Agreement with Lord Nicholls
Lord Hobhouse agreed with Lord Nicholls but gave a lengthy judgment of his own as a commentary upon the issues and the scheme set out by Lord Nicholls.
Lord Hobhouse emphasised the continuity from O’Brien to Etridge ([99]) and expressed his agreement with the judgment of Lord Nicholls:
‘I shall agree with my noble and learned friend Lord Nicholls and, specifically, the guidance which he gives concerning the role of the burden of proof, the duties of solicitors towards their clients (paragraphs 64-68, and paragraph 74), and the steps which a lender which has been put on inquiry should take (paragraph 79).’ ([100]).
In the same paragraph ([100]) Lord Hobhouse states that Lord Nicholls’ advice ‘should not be treated as being optional, to be watered down when it proves convenient.’ Nor does the advice apply only to future transactions:
‘[I]t has represented, and continues to represent, the reasonable response to being put on inquiry.’ ([100]).
Unhelpful to speak of class 2B presumed undue influence
Lord Hobhouse comments on the role of ‘manifest disadvantage’ in the context of presumed undue influence:
‘It will be appreciated that the relevance of the concept of “manifest disadvantage” is evidential. It is relevant to the question whether there is any issue of abuse which can properly be raised. It is relevant to the determination whether in fact abuse did or did not occur. It is a fallacy to argue from the terminology normally used, “presumed undue influence”, to the position, not of presuming that one party reposed trust and confidence in the other, but of presuming that an abuse of that relationship has occurred; factual inference, yes, once the issue has been properly raised, but not a presumption.’ ([104])
It is the relationship of trust and confidence that is presumed in certain cases (such as solicitor-client) not undue influence. So the class 2B presumed undue influence category is unhelpful. The person seeking to rely on undue influence will have to prove both that there has been some manifest disadvantage and that the relationship was one of trust and confidence. There is no reliance on any presumption:
‘Nor is it clear why the mere “existence of such relationship raises the presumption of undue influence “. Where the relevant question is one of fact and degree and of the evaluation of evidence, the language of presumption is likely to confuse rather than assist and this is borne out by experience.’ ([105])
Applying this to wives guaranteeing the debts of their husbands (or husband’s business):
‘The guarantee is not on its face advantageous to the wife, doubly so where her liability is secured upon her home. The wife may well have trusted the husband to take for her the decision whether she should give the guarantee. If he takes the decision in these circumstances, he owes her a duty to have regard to her interests before deciding. He is under a duty to deal fairly with her. He should make sure that she is entering into the obligation freely and in knowledge of the true facts. His duty may thus be analogous to that of a class 2(A) fiduciary so that it would be appropriate to require him to justify the decision. If no adequate justification is then provided, the conclusion would be that there had been an abuse of confidence. But any conclusion will only be reached after having received evidence. This evidence will inevitably cover as well whether there has in fact been an abuse of confidence or any other undue influence. The judge may have to draw inferences. He may have to decide whether he accepts the evidence of the wife and, if so, what it really amounts to, particularly if it is uncontradicted. Since there is no legal relationship of trust and confidence, the general burden of proving some form of wrongdoing remains with the wife, but the evidence which she has adduced may suffice to raise an inference of wrongdoing which the opposite party may find itself having to adduce evidence to rebut. If at the end of the trial the wife succeeds on the issue of undue influence, it will be because that is the right conclusion of fact on the state of the evidence at the end of the trial, not because of some artificial legal presumption that there must have been undue influence.’ ([106])
The class 2B presumption is not a useful forensic tool ([107]).
When is the bank on inquiry?
The bank is on inquiry in relation to any guarantee by a wife of her husband’s debts (or those of his company) ([110]).
What must the bank achieve if it is on inquiry?
It is not enough to ensure that the wife has understood the transaction. The bank must also be satisfied that the wife entered into the transaction freely. Lord Hobhouse expressly parts company with Lord Scott on this point ([111]).
The reasonable steps to be taken
Lord Hobhouse had already expressed his agreement with the steps set out by Lord Nicholls in para. 79. In the view of Lord Hobhouse, the central feature of Lord Nicholls’s scheme us that it requires the solicitor to act for the wife and the bank has to be satisfied that this relationship was established ([120]). The benefits derived from this in terms of mitigating the risk that the guarantee has been procured by undue influence are substantial:
‘If the bank follows this procedure then the fiction of independent advice and consent should be replaced by true independent advice and consent.’ ([121]).
Michael Lower
