National Westminster Bank Plc v Morgan

A presumption of undue influence requires more than a relationship in which one party may influence another. The transaction must also be manifestly disadvantageous to the influenced party. Its disadvantage must be sufficiently serious to call for evidence rebutting the inference that an unfair advantage was obtained.

The ordinary relationship of banker and customer raises no such presumption. A bank may cross the line where it assumes a dominating influence by advising on the wider wisdom of a transaction. Whether that has occurred requires a meticulous examination of all the facts. Inequality of bargaining power is not a general basis for equitable relief.

A bank sought possession of a family home under a legal charge executed by a husband and wife. The charge was expressed in unlimited terms, although the bank intended to use it only to secure short-term finance which discharged an existing mortgage and prevented the imminent loss of the home.

The county court rejected the wife's defence of undue influence and ordered possession. The Court of Appeal, [1983] 3 All E.R. 85, reversed that decision. It held that the wife had relied on the bank manager in a relationship of confidence and that a presumption of undue influence could arise without proof of a disadvantageous transaction.

The central issue was whether the relationship and transaction established actual or presumed undue influence entitling the wife to equitable relief.

1. Appeal allowed unanimously. Lord Scarman delivered the leading speech. Lord Keith of Kinkel, Lord Roskill, Lord Bridge of Harwich and Lord Brandon of Oakbrook agreed with his reasons. The Court of Appeal's order was set aside and the county court's possession order restored.

2. Per Lord Scarman, the equitable doctrine of undue influence protects a person from victimisation by another. It does not relieve a person merely from the consequences of folly, imprudence or want of foresight. A transaction must involve a wrongful or unfair advantage before it may be set aside for undue influence.

3. A presumption of undue influence requires both a relationship capable of producing a dominating influence and a transaction manifestly disadvantageous to the influenced party. The disadvantage must be sufficiently serious to require evidence rebutting the inference that the transaction was procured by undue influence. The Court of Appeal therefore erred by treating the relationship alone as sufficient.

4. The ordinary relationship of banker and customer does not give rise to the presumption. A bank may explain the nature and legal effect of proposed security in the ordinary course of business. It may cross the relevant line if it goes further, advises upon wider matters bearing on the wisdom of the transaction and thereby assumes a dominating influence. Whether it has done so depends upon a meticulous examination of all the circumstances.

5. The bank manager did not cross that line. The relationship remained an ordinary commercial one, and the charge secured finance which rescued the wife's home on the terms she sought. The bank obtained no unfair advantage. The discrepancy between the charge's unlimited wording and the bank's stated intention was essentially theoretical because the bank adhered to the stated limitation. No duty arose to ensure that the wife received independent advice.

6. Lord Scarman rejected Lord Denning MR's proposed general principle of relief for inequality of bargaining power in Lloyd's Bank Ltd v Bundy [1975] QB 326. That approach was not the ratio of the majority judgment and was inappropriate as the basis of a doctrine extending beyond bargains to gifts.

7. Possession was to be given within 28 days. There was no order for costs in the Court of Appeal or the House, save for legal aid taxation of the respondent's costs.

1. House of Lords: Allowed the bank's appeal unanimously, set aside the Court of Appeal's order, restored the county court's possession order and remitted the cause to the county court.

2. Court of Appeal: In [1983] 3 All E.R. 85, reversed the county court, dismissed the bank's claim and declared that the legal charge was not a good and subsisting charge.

3. Bridgwater County Court: Rejected the defence of undue influence and the counterclaim for equitable relief, and made the possession order sought by the bank.