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Judgments - Barclays Bank PLC. v. Boulter and Boulter


Lord Slynn of Hadley Lord Nolan Lord Steyn
Lord Hoffman Lord Hutton








ON 21 OCTOBER 1999


My Lords,

    I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Hoffmann. For the reasons which he gives I, too, would dismiss the appeal. This conclusion is in no sense an encouragement to pleaders to leave inferences to be drawn thereby leading to the sort of arguments which have been ventilated before your Lordships' House and for which I have no doubt leave to appeal would not have been given if that had been the only or the central issue. It is, however, plain that in this case the bank was fully aware that Mrs. Boulter's defence was one of constructive notice on the part of the bank.


My Lords,

    I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Hoffmann. I agree with it, and for the reasons which he gives I, too, would dismiss the appeal.


My Lords,

    My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend Lord Hoffmann. For the reasons he gives I would also dismiss the appeal.


My Lords,

    This is an unusual appeal to come before your Lordships' House. It raises a point of pleading. In 1979 Mr. and Mrs. Boulter borrowed £36,000 from Barclays Bank to buy their house in Bushey . They gave the bank a legal charge dated 24 September 1979. According to its terms, it secured not only the loan for the house but all monies which either or both of them might owe to the bank. Mrs. Boulter covenanted personally to repay all such sums. Mr. Boulter later borrowed more money. On 30 March 1993 the bank sent him a demand for payment of over £120,000. When he failed to pay the bank commenced proceedings for possession in the Watford County Court. On 21 June 1994 it obtained a possession order which was suspended on condition that he paid off the debt by instalments. But he again failed to pay and a warrant for possession was issued.

    Just as she was about to be evicted, Mrs. Boulter applied to the County Court to set aside the possession order on the ground that she had a separate defence. She said that her husband had induced her to sign the charge in 1979 by undue influence and misrepresentation. She trusted him to deal with their financial affairs. He had told her that the charge was to secure the money borrowed for the house. In fact it was an "all monies" charge. No one had advised her that the charge would have this effect. The district judge refused the application but it was granted on appeal by Mr. Recorder Breen.

    The argument before the recorder involved a detailed consideration of Barclays Bank Plc. v. O'Brien [1994] A.C. 180. Before that case, a number of decisions had treated a husband, who had procured his wife's signature to a mortgage or guarantee which secured his liabilities to a bank, as having acted as the bank's agent. On this ground, the bank was treated as responsible for any misrepresentations he may have made or undue influence he may have exercised. In Barclays Bank Plc. v. O'Brien Lord Browne-Wilkinson said that this was an artificial view of the situation. The reality was that the husband obtained his wife's signature for his own purposes in borrowing money. Occasions on which he was acting as agent for the bank would be very rare. The real question was whether the bank had actual or constructive notice of any misrepresentations or undue influence which may have occurred. He then set out the conditions on which a bank would be considered to have constructive notice: see p.196. In the case of husband and wife living together, constructive notice would be presumed from the fact that the transaction was on its face not to the financial advantage of the wife, unless the bank had taken reasonable steps to satisfy itself that the wife's agreement had been properly obtained.

    The recorder said that if Mrs. Boulter was telling the truth:

    "there may well have been undue influence on the part of the husband and certainly a serious misrepresentation by him as to the true nature and effect of the document. That being so, as I understand the effect of the authorities, the [bank] was fixed with constructive knowledge of those matters and of [Mrs. Boulter's] right to set aside the transaction."

    He therefore set aside the order for possession against her. She then served her defence. She referred to the terms of the legal charge and admitted her signature. She said that she was the wife of Mr. Boulter and that they had been married since 1966. She pleaded the alleged misrepresentation and undue influence, saying that at all material times she reposed trust and confidence in Mr. Boulter and that he had represented the charge as having been to secure the money borrowed to finance the purchase of the matrimonial home. She then alleged in paragraph 7:

    "The plaintiffs procured the signature of the second defendant through the first defendant and in the premises the first defendant was acting as the plaintiffs' agent in respect thereof."

    But the pleading did not expressly say that the bank had actual or constructive notice of the misrepresentation and undue influence. On the other hand, it did allege facts which, according to Barclays Bank Plc. v. O'Brien could, if known to the bank, give rise to constructive notice. They were that (1) Mrs. Boulter was at the material time married to Mr. Boulter (2) they were living together as husband and wife and (3) the charge was not on its face to her financial advantage. Of these facts (1) was pleaded expressly, (2) was a reasonable inference from the allegation that the initial loan was to buy the matrimonial home and (3) was open to argument on the construction of the legal charge but did not require any further allegations of fact. The pleading did not allege that these facts were known to the bank. But it did refer to the legal charge to which the bank had been a party and which would have put the bank on notice of the relevant facts. It appeared from the charge that Mr. and Mrs. Boulter had the same name and lived at the same address. And of course it contained the terms which she claimed were not to her financial advantage.

    When the trial came on before His Honour Judge Simmons in the County Court, Mr. Sullivan opened the bank's case. He took the point that constructive notice had not been pleaded and said that Mrs. Boulter could not rely upon it without an amendment. The judge accepted this submission. He allowed Mr. Coney a short adjournment to decide whether to apply for leave to amend. Mr. Coney refused to amend and asked for leave to appeal. Leave to appeal was refused by the judge but granted by the Court of Appeal. At the substantive hearing, Mummery L.J. said that Mr. Coney was right. He had pleaded all the material facts which entitled him to argue that the bank had constructive notice. No purpose would have been served by an additional paragraph "expressly alleging constructive notice." ([1998] 1 W.L.R. 1, 8D).

    I agree that the question of whether notice of certain facts amounted to constructive notice of other facts is a question of law. If, therefore, the pleading alleged all the facts which would, as a matter of law, give rise to constructive notice on the part of the bank of the alleged undue influence and misrepresentation, that should technically be enough. It would enable Mrs. Boulter to argue the legal consequences of the facts she had alleged or proved: see Independent Automatic Sales Ltd. v. Knowles & Foster [1962] 1 W.L.R. 974, 981. However, as Buckley J. said in that case, this is "not . . . a convenient course normally to be followed" because it may result in the question of law taking the other side by surprise. Mr. Coney would have avoided a lot of trouble if he had taken a less austere approach to the rules of pleading and said expressly that he was alleging constructive notice on the part of the bank. In addition, the deficiencies in the pleaded defence go further than the lack of an express allegation of constructive notice. As I have already said, essential allegations of fact have to be deduced inferentially from the contents of the pleading. This is particularly true of the allegations about the bank's notice of the primary facts alleged to give rise to constructive notice. These have to be deduced from the fact that the bank was party to documents in which they were stated or could be implied.

    Ordinarily, I would regard such a pleading as inadequate. I certainly do not think that the mere fact that a reference to a fact is tucked away in some pleaded document to which the bank was a party should normally, without any express reference to that fact, be capable of being taken as an allegation that the bank had notice of that fact. The purpose of the pleadings is to define the issues and give the other party fair notice of the case which he has to meet. Concealed and referential allegations do not perform this function. But the circumstances of this case were exceptional in that it had been made quite clear at the earlier hearing that Mrs. Boulter would be relying on constructive notice. In view of what Lord Browne-Wilkinson had said in Barclays Bank Plc. v. O'Brien [1994] A.C. 180 about the difficulties facing an allegation of agency such as was pleaded in paragraph 7, the bank cannot seriously have thought that Mrs. Boulter was abandoning the defence of constructive notice. It was in practical terms her only defence. So the pleading point was, against that background, technical in the highest degree. The bank knew perfectly well what case it had to meet. Its counsel made it clear that whether or not the pleadings were amended, he was ready to deal with the question of constructive notice and would not require the trial to be adjourned.

    Equally, it may be said, counsel for Mrs. Boulter had only to make a formal amendment to satisfy the judge's ruling. Why were both sides reluctant simply to proceed to try the case on its merits? The reason is the effect which an amendment might have had upon costs. Mr. Coney was concerned that even if he succeeded upon his amended defence, the bank might ask that Mrs. Boulter pay all the costs up to the date of the amendment, on the ground that she had succeeded upon a new point. The judge expressed doubt about whether this would be the case, but the point was not argued and Mr. Sullivan for the bank said nothing to reassure Mr. Coney. So both sides took their stand upon the formal rules of pleading. In my view, reading the pleadings against the background known to the parties and having regard to their purpose, no amendment was required.

    Mr. Brindle Q.C., who appeared for the bank, also relied upon two provisions in the former Rules of the Supreme Court. The first was Ord. 18, r. 8(2), which provides that a defendant to an action for possession of land "must plead specifically every ground of defence on which he relies, and a plea that he is in possession of the land by himself or his tenant is not sufficient." This abolished the old rule that the defendant in an action for possession of land could plead the general issue by alleging simply that he was in possession, in the way that a defendant to the actions of trespass and assumpsit could formerly plead "not guilty." It required him to specify what his defence was in the same way as in any other action. But it did not require him to plead more than he would have been required to plead in any other action.

    The other provision relied upon was Ord. 18, r. 12(4), which provides that where a party "alleges as a fact" that a person had notice of some fact, the court may order service of particulars of the facts relied upon. I do not think that this provision assists the bank. The matters of which it is alleged to have had notice "as a fact" have been pleaded. The conclusion that it therefore had constructive notice of other facts is one of law.

    For these reasons I would dismiss the appeal. And if this had been the only question, I am sure that your Lordships would not have given the bank leave to appeal. But the Court of Appeal also put the matter upon a wider ground. It said that Mrs. Boulter did not have to plead constructive notice because she did not have to prove that the bank had constructive notice. It was for the bank to prove that it did not. This means that Mrs. Boulter, or anyone else who claimed that he or she had been induced to execute an instrument in favour of a bank by the misrepresentation or undue influence of a third party, need allege only the misrepresentation or undue influence. Nothing need be said about the facts which are relied upon as giving rise to an inference of constructive notice. It was to challenge this far-reaching proposition that the bank sought leave to appeal to your Lordships and for that reason only that leave was given.

    Mummery L.J. relied upon the analogy of the defence of purchaser in good faith for value without notice which may be relied upon by a purchaser of a legal estate to defeat a prior equitable interest or estate. In such a case, it is well established that the burden of proving all the elements of the defence is upon the purchaser: see In re Nisbet and Potts' Contract [1905] 1 Ch. 391, 398. But that rule depends upon the fact that the land is burdened with an equitable proprietary interest. Prima facie, a purchaser cannot obtain a better title than his vendor was able to convey. The defence of purchaser in good faith for value without notice enables the purchaser to defeat a prior interest which burdened the title. It is therefore for him to establish that defence.

    In the present case, however, the bank took a charge directly from Mrs. Boulter. She had the necessary title to grant it. There was no prior interest which the bank needed to defeat. Likewise, the legal charge was an agreement under seal between Mrs. Boulter and the bank. She covenanted directly with the bank. What she claims is that the bank cannot rely upon the charge and the covenant because they were vitiated by the undue influence and misrepresentations of her husband. But in my opinion it is for her to show why these acts of a third party should make the charge and covenant invalid as against the bank. In my opinion a better analogy is the case of the purchaser of a chattel whose vendor's title is vitiated by fraud. In such a case the defrauded owner retains no proprietary interest in the chattel and it is therefore not for the purchaser to establish a defence which would defeat it. Instead, it is for the owner to prove that the purchaser had actual or constructive knowledge of the fraud: see Whitehorn Brothers v. Davison [1911] 1 K.B. 463. Likewise in Bainbrigge v. Browne (1881) 18 Ch. D. 188, which was the case principally relied upon by Lord Browne-Wilkinson in Barclays Bank Plc. v. O'Brien [1994] A.C. 180 for the doctrine of vitiation by notice of the misrepresentation or undue influence of a third party, Fry J. said, at p. 197 that the vitiating circumstances would operate:

    "against every volunteer who claimed under [the person who had exercised undue influence], and also against every person who claimed under him with notice of the equity thereby created, or with notice of the circumstances from which the court infers the equity. But, in my judgment, it would operate against no others; it would not operate against a person who is not shown to have taken with such notice of the circumstances under which the deed was executed."

    It seems to me that Fry J., who was a most exact and learned equity judge, clearly contemplated by the words "person who is not shown to have taken with such notice" that the burden of proving notice is upon the person who claims that the vitiating circumstances affect a person who was not party to the undue influence or misrepresentation. Likewise in C.I.B.C. Mortgages Plc. v. Pitt [1994] A.C. 200, 210 Lord Browne-Wilkinson said:

    "Even though, in my view, Mrs. Pitt is entitled to set aside the transaction as against Mr. Pitt, she has to establish that in some way the plaintiff is affected by the wrongdoing of Mr. Pitt so as to be entitled to set aside the legal charge as against the plaintiff."

    I respectfully think that these statements of the law are in accordance with principle.

    In the case of undue influence exercised by a husband over a wife, the burden is prima facie very easily discharged. The wife needs to show only that the bank knew that she was a wife living with her husband and that the transaction was not on its face to her financial advantage. The burden is then upon the bank to show that it took reasonable steps to satisfy itself that her consent was properly obtained. But a rule which generally put the burden upon the bank to show that it had no notice of vitiating circumstances could operate very unreasonably. It would mean that even when the relationship between the parties, as known to the bank, gave rise to no apparent risk of undue influence, the bank would have to prove that it had no notice of any which may in fact have been exercised. The defendant would not have to plead any of the facts upon which it intended to rely as giving rise to an inference of such notice and the bank would, under the former Rules of the Supreme Court and County Court Rules, not have been entitled to ask for particulars. In my opinion, therefore, the wider reasons given by the Court of Appeal were wrong but on the narrow pleading point I would dismiss the appeal.


My Lords,

    I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Hoffmann. I agree with it, and for the reasons which he gives I, too, would dismiss the appeal.


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