Barclay's Bank Plc v Goff

A lender which is put on inquiry about a spouse’s equity may ordinarily rely on competent independent legal advice to dispel the risk of constructive notice. It need not assess the commercial wisdom of a family member’s decision to charge a home, nor investigate matters that the solicitor can obtain.

The exception is narrow. Legal advice will not suffice where the lender knows that material information is unavailable to the solicitor, or where the transaction is so extreme that any competent solicitor would advise against it. An agreement made with proper advice may also affirm an earlier charge and bar rescission where the lender relies on that affirmation to its detriment.

Mrs Goff gave a first legal charge over her home to secure the banking facilities of companies connected with her husband and his son. The charge was unlimited up to the value of the property. The trial judge found that she had signed believing that her exposure was limited to £10,000 for a company connected with her husband, and set the charge aside for misrepresentation and undue influence.

The bank had requested independent legal advice and received confirmation from the solicitor. It appealed from the Bournemouth County Court decision. The bank also relied on a 1992 agreement, under which it delayed enforcement and would release Mrs Goff’s charge after specified payments. The central issues were whether the bank had constructive notice of Mrs Goff’s equity and whether the later agreement affirmed the charge.

1. Appeal allowed unanimously. Mantell LJ gave the leading judgment, with which Pill and Buxton LJJ agreed. The bank had taken sufficient steps to avoid constructive notice of Mrs Goff’s equity and was entitled to possession.

2. The deputy circuit judge had been entitled to find that Mrs Goff signed the charge under her husband’s material misrepresentation. She therefore had an equity to set it aside which survived the solicitor’s meeting. If necessary, the evidence also permitted a finding of undue influence, because Mrs Goff reposed trust and confidence in her husband and he overcame her reservations.

3. The bank was on inquiry. Applying the principles in Barclays Bank v O'Brien (1984) 1 AC 180 and Royal Bank of Scotland plc v Etridge (No 2) (1998) 4 All ER 705, however, the bank could ordinarily rely on the solicitor to give proper independent advice. It was not required to investigate the merits of the proposed security or the sufficiency of that advice.

4. This was an ordinary family-security transaction, not an exceptional case. The relationship between the companies, Mrs Goff’s lack of an interest in them, and their financial position were matters which the solicitor could know or discover. The bank had no reason to know that advice was inadequate. The charge was unwise but not so extreme that any competent solicitor would advise against it. Credit Lyonnais v Burch [1997] 1 All ER 144 and Steeples v Lea [1998] 76 P & CR 157 concerned materially more extreme transactions.

5. Independently, the 1992 agreement affirmed the charge. Mrs Goff appeared to have separate solicitors, the agreement was to her advantage, and there was no misrepresentation or undue influence. The bank relied on her objective affirmation by refraining from immediate possession proceedings. Under Peyman v Lanjani (1985) 1 Ch 457, she could not later rescind.

6. The judge’s post-perfection addendum went beyond the power in paragraph 4.5 of the Civil Procedure Rules 1998 to clarify a judgment’s meaning or intention. The parties nevertheless agreed that the appeal should proceed as if it formed part of the judgment.

• Court of Appeal (Civil Division) Allowed the bank’s appeal and upheld its entitlement to possession: [2001] EWCA Civ 635.
• Bournemouth County Court Deputy Circuit Judge Wroath dismissed the bank’s possession claim and set aside the legal charge on 19 February 1999. He supplied an addendum on 12 March 1999.