.

21.       Counsel for the bank, Mr Devlin, contended that the bank’s only reason for a proposed letter of guarantee in the earlier transaction was the provision of a personal guarantee as opposed to a guarantee the purpose of which was to ‘attach’ (a word used a number of times by bank officials in this connection) her interest in the property so as to secure part of her husband’s sole account liabilities.  However, that contention is quite inconsistent with the documents discovered, including internal memoranda of the plaintiff and the application form signed by Mrs Moore and her husband on 7 June 2001 for the opening of the joint ‘personal’ account (into which the sum of £125,000 for the purposes of her husband’s business was to be lodged), which application form disclosed that the second defendant’s salary was some £6,600 per annum.  Counsel’s contention is also at odds with his client’s practice as it appeared in Northern Bank -v- McCarron [1995] N.I. 258 (a case which I had heard at first instance) where a wife-surety had executed a letter of guarantee and an all monies mortgage and the bank relied on the mortgage against her interest up to the limit only of her liability under the letter of guarantee.

22.       Prior to the initial transaction, an internal bank memorandum dated 2 July 2001 to “Group Legal Belfast” from “Lending Services Belfast” reads as follows (so far as relevant): -

“Further to your slip letter of 21 June 2001 we can confirm the following.

 

·        Upon receipt of lending papers and on inspection of same the position with regard to the letter of Guarantee queried with Lending Manager. Facilities will be granted to Mr & Mrs Moore by a second mortgage over their dwelling house at 223 Ballyrobert Road, Ballyclare.  As the second mortgage will also secure borrowing in the sole name of Mr Moore a Letter of Guarantee will be executed by Mrs Moore.  Apologies for not clarifying the position.   Total amount to be secured would then be the £125K & £50K (sole borrowing of Mr Moore.)”

       

(The emphasis is mine)

 

During cross-examination by counsel for the second defendant Mr Campbell denied that this minute reflected the bank’s intention with respect to Mrs Moore.  However the preponderance of evidence is against the view which he expressed.

23.       As a further example of the intention of the bank, in a memorandum of 14 August 2003 Mr Peter Wylie, Principal Manager – Credit Restructuring, informed Mr Campbell (inter alia) of the following (the emphasis is mine) : -

“Joint borrowing relating to 2^nd Mtg                               £125K

Wife’s share of equity @ 50% (not available to bank)   £62.5K

James’s share of equity                                                             £62.5K”

 

24.       There is nothing whatever in the internal memoranda or the bank’s correspondence, from Mr Campbell, Mr Garrett, Mr Wylie himself or any other bank official, to contradict Mr Wylie’s view that Mrs Moore’s share of the available equity after deducting the first mortgage to the Woolwich PLC and the second mortgage to the Plaintiff to secure £125,000 was ‘not available’ to the plaintiff.  There are of course the standard ‘all monies’ clauses in the relevant facility letter and mortgage deed dated almost a year before Mr Wylie’s memorandum but there is nothing to suggest these were relied on vis-à-vis the second defendant’s interest by the plaintiff prior to these proceedings.

25.       I quote from a memorandum dated 29 September 2004 from Mr Wylie to Mr Campbell (and endorsed with a brief concurring note signed by the latter): -

“File states that a letter of guarantee from Anne Moore was to have been obtained from Mrs Moore to attach her equity in the family home but it was never completed – James Moore claims that a guarantee from his wife was never offered.”

 

(The emphasis is mine.)

 

26.       A memorandum dated 19 August 2003, again from Mr Wylie to Mr Campbell, refers only to Mr Moore’s brothers as guarantors of his sole account liabilities and closes with the following: -

“Lessons to be learnt

Security – A proposed guarantee £50k from Mrs Anne Moore was not completed following receipt of legal advice – facility should perhaps have been re-negotiated.”

 

Again, Mr Campbell endorses his approval and signature at the foot.  Given that Mrs Moore was earning a mere £6,600 per annum at the time, the only reasonable explanation for Mr Wylie’s “lesson” was that, without the letter of guarantee, the second defendant provided no security over her interest in the dwelling for her husband’s sole account liabilities.

27.       At all material times the plaintiff was a member of the Council of Mortgage Lenders and therefore subscribed to the Mortgage Code which contains the following key commitments or policy statements: -

‘We, the subscribers to this Code, promise that we will

 

·        Act fairly and reasonably in all our dealings with you;

…

 

·        Help you to understand the financial implications of a mortgage;

·        Help you to understand how your mortgage account works;

·        Ensure that procedures our staff follow reflect the commitments set out in this Code;”

 

28.       The Mortgage Code also contains at paragraph 4.2 the following (the underlining being mine): -

 

“Guarantees

 

If you want us to accept a guarantee or other security from someone for your liabilities, you may be asked to consent to the disclosure, by us, of your confidential financial information to the person giving the guarantee or other security or other legal advisor.  We will also:

 

·        Encourage them to take independent legal advice to make sure that they understand their commitment and the potential consequences of their decision…

·        Advise them that if they give the guarantee or other security that they may become liable instead of or as well as you;

·        Advise them what the limit of their liability will be.  An unlimited guarantee will not be taken.”

 

29.       These provisions about guarantees are mirrored in those of the edition of the Banking Code which was also published on behalf of this and many other banks at all material times.  The Mortgage Code states that it sets “standards of good mortgage lending practice which are followed as a minimum by lenders subscribing to it.” The second defendant was a personal customer of the bank and, in providing security, was a non-commercial guarantor for whose protection the plaintiff (a member of the Council of Mortgage Lenders) may he said to have made the promises I have just quoted in its published policy documents. 

30.       Counsel for the bank argues that by executing the mortgage deed the second defendant was not entering into a guaranteeship in the second transaction and accordingly the published commitments I have mentioned do not apply.  I quote from Paget’s Law of Banking (12^th Edition 2002) at page 702:-

“An obligation is a guarantee even where there is no personal undertaking to be liable but a charge or other security has been given over a surety’s property for another’s debt or performance for an obligation.”

 

31.       I refer also to CIBC Mortgages plc –v- Pitt [1993] 4 All ER 433 [1994] 1AC 200 in which the House of Lords held that the Court had to look at the substance rather than the form of the transaction to determine whether there was a suretyship.  It would be sufficient if the bank was aware that the proceeds of a joint account would be used exclusively for the purpose of the husband’s business.  The bank was so aware in this case and there clearly was a suretyship situation in respect of the joint account liability.  The bank is alleging that the suretyship goes further and covers the first defendant’s sole account liabilities.

32.       The plaintiff did not contact the second defendant, a personal customer, direct and, in respect of the second mortgage transaction, cannot be said to have taken any of the steps mentioned in paragraph 4.2 of the Mortgage Code (save, belatedly, by a warning on the mortgage deed that a solicitor should be consulted before signing).   The public statement that an ‘unlimited guarantee will not be taken’ in a Code which is stated to be effective from 1 July 1997 (albeit qualified in scope to non-overdraft lending) and the Banking Code (2001) (not so qualified) further reinforces my view that at no material time did the bank intend or expect Mrs Moore’s interest in the dwelling to secure any part of her husband’s sole current account indebtedness. 

 

Interpretation of the Charge Deed

33.       For the Plaintiff, Mr Devlin is arguing that references in the facility letter and mortgage deed to the scope of the security provided by the mortgage must be construed literally and that those documents made clear that Mrs Moore and her husband jointly and severally guaranteed all of his liabilities to the bank, whatever the amount. In effect the plaintiff is arguing that, contrary to the views of the relevant bank officials at all material times, and to its published policy statements, and in the wake of legal advice that a limited guarantee should not be given, the bank has taken from the second defendant and should allowed to enforce an unlimited guarantee for all of her husband’s liabilities to the bank.  It is not in dispute that the wording of the deed of charge is such that it is expressed to secure all monies due by either defendant on joint or several basis. 

34.       I refer to Halsbury’s Laws of England (4^th Edition re-issue 2000) Volume 13 at paragraphs 163 et seq about the interpretation of deeds.  Paragraph 163 in summarising the principles for construction includes the following: -

“(1)      Interpretation is the ascertainment of the meaning to which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract…

 

(5)        The ‘Rule’ that words should be given ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents.  On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require Judges to attribute to the parties an intention which they claim they could not have had.”

At footnote 9 there is a reference to the following passage in Investors Compensation Scheme Limited –v- West Bromwich Building Society [1998] 1All ER98 at 115 [1998] 1WLR896 at 913, HL, per Lord Hoffman: -

“If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense it must be made to yield to business common sense.”

 

 

            Paragraph 165 of Halsbury’s Laws, includes the following:-

 

“It has traditionally been held that ordinary rules of construction must be applied although by so doing the real intention of the parties may in some instances be defeated and it has been said that such a course tends to establish a greater degree of certainty in the administration of the law.  This remains the case, though under the changed approached (ie that as referred to earlier in that paragraph and as expounded in recent decisions of the House of Lords as listed at footnote 7) it is less likely that the parties’ intentions will be frustrated, and it is not thought that greater uncertainty in the meaning of the document will be created.”

 

            Paragraph 168 of Halsburys Laws concludes with the following: -

“The rule is that in construing all written instruments, the grammatical and ordinary sense of the words is to be adhered to unless that would led to some absurdity, or some repugnance or inconsistency with the rest of the instrument, in which case the grammatical and ordinary sense of the words may be modified, so as to avoid that absurdity and inconsistency but no farther.  The instrument must be construed according to its literal import, unless there is something in the subject or context which shows that this cannot be the meaning of the words.”

 

35.       It appears to be the plaintiff’s policy to insist in all but the most exceptional cases on the use of ‘all monies’ forms of mortgage, there is no issue in the present case about the drafting or literal meaning of the “all monies” clauses in the charge deed and there are strong public policy grounds for interpreting deeds ‘according to their literal import’.   I shall take that as a starting point in considering whether the mortgage, or the plaintiff’s claim as to the extent of the security it provides, may be impugned under other legal or equitable principles.

Estoppel

36.       The plaintiff by its officials and each defendant shared an understanding or apprehension that the second defendant’s interest in the dwelling would not secure the first defendant’s sole accounts.  If that shared assumption was communicated to the plaintiff by words or conduct and the second defendant acted on the assumption to her detriment, it appears to me that the plaintiff is estopped by convention from asserting the contrary, ie that her interest in the dwelling is mortgaged to secure the first defendant’s sole accounts.  Estoppel by convention differs from estoppel by representation mainly inasmuch as it is not necessary for there to be a clear and unequivocal representation (express or implied) for the estoppel to arise.  There must however be some certainty about the shared assumption or agreement (or ‘convention’) and sufficient communication of or acquiescence in that assumption or agreement.

37.       I refer to the following extracts from Halsbury’s Laws of England (4^th Edition, Re-issue 2003) Volume 16(2) at paragraph 1065 (and the cases referred to in the relevant footnotes):-

“Estoppel by convention.  Where two parties act, or negotiate, or operate a contract, each to the knowledge of the other on the basis of a particular belief, assumption or agreement (for example about a state of fact or of law, or about the interpretation of a contract), they are bound by that belief, assumption or agreement.  This is known as ‘estoppel by convention’, the common assumption or agreement between the parties (the ‘convention’) constituting the representation.  There can be no estoppel by convention where, although both parties are labouring under a common mistaken apprehension, it cannot be said that they have acted on the basis of that apprehension.  Nor can the doctrine be invoked to deny a party the protection of a statute from the terms of which contracting out is not possible. In order for an estoppel by convention to arise, the relevant assumption or agreement must be communicated by one party to the other, either by words or conduct.

 

Estoppel by convention is not confined to an agreed assumption as to fact, but may be as to law; and the court will give effect to the agreed assumption only if it would be unconscionable not to do so… For relief to be granted it must be shown with sufficient certainty that the parties, in the circumstances of the case, had an obligation to act in a particular way, and an estoppel by convention cannot create a cause of action but may be invoked as the basis for declaratory relief.”

 

38.       A fuller exposition of this defence is contained in Snell’s Equity (31^st edition, 2005 at paragraph 10 – 06) as follows (so far as relevant):-  

“(d)  Estoppel by convention.  In addition to the two main forms of the doctrine (ie promissory estoppel and proprietary estoppel) there is also a category of cases where the parties have proceeded upon a shared understanding or convention as to the basis of the transaction into which they have entered.  Estoppel by convention originated in the traditional doctrine of estoppel by deed.  In the nineteenth century (and as the use of other commercial instruments increased) the courts expanded the doctrine and refused to permit the parties to dispute the accuracy not only of the recitals in a deed but also any recitals or shared statements of fact in other documents which were not under seal.  Because of its origin estoppel by convention is traditionally treated as a common law estoppel.  In Amalgamated Investment & Property Co Ltd v Texas Commerce International bank Ltd [1982] Q.B.4 this doctrine was applied to a mutual assumption of fact made by both parties to a contract (but not recorded or recited in the contract itself).  In that case both parties had assumed that the terms of a guarantee extended to a particular loan and had negotiated its terms on that basis.  Following the execution of the contract C continued to act on that assumption to its detriment by making further loans and granting time.  It was held that E was estopped from denying that the guarantee covered the relevant loan despite the absence of an express representation or assurance to that effect.  Where a party seeks to rely on a common understanding about the effect of a transaction in this way, however, it is not sufficient to show only that the parties had a common understanding.  C must also establish that here was an agreement or convention by which the parties regulated their dealings.  It must be established that the shared mistake or assumption ‘crossed the line’.  C must show that he or she communicated the mistaken assumption or understanding to E and that E either shared the mistake or acquiesced in it.   The communication may be by words or conduct although it is not necessary to establish a clear and unequivocal representation of the kind which would give rise to an estoppel by representation.  It is not necessary either to show that either party believed the assumed state of facts to be true if they treated them as a true and acted on that assumption.  It is, however, necessary to establish that C was induced to act in reliance on the shared convention so that it would be unjust to permit E to depart from it.  C is not required to show that he or she entered into the relevant transaction on the faith of the assumption or understanding but it is well established that the convention is not binding unless it would be inequitable to permit E to depart from it and assert the contrary.  A party may invoke estoppel by convention not only where the convention or understanding relates to contractual rights and obligations but also where it relates to proprietary rights.  A party may also invoke the doctrine where the convention or understanding relates to the legal effect of the transaction as well as to its factual basis.  … In the case of estoppel by convention a party is estopped from departing from a statement or proposition arrived at by mutual agreement or assent rather than by unilateral representation.”

 

39.       It appears to me upon detailed scrutiny of the events which have happened that the convention or understanding was communicated sufficiently between the parties for the plaintiff to be estopped from asserting its present position.  When the first defendant relayed to the plaintiff the family solicitor’s advice that his wife should not execute the letter of guarantee, that was a communication to the effect that she would not guarantee or mortgage her interest to secure a part, let alone all, of her husband’s liabilities on foot of the sole current accounts.  When in the second transaction the bank wrote to the defendants and the family solicitor in terms which requested execution of the mortgage deed, but not the letter of guarantee, and did not urge the taking of legal advice, that was also a communication consistent with or confirming the common intention of the bank officials and the defendants, ie that the second defendant would not be guaranteeing or mortgaging her interest in the dwelling to secure the first defendant’s sole account liabilities.  The second defendant acted on the shared assumption, understanding or convention to her detriment and it would be unconscionable for the plaintiff to depart from the convention.  The primary finding in this judgment is that the plaintiff is estopped accordingly.

40.       The issues between the plaintiff and the second defendant also involve the possibility that the plaintiff is fixed with constructive notice of wrongdoing on the first defendant’s part, and that the plaintiff itself was guilty of a misrepresentation which induced the second defendant to conclude the mortgage transaction.  Those defences, like that of estopped, also hinge largely on the communications engaged in by the plaintiff with the family solicitors and with the defendants when asking them to attend with those solicitors.  Given my primary finding of fact as to the plaintiff’s intentions at all material times, and my finding of law that the plaintiff is estopped from resiling from those intentions, it may seem strictly unnecessary to analyse the defences based on the plaintiff’s proposition that it did intend Mrs Moore’s interest to secure all of her husband’s debts.  Consideration of those other defences is however appropriate because the analysis has some relevance to my finding of estoppel and to costs, and, indeed, in case I am wrong in my primary finding.  In giving such consideration, I have to suspend my belief in that finding and the finding of fact that the plaintiff’s actual intentions vis-à-vis the second defendant were limited to guaranteeing the joint current account. 

Constructive Notice of Undue Influence or Misrepresentation by the First Defendant

41.       The second defendant by her counsel Mr Elliott argues that the plaintiff is fixed with notice of undue influence or of a misrepresentation by her husband shortly before execution of the mortgage to the effect that it only put his “half” interest in the dwelling at risk.  She gave oral evidence to the effect that at the time she interpreted her husband’s statement  as meaning that her interest was only at risk to the extent of her ‘half’ of £125,000, ie £62,500, of the bridging facility.  In that connection Mrs Moore accepts that her own interest was at risk to the extent of the £125,000 bridging facility (and appropriate interest) but no further and is not relying on her husband’s representation as a shield against that liability.  I am however satisfied from the evidence of both defendants (notwithstanding that the second defendant’s affidavit omits the allegation) that there was a misrepresentation by Mr Moore to the effect that only his half interest was at risk and as to the interpretation she put on that statement at the relevant time.   I emphasise however that, even if the first defendant had said that her interest was at risk to the extent of all of the joint account liability, this would still have constituted a misrepresentation in the context of the plaintiff’s case that her interest is also charged with her husband’s sole account liabilities.

42.       Two leading authorities on this topic in this jurisdiction are the decisions of the House of Lords in Royal Bank of Scotland -v- Etridge (No2) [2001] 4 All ER 449 and the decision of Carswell J (as he then was) on an appeal from me in Northern Bank Limited –v- McCarron. 

43.       In McCarron Carswell J held that the plaintiff was not fixed with constructive notice of wrongdoing on the part of her husband who exerted undue influence to compel his wife to execute a mortgage as guarantor.   In McCarron the bank’s letter to the family solicitors requested in terms that Mrs McCarron be given legal advice and that the solicitor confirm to the bank that such advice had been provided.  Also, although in McCarron an ‘all monies’ form of charge was executed in accordance with the plaintiff’s longstanding practice, Mrs McCarron had also signed a letter of guarantee.  However, in McCarron the plaintiff did not rely on the all monies charge to claim that her interest was charged to secure the entire indebtedness of her husband to the bank, but merely the principal and interest covered by the guarantee.

44.       It is clear from Carswell J’s judgment in McCarron and the authorities reviewed herein that if the first defendant procured his wife’s execution of the mortgage by undue influence or misrepresentation then the bank may be fixed with notice of that wrongdoing if it failed to take reasonable steps to satisfy itself that the wife-surety both understood and entered willingly into the transaction.  If the lender is so fixed with notice, the transaction (or so much of it as is tainted by the undue influence or misrepresentation) may be set aside.

45.       I am satisfied from the second defendant’s oral evidence, which I found convincing, that the relationship between the defendants was such that Mrs Moore reposed considerable trust and confidence in her husband’s judgment and handling of business matters to the extent that if the law as set out in McCarron is still applicable, there is a presumption of undue influence which it is for the plaintiff to rebut.  Moreover at the time of the mortgage transaction Mrs Moore’s vulnerability and independence of judgment may have been affected by the fact that her mother, whom she had been looking after, was seriously ill and had recently been hospitalised. In McCarron, Carswell J summarised the relevant principles as follows:

“Although there is no presumption in law of undue influence between husband and wife, the effect of the authorities is twofold:

 

(a) if it is established that the wife reposed trust and

confidence in her husband in relation to her affairs in general, that may be sufficient to give rise to a presumption of undue influence;

 

(b) the nature of their relationship increases the risk that

the wife’s will may be overborne by the husband’s undue influence.”

 

46.       These principles were revisited, shortly after the date of completion of the mortgage in this case, in the judgments of the House of Lords in Etridge.  In the lead judgment Lord Nicholls reaffirms that no automatic presumption of undue influence would arise between husband and wife but the court might take note, when weighing the evidence of actual undue influence, of the degree of confidence a particular wife reposes in her husband.  If one spouse reposed sufficient trust and confidence in the other this would not lead to an irrebuttable presumption in law, but merely to “a rebuttable evidential presumption” of undue influence.  At 406a Lord Nicholls explained the distinction between presumptions in law of undue influence where particular categories of relationship exist, and the evidential presumption which may arise in husband and wife cases:-

“18. The law has adopted a sternly protective attitude towards certain types of relationship in which one party acquires influence over another who is vulnerable and dependent and where, moreover, substantial gifts by the influenced or vulnerable person are not normally to be expected.  Examples of relationships within this special class are parent and child, guardian and ward, trustee and beneficiary, solicitor and client, and medical advisor and patient.  In these cases the law presumes, irrebuttably, that one party had influence over the other.  The complainant need not prove he actually reposed trust and confidence in the other party.  It is sufficient for him to prove the existence of the type of relationship.

 

19. It is now well established that husband and wife is not one of the relationships to which this latter principle applies.  In Yerkey v Jones 1939 63 CLR 649 at 675 Dixon J explained the reason.  The Court of Chancery was not blind to the opportunities of obtaining and unfairly using influence over a wife which a husband often possesses.  But there is nothing unusual or strange in a wife, from motives of affection or for other reasons, conferring substantial financial benefits on her husband.  Although there is no presumption, the court will nevertheless note, as a matter of fact, the opportunities for abuse which flow from a wife’s confidence in her husband.  The court will take this into account with all the other evidence in the case.  Where there is evidence that a husband has taken unfair advantage of his influence over his wife, or of her confidence in him, ‘it is not difficult for the wife to establish her title to relief’ (see Re Lloyds Bank Ltd, Bomze v Bomze [1931] 1 Ch 289 at 302, per Maugham J).”

 

47.       In the present case there is no evidence of actual undue influence, but the degree of trust and confidence reposed by Mrs Moore in her husband’s handling of business affairs lends evidential weight to her claim that she was induced by a misrepresentation to enter into the suretyship.

48.       Again as in McCarron, Mrs Moore’s “right to resist the claims of the Bank, who had no actual notice of the undue influence (or misrepresentation), depends on the operation of the doctrine of constructive notice”.

49.       I quote from Carswell J’s exposition in McCarron of the doctrine of constructive notice in wife-surety cases as that doctrine stood after the (then very recent) decision of the House of Lords in Barclays Bank plc –v- O’Brien [1994] 1 AC 180:-     

“Lord Browne-Wilkinson, with whose speech the other members concurred, said at page 195G that the doctrine of notice lies at the heart of equity.  He went on to say:

 

‘Given that there are two innocent parties, each enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier right (actual notice) or would have discovered it had he taken proper steps (constructive notice).  In particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts which put him on inquiry as to the possible existence of the rights of that other and he fails to make such inquiry or take such other steps as are reasonable to verify whether such earlier right does not exist, he will have constructive notice of the earlier right and take subject to it.  Therefore where a wife has agreed to stand surety for her husband’s debts as a result of undue influence or misrepresentation, the creditor will take subject to the wife’s equity to set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety.’

                  …

 

The consequence (of the extension of the law effected by the O’Brien case) was spelled out by Lord Browne-Wilkinson in a passage at page 196D of his speech:

 

 ‘Therefore in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.’

 

He then went on to prescribe the steps which a lender ought to take to avoid being fixed with constructive notice in the following passage at pages 196-7:

 

‘..in my judgment the creditor, in order to avoid being fixed with constructive notice, can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice. As to past transactions, it will depend on the facts of each case whether the steps taken by the creditor satisfy this test.  However for the future in my judgment a creditor will have satisfied these requirements if it insists that the wife attend a private meeting (in the absence of the husband) with a representative of the creditor at which she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice.  If these steps are taken in my judgment the creditor will have taken such reasonable steps as are necessary to preclude a subsequent claim that it had constructive notice of the wife’s rights.  I should make it clear that I have been considering the ordinary case where the creditor knows only that the wife is to stand surety for her husband’s debts.  I would not exclude exceptional cases where a creditor has knowledge of further facts which render the presence of undue influence not only possible but probable.  In such cases, the creditor to be safe will have to insist that the wife is separately advised.’

 

He expressed these steps as applying only to the future, for in respect of past transactions it would depend on the facts of each case whether the steps taken by the creditor were sufficient to prevent the creditor from being fixed with constructive notice.  Lord Browne-Wilkinson described the steps of a personal interview and giving advice in future transactions as being ‘required by law’ at page 198A of the report.  From the tenor of his reasoning throughout his speech, however, I do not myself understand him to have meant that those steps should carry the force of a legal requirement, in the sense that if they have not been put into effect the precautions taken by the lender are to be regarded as ipso facto deficient.  The lender can feel confident that in the ordinary case the courts will accept that these steps are sufficient to prevent his being fixed with constructive notice.  They are, as Morritt LJ described them in Banco Exterior Internacional v Mann (1994, unreported), ‘best practice’, not the only steps which will avoid a bank being fixed with constructive notice.  If they have not all been followed, the courts will no doubt peruse the transaction with particular care, while not precluding the possibility (given the historic flexibility of equity) that other steps may suffice in the circumstances of the case.  The same view was taken by Steyn LJ in Midland Bank plc v Massey [1994] 2 FLR 342, 346-7, where, after referring to the steps prescribed by Lord Browne-Wilkinson as ‘guidance’, he said:

 

‘I would respectfully put that guidance in context by two observations.  First, the guidance was clearly not intended to be exhaustive, as indeed the facts of the present case demonstrate.  Secondly, the guidance was intended to strike a fair balance between the need to protect wives (and others in a like position) whose judgemental capacity was impaired and the need to avoid unnecessary impediments to using the matrimonial home as security.  The guidance ought therefore not to be mechanically applied.  The relief is after all equitable relief.  It is the substance that matters’

 

For past cases the steps outlined may serve as a benchmark of good practice, but is clear that each will depend on its own facts, and recourse to decided authorities is of limited assistance.  It does appear with some clarity, however, from such decisions as Midland Bank plc v Massey and Banco Exterior Internacional v Mann that if the lender acts reasonably in the steps which he takes to see that the borrower is not subjected to undue influence, he is not obliged to ensure that the latter’s advisers carry out their duties properly.  Nor does the law require the creditor to stipulate the nature and extent of the advice.  If he sees that the borrower is directed towards an adviser who may reasonably be expected to satisfy himself that the borrower enters into the transaction willingly and with understanding that will generally suffice.  This again comes back to the question of notice and the action of equity upon the conscience of the creditor.  He must take reasonable steps to satisfy himself that the borrower understands what the transaction involves and is entering willingly into it.  If the creditor acts reasonably and in good faith, the fact that the adviser may fail to take sufficient care to ensure the borrower’s willingness to enter into the transaction, or that a third party may act oppressively, will not fix the creditor with notice or affect his conscience.”

 

50.       In the present case, which is for the purpose of the above analysis a “future case”, the plaintiff claims that Mrs Moore had the benefit of independent legal advice and that, accordingly, the bank had taken reasonable steps to avoid being fixed with notice of any undue influence or misrepresentation on Mr Moore’s part.  However, the reasonable steps must be for the lender “to satisfy himself that the (surety) understands what the transaction involves and is entering willingly into it”.

51.       I make the following observations in this context.

51.1     The relevant senior officials of the plaintiff bank appear at all material times to have considered that the transaction did not involve Mrs Moore in guaranteeing any liability beyond the £125,000 bridging facility.

51.2     Accordingly had any of the senior bank officials involved conducted a private interview with her as per the O’Brien “future case” steps it may be that she would have been advised that her liability was so limited; that said, the omission of a private interview would not of itself prejudice the plaintiff’s position because, as Lord Nicholls recognised in his lead judgment in Etridge it was not in fact the general practice of banks after O’Brien to conduct private interviews with sureties by mortgage but rather to rely on the provision of independent legal advice.  (I should perhaps emphasise that the views of the House of Lords in O’Brien as to  “reasonable steps” as quoted in McCarron above have, in respect of post-Etridge “future cases”, been superseded by the judgments of the House of Lords in the latter case - albeit the present case is not a “future” one for that purpose.)

51.3     In the event, although the bank referred the matter to the family solicitors, this was for the express purpose of execution of the mortgage deed.  There was no mention of legal advice in the relevant facility letter or in the letters of referral to the solicitor and the defendants; I refer to Lord Hobhouse’s dissenting judgment in Etridge at 486J :-

“It is important to appreciate that the solicitor’s role may simply be to witness a signature…The solicitor may simply have been instructed by one party to see and be prepared to provide evidence that the relevant document was signed and delivered by the other party.  Seeing that a solicitor has witnessed a signature itself means nothing.”

 

(The emphasis is mine.)

 

51.4     Although Counsel for the bank argues that the matter had already been referred to the solicitor for legal advice, that was in respect of the first transaction alone and that transaction had been different inasmuch as a letter of guarantee had been involved.

51.5     The second, completed mortgage transaction did not involve a letter of guarantee; it is clear from internal memoranda etc of the plaintiff that at all material times its senior officials had regarded the letter of guarantee, if executed, as increasing the extent to which the second defendant’s interest in the home would have been available as security.

51.6     As the plaintiff is now arguing that the second defendant’s liability as guarantor is unlimited, it is incumbent on the bank to show that it took reasonable steps to ensure that she fully understood that this was so.

51.7     To that end, in my opinion it would have been a reasonable step for the bank to warn the family solicitors in terms that, although the letter of guarantee was no longer proceeding, it was the bank’s intention to treat Mrs Moore’s interest in her home as security for all of her husband’s indebtedness to the bank.  The bank was aware that the solicitor had already advised against signature of a limited guarantee but not against signature of the mortgage and the bank should have alerted the solicitor to the fact that a surprising and paradoxical consequence of executing the mortgage deed alone would be the provision by her of an unlimited guarantee.   I refer to the (lead) judgment of Lord Nicholls in Etridge at 474 b where he said:-

“It is a well-established principle that, stated shortly, a creditor is obliged to disclose to a guarantor any unusual feature of the contract between the creditor and the debtor which makes it materially different in a potentially disadvantageous respect from what the guarantor might naturally expect.”

           

            I submit that this observation may be applied a fortiori to any such unusual feature of the suretyship contract itself.

I refer also to Lord Scott’s judgment at 506d where he said:-

 

“…if the bank knows or has reason to suspect that the solicitor has not given the wife a proper explanation of the nature and effect of the security document, the bank should take some appropriate steps to remedy the failure.”

           

            Lord Nicholls said the following at 479b:-

 

“In the Scottish case of Forsyth v Royal Bank of Scotland plc 2000 SLT 1295 it appeared to the creditor that the wife had already had the benefit of professional legal advice.  In such a case, it may well be that no further steps need be taken by the creditor to safeguard his rights.  Of course if the creditor knows or ought to know from the information available to him that the wife has not in fact received the appropriate advice then the transaction may be open to challenge.”

           

51.8     The bank could also have provided Mrs Moore personally or her solicitor with financial particulars of her husband’s entire indebtedness, but again failed to do so.  The only financial particulars supplied were in respect of the earlier transaction and consisted of a reference only to the fact that the defendants had been offered ‘£125k jointly supported by the enclosed second mortgage over their dwellinghouse’ and that the second defendant was to execute a guarantee for £50,000.

51.9     Perhaps the most glaring omission of the plaintiff was its failure to request confirmation from the solicitor that he had provided legal advice to Mrs Moore before execution of the mortgage and that he was satisfied she was entering willingly into the transaction.  I quote again from Lord Nicholls’ judgment in Etridge at 469j : -

“I turn to consider the scope of the responsibilities of a solicitor who is advising the wife.  In identifying what are the solicitor’s responsibilities the starting point must always be the solicitor’s retainer.  What has he been retained to do?  As a general proposition, the scope of a solicitor’s duties is dictated by the terms, whether express or implied, of his retainer.  In the type of case now under consideration the relevant retainer stems from the bank’s concern to receive confirmation from the solicitor that, in short, the solicitor  has brought home to the wife the risks involved in the proposed transaction.”

 

(The emphasis is mine)

 

51.10   The most authoritative recent judicial guidance as to appropriate ‘reasonable steps’ at the time of this mortgage transaction may have been the judgment of the English Court of Appeal in Etridge (No.2) [1998] 4 All ER 705 in which it was held (inter alia) that where a bank has asked a solicitor to explain the transaction to the wife, it must obtain a certificate that he has done so.  This requirement was repeated in the lead House of Lords judgment of Lord Nicholls in Etridge: see paragraphs 28.11 and 28.12 of Paget’s Law of Banking (12^th Edition 2002).

51.11   The bank is relying in part on the terms of the facility letter of 27 September 2001 which was countersigned by the defendants; although it appears to be a contractual agreement to execute a mortgage, it contains no warning, recommendation or notice about taking independent legal advice before either defendant accepted its terms.  Had the bank released the £125,000 without further security as it had in the first transaction, I believe proceedings would have been commenced for a declaration, possession and sale on foot of an equitable mortgage on the basis that the facility letter was a binding agreement to execute a mortgage. 

51.12   It appears, upon reading the policy statements or Codes published on behalf of the plaintiff ie the Mortgage Code and the Banking Code, that the steps which it took fell far short of those which are regarded by banks themselves as minimal in order to ‘help customers understand how lenders are expected to deal with them’ and indeed ‘to make sure that (potential guarantors) make sure that they understand their commitment and the potential consequences of their decision’.  Indeed the provision of a secured unlimited guarantee by Mrs Moore, a personal customer, sits most uneasily with express commitments in both of these policy documents.

52.       The plaintiff did not take reasonable steps under the principles set out in McCarron, O’Brien or Etridge to satisfy itself that the second defendant knew what she was signing and willingly entered into the transaction.  It had very good reason to suspect that Mrs Moore had not received or would not receive appropriate advice, but failed to take any steps to ensure that such advice was provided in the second transaction, referring the matter back to the solicitor in terms which merely compounded the problem.  Accordingly the plaintiff would be fixed with notice of the relevant representation by the first defendant, but the second defendant as I have indicated is only relying on this so far as may be necessary to rebut so much of the plaintiff’s case as alleges she is liable for the first defendant’s sole account indebtedness.

Misrepresentation by the Plaintiff

53.       The cumulative effect of plaintiff’s words and conduct may be said to be an implied representation in the second transaction that execution of the mortgage would not involve the second defendant in guaranteeing any of the first defendant’s sole account liabilities consequent on legal advice given in the first transaction.  It was, in effect, a misrepresentation to the defendants and the family solicitor as to the effect of the mortgage.  A statement as to the object or effect of a document is a statement of fact and as such is a representation: see Volume 31 of Halsbury’s Laws of England (4^th Edition 2003 Revision) at paragraphs 714 and 781-783 on this point.

54.       I quote from Halsbury’s Laws at paragraph 750:-

“Where a person has said something to another, a duty may at once arise to say more and if he fails to discharge this duty his reticence from that point becomes an implied misrepresentation, although complete silence throughout the transaction would not have amounted to, or have afforded any evidence of, misrepresentation, or even of actionable non-disclosure.  This duty may arise in the case of a continuing representation.  There are other cases where, in the course of the negotiations, the representor lets fall something which, whether he so intended or not, he at once perceives, or ought to perceive, to be exercising a delusive influence on the representee’s mind, and where, by not correcting the delusion, he is deemed to confirm and perpetuate it, and so to misrepresent.

 

55.              In the present case the plaintiff bank had made a representation in its letter of 27 July 2001 to the family solicitor to the effect that execution of a letter of guarantee in addition to execution of the mortgage would “attach her interest” in the dwelling-house to secure (part of) her husband’s sole  account liabilities.  The plaintiff ought, in the second transaction, to have made clear that if the mortgage deed alone were executed by her that, as far as the bank was concerned, that would secure all of her husband’s indebtedness.  To the extent that the plaintiff failed to do so its non-disclosure, together with the letters of 27 July 2001 and 2 October

 

2001, effected a misrepresentation of the effect of the mortgage deed, which induced the second defendant to execute that deed.

Security given by the First Defendant

56.       The position of Mr Moore is somewhat different.  His evidence, which I believe, is that he did not realise at the relevant time that he was entering into an all monies charge to secure his sole current account liabilities as well as the joint liability of £125,000.  However, I am satisfied that the plaintiff intended at all material times that the mortgage would secure all of his liabilities against his interest and did not represent to him that this would not be so.  It seems to me that it would fly in the face of ordinary business sense for a bank to advance £125,000 for the purposes of the borrower’s business without ensuring that he provided security so far as it is was reasonably possible for him to do so in respect of other substantial liabilities already due by him to that bank.  (Had the bank officials insisted during their negotiations with Mr Moore on all his liabilities being secured against his interest before they would release the £125,000 advance, I think it more likely than not that he would have agreed, albeit reluctantly.)

57.       The first defendant in his oral evidence and his solicitor, Mr Scott, in submissions made much of the fact that in the relevant facility letter dated 27 September 2001 to Mr Moore alone in respect of his sole account overdraft facilities, the reference to security did not include the following express terms (as did the joint facility letter of the same date to both defendants):-

“Second Legal Charge over residential property at 223 Ballyrobert Road, Ballyclare, Co Antrim”

                       

(Emphasis supplied)

 

58.       However, Mr Moore described himself under cross-examination as a sophisticated businessman and he would have had the opportunity to read in both of the facility letters dated 27 September 2001, in a facility letter addressed to him alone dated 24 January 2001, and in the joint facility letter dated 14 June 2001 the following standard terms: -

“The security already held, and any other security that you may give through the bank in the future, will also be available for all of your liabilities to the bank (both present and future, whether direct, collateral or contingent and irrespective of how they arise).”

 

59.       Given the principles of interpretation to which I have already referred and  the relevant wording of the mortgage deed itself and the facility letters, I am driven to the conclusion that, inasmuch as the mortgage transaction affects Mr Moore’s interest in the property, it must be interpreted as securing all of his indebtedness to the bank.  I accept Mr Moore’s evidence that this was not mentioned in the course of negotiations and think it would have been preferable for it to have been negotiated expressly in advance of the issue of the facility letter.  I do not however believe the silence of the bank officials on this topic could be deemed an acquiescence or a representation for the purposes of estoppel or misrepresentation.  Nor however should that silence qualify my view that in this respect at least the terms of the facility letter and charge deed did reflect the actual intention of the plaintiff.

60.       It would also seem paradoxical if the bank, having sought a letter of guarantee from Mrs Moore to cover £50,000 of the liabilities on the first defendant’s sole accounts, did not ensure that those accounts were secured against his own interest in the dwelling.  Indeed the internal bank memorandum dated 2 July 2001 mentioned at paragraph 22 of this judgment makes clear vis-a-vis the initial transaction the bank’s intention that (in addition to the joint account indebtedness) “the second mortgage will also secure borrowing in the sole name of Mr Moore”.

61.       The first defendant was not a guarantor and was owed no special duty of disclosure of any sort by the plaintiff.  He read, signed and accepted a facility letter of 27 September 2001 which provided (inter alia) that

“any … security that you may give to the bank in the future, will … be available for all your liabilities to the bank.”

 

62.       It is true that most of the plaintiff’s internal memoranda prior to execution of the mortgage tend to ignore the “all monies” aspect of Mr Moore’s mortgage commitment.  However, there are no special features to suggest that estoppel or misrepresentation should qualify Mr Moore’s liability under the express words of the relevant facility letters and deed of charge, whereby his interest in the dwelling is mortgaged to secure his entire indebtedness to the bank. 

Summary

63.       At all material times the relevant senior officials of the plaintiff and the defendants shared a common assumption or understanding that the second defendant’s interest in the dwelling home would not be mortgaged by the charge dated 3 October 2001 to secure the first defendant’s indebtedness on foot of the current accounts in his sole name.

64.       When the family solicitor advised against execution by the second defendant of a letter of guarantee in the earlier bridging facility transaction in the summer of 2001, the plaintiff was made aware that she would not willingly mortgage her interest to guarantee part (£50,000) of her husband’s sole account liabilities, let alone all of them.

65.       The plaintiff’s subsequent communications in the second bridging transaction when it asked for the mortgage deed to be executed before and witnessed by the family solicitor without a request that legal advice be given or for certification that the second defendant had received appropriate legal advice and entered the transaction willingly, and without taking some other appropriate step as indicated in this judgment, not only fell far short of the requirement that a bank take reasonable steps to avoid being fixed with constructive notice of any relevant wrongdoing by the principal debtor, but was entirely consistent with the common assumption, understanding or convention I have mentioned.

66.      As the second defendant acted to her detriment in reliance on the convention the plaintiff is estopped from relying on the ‘all monies’ clause in the mortgage inasmuch as it relates to the second defendant’s interest.

67.       Should I be wrong about that, for reasons already explained in this judgment, the plaintiff would in my view be prevented anyway from relying on the “all monies” clause against the second defendant by reason of its own misrepresentation of the effects of the mortgage, and indeed by reason of being fixed with constructive notice of a misrepresentation made by the first defendant shortly before the second defendant executed the deed of charge.

68.       The plaintiff is not estopped or barred by misrepresentation in respect of the first defendant’s interest.  He was not a guarantor, is a businessman of some sophistication and ought to have been alive to the likelihood that if a bank agreed to provide substantial further funding on the security of a mortgage then unless there were an agreement or clear representation to the contrary the bank would also want his pre-existing indebtedness secured against his interest in the property.

            Order to be made

69.       For the plaintiff, Mr Devlin argues that the defences raised by the defendants are of a `technical’ nature and that the only outcome of these proceedings can be an order for possession in favour of the plaintiff.   To the extent that Mrs Moore argued  that her liability under the mortgage is limited to the bridging loan of £125,000 and interest she has succeeded in challenging the evidence on which the plaintiff’s claim is based.  Had she not done so in these proceedings the plaintiff might have argued in any subsequent  proceedings that she was estopped by reason of her failure to bring forward her case at this stage.  It is a matter of obvious and substantial, not technical, importance that mortgagees do not apply for or obtain orders for possession on the basis of liabilities which exceed those secured by their mortgages. The order I make will contain a declaration to the effect that the mortgage charges the undivided interest of the second defendant in the dwelling in respect only of her joint and several liability on foot of the joint bridging account. 

70.       The Order will then be for delivery of possession by the defendants to the plaintiff, subject to the possibility of a stay or adjournment should there be a  sufficient proposal to address the ascertained indebtedness.

71.       Given my primary finding of estoppel it would be neither fair nor reasonable to require anyone other than the plaintiff to bear so much of its costs as have arisen as a result of the plaintiff’s assertion that by executing the mortgage the first defendant had provided an unlimited guarantee. Moreover, the second defendant’s understanding at the time of the mortgage was that it would secure only the joint account liability and that her own liability would not be joint and several, but restricted to 50 per cent of the indebtedness.  (Presumably she would have  assumed that her contractual liability for the

lender’s costs of enforcement would also be limited to 50 per  cent of the total.)  This perception was the result of a misrepresentation by her husband in respect of which the plaintiff failed to take reasonable steps to ensure that she might have had the benefit of proper  advice.  However, she only relied on that misrepresentation, and on the bank being fixed with constructive notice of it, as a shield against the plaintiff’s claim that her liability as guarantor was unlimited.  (It is appropriate to add that, had the first defendant represented merely that her interest would be mortgaged to secure all of the joint current account liabilities, that would have constituted a misrepresentation in the context of the plaintiff’s claim that her liability went much further.)  To her credit she did not pursue this defence to avoid liability as surety for any part of the joint account indebtedness.  This contrasts somewhat with  the approach of the plaintiff, which effectively reversed its own understanding of her suretyship and endeavoured in these proceedings  to rely on the literal meaning of the `all monies’ charge deed to establish that she had given an unlimited guarantee. (That, if it were applied to a loan other than an overdraft, would plainly contravene important policy statements made on the plaintiff’s behalf.  The taking of an all monies charge which provides in substance a secured unlimited guarantee by a personal guarantor, particularly one who is also a customer, sits uneasily with published representations that “an unlimited guarantee will not be taken”.)  Had the plaintiff not pursued that unconscionable aspect of its claim for possession I believe the originating summons could have been determined at the first appointment for hearing on 8 April 2005.  Given that aspect and the defences raised I am satisfied that, contrary to views expressed by plaintiff’s counsel, an oral hearing was appropriate.  These are all factors which should have a bearing on costs.

72.       The order I make will include the following provisions:-

(a)        50 per cent of the plaintiff’s costs down to and including the hearing on 8 April 2005 and all of its costs thereafter down to and including 19 June 2006 will be disallowed as against the second defendant and her interest in the mortgaged property;

(b)        the plaintiff shall pay the second defendant her costs incurred after 8 April 2005 down to and including 19 June 2006, which costs shall be taxed in default of agreement;

(c)        so much of the plaintiff’s costs incurred during that period as relate to its claim against the second defendant will be disallowed generally.

The remainder of the plaintiff’s costs will be allowed.

73.       There will be liberty to apply.