Davies v AIB Group (UK) Plc

Undue influence requires proof of a legal or equitable wrong which caused the claimant to enter the transaction. The court must examine how the claimant’s intention was produced, rather than merely whether she understood the transaction fully. Opportunity for influence, procedural shortcomings, or imprudent conduct is insufficient without proof that influence was actually exercised improperly.

In transactions involving a bank, rescission additionally requires actual or constructive notice of the undue influence. Where the bank is put on inquiry, it must take reasonable steps to ensure that the claimant understands the practical implications and risks of the transaction. A properly advised solicitor may ordinarily discharge that requirement.

The claimant sought to set aside a joint personal loan of £1.35 million made by AIB Group (UK) Plc to her and her late husband. She alleged that she entered the loan because of her husband’s undue influence and that the bank failed to take adequate steps to ensure that her consent was properly obtained.

She alternatively argued that she incurred no contractual liability because her husband alone instructed the bank to draw down the loan. The claim concerned a wider refinancing of company and personal borrowings, supported by guarantees and mortgages over family properties. The issues were whether the claimant was contractually bound, whether undue influence had been proved, whether the bank had notice of it, and whether any defence or estoppel affected rescission.

1. Contractual liability. The claimant was bound by the personal loan. The joint account mandate authorised AIB to act on an instruction by either joint account-holder to activate any facility established for them and made them jointly and severally liable for advances. The mandate applied to the later personal loan, although that facility had not been arranged when the mandate was signed.
2. Undue influence. The relevant question was how the claimant’s intention had been produced. She had to prove some legal or equitable wrong by her husband which caused her to enter the loan. The court considered the relationship, the transaction, the parties’ personalities, the surrounding circumstances and whether the transaction was explicable by ordinary motives within a marriage. The claimant’s incomplete understanding, the complexity of the arrangements and the bank’s procedural shortcomings did not establish improper influence.
3. The contemporaneous documents showed that the husband disclosed both facility letters to the claimant’s solicitor, did not prevent her obtaining advice, and was seeking completion of a complex refinancing which also transferred valuable property interests to the claimant. The court found that she had at least a basic grasp of the arrangements and that the husband had not procured her assent by wrongdoing.
4. Bank’s notice. Had undue influence been established, AIB would have been put on inquiry because a significant part of the advance replaced company borrowing. The bank would not have discharged its obligations by instructing the solicitor only on the security documents, rather than on the facilities generally. That conclusion was unnecessary to the result.
5. The alternative argument based on the solicitor’s knowledge was not relied upon to decide the case. Some caution was required before treating an agent’s knowledge as answering the distinct question whether the claimant’s intention had been produced by undue influence.
6. The claim was dismissed. Judgment was to be given for AIB on its counterclaim for the unpaid balance of the final extension of the personal loan.

Not stated in the judgment.