Habib Bank Ltd v Tufail

An equitable right to set aside a transaction for misrepresentation may be defeated by acquiescence, but only where the circumstances make it inequitable to grant relief. The party relying on acquiescence bears the burden of proving the necessary facts and, in substance, detrimental reliance or an adverse alteration of position. Knowledge of the right to rescind is essential for express affirmation, but it is not an absolute requirement for acquiescence; the court must assess all the circumstances. A claimant cannot establish detriment merely by showing delay. It must show that, without the representation, it would probably have taken effective action and thereby secured a better position.

Habib Bank Ltd appealed against an order of His Honour Judge Rylance in the Guildford County Court dated 15 April 2005. The bank sought to enforce a mortgage over the respondent’s property, given as security for the debts of a company owned and run by her son. The trial judge found that the mortgage had been procured by misrepresentation and that the bank had constructive notice of it. He nevertheless found affirmation, but held that it would not be inequitable to permit the respondent to set the transaction aside.

The bank challenged the finding that its position had not been altered to its disadvantage. The respondent served a late notice challenging the findings on knowledge and related matters. The central issue was whether her conduct in proposing a sale of the property, followed by prolonged correspondence, made it inequitable for her to rely on the misrepresentation.

1. Appeal dismissed. The mortgage was an equitable transaction liable to be defeated by equitable defences. The bank’s case was properly analysed as acquiescence, rather than contractual affirmation or promissory estoppel alone. The burden lay on the bank to prove the facts necessary to make it inequitable for the respondent to set the transaction aside.
2. The principles discussed in Goldsworthy v Brickell [1987] Ch 378 applied. Knowledge of the right to rescind was essential to reliance on statements as express affirmation. It was not, however, an absolute prerequisite to acquiescence. The court had to consider all the circumstances. The respondent had sufficient knowledge of the relevant facts by February 2002 to make the solicitors’ letter capable of amounting to a representation, even though she might not have known that she had a good defence. The letter was intended to persuade the bank to hold back enforcement.
3. The decisive question was whether the bank altered its position to its disadvantage in reliance on the letter and subsequent communications. The court assessed what the bank would probably have done if the letter had not been sent. It would first have pursued possession and enforcement of the mortgage. The evidence did not establish that it would have been able to take effective action under the son’s guarantee before he left the jurisdiction, or that it lost any other effective remedy.
4. The bank’s delay in enforcing its securities, the worthlessness of the debenture, the absence of a known address for the guarantor and the lack of evidence of recoverable assets meant that detrimental reliance was not proved. The respondent could therefore pursue her equitable right to set aside the mortgage. Lord Justice Longmore and Mr Justice Bennett agreed with Lord Justice Lloyd.

• Court of Appeal (Civil Division): [2006] EWCA Civ 374 — dismissed the bank’s appeal.
• Guildford County Court: order dated 15 April 2005 — dismissed the claim and granted relief to the defendant on her Part 20 claim.