UCB Corporate Services Ltd v Williams

A transaction procured by actual undue influence may be set aside as of right against the wrongdoer. The complainant need not prove that, given a free and informed choice, she would have refused the transaction.

A creditor put on inquiry cannot avoid constructive notice merely by believing that the surety has a solicitor. It must take reasonable steps to confirm that the surety has received an adequate explanation of the transaction's nature and effect. Advice confined to the general risk of losing the secured home may be insufficient where it omits the extent of the secured liabilities and the increase in borrowing.

A mortgagee sought payment and possession under a charge granted over a matrimonial home to secure the liabilities of a family partnership. The wife alleged that her husband had procured the charge through actual undue influence and misrepresentation, and that the mortgagee had constructive notice of her equity.

HHJ Hickinbottom found undue influence and misrepresentation but held that the wife would have signed the charge even if fully informed. He also held that the mortgagee could rely on its belief that a solicitor represented her. He therefore ordered payment and possession.

The wife appealed on causation and constructive notice. A further issue was whether the mortgagee could be subrogated to earlier charges discharged from its advance.

1. Appeal allowed unanimously on causation and constructive notice. Jonathan Parker LJ delivered the judgment, with which Kay LJ and Peter Gibson LJ agreed. The judge's findings established that the husband's undue influence and fraudulent misrepresentation procured the wife's execution of the charge.

2. Where actual undue influence procures consent, equity treats that consent as failing to express the complainant's free will. The resulting right to set aside the transaction against the wrongdoer arises as of right. It is immaterial that the complainant might have entered the same transaction if allowed to make a free and informed choice. The contrary proposition in Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 could not be reconciled with CIBC Mortgages v Pitt [1994] 1 AC 200.

3. Undue influence may include fraudulent misrepresentation. Once a material misrepresentation has successfully induced the transaction, the representee's hypothetical conduct if told the truth is irrelevant to whether inducement occurred. Such hypothetical conduct may remain relevant to the assessment of loss in a damages claim. Downs v Chappell [1997] 1 WLR 426 was applied on this distinction.

4. The mortgagee had been put on inquiry. Under Royal Bank of Scotland v Etridge (No 2) [2001] 3 WLR 1021, an honest belief that a solicitor represented the surety did not justify assuming that the solicitor's retainer extended to advice about the transaction's nature and effect. Nor could the mortgagee rely retrospectively on a fact which it did not know and about which it had made no inquiry.

5. The advice actually given was palpably deficient. It mentioned the risk of losing the home but did not explain the all-moneys character of the charge, the substantial increase in borrowing or the desirability of independent advice. The mortgagee was therefore fixed with constructive notice of the wife's equity.

6. The subrogation issue could not be determined without findings of fact. The claim was remitted to HHJ Hickinbottom for determination solely on the evidence adduced at trial, without a fresh evidential hearing.

1. Court of Appeal (Civil Division): The appeal in [2002] EWCA Civ 555 was allowed on the causation and constructive notice issues. The subrogation issue was remitted to the county court for determination on the existing trial evidence.
2. Swansea County Court: HHJ Hickinbottom ordered the defendants to pay the mortgage debt and give possession. He refused the wife's application for permission to appeal. The lower-court decision has no citation stated in the judgment.