Royal Bank of Scotland plc v. Etridge et al., (2001) 280 N.R. 58 (HL)

• Case Date: October 11, 2001
• Jurisdiction: Canada (Federal)
• Citations: (2001), 280 N.R. 58 (HL)

Royal Bk. v. Etridge (2001), 280 N.R. 58 (HL)

MLB headnote and full text

Royal Bank of Scotland plc (respondents) v. Etridge (appellant) (No. 2)

Barclays Bank plc (respondents) v. Harris (appellant)

Midland Bank plc (respondents) v. Wallace (appellant)

National Westminster Bank plc (respondents) v. Gill (appellant)

Barclays Bank plc (respondents) v. Coleman (appellant)

UCB Home Loans Corporation Ltd. (respondents) v. Moore (appellant)

Bank of Scotland (respondents) v. Bennett (appellant)

Kenyon-Brown (respondent) v. Desmond Bankes & Co. (appellant)

([2001] UKHL 44)

Indexed As: Royal Bank of Scotland plc v. Etridge et al.

House of Lords

London, England

Lord Bingham of Cornhill, Lord Nicholls of Birkenhead, Lord Clyde, Lord Hobhouse of Woodborough and Lord Scott of Foscote

October 11, 2001.

Summary:

This appeal involved eight cases. Each case arose out of a transaction in which a wife charged her interest in her home in favour of a bank as security for her husband's in­debtedness or the indebtedness of a company through which he carried on business. The wives later asserted that each had signed the charge under the undue influence of her husband. At issue was the application of the 1993 House of Lords decision in Barclays Bank v. O'Brien which enunciated the prin­ciples applicable for this type of suretyship contract.

The House of Lords discussed the prob­lems that had arisen in applying the O'Brien principles and clarified the situation. In particular the court held that a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts (or those of his company). The court set out the steps to be followed by banks in ensuring that the wife is adequately advised in these situa­tions. The court resolved the eight appeals in accordance with these principles.

Banks and Banking - Topic 2108

Liability of banks to third parties - Liabil­ity to guarantors of loans - Respecting independent legal advice - [See first Cred­itors and Debtors - Topic 805 ].

Banks and Banking - Topic 5145

Loans - Duties of banks - To guarantors - [See all Creditors and Debtors - Topic 805 ].

Creditors and Debtors - Topic 805

Creditors' duties - Where risk of undue influence, misrepresentation, etc. between cohabiting debtors - In Barclays Bank v. O'Brien (1993) the House of Lords enunci­ated the principles applicable to suretyship contracts where a wife acts as surety for her husband's debts - The House of Lords (2001) noted that some problems had arisen in applying O'Brien; however, the essential structure of O'Brien remained sound - In light of these problems, the court discussed the issue of presumed undue influence, when lending institutions are put on inquiry and what steps must be taken by a lending institution once put on inquiry - In particular, the court held that a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts (or for those of his company) - The court set out the steps or scheme a bank should follow in to ensure that the wife had brought home to her, (e.g., by way of legal advice), the practical implications of the proposed transaction.

Creditors and Debtors - Topic 805

Creditors' duties - Where risk of undue influence, misrepresentation, etc. between cohabiting debtors - The House of Lords, per Lord Nicholls of Birkenhead, discussed the principles of undue influence applic­able where a spouse enters a suretyship agreement with a bank in favour of the other spouse - The court stated that a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts or vise versa - Further the bank is put on inquiry in the case of unmarried couples, whether heterosexual or homosexual, where the bank is aware of the relationship - Cohabitation is not essential - See para­graphs 44 to 47.

Creditors and Debtors - Topic 805

Creditors' duties - Where risk of undue influence, misrepresentation, etc. between cohabiting debtors - The House of Lords, per Lord Nicholls of Birkenhead, discussed when a bank is put on inquiry where a spouse enters a suretyship agreement with a bank in favour of the other spouse - The court stated that "... the case where a wife becomes surety for her husband's debts is, in this context, a straightforward case. The bank is put on inquiry. On the other side of the line is the case where money is being advanced, or has been advanced, to husband and wife jointly. In such a case the bank is not put on inquiry, unless the bank is aware the loan is being made for the husband's purposes, as distinct from their joint purposes." - See paragraph 48.

Creditors and Debtors - Topic 805

Creditors' duties - Where risk of undue influence, misrepresentation, etc. between cohabiting debtors - The House of Lords, per Lord Nicholls of Birkenhead discussed when a bank is put on inquiry where a spouse enters a suretyship agreement with a bank in favour of the other spouse - The court stated that in cases where the wife becomes surety for the debts of a company whose shares are held by her and her husband the bank is put on inquiry, even when the wife is a director or secretary of the company - Such cases cannot be equated with joint loans - The shareholding interests, and the identity of the directors, are not a reliable guide to the identity of the persons who actually have the conduct of the company's business - See paragraph 49.

Creditors and Debtors - Topic 805

Creditors' duties - Where risk of undue influence, misrepresentation, etc. between cohabiting debtors - The House of Lords, per Lord Nicholls of Birkenhead, discussed the steps a bank should take once it is put on inquiry in a situation where a spouse enters a suretyship agreement with a bank in favour of the other spouse - See para­graph 50 to 89.

Creditors and Debtors - Topic 805

Creditors' duties - Where risk of undue influence, misrepresentation, etc. between cohabiting debtors - The House of Lords, per Lord Nicholls of Birkenhead discussed the content of legal advice which should be given by a solicitor in a situation where a wife enters a suretyship agreement with a bank respecting her husband's debts - The court also discussed whether the wife should have independent legal advice - See paragraphs 58 to 78.

Creditors and Debtors - Topic 805

Creditors' duties - Where risk of undue influence, misrepresentation, etc. between cohabiting debtors - In Barclays Bank v. O'Brien (1993) the House of Lords enunci­ated the principles applicable where one cohabitee was surety for the other's debts -The House of Lords (2001), per Lord Nicholls of Birkenhead, opined that the O'Brien decision was not confined just to sexual relationships, but rather in the future would extend to all cases where the relationship between the surety and the debtor was non-commercial - See para­graphs 82 to 89.

Guarantee and Indemnity - Topic 608

Duties of creditor - Where surety is spouse or cohabitant of debtor - [See all Credi­tors and Debtors - Topic 805 ].

Guarantee and Indemnity - Topic 2687

Discharge and other defences of surety - Acts of debtor - Undue influence over surety - [See all Creditors and Debtors - Topic 805 ].

Cases Noticed:

Barclays Bank plc v. O'Brien et al., [1994] 1 A.C. 180; 160 N.R. 214 (H.L.), refd to. [paras. 5, 94, 98, 134].

Huguenin v. Baseley (1807), 14 Ves. 273 (Ch. D.), refd to. [para. 7].

Bainbrigge v. Browne (1881), 18 Ch. D. 188, refd to. [para. 8].

Allcard v. Skinner (1887), 36 Ch. D. 145, refd to. [paras. 9, 92, 101, 153].

Zamet v. Hyman, [1961] 1 W.L.R. 1442, refd to. [para. 9].

National Westminster Bank v. Morgan, [1985] A.C. 686; 60 N.R. 384 (H.L.), refd to. [paras. 10, 155].

C.I.B.C. Mortgages plc v. Pitt et al., [1994] 1 A.C. 200; 160 N.R. 229 (H.L.), refd to. [paras. 12, 98, 134].

Bank of Credit and Commerce Interna­tional SA v. Aboody, [1990] 1 Q.B. 923 (C.A.), refd to. [paras. 17, 92, 98, 151].

Yerkey v. Jones (1939), 63 C.L.R. 649 (Ch. D.), refd to. [para. 19].

Lloyds Bank Ltd., Re; Bomze v. Bomze, [1931] 1 Ch. 289, refd to. [para. 19].

Bank of Montreal v. Stuart, [1911] A.C. 120, refd to. [paras. 22, 373].

Cobbett v. Brock (1855), 20 Beav. 524, refd to. [para. 40].

Kempson v. Ashbee (1874), L.R. 10 Ch. App. 15, refd to. [para. 40].

Massey v. Midland Bank plc, [1995] 1 All E.R. 929 (C.A.), refd to. [paras. 47, 339].

Powell v. Powell, [1900] 1 Ch. 243, refd to. [para. 59].

Coomber, Re; Coomber v. Coomber, [1911] 1 Ch. 723, refd to. [para. 60].

Wright v. Carter, [1903] 1 Ch. 27, refd to. [para. 62].

Bank of Baroda v. Rayarel, [1995] 2 F.L.R. 376, refd to. [para. 71].

Banco Exterior Internacional v. Mann, [1995] 1 All E.R. 936, refd to. [paras. 72, 163].

Credit Lyonnais Bank Nederland NV v. Burch, [1997] 1 All E.R. 144 (C.A.), refd to. [para. 83].

Inche Noriah v. Shaik Allie Bin Omar, [1929] A.C. 127, refd to. [paras. 86, 153].

Craig (Deceased), Re, [1971] Ch 95, refd to. [para. 86].

Smith v. Bank of Scotland, [1997] S.C.(H.L.) 110 (Scott.), refd to. [para. 94].

Forsyth v. Royal Bank of Scotland plc, [2000] S.L.T. 1295 (Scott.), refd to. [para. 95].

Turnbull & Co. v. Duval, [1902] A.C. 429, refd to. [para. 101].

Smith v. Bank of Scotland, [1997] S.L.T. 1061, refd to. [para. 114].

Commission for the New Towns v. Cooper (Great Britain) Ltd., [1995] Ch. 259, refd to. [para. 144].

Banco Exterior Internacional SA v. Thomas, [1997] 1 W.L.R. 221, refd to. [para. 144].

Seaton v. Heath, [1899] 1 Q.B. 782, refd to. [para. 185].

Hamilton v. Watson (1845), 12 Cl. & F. 109, refd to. [para. 186].

London General Omnibus Co. v. Hollo­way, [1912] 2 K.B. 72, refd to. [para. 187].

Pooraka Holdings Pty. Ltd. v. Participation Nominees Pty. Ltd. (1991), 58 S.A.S.R. 184, refd to. [para. 188].

Barclays Bank plc v. Thomson, [1997] 4 All E.R. 816, refd to. [para. 339].

Midland Bank plc v. Serter, [1995] 1 F.L.R. 1034, refd to. [para. 339].

Authors and Works Noticed:

Birks, Peter, The Burden on the Bank (1998), p. 195 [para. 82].

O'Donovan and Phillips, Modern Contract of Guarantee (3rd Ed. 1996), pp. 122 to 130 [para. 81].

Treitel, G.H., The Law of Contract (10th Ed. 1999), pp. 380, 381 [para. 10].

Counsel:

Jules Sher, Q.C., and S. Whitaker, for the appellant, Harris;

Jules Sher, Q.C., and Mark Lyne, for the appellant, Wallace;

Richard Mawrey, Q.C., and Simon Wheat­ley, for the appellant, Etridge;

Jules Sher, Q.C., and Teresa Rosen Pea­cocke, for the appellant, Gill;

Jules Sher, Q.C., and B. Devlin, for the appellant, Moore;

Nicholas Yell, for the appellant, Bennett;

Jonathan Sumption, Q.C., and Ben Hubble, for the appellant, Desmond Banks & Co.;

Jules Sher, Q.C., and Helena Pines Rich­man, for the appellant, Coleman;

John Jarvis, Q.C., and David Wolfson, for the respondent, Barclays Bank plc;

Michael Briggs, Q.C., and Clive Jones, for the respondent, Midland Bank plc;

Michael Briggs, Q.C., and Amanda Har­rington, for the respondent, Royal Bank of Scotland;

Michael Lerego, Q.C., and Nicholas Briggs, for the respondent, National Westminster Bank plc;

Michael Briggs, Q.C., and Christopher Coney, for the respondent, UCB Home Loans Corporation Limited;

John Jarvis, Q.C., for the respondent, Governor and Company of the Bank of Scotland;

Julia Smith, for the respondent, Kenyon Brown.

Agents:

Evans Derry Binnion, for the appellant, Harris;

Keppe Shaw, for the appellant, Wallace;

Collins, for the appellant, Etridge;

Baxter & Co., for the appellant, Gill;

Richard Wilson & Co., for the appellant, Moore;

Jenkin Evans, for the appellant, Bennett;

Henmans, for the appellant, Desmond Banks & Co.;

Waller & Co., for the appellant, Coleman;

Salans Hertzfeld & Heilbronn Hrk (appeal No. 1) and Nicholson Graham Jones (appeal No. 9), for the respondent, Bar­clays Bank plc;

Tarlo Lyons, for the respondent, Midland Bank plc;

Fladgate Fielder, for the respondent, Royal Bank of Scotland;

Osborne Clarke, for the respondent, Na­tional Westminster Bank plc;

Copley Clark & Bennett, for the respon­dent, UCB Home Loans Corporation Limited;

Underwood & Co., for the respondent, Governor and Company of the Bank of Scotland;

Neilson & Co., for the respondent, Kenyon Brown;

This appeal was heard in the House of Lords, on May 14-17 and 21-24, 2001, by Lord Bingham of Cornhill, Lord Nicholls of Birkenhead, Lord Clyde, Lord Hobhouse of Woodborough and Lord Scott of Foscote.

The decision of the House was delivered on October 11, 2001, when the following opinions were filed:

Lord Bingham of Cornhill - see paragraphs 1 to 4;

Lord Nicholls of Birkenhead - see para­graphs 5 to 90;

Lord Clyde - see paragraphs 91 to 97;

Lord Hobhouse of Woodborough - see paragraphs 98 to 131;

Lord Scott of Foscote - see paragraphs 132 to 374.