Royal Bank of Scotland Plc v Chandra & Anor (Rev 1)

Equity may set aside a guarantee procured by a husband's misrepresentation, including an innocent misrepresentation, as well as by undue influence. The doctrines are distinct. Undue influence requires abuse of a relationship of trust and confidence; misrepresentation requires a false statement that induced consent. An honest forecast about future expenditure, understood as an estimate rather than a certainty, is not misrepresentation merely because it proves over-optimistic or negligent. Inadvertent non-disclosure alone does not amount to abuse of confidence, although deliberate concealment may do so. A fiduciary relationship is marked by loyalty, and negligence in good faith is not itself an equitable wrong. The guarantee therefore stood and the appeal was dismissed.

RBS sought to enforce a personal guarantee and second legal charge given by Mr and Mrs Chandra to secure borrowings by their company. David Richards J upheld the claim in relation to the first guarantee, dated 30 October 2001. He found a relationship of trust and confidence, but rejected the case that the guarantee had been procured by the husband's undue influence or misrepresentation. He had found for Mrs Chandra in relation to a later guarantee. Mrs Chandra appealed on the alleged misrepresentation and constructive-notice issues. The central questions were whether the husband's statement that further finance would complete the development was actionable in equity and whether the bank's failure to follow new lender guidance affected enforceability.

1. Disposition. The appeal was dismissed. The challenge based on constructive notice did not arise because the guarantee was upheld on the substantive issues.
2. Undue influence and fiduciary duty. A wife's guarantee for company borrowing jointly connected with her husband is not, merely by its nature, presumed to have been procured by undue influence. The court must examine the relevant evidence, including the nature of the alleged influence, the parties' relationship, and the scale and nature of the transaction. The court applied the guidance in Royal Bank of Scotland v Etridge (No. 2) [2002] AC 773. A relationship of trust and confidence is fiduciary in nature, but its defining characteristic is loyalty. Negligence in good faith is not itself a breach of fiduciary duty or an equitable wrong: Bristol and West Building Society v Mothew [1998] Ch 1.
3. Misrepresentation. Equity may intervene where a guarantee has been procured by misrepresentation, including an innocent misrepresentation. That doctrine is distinct from undue influence. Misrepresentation involves a false statement relied upon to obtain consent; undue influence involves abuse of trust and confidence through pressure or control. The principle was recognised in Barclays Bank v O'Brien [1994] 1 AC 180 and applied in the present case.
4. Application. Mr Chandra honestly believed that the additional £700,000 would be sufficient. His statement was understood as a forecast or best estimate, not as a guarantee of certainty. An over-optimistic or negligent assessment may potentially raise a duty-of-care issue, but it was not a misrepresentation on these facts and did not amount to undue influence. Inadvertent non-disclosure was distinct from deliberate concealment or a misleading statement. The Vice-Chancellor was therefore entitled to reject the claim.

1. Court of Appeal (Civil Division): In [2011] EWCA Civ 192, the appeal against the order of David Richards J was dismissed.
2. High Court of Justice, Chancery Division, Manchester District Registry: By an order dated 15 March 2010, David Richards J upheld RBS's claim on the first guarantee and charge. The judgment's citation is not stated in the supplied text.