Barclays Bank Plc v. Boulter and Boulter

The House of Lords dismissed the bank's appeal. The court held that, for pleading purposes, if a defence alleges the primary facts which as a matter of law give rise to constructive notice of misrepresentation or undue influence, that is technically sufficient to enable the defendant to argue the legal consequences. The former Rules (Ord. 18) require specific grounds of defence but do not require an express allegation in terms of 'constructive notice' where the pleaded facts demonstrate it. However, the court rejected the wider proposition that a defendant need only plead misrepresentation or undue influence and never plead facts relied on to show constructive notice; the claimant who asserts a proprietary or contractual right remains entitled to require the party seeking to vitiate it to show why the bank should be affected by third-party misconduct.

Background and facts:

• In 1979 Mr and Mrs Boulter granted a legal charge in favour of Barclays Bank to secure borrowing for their house; the charge was an "all monies" charge. Mrs Boulter later alleged that she had been induced by her husband to sign the charge by undue influence and misrepresentation and that she had not understood the effect of an all-monies charge.
• The bank sought possession after Mr Boulter defaulted. A possession order was made in 1994 and suspended; when arrears recurred a warrant for possession issued. Mrs Boulter applied to set aside the possession order on the ground of undue influence/misrepresentation.

Procedural history:

• The district judge refused Mrs Boulter's application; on appeal Mr Recorder Breen set aside the possession order. At trial in the County Court the bank successfully argued that Mrs Boulter had not pleaded constructive notice and the judge disallowed reliance on constructive notice without amendment. Leave to appeal to the Court of Appeal was granted; the Court of Appeal ([1998] 1 W.L.R. 1) held that Mrs Boulter had pleaded sufficient facts to allow an argument of constructive notice and no amendment was required.
• The bank obtained leave to appeal to the House of Lords on the broader question whether a defendant pleading undue influence or misrepresentation must also plead the facts relied on to establish constructive notice, or whether the burden lay upon the bank to prove absence of notice.

Issues:

• Whether the defendant's pleading was inadequate for failing to allege expressly that the bank had actual or constructive notice of the alleged undue influence and misrepresentation.
• Whether, as a matter of burden, a defendant need only plead undue influence or misrepresentation and the claimant must prove absence of notice.

Court's reasoning:

• The House of Lords (Lord Hoffmann leading) held that technically pleading the primary facts which give rise to constructive notice suffices to enable the defendant to argue their legal consequences, although this is not a convenient practice and may surprise the other side. Ord. 18 requires specification of grounds of defence, but it does not demand more than in other actions.
• The circumstances of the case (earlier proceedings made clear that Mrs Boulter relied on constructive notice; the bank knew the defence and was ready to meet it) meant that the pleading defect was a mere technicality and no amendment was required.
• On the broader point the court rejected the Court of Appeal's view. The House of Lords held that it is for the party seeking to show that a third party's undue influence or misrepresentation affects a claimant to show why the claimant should be affected; the burden of proving notice lies on the person asserting it in that context, subject to equitable presumptions (for example, the facially disadvantageous transaction between husband and wife gives rise to a presumption of constructive notice).

Appeal dismissed. The House of Lords held that while it is technically sufficient to plead the primary facts which as a matter of law give rise to constructive notice, pleadings should normally state the legal conclusion expressly; in the exceptional context of this case the bank had sufficient notice of the defence so the pleading defect was merely technical. The wider proposition that a defendant need only plead undue influence or misrepresentation without pleading facts to give rise to an inference of constructive notice was rejected.

Watford County Court: possession order 21 June 1994 (suspended) → District judge refused to set aside; Mr Recorder Breen set aside the order on appeal to the Crown Court/recorder. At County Court trial judge struck out reliance on constructive notice for want of pleading; Court of Appeal ([1998] 1 W.L.R. 1) held the pleaded facts were sufficient. Leave to appeal to the House of Lords was granted and the House of Lords dismissed the bank's appeal ([1999] UKHL 39).