The Royal Bank of Scotland Plc v Chandra & Anor

A guarantor is not discharged merely because a creditor makes further advances under an all-monies guarantee or charge. The relevant question is whether the arrangements materially altered the guaranteed risk or were made unconscionably. Administrative receivers acting independently may structure continued trading and borrowing where they act in good faith and for proper commercial purposes. For undue influence, a wife’s trust and confidence in her husband and a failure to disclose information do not, without more, establish undue influence. Improper pressure, deliberate concealment or other unacceptable means are required. A lender put on inquiry must follow the safeguards identified in Royal Bank of Scotland v Etridge (No 2). Failure to do so may prevent enforcement where actual undue influence caused the guarantee.

The bank sought enforcement of guarantees given by Mr and Mrs Chandra for borrowing by their jointly owned hotel company, together with possession of their matrimonial home charged as security. After the company encountered serious construction and funding difficulties, administrative receivers were appointed. The bank nominated a special purpose vehicle to continue the building contract and advanced further funds to the company, which acted as the vehicle’s principal.

The defendants argued that the post-receivership arrangements were shams, breached equitable duties owed to sureties, materially varied the guaranteed arrangements, and involved negligent control of the receivers. Mrs Chandra additionally alleged that her guarantees were procured by her husband’s undue influence and misrepresentations, and that the bank had notice of that influence.

1. Post-step-in liabilities. The deed of warranty operated to exclude the company from the building contract for future purposes, but the bank would nevertheless have had several possible routes of recourse. The completion costs fell within the debenture’s definition of “Expenses”, and could also have been recoverable through restitution or recoupment from the property. The company was therefore liable for the relevant borrowing.
2. Receivers and purpose. The agency arrangement and further borrowing were not shams. The receivers acted independently, in accordance with their duties, and for proper commercial purposes, including completing the hotel, preserving value, retaining Costain and obtaining the available VAT benefit. The bank did not control the receivers in establishing the structure or settling Costain’s claims.
3. Surety defences. The equitable protection of a surety did not assist the defendants. Further borrowing was within the risks of an all-monies guarantee and charge. The arrangements did not materially alter the underlying contracts to the defendants’ prejudice. The Unfair Terms in Consumer Contract Regulations 1999 did not apply because the principal debtor was a company contracting otherwise than as a consumer.
4. Undue influence. Under Royal Bank of Scotland v Etridge (No 2), the issues of actual undue influence and the bank’s notice of it are distinct. Non-disclosure, without deliberate concealment or other improper conduct, is insufficient by itself. Mrs Chandra’s first guarantee was not procured by undue influence or misrepresentation, and the bank took sufficient steps in relation to it. Her second guarantee was different: she first learned of it during an urgent car journey, received no adequate independent advice or opportunity for reflection, and signed under pressure arising from her husband’s influence. The bank failed to provide the information and safeguards required by Etridge.
5. Disposition. All defences failed except Mrs Chandra’s defence to the second guarantee. That guarantee was set aside as against her. She remained liable on the first guarantee. Further orders, including any possession order, were to be agreed or directed.

First instance decision. The proceedings had been commenced in the County Court and transferred to the High Court because of the defences raised.