National Westminster Bank Plc v Waite & Anor

Undue influence may be established by proving actual influence or by showing a relationship of trust and confidence together with a transaction calling for explanation. The burden remains on the claimant alleging undue influence. Manifest disadvantage is not the governing test. In a surety case, the seriousness of the enforcement risk and the benefits obtained by accepting that risk are relevant considerations, but the transaction must be assessed in its commercial and relational context. A bank manager’s relationship with a customer may develop into one of trust and confidence, particularly where the manager gives advice about the transaction. That does not itself establish undue influence. The court must decide whether the transaction was procured by improper influence or was sufficiently untoward to require explanation.

National Westminster Bank sued Alan and Linda Waite on two joint personal guarantees securing the borrowing of South Lakeland Care Limited. The defendants admitted execution but alleged that the guarantees had been procured by actual or presumed undue influence.

The alleged influence arose principally from the defendants’ relationship with the bank manager, Graham Edwards, and from the circumstances in which the guarantees were obtained. The defendants also argued that the guarantees were disadvantageous and that relevant information about the company’s financial position had not been disclosed. The central issue was whether either guarantee was unenforceable in equity.

1. Nature of the doctrine. The doctrine of undue influence is equitable. A transaction may be set aside either where actual undue influence is proved or where a relationship of trust and confidence exists and the transaction calls for an explanation. The burden of proof rests on the party alleging the wrong. The evidence required depends on the alleged influence, the parties’ personalities and relationship, the transaction, and all the circumstances. Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 was applied.
2. Disadvantage. Manifest disadvantage is not the test for undue influence. In a surety case, the court should consider the seriousness of the risk of enforcement and the benefits obtained by accepting that risk. Independent advice or other evidence showing that the defendant understood the transaction and acted independently may rebut a presumption. BCCI v Aboody [1990] 1 QB 923 was relied on for the relevant assessment.
3. Banking relationships. The relationship between a bank manager and customer will not usually be one of trust and confidence, but it may become so where the manager gives advice about the wisdom of a transaction with the bank or of transactions requiring the bank’s support. The authorities illustrated the distinction between a relationship crossing that line and an ordinary banking relationship.
4. Application. The first guarantee was commercially explicable and was signed after the bank’s standard procedure had been followed. There was no evidence of unfair pressure. By July 1997 the relationship between Mr Edwards and the directors could be characterised as one of trust and confidence, but the second guarantee was not untoward and did not call for an explanation. The defendants understood the commitment, exercised independent judgment, and were not unfairly pressurised. The alleged omission concerning the bank’s reservations about further overdraft lending was not established.
5. Disposition. Neither actual nor presumed undue influence was proved. Both guarantees were enforceable. Judgment was entered against the defendants under both guarantees, with the precise amount outstanding to be determined if disputed.