National Westminster Bank Plc v Waite & Anor

In this action the claimant bank (“NatWest”) claims from the defendants sums alleged to be due under two joint personal guarantees which they gave in 1997 to secure the debts of a company called South Lakeland Care Limited. The first guarantee, dated 6^th February 1997 was for £25,000. The second guarantee, dated 25^th July 1997, was for £100,000. The defendants say that the guarantees were procured by undue influence and that neither is enforceable.

The first defendant, Mr Waite, was a senior police officer until he retired sometime in 1992. His wife, the second defendant (they are now divorced) was a nurse. She had experience of working in nursing homes. When Mr Waite retired, a friend who was a neighbour suggested that they should go into the business of running a care home for the elderly. He assisted them to produce a business plan. At the beginning of March 1993, the defendants purchased a residential care home in Bath called Kingsley House.

Kingsley House was a profitable business. The defendants acquired it with a loan from Citibank and kept a business account, with corporate facilities, at the Bank of Scotland. Their accountant was a man called Mike Dunkley. Sometime in late 1994 or early 1995 Mr Dunkley introduced the defendants to Graham Edwards, who was at the time manager of NatWest’s Business Centre for South Gloucestershire based in Thornbury. He was keen to secure the Kingsley House account for NatWest: but it seems that his superiors were not willing to sanction any lending to the Kingsley House business at that time, so the defendants stayed with the Bank of Scotland.

Not long afterwards, in the spring or early summer of 1995, the defendants agreed to participate in a second care home venture in Cumbria. The friend and neighbour who had suggested they go into the business of care homes in 1993 had a brother-in-law called Tony Middleton. Mr Middleton was an accountant by training. He had recently sold his family’s locksmith business. He had some capital to invest and was interested in investing it in a care home or nursing home. Knowing of the defendants’ experience in running Kingsley House, the neighbour suggested they might like to join with Mr Middleton in a new venture. Mr Middleton was willing to supply the capital if the defendants, in particular the second defendant, would provide the management expertise.

In the summer of 1995 the defendants and Mr Middleton found a suitable care home to buy in Arnside in Cumbria. It was called Redlands Nursing Home (“Redlands”). It was being offered for sale by receivers. The defendants were familiar with the area, having at one time lived there for several years. Together with Mr Middleton they acquired an off-the-shelf company and changed its name in July 1995 to South Lakeland Care Limited. I shall refer to it as “SLC” for short. They each became directors of SLC. The issued shares of the company were divided into two classes. The “A” shares were the voting shares and were divided so that Mr Middleton held 400 shares and members of his family another 100 shares, whilst the defendants held 250 shares each. The “B” shares were non-voting shares and were all issued to Mr Middleton to reflect the fact that he had provided the capital with which to purchase Redlands.

The purchase of Redlands was completed towards the end of September 1995. The defendants and Mr Middleton decided to open a business account for Redlands with NatWest in Thornbury. Mr Edwards was to be their account manager. He appeared willing to assist with a loan facility. SLC required an initial borrowing facility of £100,000 to enable it to carry out certain improvements to Redlands. Mr Edwards was very supportive. On 17^th November 1995 he travelled up to Cumbria to see Redlands for himself. He wrote a report which endorsed the request for a business overdraft of £100,000. However it was already clear to the defendants and to Mr Middleton that the bed capacity of Redlands needed to be increased. The existing capacity was 19 beds. In order to be competitive and to benefit from economies of scale, the defendants proposed that a further 20 beds be added. Before any loan account was opened Mr Waite began working on a business plan for expansion. It was a project which was going to require a great deal more money. The figure he came up with was a maximum of £525,000.

Mr Edwards was again supportive. Borrowing of this magnitude required sanction from higher authority within the bank. On 2^nd February 1996 Mr Edwards sent an appraisal to his superiors recommending that SLC be granted an overdraft facility of £100,000 and a variable rate loan facility of £425,000. In the appraisal he recorded that the directors were not willing to give personal guarantees to secure any borrowing. The bank’s Regional Office approved the proposal in principle but said that it wanted the directors to provide personal guarantees if only of a nominal amount of £50,000 each, especially the defendants since they had not yet made any financial contribution to the business.

On 19 February 1996 Mr Edwards had a meeting with Mr Waite. He told him about the bank’s request for personal guarantees. Mr Waite made it clear that he and his wife would prefer not to give guarantees. However he was also unhappy about the interest rate the bank was seeking. The bank was looking to charge 3% over base rate. Mr Waite said that he had approached other lenders who were willing to offer £2.75% reducing to 2.5% on completion of the works. Mr Edwards prepared an appraisal form after the meeting. In it he expressed the view that the bank would have to compromise on the interest rate if it was to secure the business, but if it did so it would be appropriate to seek guarantees from the directors.

On 15^th March 1996 Mr Edwards wrote to the defendants with confirmation that NatWest was willing in principle to grant the borrowing facilities that SLC had requested, with an interest rate of only 2.5% above base rate. The letter enclosed an Advice of Borrowing Terms for signature by Mr Waite on behalf of SLC. Those Terms stated that the bank wanted as security: (1) a legal mortgage over Redlands given by SLC, (2) a mortgage debenture creating a fixed and floating charge over the assets of SLC, (3) a legal guarantee limited to £25,000 to be given by the defendants, and (4) a legal guarantee limited to £25,000 to be given by Mr Middleton. Mr Waite signed the Terms and returned them to the bank on 12 April. He does not dispute that he and his wife had noted the requirement that they give a guarantee.

The loan accounts were established towards the end of April, before any guarantees had been signed. Draft guarantees were sent to the defendants on or about 24^th April. At the same time Mr Edwards signed an internal bank document headed “Freewill Interview Note” in respect of each of the defendants which stated that to the best of his knowledge there was no reason why the defendants should not give the security of their own free will after exercising their independent judgment, and that he had no reason to suspect any emotional or other pressure had been exerted on them or that they had been misled.

The defendants were sent two guarantees, each in a sum of £25,000. Mr Waite wrote to the bank on 26^th April querying whether this was right. He said that his understanding was that he and his wife would be giving a joint guarantee for £25,000. Someone from the bank telephoned Mr Waite a few days later to say that the Borrowing Terms had required a joint and several guarantee of £25,000 from himself and his wife. However it had been a mistake to send two separate guarantee documents, a single guarantee signed by the two of them acknowledging joint and several liability would suffice.

By May 1996, it was already clear that SLC’s overall borrowing requirement would be greater than £525,000. Mr Edwards sent a fresh appraisal to the bank’s Regional Office on or about 20^th May recommending an increase in the borrowing to £637,200. He suggested that the loan element be increased from £425,000 to £560,000 with capital repayments commencing in January 1997 and spread over 10 years. In addition an overdraft facility of £75,000 was required for 12 months from January 1997. In his appraisal Mr Edwards analysed the business proposition for expansion of the capacity at Redlands in some detail. He said that he was “very comfortable with the serviceability of this level of borrowing”. He set out a number of sensitivity analyses based on 80% bed occupancy and came to the view that “on [the] most pessimistic of scenarios the proposition was still affordable, albeit subject to the management charges being written back”. He concluded the report by saying: “I am therefore very confident that this proposition is viable and well worthy of our support”. It would seem that Mr Edwards had only one reservation about the revised proposals and that concerned management charges. The defendants had included in their Cash Flow Forecast a yearly allowance of £57,000 for management charges – in effect the salary they intended to draw from the business. Mr Edwards was not sure that the business would be able to sustain this level of cost in the initial years. He noted that the defendants were not dependent on this salary because they had Mr Waite’s police pension and their income from Kingsley House, and recorded the following in his report: “I have Alan and Linda Waite’s verbal acknowledgment of this and their undertaking that they will of course not withdraw monies which are not available and which will firstly be utilised in servicing Bank borrowing”.

In June 1996, the defendants were sent a copy of a joint and several guarantee limited to £25,000 with a covering letter recommending that they take legal advice before signing it. They were given a form to return stating whether they were intending to take independent legal advice or whether they preferred to attend an interview at one of the branches of the bank, before signing. If they intended taking independent legal advice there was a space on the form for the name and address of the solicitor to whom the bank could send a duplicate copy of the documents. This was part of NatWest’s standard procedure for the signing of personal guarantees. Where the guarantor elects to attend a bank interview, the bank’s policy is only to accept a signature on the guarantee if the interviewer is satisfied that the guarantor understands the nature and effect of the liability he is undertaking and has expressed no disquiet about doing so.

Mr Middleton signed his guarantee on 21^st June 1996, after attending an interview at the bank. By the time the defendants signed their guarantee, on 6^th February 1997, the increased loan facility had been established and some of the loan had been drawn down. The defendants indicated that they did not intend taking independent legal advice and instead wanted to attend for interview at Mr Edwards’ branch of the bank in Thornbury. In the event the defendants attended for interview at the Stuckeys Branch of NatWest in Bath. An Assistant Manager, Mr Hall, interviewed them on or about 19^th August 1996. He formed the impression that Mr Waite was still uneasy about signing a guarantee. So he recommended that the defendants take more time over the decision and that they sign the guarantee at a solicitor’s office rather than at the bank.

On 17^th September 1996, Mr Edwards had a meeting with Mr Waite, which was primarily to discuss a new venture of Mr Waite’s in the fine art business. But progress at Redlands was also discussed, and the subject of the guarantee. Mr Edwards made the following note of that meeting on the question of the guarantee:

“Confirmed to me that he and Linda attended a meeting at our Stuckeys Branch and met with Phil Hall in order to sign the £25,000 Joint and several Guarantee, which he confirmed to me he fully understands the implications of. However, he advises me that he had a confusing discussion with Phil Hall and as a result Mr Hall recommended that he was unable to proceed with the Guarantee being signed and that it be recommended he take independent legal advice. Alan has confirmed to me that he des not wish to proceed down this route for a Guarantee in the sum of £25,000 which is unsupported and has requested that he comes across to Thornbury.”

There is some ambiguity in the wording of the last sentence. It could mean that Mr Waite was saying that he did not want to proceed with the guarantee at all or it could mean that Mr Waite had decided that he definitely did not want to seek independent legal advice. Mr Waite suggested in evidence that it might have been either, or might have reflected questions he had asked of Mr Hall about the distinction between joint and several liability. In the light of Mr Waite’s subsequent behaviour I am satisfied that what he said to Mr Edwards was that he definitely did not want to seek independent legal advice before signing, and would prefer to sign after an interview at the Thornbury Branch.

This is what eventually happened. On 9^th December Mr Edwards attended the re-opening of Redlands. He mentioned to the defendants on that occasion the need for the guarantee to be signed. There was a delay over Christmas and New Year, and then in January one of the defendants was unwell. The Sanctioning Department of the bank began to press Mr Edwards to bring the matter to a head. At the end of January 1997, he arranged with the defendants that they would be interviewed on 6^th February.

The arrangement which Mr Edwards made was that one of the other managers at the Thornbury branch should conduct the interview at the defendants’ home in Beckington. The manager in question was Stuart Mann, a Premium Manager concerned with private client accounts rather than business accounts. Whilst he had plenty of experience of conducting guarantee interviews and witnessing the signing of guarantees, he knew nothing about the defendants’ business or the reason why the guarantee was required. I shall come back to what happened at his meeting with the defendants. Suffice it to say that the guarantee was signed by both of them and Mr Mann witnessed their signatures.

By April 1997 the Redlands business required further funds. Mr Waite and Mr Middleton produced an Executive Summary of the situation on 18^th April. It highlighted two requirements: (1) extension of the 10 year period for repayment of the loan of £560,000 by one year, with a repayment holiday for the first year i.e. 1997, and (2) an increase in SLC’s overdraft facility from £75,000 to £120,000 for the period 1^st June 1997 to 30^th September 1998. The reasons were: an increase of £107,000 in capital expenditure on the refurbishment and extension and an anticipated shortfall of £117,000 in income for the year to 31^st May 1997 due to delay in completion of the works and lower than forecasted bed occupancy. The Summary ended on an upbeat note by saying that the directors and shareholders were confident that the initial problems were behind them and had supported this confidence by injecting £100,000 of additional capital into the business.

Mr Edwards went to visit Redlands again on 29^th May and was given a conducted tour. On the basis of his discussions with Mr Waite and Mr Middleton on that occasion, he wrote a report to higher management in the bank strongly recommending that the extended borrowing facilities be granted but on the basis that the customers understood that this would be the maximum level of borrowing to which the bank could agree for the current project. The bank’s Sanctioning Department responded on 27^th June to say that whilst the extension to the period of the loan and capital repayment holiday could be agreed, further information was required before agreeing to any uplift in the overdraft limit. Further, if an uplift was to be permitted, certain conditions would apply. These included a condition that the directors (the defendants and Mr Middleton) would have to provide increased guarantees of £100,000.

Mr Middleton was willing to give the additional guarantee. The defendants were not. A meeting at the Thornbury branch of the bank between Mr Edwards, Mr Middleton and the defendants was scheduled for 18^th July. In the event it would appear that the meeting took place on 19^th July, which was a Saturday, and Mrs Waite was not present. At the meeting Mr Edwards produced copies of further guarantees, limited to £100,000, one for signature by Mr Middleton and the other (providing for joint and several liability) for signature by Mr and Mrs Waite. Again, I will come back to what happened at the meeting. It ended with Mr Middleton having signed his guarantee and Mr Waite having signed the joint and several guarantee. Both Mr Middleton and Mr Waite also signed Confirmations in the bank’s standard form stating that they had decided to proceed to execute the guarantees of their own free will in spite of being strongly recommended by Mr Edwards to take independent legal advice and in spite of having read the bank’s document headed “Important Warning”. That was a document which explained the legal implications of the guarantee, recommended the taking of independent legal advice and concluded by saying:

“It is important that you realise that you do not have to sign the Guarantee now. You should only sign now if you are fully confident that you understand the nature and effect of the Guarantee and your liabilities under it. You must only sign if you are entirely happy to do so, and as a result of your own free will.

IN ANY EVENT WE MOST STRONGLY RECOMMEND YOU TO READ THE GUARANTEE, TAKING AS MUCH TIME AS YOU LIKE.

REMEMBER YOU MUST CONSIDER IF YOU ARE PREPARED TO BECOME PERSONALLY LIABLE FOR THE COMPANY’S BORROWINGS AND OTHER LIABILITIES.”

Mrs Waite signed the joint and several guarantee the following Friday (25^th July). Her signature was also witnessed by Mr Edwards. He recorded that Mrs Waite signed the guarantee at home. In her witness statement Mrs Waite says that she has no recollection of signing the second guarantee and is quite clear that Mr Edwards never came to their house. In the defence, the defendants have admitted the execution of the second guarantee and I find that Mrs Waite did sign the second guarantee on 25^th July in the presence of Mr Edwards. Since Mrs Waite has no recollection of the signing, it is probable that Mr Edwards’ contemporaneous note that the guarantee was signed by her at home is correct.

Mr Edwards wrote a report for the bank on 22^nd July which recounted his discussions with Mr Middleton and reviewed SLC’s performance. He enclosed the latest draft accounts for the 12 months to 31^st May and a profit and loss account for June 1997 showing a small profit. He recommended an uplift of £20,000 in the overdraft facility for 3 weeks pending confirmation that the full increase of £45,000 was acceptable to the bank. The Sanctioning Manager replied on 30^th July telling him to decline the increase in the overdraft limit. He was encouraged that there was increased bed occupancy and that further residents were in prospect, but pointed out that break even was still not being achieved. SLC needed to generate sufficient cash to repay both the additional borrowing and meet outstanding creditors. In the bank’s view this was “clearly not achievable” on the present information.

This was disappointing news: but Mr Edwards did not give up. He wrote a further report on 1^st September 1997 expressing his disagreement with the opinion of the Retail Credit department that the bank was fully lent to SLC. As a result he obtained authority to increase the overdraft limit by £20,000 for an initial period of 3 months to 5^th December. This increased facility and the extended terms of the loan were incorporated into an Advice of Borrowing Terms, which Mr Middleton signed on or about 26^th September and Mr Waite signed on 6^th October.

Mr Edwards kept in close touch with the directors. He met with Mr Waite on 15^th December to review the 6 month management accounts to the end of November and to learn of developments at Redlands. In his report of that meeting he noted that: “Whilst it is comforting to note that there is now sufficient income being generated in order to cover the loan repayments which will commence from next month, the margin of comfort is actually very fragile”. Success depended on raising bed occupancy levels. This had to be achieved against a background of uncertainty as to the new Labour Government’s plans for funding the cost of care for the elderly in private care homes. Nevertheless he expressed himself confident that “we are now over the worst”, and was able to persuade the bank to continue the increased overdraft facility of £95,000 into 1998.

Mr Middleton reported on progress on 27^th February 1998. He wrote to Mr Edwards saying that the number of residents had risen to 25 and there were good inquiries in the pipeline. He added: “Alan [Waite] is very pleased with the progress being made, modest as it may be, and in particular the management team we have in place …”. Mr Edwards went up to Cumbria on 23^rd March to see for himself. On 16^th April he reported once again to his superiors. His conclusion was as follows:

“Its been a long haul but at last I feel that the company is now making progress and have a small margin of comfort over their break even number of 25 residents. … There is no doubt that the reputation of South Lakeland Care is growing in the local community. The loan repayments have commenced and are being met and the borrowing on overdraft is being contained within the agreed limit albeit appreciating that the excess facility should now be withdrawn. The directors are greatly appreciative of our assistance here and whilst they have been embarrassed in having to request continuation of the excess facility of £20,000 with the basic facility of £75,000 for a further period of 6 months, I am growing in confidence that they are now over their initial difficulties and they can get on with running the Home and generating the profit which was originally forecast.”

Mr Edwards recommended continuing the increased borrowing limit with a review after 3 months and the intention of consolidating SLC’s borrowing after 6 months. The bank agreed.

By August 1998 there had been a modest improvement in trading at Redlands. On 15^th August Mr Middleton sent Mr Edwards a copy of management accounts for the 2 months to 31^st July. The number of residents was now 28. Cashflow was better and profit before tax was up. The business was operating within the limits of its banking facilities. However this proved to be a high water mark. From this point the fortunes of the business took a turn for the worse. The occupancy level declined, and with it the profit and cashflow. The management accounts for 5 months to 31^st October, which Mr Middleton sent to Mr Edwards on 8^th November, told the story. Occupancy had dropped to 23 residents and Redlands was not breaking even. A further problem was that the builders who had carried out the refurbishment and extension had served a statutory demand because an instalment of the money due to them had not been paid on time. Mr Middleton said that he and Mr Waite were surprised at the downturn but had formulated a plan of action to reverse it. Nevertheless they asked that the monthly repayments of the bank loan should be suspended.

Mr Edwards wrote a report for the bank on 20^th November in which he continued to be supportive although he recognised that the business was now facing serious problems. He recommended a continuation of the existing loan and overdraft facility but with a 3 month capital repayment holiday on the loan. The bank accepted this proposal and Mr Middleton and Mr Waite signed a further Advice of Borrowing Terms on or about 8^th December. This specified that loan repayments would resume on 1^st March 1999.

Unfortunately occupancy levels continued to decline in 1999. The problem was exacerbated by an incident which seems to have occurred early in the New Year. One of the male members of the nursing staff at Redlands was accused by a resident of indecent exposure. He was not immediately suspended by the matron in charge. When the local Health Authority learned of the circumstances it threatened to intervene, until the directors agreed to dismiss the matron and find a new manager. By February 1999 bed occupancy had dropped below 20. It had fallen to 17 by June 1999. Since the break even point was 25 residents, the losses at Redlands were mounting. Mr Edwards wrote a further report for the bank on 26^th July. He tried to strike an upbeat note, pointing out that Redlands had been unfortunate in experiencing the death of 7 residents since the beginning of the year. He strongly recommended continuing the borrowing facilities for a further 3 months and deferring for that period the appointment of an independent accountants’ review of the business. The Retail Credit Department went along with this recommendation: but someone in the bank heavily annotated Mr Edward’s report with critical observations, including the following comment: “The report gives the impression that everything is positive and moving in the right direction. In reality they have lost residents faster than they can be replaced.”

The business continued to deteriorate. Mr Waite’s evidence is that by the autumn of 1999, he and his wife ceased to be actively involved in the running of Redlands and Mr Middleton took over control. On 8^th November NatWest commissioned a review of the financial affairs of the business by Buchler Phillips who are accountants and also insolvency practitioners. Their report, produced later that month, identified two core issues as being responsible for the decline in performance. One was disruption and overspend arising from the building works. The other was the incident of indecent exposure. Buchler Phillips concluded that “Break even occupancy at an occupancy profit level is 21 and at net profit level is 24”. The problem remained that, although occupancy had risen in the autumn of 1999, there were still only 19 residents. The conclusion of the review was that SLC was insolvent. Since the directors and shareholders were unwilling to invest further capital into the business the only prospect was to increase the borrowing facility to £115,000 until February 2000 to provide a breathing space in which Redlands could be marketed for sale.

The position did not improve. On 5^th June 2000 Mr Middleton and Mr Waite resolved to appoint receivers for SLC. The bank wrote to the directors on 29^th June to notify them that it would be relying on the personal guarantees they had signed. The bank followed up this warning by serving demands on the defendants under both guarantees on 10^th July. The demands requested payment of the maximum amount of both guarantees within 14 days.

On 25^th April 2001, solicitors then acting for the defendants denied liability under the guarantees. The ground on which they did so was that “the appropriate procedures for giving independent advice were not followed”. The question of undue influence was not raised until the defence in the present action was served in May 2004. The critical allegation in that document was that Mr Edwards had encouraged the defendants to give the security and:

“In doing so, Mr Edwards preferred the position of the Claimant, his employer, to that of the Defendants in a situation where he owed the Defendants a duty to advise them properly. Had he advised them properly, he would have advised them that the business inevitably fail, and that they should close it down.”

A further defence which the defendants’ raised at the outset of the trial was that the bank had produced no figures to prove the net indebtedness of SLC after June 2004 and the figures which had been produced did not establish a continuity of indebtedness in excess of the amount of the guarantees since June 2000. Since the guarantees contained an express clause (clause 13) stating that a certificate of an officer of the bank as to the amount due under the guarantees would be conclusive evidence of the debt in the absence of “manifest error”, this was a surprising omission. In the event I allowed the bank, on terms that it paid the costs of the exercise in any event, to file a further witness statement exhibiting statements of SLC’s loan account and current account over the relevant period, and copies of the accounts kept in respect of the guarantee liability. For technical reasons there was still a break in continuity between October 2002 and March 2005. Nevertheless the history of the indebtedness was explicable. More importantly these records established that the debt had at all material times exceeded the maximum amount of the guarantees. I did not understand the contrary to be argued in the defendants’ closing submissions.

Therefore the only defence to the claim is undue influence. The doctrine of undue influence is equitable in origin. A transaction between two parties in a relationship of trust and confidence will be set aside if the claimant can show that the other party obtained it by abusing that relationship. This may be established in one of two ways: either by proving that undue influence was actually brought to bear (actual undue influence) or by proving that a relationship of trust and confidence existed with the other party and that the transaction is one which “calls for an explanation” (presumed undue influence). Cases of actual undue influence subdivide into two categories: those where threats are used (not this case) and those where the measure of influence or ascendancy inherent in the special relationship between the parties has been utilised by the claimant for his own ends (see Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 per Lord Nicholls at paras. 8-12).

The burden of proof rests on the party who claims to have been wronged. Lord Nicholls held in Etridge that:

“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.

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.”

Manifest disadvantage is not the test. A transaction may have caused manifest disadvantage but nevertheless be explicable by the nature of the relationship between the parties and therefore call for no explanation or not appear untoward when the nature of that relationship is properly taken into account(Chitty on Contracts, 29^th ed., para. 7-074). Nevertheless in cases concerning the giving of a surety, manifest disadvantage is a frequent assertion made by the giver. In such cases, whether there was manifest disadvantage depends on the court’s assessment of two factors (a) the seriousness of the risk of enforcement to the giver, and (b) the benefits gained by the giver in accepting the risk” (see BCCI v Aboody [1990] 1 QB 923 at 965). A prime example of the kind of contrary evidence required to rebut a presumption of undue influence is evidence that the defendant acted independently of the influence and with full appreciation of what they were doing, either as a result of independent advice or otherwise (Chitty, para. 7-079).

Mr Levy, for the defendants, relied upon actual and presumed undue influence. He submitted that there was a relationship of trust and confidence between Mr Edwards and the defendants. His primary case was that Mr Edwards took unfair advantage of that relationship and by doing so persuaded the defendants to sign the guarantees. It was common ground between Mr Levy and Mr Sims for the claimant that if actual undue influence was shown it was not necessary for the defendants also to prove that the guarantees operated to their material disadvantage (cf. Lord Nicholls in Etridge and CIBC Mortgages plc v Pitt [1994] 1 AC 200).

In the alternative, Mr Levy argued that undue influence could and should be presumed in this case because there existed the relationship of trust and confidence between Mr Edwards and the defendants, and the guarantees were untoward transactions. They were untoward both in the manner in which and the time at which they were procured, and they were disadvantageous to the defendants at the time they were entered into.

These arguments require a rather closer examination of the circumstances in which the guarantees were signed. However I should say at the outset that I have not been convinced that either argument is correct.

This is not a case where the outcome depends much on the veracity of the witnesses. There were only two of them: Mr Mann for the bank and Mr Waite. Mr Mann was only able to speak about the meeting on 6^th February 1997 when the first guarantee was signed. Mr Edwards did not give evidence or provide a witness statement because he suffered a heart attack in June 2005. Mr Middleton and Mrs Waite did not give evidence either. The latter produced a short witness statement, but save for the one respect referred to in paragraph 22 of this judgment, it did no more than endorse the contents of Mr Waite’s witness statement, which was itself a fairly brief document.

The impression I formed of Mr Mann and Mr Waite was that they were both doing their best to recollect as accurately as possible what happened, now between 8 and 9 years ago, and (in the case of Mr Waite) what his attitude was at time. However Mr Waite’s credibility was somewhat undermined by the fact that his case was put too high in two significant respects. The first was that he stated in his witness statement that Mr Edwards told him in March 1996 that the requirement for the first guarantee “was a pure formality”. There was nothing in the contemporaneous documentation to support this assertion and in cross-examination Mr Waite accepted that Mr Edwards had not said that either guarantee was a formality. He accepted that he knew the importance and implications of the guarantee. He had just hoped that it would not be insisted upon. The second respect in which the case was put too high was the allegation in the defence that had Mr Edwards advised the defendants properly, he would have advised them that the business would inevitably fail. Leaving aside the question of whether Mr Edwards proffered any advice and whether he was under any duty to do so, the suggestion that in February 1997 anyone could have foreseen that SLC would inevitably fail is in my judgment unsustainable. There was more cause for concern in July 1997 when the second guarantee was signed: but I am quite unable to find that even at that later stage it was apparent that the business would inevitably fail. Mr Waite said that he was beginning to have reservations about the success of Redlands: but SLC’s accountants were still optimistic. They wrote to Mr Edwards on 24^th July 1997 saying that they thought the directors had turned the corner and had a potentially successful business to move forward. If Mr Waite did not subscribe to this view, he kept very quiet about it. Mr Edwards recorded in his report for the bank of 22^nd July that both directors were “very bullish”.

There is little to support a case of undue influence so far as the first guarantee is concerned. It was, if anything, an advantage that Mr Mann knew so little about the background. He was in no danger of volunteering an inappropriate opinion as to the wisdom of giving the surety. It was suggested that he sought to “sweeten the pill” by embarking on a lengthy discussion with the defendants of other personal banking services which the bank might be able to provide. I find Mr Mann’s evidence more plausible on this point. The primary purpose of his visit to Beckington was to ensure that the guarantee for £25,000 was signed. It was long outstanding. Mr Middleton had signed his more than 7 months earlier. I am satisfied that he dealt with the signature of the guarantee first and that he followed the bank’s standard procedure on such occasions. That procedure required him to advise the defendants to reconsider their decision not to take independent legal advice and to ensure that they had read the guarantee document. Mr Mann was not empowered to answer any questions as to the nature or effect of the guarantee. His instructions were to terminate the meeting if any such questions were asked. It was this procedure which had led Mr Hall to terminate the earlier interview at the Stuckey’s Branch. This time the defendants raised no queries and the signing proceeded. After that the defendants raised with Mr Mann some other borrowing requirements which concerned Kingsley House and their Gold Card account. That is the sequence of events implied by Mr Mann’s Memorandum of Interview, written later the same day, and I find that that is what happened. His assessment, recorded in the Memorandum, was that the defendants were “evidently hungry borrowers” who were looking to borrow the full cost of building works which had been carried out at Kingsley House. They were also planning further work as to which Mr Mann noted: “… I doubt whether they have considered how it is to be funded other than by borrowing”.

The circumstances in which the first guarantee was signed disclose no evidence of unfair pressure being brought to bear by the bank. Nor, in my judgment, can it credibly be argued that the bank’s requirement that the defendants provide a joint and several guarantee calls for an explanation. It was entirely explicable on commercial terms and was necessary in order to obtain the borrowing facilities which SLC needed.

I have arrived at the same conclusion with regard to the second guarantee, although the factors in play in July 1997 make the decision less straightforward. First of all, the relationship between Mr Edwards and the directors had become closer with time. The relationship between bank manager and customer is not one which usually crosses the line between that of a normal business relationship and a relationship of trust and confidence, but it may do so, especially where the bank manager starts to proffer advice as to the wisdom of a transaction with the bank or the wisdom of transactions which require the support of the bank. A prime example of where the line was found to have been crossed is Lloyds Bank v Bundy [1975] QB 326. An example of where it was not crossed is NatWest Bank plc v Morgan [1985] AC 686 (see Lord Scarman at 708D-709E). In this case Mr Edwards was enthusiastic about the Redlands project from the start. He was more enthusiastic and took a greater personal interest than was usual or warranted for a bank manager. On his various trips to Cumbria he undoubtedly gave the directors advice on their business strategy, such as the need to establish good contacts with the local DSS and consultants in the surrounding hospitals. But this involved little more than common sense. I am unable to find that, prior to the meeting on 19^th July 1997, his advice and enthusiasm influenced the directors to take any step or make any commitment which they were not already minded to do. At best Mr Edwards’ personal interest in Redlands caused him to promote the interests of SLC to higher management within the bank less critically than he might otherwise have done. I am not however persuaded that by July 1997 his optimism had led to borrowing facilities being continued which would otherwise have been withdrawn.

I then come to the meeting on 19^th July at which the second guarantee was signed by Mr Waite. The documentary evidence indicates that the meeting was set up several days beforehand. Mr Waite nevertheless said that it was “unexpected”, “stark” and “emotional”. When he hesitated about signing the guarantee, Mr Edwards said something to the effect of “Come on, you’re not going to let us down now”. Mr Middleton was present. He was the one who had invested all the money in Redlands. If the borrowing was not extended, and the business folded, he stood to lose everything. Mr Waite felt under a great deal of moral pressure to put his signature on the guarantee. I have no doubt that he did: but on a fair analysis I do not believe that the pressure was of Mr Edwards’ making. I find that Mr Waite knew very well that the main purpose of the meeting was to discuss the conditions which the bank had stated for extending the borrowing facilities and to get him to sign a second guarantee. Even if Mr Edwards did say “Come on, you’re not going to let us down”, it added little to the pressure which Mr Waite already faced as a director of SLC and business partner of Mr Middleton. No reliance is placed by the defendants on any pressure brought to bear by Mr Middleton: but his very presence at the meeting on 19^th July must have been very awkward for Mr Waite. Mr Waite said he believed he asked whether he could not take the guarantee away with him and that Mr Edwards had replied that he wanted the guarantee signed now. I am not persuaded that this is true. Since Mrs Waite was not there, there was no imperative from the banks perspective that Mr Waite should sign there and then rather than one day the following week. The imperative to sign came from the presence of Mr Middleton. Mr Waite knew that he had no option but to sign on 19^th July if he was to display the solidarity and support which Mr Middleton expected of him.

There is no question that Mr Waite appreciated the nature of the commitment he was making on 19^th July. On each occasion he and Mr Middleton signed a new Advice of Borrowing Terms, they did so pursuant to a Board Resolution of SLC. Mr Middleton was an accountant and understood the financial risks perfectly well. Mr Waite did not have that training but he was used to exercising executive authority in an administrative and management capacity from his time as a senior police officer. They both knew what they were doing. I find that in signing the second guarantee they both exercised their own independent judgment and were not unfairly pressurised to do so by Mr Edwards.

Mrs Waite did not sign until the following Friday, which is of some significance. Mr Waite had 6 days in which to persuade his wife that he had made a mistake by signing against his better judgment and that she should refuse to add her signature. He did not seek to do so. Since Mrs Waite was not present at the meeting on 19^th July, she could not have been influenced by anything Mr Edwards said or did on that occasion. There was no evidence from her that Mr Edwards said or did anything the following Friday to influence her to sign. If she did not exercise her own independent judgment, she followed her husband’s lead. No complaint is made on that score.

Of course the commercial background had changed since February 1997. SLC had embarked on its building programme at Redlands and needed more money to complete the refurbishment and to establish a pattern of trading that would attract more residents. But Mr Edwards was not responsible for this situation. It was Mr Middleton and Mr Waite who identified the extended borrowing required. It was not suggested to them by the bank. They were responsible for the Executive Summary of 18^th April 1997, which expressed confidence in the future. There is no reason to suppose that it was not an honest document or that Mr Waite would have signed it if he did not believe what it said. As Mr Waite accepted in evidence, he must also have had some confidence in the business in July 1997 or he would not have signed the guarantee.

I am unable to accept that the second guarantee was procured by actual undue influence on the part of the bank. Nor do I consider that the evidence justifies a presumption that undue influence was involved. Whilst I am prepared to accept that by July 1997 the relationship between Mr Edwards and the directors had become one of trust and confidence, I find nothing untoward in the bank’s requirement for a second guarantee or any aspect of the transaction which calls for explanation. SLC’s finances may have been fragile, but the business was by no means doomed to failure. When the business failed it failed for the reasons identified by Buchler Phillips which were not expected or not believed to be insuperable in July 1997. Mr Levy took a different point in his closing submissions. He argued that it was a material omission that Mr Edwards should not have informed Mr Middleton and Mr Waite at or before the meeting on 19^th July of the reservations that had been expressed by the Sanctioning Manager on 27^th June about increasing the overdraft facility. I infer, however, from a letter which Mr Middleton wrote to Mr Edwards on 14^th July that Mr Edwards had passed on these concerns. He did not know, when the guarantee was signed, that the bank would decide to refuse the increased overdraft which the second guarantee was intended to secure. But there is no doubt in my mind that the fact that the second guarantee had been signed played an important part in persuading the bank to sanction a limited increase in the overdraft limit in September 1997 and to continue the lending as long as it did in 1998 and 1999. The second guarantee was not materially disadvantageous to the directors of SLC.

It follows that I find the guarantees enforceable. There will be judgment against the defendants under both guarantees. I will hear submissions as to the precise amount outstanding if the figure is controversial.