Chater v Mortgage Agency Services Number Two Ltd

The appellant, Mrs Chater, is a lady in her early seventies who lives at 242 Shenstone Avenue, Norton, Stourbridge, West Midlands. She appeals against the judgment of Judge Warner sitting in the Dudley County Court at Wolverhampton on 17 December 1999. The respondent is the successor to Citibank Trust Limited, but nothing turns on the succession.

The judge made an order for possession in favour of the respondent and gave judgment for £63,501.18 against the appellant and her son Andrew Chater who is a party to these proceedings but has taken no part in them. Permission to appeal was granted by Robert Walker L.J on 10 March 2000 and execution of the order was stayed pending the outcome of the appeal. The hearing of the appeal was deferred pending a decision by the House of Lords in UCB Home Loans Corporation Ltd v Moore, one of the appeals in the Royal Bank of Scotland Plc v Etridge (No.2) litigation [2001] UKHL 44, [2002] 2 AC 773 which was finally determined in October 2001.

The appellant’s defence to the claim was that she had been induced by the undue influence and/or misrepresentations of her son to mortgage her house for a substantial sum so that he could buy a franchise in a laser printing business. Her case was the respondent bank was put on inquiry as to the possibility of some equitable wrong and because it did not take reasonable steps to investigate it was fixed with constructive notice of the undue influence and/or misrepresentations.

Because the judge decided the case before the decision of the House of Lords in Etridge (No.2), he approached it on the basis of the law, as it was then understood to be. The appellant’s claim failed because the bank was entitled to assume the solicitors who were acting for the Chaters had considered whether there was a sufficient conflict of interest to make it necessary to advise her to obtain independent legal advice. The judge however found in favour of the appellant on the issues of undue influence, misrepresentation and constructive notice to the bank. No doubt because her claim failed, the judgment is economical on primary findings of fact on those issues on which she succeeded. It is therefore unclear what view the judge formed on several aspects of her evidence.

As well as her son Andrew, the appellant has a daughter Marie who is a year younger. She plays no direct part in the material facts.

The appellant has lived at 242 Shenstone Avenue since 1980. Initially she rented it from the Dudley Council but in 1985 she bought as a sitting tenant for £7,000 with the aid of a council mortgage.

Andrew Chater married about Christmas 1990 and then moved out. There was a lodger, Mr Rowley, who lived in 242 Shenstone Avenue until about 1996.

In the spring of 1990 Andrew Chater wanted to buy a franchise in a laser printing business. He suggested to his mother that the capital could be found by raising a loan for £26,000 on 242 Shenstone Avenue. This was about half the value of the property. He would, he told the appellant, have £20,000 for his business and she would have the other £6,000. Her evidence was that he said, ‘you can pay the house off and have a well earned holiday.’

A Mr Terry, a financial adviser, visited the Chaters. This appears to have been arranged by Andrew Chater. The appellant’s evidence was that he made encouraging noises. The business was a good thing and her son should make a lot of money. The loan was fully insured; illness in particular was mentioned. There was no chance of her losing her house.

The house was valued; the appellant thought that this was to ascertain how much her son was allowed to have. There was some suggestion on the part of the appellant that half was relevant because there were two children and they would eventually inherit half each.

A joint application was made to the respondent’s predecessor Citibank Trust Limited on 20 June 1990 for a second loan. Mr Terry appears to have filled in the documentation. The application was for a ‘high equity plus’ mortgage which was a loan that did not exceed 75% of the value of the properly. This required no more information from the applicants than that they would be able to service the loan. It was to be secured by a life assurance policy from Manulife. The purpose of the loan was described in the application form as ‘purchase’.

The appellant and her son nominated solicitors, Humfrys and Symonds to act on their behalf. The respondent corresponded with them directly.

A mortgage offer was made on 23 August 1990. In fact the mortgage offer came in the form of two offers both dated 23 August 1990, one for £4,748.09 and the other for £29,480.00. The total of the two advances was therefore £34,228.09.

Two accounts were necessary because the original loan qualified for tax relief under the Miras scheme. The evidence was silent as to how the amount of the loan increased from the sum of £26,000 originally sought to over £34,000 that was eventually borrowed.

The purpose of the loan in the offer documents was described as ‘other home improvements.’ There was no direct evidence, from whom this description came. Of the total advance £4,748.09 was required to pay off the existing loan from the council, £3,216.00 was retained to pay the life assurance premiums for the first five years as they fell due and there were other deductions. The appellant and her son received a cheque payable to the two of them jointly for £23,949.36. She immediately endorsed it over to her son. In the meantime the appellant and her son had been to the offices of Humfrys and Symonds on 12 September 1990. They executed the transfer of the property into their joint names and the loan documents, during a ten minute meeting with a solicitor, Mr Lumley. He was a locum, but had considerable conveyancing experience. He had only a general recollection of the circumstances by reference to his principal’s file.

He said he would not have discussed the matter in great detail. He would have explained the effect of the documents and in particular the effect of joint ownership and that if the loan could not be repaid the property would be repossessed and sold, possibly at a loss. If he had had any doubt that they understood the documentation he would probably have ended the meeting. He agreed that solicitors in 1990 were less assiduous in this area than they later became.

The mortgage fell into arrears almost from the start. Possession proceedings were commenced in November 1991. A possession order was made on 16 January 1992. The appellant attended the hearing and paid off the arrears. In April 1996 the appellant issued proceedings against her son to set aside the transfer of the property into joint names. These proceedings were settled by a consent order. It was agreed the property would be retransferred to the appellant subject to the mortgage. There was no claim to set aside the mortgage. The respondent consented to this transfer in February 1998.

Fresh proceedings were commenced the same month. The sum required to repay the mortgage was then over £39,000. These are the proceedings giving rise to the order under appeal. Andrew Chater, although named as first defendant, did not acknowledge service and has taken no part in the proceedings.

The appellant says the respondent was on notice that she might be acting under the undue influence of her son by reason of the information given on the application form and yet it failed to require her to take independent advice from a solicitor. She says she reposed trust and confidence in her son in relation to business and financial matters. He had asked for a loan of £26,000 to be secured on the property which Mr Terry had assured her would be ‘fully insured.’ Relying on these representations she entered into the transaction.

Following the decision in Etridge (No.2) in the House of Lords the appellant has to show:

(1)

(i) that she was unduly influenced to enter into the mortgage; or

(ii)

that she was induced to enter into it by a misrepresentation;

(2)

That the respondent was put on inquiry as to some equitable wrong; and

(3)

That the respondent did not take reasonable steps and as a result was fixed with notice of the undue influence and/or misrepresentation.

Undue influence

All eight cases considered by the House of Lords in Etridge (No.2) arose out of transactions in which a wife had 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. This case is different in that it involves not a husband and wife but a mother and son, the son wishing to raise money from his mother’s home for the advancement of his business. Necessarily, different considerations arise but the legal principles to be applied are the same.

As Lord Nicholls pointed out in Etridge(No.2) at para 8 the law does not permit someone to take unfair advantage over another with whom he has a relationship in which he has acquired a measure of influence or ascendancy. The burden of proving an allegation of undue influence rests upon the person who claims to have been wronged and, as Lord Nicholls said at para 13, the evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case. He went on at para 14:

“Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant’s financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facia evidence that the defendant abused the influence he acquired in the parties relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn.”

Lord Scott at para 154 spoke of proving in the first instance sufficient facts to give rise to the presumption, and at para 156 he said:

“It is, in my opinion, the combination of relationship and the nature of the transaction that gives rise to the presumption and, if the transaction is challenged, shifts the onus to the transferee.”

He regarded the presumption of undue influence in this type of case as having the same function as res ipsa loquitur in negligence cases. It recognises an evidential state of affairs in which the onus has shifted.

The two questions on which to focus in the present case are whether the appellant placed trust and confidence in her son in relation to the management of her financial affairs and whether there was here a transaction calling for an explanation. The judge did not ask himself these two questions as such for the very good reason that his decision predated the decision for the House of Lords in Etridge (No.2). He did, however, conclude that although she was not as naïve as she sought to suggest, she nevertheless reposed trust and confidence in him. It is true that the judge did not add the words ‘in the management of her financial affairs’ but it is difficult to see to what else that trust and confidence could relate on the facts of this case. In our view there is no basis for disturbing the judge’s findings on this.

The second, and in this case more difficult, question is whether the transaction called for an explanation. Here, it is important to distinguish between the transaction itself (as to which there is no dispute) and the steps that led up to it as to which there is an incomplete picture and considerable doubt as to the extent to which the judge accepted the appellant’s evidence which was ‘a ragbag of contradictions’.

The respondent’s position does not at this stage fall for consideration. What has to be looked at are the facts as known to the court as between the appellant and her son. Do they call for an explanation? Lord Nicholls said at para 24:

“Something more is needed before the law reverses the burden of proof. Something which calls for an explanation. When that something more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption is rebutted.”

He then went on to refer to this as the approach adopted by Lord Scarman in National Westminster Bank Plc v Morgan [1985] AC 686, 703-707. Lord Scarman noted that whatever the legal character of the transaction, it must constitute a disadvantage sufficiently serious to require evidence to rebut the presumption that in the circumstances of the parties’ relationship, it was procured by the exercise of undue influence. He then cited the following passage from Lord Scarman’s speech at 704:

“The Court of Appeal erred in law in holding that the presumption of undue influence can arise from the evidence of the relationship of the parties without also evidence that the transaction itself was wrongful in that it constituted an advantage taken of the person subjected to the influence which, failing proof to the contrary, was explicable only on the basis that undue influence had been exercised to procure it.” (Emphasis added.)

Lord Nicholls then went on to reject the use of the label “manifest disadvantage” to this second ingredient necessary to raise the presumption. He pointed out that it was causing difficulty and was being understood and applied in a way not intended by Lord Scarman.

In the present case there was no evidence from the son and the question is whether there was sufficient about the transaction to raise the inference that it was procured by undue influence. Was there prima facie evidence that the son abused the influence that he had in his relationship with his mother?

The passage from Lord Scarman’s speech was also cited by Lord Scott at para 155 in Etridge (No.2). He described Lord Scarman’s reasoning as circular. He said:

“The transaction will not be ‘wrongful’ unless it was procured by undue influence. Its ‘wrongful’ character is a conclusion, not a tool by which to detect the presence of undue influence. On the other hand, the nature of the transaction, its inexplicability by reference to the normal motives by which people act may, and usually will, constitute important evidential material.”

Lord Hobhouse described the position thus at para 107 in Etridge(No.2):

“Although the general burden of proof is, and remains, upon [the appellant], she can discharge that burden of proof by establishing a sufficient prima facie case to justify a decision in her favour on the balance of probabilities, the court drawing appropriate inferences from the primary facts proved. Evidentially the opposite party will then be faced with the necessity to adduce evidence sufficient to displace that conclusion. Provided it is remembered that the burden is an evidential one, the comparison with the doctrine res ipsa loquitur is useful.”

In our judgment the correct legal test is that set out by Lord Nicholls at para 14 in Etridge (No. 2). Insofar as the passage cited from Lord Scarman’s speech in Morgan suggests a higher test, we prefer the reformulated test given by Lord Nicholls. We detect a possible distinction between a transaction explicable only on the basis that undue influence had been exercised to procure it (Lord Scarman) and one which called for an explanation, which if not given would enable the court to infer that it could only have been procured by undue influence (Lord Nicholls).

What of the transaction in the present case? Its essential nature was that the appellant and her son, who was living in the house but was shortly to be married, jointly borrowed £34,228.09 on the security of her house so that he could purchase a franchise in a laser printing business. At the same time the house was transferred into their joint names.

Part of the money advanced went to pay off the existing mortgage (£4,748.09) and after deduction of various costs and expenses including some insurance premiums paid in advance, the appellant and her son received a cheque in their joint names for £23,949.36 on 24 September 1990. She, however, endorsed the cheque and the proceeds went entirely to her son.

Mr Anderson’s submission for the appellant is that it is necessary to scrutinise carefully the nature of the mortgage. £103 was being deducted monthly and added to the capital. Nor could the son afford the insurance premiums, which were also being added to the capital. The appellant’s share of the equity in her property was being eaten into in the early years of the loan. One might add that by signing the mortgage and transferring the house into joint names the appellant had in fact signed away the whole of her equity from day one. The total loan exceeded half the value of the house. The respondent could look to her if her son defaulted and was entitled to have recourse to her share of the house leaving her to recoup anything she could from her son. Embarking on this type of mortgage product, submits Mr Anderson, without any business plan smacks of fraud. This was a transaction, as between the parties, that cried out for questions to be asked.

The judge in his judgment put it this way. The appellant had gone from having a modest mortgage with a local authority on a property in her sole name to having a commercial mortgage many times larger and only owning half the property, to which we would add that subject to her rights against her son she was left in reality with no equity at all.

Mr Anderson also relied on the fact that the appellant allowed her son to choose as a solicitor, one who lived some distance away and that she signed the reverse of the cheque without questioning why. All this, he submits adds up to undue influence.

Miss Sandells, for the respondent, submits that first and foremost this was a transaction between mother and son, a son who was living at the time with his mother and about to get married. Capital is frequently passed on from one generation to the next. It is perfectly normal for a parent to wish to help a child financially. Many parents put money into their child’s business. Just as Lord Scott in Etridge (No.2) at para 159 was unable to accept the proposition that if a wife, who generally reposed trust and confidence in her husband, agreed to become surety to support his debts or his business enterprises a presumption of undue influence would arise, so in the present case she submits the mere fact that the appellant advanced money to her son on the security of her house does not give rise to the presumption. She knew the money was required for his business. She was not so far under his influence that she could not take steps to protect herself. She was not forced into the transaction; she saw it as reasonable. It was not without benefit to her because her mortgage would be paid off. There is no evidence that she was pressurised. Of course it is easy to look at the situation with hindsight after the business has failed and the money has been lost. What matters is the factual situation at the time of the transaction. The court cannot infer that the transaction could only have been procured by undue influence. That is not the only explanation from the established facts.

She went on to submit that the basic reason why the appellant helped her son was her love and affection for him. The transaction cannot, without more, be categorised as wrongful in the sense that it necessarily spells out victimisation by the son of his mother. No one looking at it could say the only explanation was an abuse of the mother/son relationship.

We can see the force of the argument that although it is a possibility on the known facts that the son was taking his mother for a ride that was not the only explanation for the transaction. There is no evidence that the appellant was forced into letting her son have the money and indeed the evidence is that she saw, at least the proposal for the original amount, as reasonable. But of course the very nature of undue influence is such that the victim will often not appreciate the significance of what is being done.

In our judgment however there are several features about the transaction in this case that call for an explanation. It is not, unfortunately, clear to what extent the judge accepted the appellant’s evidence, but some facts are inescapable. This was a very unsuitable arrangement for the appellant if things went wrong as in the event they did. It was a 25 year mortgage for a woman of 61. Also the purpose of the loan in the application form did not, for whatever reason, accord with the true purpose of the loan, which was to set up the son’s business. Because of the structure of the loan, the amount outstanding was set to increase during the early years. Also, the house was transferred into joint names when, according to the respondent’s evidence, it would not have insisted on this where joint borrowers were living in the property. The appellant had put all of her equity in the house at risk despite having a daughter and having expressed an intention to treat them equally (witness her reference to her son’s half share of the house).

The fact that Humfrys and Symonds acted for the appellant and her son does not prevent the presumption of undue influence arising. The appellant never met Mr Ferguson, the solicitor dealing with the matter. Her evidence was that she had no recollection of seeing letters addressed to her and her son jointly from Mr Ferguson, and the assistant solicitor, Mr Lumley, whom she did see when she executed the documents, was concerned only with the conveyancing aspects.

This was, in the words of Lord Nicholls a transaction that called for an explanation and the stage was set for the court to infer in the absence of a satisfactory explanation, that the transaction could only have been procured by undue influence. There was no satisfactory explanation; indeed there was no explanation at all. Accordingly the allegation of undue influence is made out.

Two misrepresentations were pleaded. The first is that the loan was for £26,000; the second that it would be ‘fully insured’ (that is the repayments would be met from insurance if the son was unable to pay). The complaint is that the loan was for over £34,000 and its repayment was not insured. As these are the only two misrepresentations pleaded, it is a reasonable inference that although not identified by him, it was these to which the judge was referring in his judgment.

The first question is whether the evidence supported a finding that either or both of these representations was made. Assuming that question is answered in the affirmative, it must also be established that the misrepresentation led to the appellant holding a false impression about some material matter. In other words relevant causative effect is required (see Lord Scott at para 223 in Etridge (No.2)).

The appellant made two witness statements. The first is dated 16 December 1996, the second 12 July 1999. The appellant was consistent in her evidence that the loan was to be for £26,000. She said so in both witness statements and again in evidence. That was her understanding throughout; it was not until after the transaction had been completed that she realised it was for much more. She said: “I gradually realised it was for more than I thought”. The cheque dated 24 September 1990, and made out to the appellant and her son, was as we have mentioned for £23,949.36, less of course than £26,000.

The evidence about the loan being fully insured is much more equivocal. In her first witness statement the appellant made no mention of this. In her second statement she said: “Mr Terry also said that my son would be fully insured, there was no risk at all to me and that there was no chance at all of me losing my house”.

There was then the following passage in cross-examination:

“Q: He did not say there was no chance of you losing your house at all, did he?

A: Yes he did.

Q: You can remember that quite clearly?

A: I do, I remember him saying that.

Q: Even though that is in 1990?

A: Yes. I remember that.

Q: Did he identify any other reasons when this insurance would be paid out other than illness?

A: No, I cannot think of anything else he mentioned really.

Q: So he only mentioned illness?

A: Yes.

Q: You are familiar with mortgages because you had one with Dudley Borough Council?

A: Yes.

Q: You presumably knew that if you could not pay Dudley Borough Council, they would have tried to sell your property?

A: Yes.

Q: So although you say Mr Terry said there was no chance of you losing your home because of this insurance, how can that be right when all he said you were being insured against was your son being ill?

A: He said that in any case of Andrew not being able to pay this loan, then the insurance would pay for it.

Q: I have just asked you –

A: That is what he said, yes.

Q: You just said to me that all he mentioned was illness?

A: What else is there really, or I suppose if he died?

Q: It is a different thing if he died, yes.

Q: We have to be quite careful here because the words are quite important. You seem very comfortable by telling me that Mr Terry told you that if your son was ill then payment would be paid under the insurance?

A: Yes.

Q: When I asked you, you said there was nothing else that he mentioned as being a reason why that insurance would pay you money. But then you are then also suggesting that in other circumstances you would also be okay because your home would not be repossessed. But that sort of insurance was not what Mr Terry said you were getting, was it; it was only in relation to illness?

A: He said that Andrew was fully insured, and I can’t remember what he said now. I know he mentioned illness, but I can’t remember what else he said.”

In our judgment the appellant’s evidence was insufficiently clear to justify finding a misrepresentation of ‘fully insured’. There is no reference to any representation about insurance in the appellant’s first witness statement and thereafter it is difficult to take her conflicting statements any higher than that there would be death and serious illness cover. This is precisely what was put in place. The pleadings allege that the son and Mr Terry said the loan would be “fully insured” (that is, that the repayments would be met from insurance if the son was unable to pay). Mr Anderson argues that for practical purposes it was being represented that there was no chance of her losing the house.

This aspect of the case is difficult because the judge made no finding other than that he was satisfied the position was misrepresented to her by her son and that she reasonably relied on those misrepresentations. It is impossible to know how he analysed her evidence and what he accepted. In the event this issue does not affect the outcome of the appeal. First, a separate equitable wrong is established in the form of undue influence and second even if the misrepresentation was made, there was nothing to put the respondent on inquiry about it.

Returning to the representation as to the amount of the loan, the appellant’s case is that the son represented the loan was for £26,000 whereas in the event it was for over £34,000. It is necessary to analyse what actually happened. Miss Sandells submits that in reality the appellant’s argument is that there was a fraudulent concealment of the increase; her son misled her. The critical moment was when the appellant signed the charge. What was her state of mind at that point? The judge accepted the evidence of the solicitor, Mr Lumley, about what happened at the meeting on 12 September 1990 when the documents were executed but said that the limited legal advice she received from Mr Lumley did not save and protect her from the misrepresentations. Mr Lumley’s witness statement included the following passage as to his practice when dealing with clients and explaining the nature of this type of transaction in 1990.

“When interviewing the client(s) I would briefly discuss the conveyancing aspects of the matter and discuss in general terms the effect of the mortgage. I would probably mention during the course of the interview the amount that was being borrowed. As to the effect of the mortgage, I would point out that if the clients did not pay the mortgage company the payments when they fell due, the mortgage company would seek possession of the property and sell it. ”

Miss Sandells points out that the sum of £34,228.09 was clearly stated both in figures and in words on the very page of the legal charge that the appellant signed. Had she either read the document or listened to what Mr Lumley told her she could not have been misled about the amount of the loan. Thus the appellant could not, on the evidence, have relied on the original representation that the loan was for £26,000. Mr Anderson submits that if the appellant trusted her son she had no need to read the document and that it is by no means clear that Mr Lumley did mention the amount because the judge did not make any express finding that he had told her the amount of the loan. Nor, he argues, was it ever put to the appellant that she knew the amount of the loan because Mr Lumley told her. The bottom line however is that the evidence of Mr Lumley was accepted by the judge and his evidence included that he would probably have mentioned the amount during the course of the meeting. That was his ordinary practice and there is no reason why he should not have followed his ordinary practice on this occasion.

Miss Sandells argues that the son’s behaviour cannot have been causative when the appellant did not take the basic step of reading the document. What in essence she was saying was that she was not bound by her deed that she had not bothered to read. Furthermore the appellant’s evidence about the meeting on 12 September 1990, which was that she was told nothing and simply signed the documents, not even appreciating that her property was being transferred into joint names, was rejected. The judge preferred the evidence of Mr Lumley which indicated that he would have concluded early on that both parties understood what they were doing, otherwise the appointment would have lasted longer than ten minutes. He said:

“…..I am certain that, having heard my explanation for the nature of this transaction, they were happy to sign the documents. I would not have been happy to allow them to sign had they not been happy to enter into the transaction, having had its potential effect explained to them.”

Accordingly it is not established that there was any misrepresentation that led the appellant to have a false impression about any material matter.

Was the respondent put on inquiry? Andrew Chater did not give evidence at the trial and there was no evidence why what was undoubtedly initially going to be a loan of £26,000 eventually turned into one of over £34,000. The nature of the appellant’s case  that it came as a shock to her – was such that her evidence does not assist. One is therefore left with the documents.

The initial application dated 20 June 1990, was for a loan of £26,000 and the purpose was said to be ‘purchase’. A manuscript note of a telephone call that day from Mr Terry to the solicitors refers to: “son purch part equity of mother’s home,” and it is a reasonable inference that the same information was conveyed to the respondent. It is common ground that the application form was completed by Mr Terry albeit signed by the appellant and her son. A letter from Mr Ferguson of Humfrys and Symonds dated 29 August 1990 to Mrs Chater and her son said he understood a new gross offer of £30,000 was to be issued and amongst other things that the lodger, Mr Rowley, was required to sign a Deed of Consent and that Karen Chater (presumably Andrew Chater’s then partner) was required to sign an acknowledgment that she had no interest in the property. The letter also referred to the property being transferred into joint names. This is one of a number of letters that the appellant says she had no recollection of seeing and this includes some letters addressed to her alone. Mr Rowley’s consent was in exchange for a payment to him of £2,500.

The revised offer was dated 23 August 1990 and the loan purpose was described as ‘other home improvements.’ Again the appellant does not remember seeing it. Her son and Mr Terry, she said, handled everything. She says she went on with her own life and left them to get on with it. One of the questions to which there is no obvious answer is why the description of the purpose of the loan changed from ‘purchase’ in the application to ‘other home improvements’ in the offer of 23 August 1990.

The evidence suggests that the respondent was not particularly interested, in processing this type of loan, with why the borrower wanted to borrow the money but more with whether there was a sufficient equity in the property to repay it. This was categorised as a ‘high equity’ loan where the borrower was allowed to borrow up to 75% of the valuation of the property on a ‘self-certified’ basis. That is, no reference would be required from his employers or accountants. The scheme was designed to provide a speedy service to the respondent’s clients whilst at the same time ensuring that its interests would be protected by a high equity cushion. Mr Bishop was employed by the respondent in 1990. His evidence was that it was quite normal for a re-mortgage of the kind in this case to be described as house ‘purchase’ with the offer being made in two parts one net of MIRAS to replace the existing mortgage and the balance with the interest calculated gross. In his view it was likely that ‘other home improvements’ had found its way into the offer documents simply because the operative had selected that indicator when keying the details into the bank’s computer system.

At this stage the court is considering whether the respondent was put on inquiry as to some equitable wrong. Here the court is not concerned with what was actually happening between mother and son but with what the bank knew about it or, by making appropriate inquiries, ought to have known about it. In the first place this is neither a debtor/surety nor a husband/wife case. What is the information that was available to the respondent? That is the crucial question. Was it sufficient to put it on inquiry as to some equitable wrong? The starting point is that this was a joint application for a joint loan. The net loan eventually arrived in the form of a cheque payable to the appellant and her son jointly from their solicitors Humfrys and Symonds.

The stated purpose of the loan in the application form was ‘purchase’. The fact that this was not true is nothing to the point if the respondent did not know it was not true. The reference to ‘purchase’ as the stated purpose of the loan in the case of a remortgage is explained by Mr Bishop’s evidence (see para 56 above). There is nothing on the documents to suggest this was a loan exclusively for the son’s purposes. A lender is not obliged without more to make further inquiries. Even if the respondent was told (see para 54 above) by Mr Terry that the son was purchasing part of the equity in the mother’s home there was nothing in that to concern it. The respondent knew the application was by a mother and son, but there are many reasons why a mother, (even if the advance was for the son alone which on the facts known to the bank this advance was not), might perfectly justifiably wish to help him financially and without there being any unfair pressure on her to do so. The respondent knew the property was being transferred into joint names but the evidence was that it would not have insisted upon it as the son was living in the property. The mere fact that this application was by a mother and son and that it was the mother’s house that was to be the security for the loan is not enough.

It is important to look at what message was being given to the respondent by the loan application and anything else it received or that occurred before the documents were executed. There was nothing to indicate the loan was solely for the son’s purposes. On the face of it this was a domestic loan, a fact fortified by the word ‘purchase’ as the stated purpose of the loan. The respondent called Mr Bishop. There is no transcript of his evidence but his witness statement is in the bundle of documents. He has been employed in the mortgage lending industry for over 30 years and was employed by the respondent as the underwriting team under leader for London and South East England at the material time. His evidence was that he would have accepted this as a loan to improve property and that it was far from uncommon for a mother in such circumstances to bring her son into the transaction; it was after all a joint loan. A joint application for a mortgage advance from a parent and offspring was not at all unusual, particularly in cases where the property had been purchased under the local authority’s right to buy scheme which only allowed the existing tenant to buy the property. He added that the bank’s underwriting decision would have been based on the income of the main earner, here the son, and that it would have been noted from the application form that it was his intention to remain at the property and he was conducting his business from that address. He would have assumed the loan was for improvement of the Chaters’ joint living circumstances.

How does the law distinguish between those cases in which a bank is put on inquiry and those in which it is not? This question received a good deal of attention from their Lordships in Etridge (No. 2) but there the House was dealing with a series of husband and wife cases, Lord Bingham made this general observation at para 2:

“It is important that lenders should feel able to advance money, in run-of-the-mill cases with no abnormal features, on the security of the wife’s interest in the matrimonial home in reasonable confidence that, if appropriate procedures have been followed in obtaining the security, it will be enforceable if the need for enforcement arises. ”

He spoke of the risk that a wife has been overborne or coerced by her husband being reduced to a level which made it proper for the lender to proceed. He agreed in particular with the opinion of Lord Nicholls (as did the other members of the House) and the requirements he spelt out to achieve this. Lord Nicholls said this at para 48:

“As to the type of transactions where a bank is put on inquiry, 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. That was decided in CIBC Mortgages plc v Pitt [1994] 1 A C 200.”

Whilst it is true that Lord Nicholls was referring specifically to husband/wife and unmarried couples situations his distinction between debtor/surety cases and joint advances is, in our view, nevertheless relevant to the present case. So here the bank was not put on inquiry, unless the respondent was aware the loan was being made for the son’s business.

There was nothing to tell the respondent that what lay behind the transaction was a commercial loan to the son alone. The respondent owed no duty to discover what the loan was for. It had only its own interests to protect. A lender is not put on inquiry by every further advance application. There is no obligation to ask questions albeit a bank is not entitled to shut its eyes to the obvious. On the face of it this was a joint loan and there was nothing to put the respondent on inquiry that there might be some equitable wrong, nothing to set the alarm bells ringing. And as Lord Hobhouse observed in Etridge (No.2) at para 109 the question whether the bank has been put on inquiry has to be answered on the basis of the facts available to the bank. One of those facts was that the appellant and her son had jointly appointed solicitors, Humphrys and Symonds to act for them.

Mr Anderson argues that the threshold to put a lender on inquiry is a low one. It arises in virtually every non-commercial case. This was a ‘no questions asked’ mortgage where the lender simply did not care what the purpose of the loan was. The fact that this was a mother/son application was nothing to the point. There was more than sufficient in the application form to ask the appellant to be independently advised. He pointed to the fact that a mother and son were less likely to need shared money than a husband and wife: that the nature of the loan was unsuitable for a retired widow and that the rate of interest was very high. Any prudent lender he submits would have realised there was a greater risk in this case than in the ordinary run of cases that it would have to have recourse to its security. There was plainly enough to put the respondent on notice that the transaction might not be of benefit to the appellant.

The judge concluded that there was a range of possible scenarios suggested by the application form and that it was at least a possibility for the respondent to consider that undue influence could come into play as one of them. In our judgment, however, there was nothing about the transaction on the information supplied to the respondent that could not readily be accounted for by the ordinary motives of a mother and son especially where mother and son were living in the same house; nothing about the transaction that called for an explanation.

The judge referred to Mr Bishop’s evidence that an alert underwriter could have inferred as a possibility from the application form that the appellant was either going to transfer the property into joint names or stand surety for the loan. The son was in business as a salesman from the mother’s address. One of the real possibilities considered by the underwriter could have been that a retired mother was using the house as security for her son’s loan. As we have said, we have not seen any transcript of Mr Bishop’s evidence and this answer appears to have been an answer given by him in the course of cross examination.

In our judgment the judge was putting the respondent’s obligation too high. The respondent is not a detective and it does not matter what an alert underwriter might have inferred as a possibility. There was no reason why the respondent should not take the loan application at face value and, as Mr Bishop said, this was an application for a joint loan and the reasonable assumption was that it was for improvement of their joint living circumstances. There was nothing to put a prudent lender on inquiry that this might in reality be a commercial loan and that undue influence might possibly underlie the transaction. What mattered was that the transaction could perfectly reasonably be accounted for by the ordinary motives of mother and son. As Lord Nicholls said, where a joint loan (there to husband and wife) is made, a bank is not put on inquiry unless the bank is aware that the loan is being made for the husband’s purposes rather than for their joint purposes. Here the bank was not aware that the loan was being made for the son’s business purposes rather than the mother and son’s joint purposes.

We are unable to detect anything about this transaction that was sufficient to put the respondent on inquiry about undue influence. As to the alleged misrepresentations, even if made good, there was no evidence that the respondent was or ought to have been aware that the appellant had been misled into thinking the loan was only for £26,000 or that the loan was “fully insured”.

The third and final question whether the respondent failed to take reasonable steps and is therefore fixed with notice of the undue influence does not arise because we have concluded that the respondent was not put on inquiry. We shall therefore say little about it.

The judge found that the solicitors gave inadequate advice to the appellant. Her case is that the respondent did not ask the solicitors to advise her, nor did they receive any confirmation that they had done so. In short it is her case that the respondent took no steps at all. Indeed Mr Anderson submits it is by no means clear that the respondent knew that Humfrys and Symonds were acting for the appellant to do anything other than the conveyancing. Given our conclusion that the respondent was not put on inquiry, it was not obliged to take any steps. What steps would have been reasonable had it been put on inquiry would depend on the precise circumstances in which it was put on inquiry. It does not seem to us to be helpful to speculate on what might have been reasonable had the situation been different. In Etridge (No. 2) at para 80 Lord Nicholls said that in respect of past transactions (by which we take him to be referring to pre Etridge (No. 2) transactions) a bank will ordinarily be regarded as having discharged its obligations if a solicitor who was acting for the wife in the transaction gives the bank confirmation to the effect that he had brought home to the wife the risks she was running by standing as surety.

The final point taken by Miss Sandells is that the appellant’s conduct of the litigation against her son has made it impossible to raise any equity against him and that therefore she cannot set the mortgage aside as against the respondent. She relies on First National Bank plc v Walker [2001] 1 F L R 21. That, however, was a very different case from the present one. In that case a wife had pursued ancillary relief proceedings on the footing that the former family home was affected by a mortgage and was attempting to defend possession proceedings on the basis that the loan transaction was voidable against her because of her husband’s undue influence. The court held that it would be an abuse of process to permit the wife to pursue a defence in the possession proceedings that was inconsistent with her stance in the ancillary relief proceedings. Sir Andrew Morritt V-C said at para 55 he did not think the label to be attached, whether estoppel, approbation and reprobation, abuse of the process, affirmation or release was of any importance although he thought on the facts of the case that all of them applied. Chadwick and Rix L.J.J decided the case on the ground of abuse of process.

What is said here is that the appellant has been blowing hot and cold and that her approach in the litigation against her son is inconsistent with her defence to the respondent’s claim. What is particularly relied on is that the property was retransferred to the appellant still subject to the mortgage and that there was no claim to set aside the mortgage. On the face of it we think it is difficult to see that she has behaved inconsistently in any way, certainly in such a way that would attract the disapproval of the court and prevent her from running a defence that would otherwise succeed. On the contrary as Lord Denning once said, she has been blowing hotter and hotter. Of critical significance, however, is the fact that this point was never pleaded or argued before the judge. Had such an allegation been made it would have been necessary to plead with some precision the facts relied upon and the appellant would have had an opportunity to deal with them in her evidence.

In the circumstances, we do not think that this point could save the respondent if, contrary to our primary findings, the appellant’s claim had not failed on other grounds. As it is, the point is of no consequence.

The appellant’s claim against the respondent fails. Although the evidence establishes that she was induced to enter the mortgage by undue influence the respondent was not put on inquiry as to any equitable wrong and was not obliged to take any further steps. The appeal is therefore dismissed.