Leggatt & Anor v National Westminster Bank

Where a wife provides security for her husband's debts, a creditor is put on inquiry only if the transaction is not, on its face, to her financial advantage and there is a substantial risk of wrongdoing. If the transaction is not facially disadvantageous, constructive notice does not arise.

The assessment of disadvantage is objective. A replacement charge may benefit the wife where it preserves the matrimonial home or replaces an existing enforceable security. An immaterial inaccuracy in instructions to the wife's solicitor does not, without more, impose constructive notice on the bank. The solicitor's duty requires proper inquiry into the transaction and its risks.

National Westminster Bank obtained an order for possession of the matrimonial home of Mr and Mrs Leggatt under a 1990 legal charge securing the liabilities of Mr Leggatt's partnership. Mrs Leggatt appealed from the order made by the Epsom County Court on 7 March 2000.

She alleged presumed undue influence, misrepresentation and constructive notice, relying principally on Barclays Bank plc v O'Brien [1994] 1 AC 180. The central issues were whether the charge was manifestly disadvantageous and whether inaccuracies in the bank's instructions to the solicitors prevented the bank relying on the independent legal advice obtained.

1. Appeal dismissed. The order for possession was upheld, with detailed assessment of costs.
2. Under Barclays Bank plc v O'Brien [1994] 1 AC 180, a creditor is put on inquiry where a wife provides security for her husband's debts and the transaction is facially disadvantageous to her. Unless the creditor then takes reasonable steps to satisfy itself that the transaction was properly obtained, it has constructive notice of the wife's equity.
3. The 1990 charge was not facially disadvantageous. Even assuming that the 1972 charge did not secure the partnership liabilities, signing the replacement charge was the only practical means of preserving the home when the partnership's business would otherwise collapse and the bank would enforce the existing guarantee. In any event, the 1972 charge, construed according to its clear and all-embracing words securing all liabilities to the bank, was effective to secure Mr Leggatt's partnership liabilities.
4. The court rejected the argument that the bank's doubts about the 1972 charge, or its alleged reluctance to rely on it, altered the objective assessment. Even if the bank's attitude could be considered, it would have taken all possible steps to enforce the charge if necessary.
5. The reference in the bank's instructions to an advance “to be made” was immaterial because the judge found that Mrs Leggatt would have signed had the true position been disclosed. Following Royal Bank of Scotland plc v Etridge (No 2) [1998] 4 All ER 705, the validity of commonplace transactions should not depend on fine distinctions in solicitors' instructions. A properly acting solicitor would have investigated the partnership's financial history whether the charge secured existing or future borrowing. The solicitor's failure could not be attributed to the bank.

• Court of Appeal (Civil Division): dismissed the appeal from the Epsom County Court order of 7 March 2000.
• Epsom County Court: Judge Hull QC made an order for possession of the property in favour of the bank.