Lloyds TSB Bank v Holdgate

Where a wife gives security for her husband's business debts, the bank is put on inquiry as to undue influence or misrepresentation. The mere involvement of a solicitor, even a solicitor previously used by the family, does not by itself establish that the bank has taken reasonable steps to satisfy itself that the wife understood the nature and effect of the transaction. For past transactions, solicitor confirmation may ordinarily discharge the bank's obligations, but the facts may require further inquiry. If the evidence leaves an arguable case that the bank failed to take reasonable steps, possession should not be ordered summarily and the matter should proceed to trial.

The appellant had jointly mortgaged the matrimonial home with her husband to secure his present and future business debts. She alleged that her signature had been procured by her husband's undue influence and misrepresentation. The bank brought possession proceedings.

The Southend County Court assumed the alleged wrongdoing for the purpose of determining a legal issue and ordered possession. After the House of Lords decided Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, the county court refused to reopen the matter and dismissed an application concerning the warrant. The central issue was whether Etridge left the appellant with an arguable defence requiring a trial.

1. Appeal allowed. The possession order was set aside, the warrant fell with it, and the possession proceedings were directed to proceed to trial. The stay of execution was restored indefinitely if necessary.
2. The transaction fell within the straightforward category in which a wife gives security for her husband's debts. Under Barclays Bank plc v O'Brien [1994] AC 180 and Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, the bank was therefore put on inquiry. The fact that the loan secured the husband's business debts, rather than joint purposes, reinforced that conclusion.
3. The bank could not safely rely merely on the fact that solicitors had witnessed the mortgage or had acted for the husband and wife. The bank had to satisfy itself that the solicitor's retainer extended to advising the wife about the nature and effect of the security, or obtain adequate confirmation of that advice. Solicitors may have an execution-only role.
4. The reasoning in the House of Lords' treatment of UCB Home Loans Corporation Ltd v Moore showed that the mere existence of solicitors was insufficient. The same approach was confirmed in UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555.
5. The preliminary issue had been inadequately defined, but that procedural difficulty did not affect the result. On the assumed facts, the appellant had at least an arguable defence and was entitled to a trial. The order was made with costs, and permission to appeal was refused.

• Southend County Court: His Honour Judge Yelton ordered possession after determining that the alleged undue influence and misrepresentation could not affect the bank's position.
• Southend County Court: On a later application concerning the warrant, the court treated Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44 as giving the appellant no prospect of success.
• Court of Appeal (Civil Division): Permission to appeal out of time was granted. The appeal was allowed, the possession order was set aside, and the proceedings were remitted for trial.