Barclays Bank plc v O'Brien

Facts

151 Farnham Lane, Slough, was in Mr and Mrs O’Brien’s names jointly. They had a £25,000 mortgage to a building society. Mr Tucker, who worked for Barclays Bank plc, when the mortgage was increased to £60,000 in 1981 made a note that Mrs O’Brien might be a problem. In 1987 Mr O’Brien’s company, Heathrow Fabrications Ltd, was not doing well and he agreed with the Barclays Woolwich branch to raise the company’s overdraft to £135,000, reducing to £120,000 after three weeks, guaranteed by Mrs O’Brien and secured on his matrimonial home with a second charge. The Woolwich branch sent a message to the Burnham branch where Mrs O’Brien was meant to sign saying to tell her of the full effects, but they did not follow instructions. Mrs O’Brien saw a document and did not read it. It said ‘obtain independent legal advice before signing this letter’ but she just signed it and was not given a copy. By November 1987 the company was doing badly. The demands for the repayments were not met and possession was sought. Mrs O’Brien argued she was unduly influenced into the contract and that she was not bound.

Judgment

The judge ordered possession, saying a misrepresentation by Mr O’Brien did not make the bank responsible.

Court of Appeal

Purchas, Butler-Sloss and Scott LJJ held that it was artificial to find undue influence when a bank ‘left it to the spouse’ (or another relation) to obtain a signature for a charge, on the basis that the spouse was acting as the bank’s agent. It held that relief would be given on the basis of a special equity in favour of wives, from Turnbull v Duval. They said she only thought £60,000 was being secured, and no more. The result was upheld by the House of Lords.

House of Lords

The House of Lords held that the contract was voidable for undue influence.

Lord Browne-Wilkinson started by setting out the policy debate. On the one hand, a more equal society had developed in which it had become usual for both husband and wife to have a title to their home on the deeds. And both should consent with open eyes to dealings in their property. On the other hand, people’s homes were an important source of security and it was vital that banks be able to take security on them. The bank would be liable to having its security set aside if it had either actual or constructive notice of undue influence. Constructive notice is when you are aware of a relationship which would put you on inquiry. It is then up to you to ensure that there is no undue influence. He noted the two categories of actual and presumed undue influence, and in the latter the complainant has to show ‘a relationship of trust and confidence… of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction.’ Then the burden shifts to the other side, to show that a transaction was freely entered into, for instance ‘by showing that the complainant had independent advice. The confidential relationship can be shown either that it is one of ‘Certain relationships (for example solicitor and client, medical advisor and patient’ which in law raise a presumption or ‘the de facto existence of a relationship under which the complainant generally reposed trust and confidence…’

In a key passage, Lord Browne-Wilkinson set out the structure of undue influence.

Timing of judgment

The decision in O'Brien was handed down on the same day as CIBC Mortgages plc v Pitt [1993] UKHL 7 (21 October 1993) (where Lord Browne-Wilkinson also gave the only speech). O'Brien was technically handed down first, and in Pitt Lord Browne-Wilkinson makes reference to his "earlier" judgment in O'Brien. The composition of the judges in the House of Lords was identical in both cases.

Subsequent cases

The issue of presumed undue influence came before the House of Lords again in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44 (11 October 2001), and in that case a majority of the court (Lords Hodge, Clyde and Hobhouse) cast doubt on the categorisation and sub-categorisation of classes of undue influence. However, notwithstanding that decision, most academic textbooks persist with the classification set out in Barclay's Bank v O'Brien.