Wright v Cherrytree Finance Limited & Ors

Undue influence may be established by the combined effect of vulnerability, dependence, commercial inexperience, misrepresentation and a transaction manifestly disadvantageous to the claimant. Slight pressure, considered alone, may be insufficient.

A lender has constructive notice where the circumstances reasonably suggest that a person providing security may not understand the transaction or may be acting under pressure. Written warnings will not ordinarily dispel that notice. The lender should arrange a private personal interview, explain the extent of the liability and risks, and urge independent legal advice.

The claimant granted a mortgage over her home to secure borrowing intended principally to benefit her son-in-law. The Bristol County Court found actual undue influence and misrepresentation, constructive notice on the part of Cherrytree Finance, and insufficient steps to dispel that notice. Mr Justice Neuberger ordered rescission of the mortgage.

Cherrytree Finance appealed, contending that the undue influence was insufficient, that it lacked constructive notice, and that its written warnings were adequate. The central issues were whether the judge was entitled to make those findings and what steps were required of the lender to overcome constructive notice.

Appeal dismissed unanimously. Sir Christopher Staughton gave the first judgment. Lady Justice Hale and Lord Justice Henry agreed.

1. Undue influence and misrepresentation. The judge was entitled to find that the claimant entered into the mortgage through undue influence and misrepresentation. The conclusion depended on the combined circumstances: her recent bereavement, dependence on her daughter and son-in-law, lack of commercial understanding, the misrepresentations made to her, and the manifest disadvantage of charging her home for money to be used by others. The pressure, viewed alone, would have been insufficient, but the circumstances had to be considered as a whole.
2. Constructive notice. The finance company knew facts calling for inquiry. These included the age disparity, the recent death of the claimant’s husband, the absence of an apparent benefit to her, the proposed payment of the advance to the son-in-law, the high interest rate, and the burden of repayments relative to her income. Those circumstances gave rise at least to a strong suspicion that she did not understand the transaction or was subject to pressure.
3. Dispelling notice. The lender’s written statements that independent advice should be obtained and that the claimant might lose her home were insufficient where she had not read them and had merely signed documents presented by the son-in-law. Applying the guidance in Barclays Bank plc v O'Brien, [1994] AC 180, the necessary protection required a private personal interview, an explanation of the extent of liability and risk, and an insistence that independent legal advice be considered. The requirement applied regardless of whether the relationship was that of spouses, friends or others.

The appeal was dismissed with agreed costs of £2,451.09.

• Court of Appeal (Civil Division): Appeal from the judgment of Mr Justice Neuberger in the Bristol County Court on 24 March 2000. Appeal dismissed with agreed costs.