Annulment Funding Company Ltd v Cowey & Anor

The Court of Appeal dismissed the appellant's challenge to findings that the respondent wife had entered into a charge as a result of undue influence by her partner. The judge's factual findings of actual undue influence were open to him and, in any event, the alternative route of presumed undue influence under the principles in Royal Bank of Scotland plc v Etridge (No. 2) was properly available. The lender was found to have been fixed with constructive notice and the charge was set aside as against the wife.

The court also rejected the appellant's submission that the loan could be severed from the security; on the judge's findings loan and charge formed a single disadvantageous transaction for the wife and could not properly be separated.

This was an appeal from a decision of His Honour Judge Welchman in Lambeth County Court. The appellant, a company providing short-term bridging finance, had advanced funds secured by a second charge over a house jointly registered to an unmarried couple where the husband had been bankrupt and later had his bankruptcy annulled. The lender sought possession and repayment when the short-term advance was not repaid after attempts to remortgage failed.

(i) Nature of the claim: possession and payment on the basis of the registered charge; the defendants pleaded undue influence (actual and presumed) and that the charge should be set aside as against the wife.

(ii) Issues framed: whether the county court judge was entitled to find actual undue influence by the husband over the wife; whether presumed undue influence arose; whether the lender was fixed with constructive notice; and whether the court should sever the loan from the security so as to leave the unsecured liability intact while setting aside the charge.

(iii) Reasoning and outcome: the Court of Appeal held that the judge had correctly applied the legal principles from Etridge and related authorities and was entitled to his primary findings that the husband pressed and persuaded the wife into the transaction, that she did not appreciate its true nature, and that the pressure was undue. The court emphasised that undue influence is a question of fact and that where there has been a full trial the judge must decide on the totality of the evidence; it was not procedurally unfair for the judge to find actual undue influence when the pleaded case also advanced an inference. The court accepted that the lender had constructive notice (a finding not challenged on appeal). Finally, the judge was right to treat loan and security as inseparable on the facts and not to sever them. The appeal was dismissed.

Appeal dismissed. The judge's factual findings that the husband exercised actual undue influence over the wife were open to him on the evidence; alternatively, the circumstances justified an inference of presumed undue influence under Etridge. The lender was properly held to have constructive notice and the charge was set aside as against the wife. The loan and the security could not be severed on the judge's findings.

Appeal from Lambeth County Court (His Honour Judge Welchman). The judge gave permission to appeal on some points and Aikens LJ gave permission on a further point; the Court of Appeal heard the appeal and delivered judgment dismissing the appeal ([2010] EWCA Civ 711).