IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
(His Honour Judge Wakefield)
Lord Justice Nourse:
Introduction
These are appeals by a husband and wife arising out of a mortgage of their jointly owned matrimonial home created in order to secure the husband's indebtedness to the mortgagee. The mortgagee claimed payment against the husband and possession against both husband and wife. The husband counterclaimed for rescission of the mortgage on the ground of misrepresentation by the mortgagee and damages for misrepresentation and negligence. The wife's defence was that her execution of the mortgage had been procured by the husband's presumed undue influence over her of which the mortgagee had notice; cf. Barclays Bank Plc v. O'Brien [1994] 1 AC 180. She counterclaimed to have the mortgage set aside on that ground. She also brought third party proceedings against the legal executive who had acted for her in the transaction.
After a trial in the Central London County Court extending over more than five days His Honour Judge Wakefield gave judgment for the mortgagee against both husband and wife for the relief claimed against them respectively and dismissed their counterclaims. He also dismissed the third party proceedings. With the leave of this court, the husband appeals against the judge's refusal to grant him an adjournment at the start of the trial, the consequence of which was that he had to conduct his case in person. On that ground he seeks a new trial. If his appeal fails, he does not impugn the correctness of the judge's decision on the merits of his substantive case. Also with the leave of this court, the wife appeals against the judge's decision that the transaction was not "manifestly disadvantageous" to her. By a respondent's notice, the mortgagee claims, contrary to the judge's view, that in relying on a certificate of independent legal advice, given not by a solicitor but by a legal executive, it took reasonable steps to avoid being fixed with constructive notice of the wife's right, as against the husband, to have the mortgage set aside. The wife was refused leave to appeal in the third party proceedings, about which no more need be said.
The facts
The facts are fully stated in the judge's judgment. Because it is no longer necessary to consider the merits of the husband's substantive case they can be stated more briefly than they were stated by the judge. Many of them can be stated in his own words.
The husband and wife are the defendants, Yehuda Aryeh Coleman and Miriam Mara Coleman. They were married in 1984 in New York, where the husband was working as a diamond cutter. He had previously worked as a diamond cutter in Hatton Garden. When in New York he lived in Crown Heights, in the Brooklyn area, and was a member of the Community of Hasidic Jews who live there. In 1985 the husband and wife returned to the United Kingdom, where he resumed his work as a diamond cutter. In the winter of 1985/86 the wife returned to the United States to visit her family. While she was away the husband found a house, 52 Ashtead Road, Clapton, London E5, which he agreed to purchase. The purchase was completed on 9th July 1986 with the help of a first legal mortgage in favour of the Abbey National Building Society, the house being transferred into the joint names of the husband and the wife. The judge heard evidence to the effect that the wife's parents put up a part of the purchase price. He made no finding as to that, but said it was clear that the wife had a beneficial interest in the house.
In 1989 the husband was made redundant and had to look for alternative ways of earning a living. He began to work on his own account as a property broker. He had many contacts within his local Jewish community and was able to use them in order to introduce potential buyers to commercial properties which were on the market. If the introduction resulted in a sale, he would expect a commission from the buyer. One such deal brought him a substantial sum by way of commission when he introduced a buyer for a commercial property which sold for £20m or thereabouts. He earned £250,000 in one commission. In 1989 the husband was able to deposit £200,000 with the Lower Tottenham branch of the claimant, Barclays Bank Plc ("the bank"), on a high interest Treasury deposit.
The judge said that by the end of 1990 the husband had turned his mind to property investment and speculation. Details of two commercial properties in Uxbridge Road, Hayes, Middlesex, which were advertised for sale by agents, came to his attention. It is unnecessary to repeat the judge's description of the properties. He concluded that a purchaser of them could expect a pure income stream equivalent to the headline rent. He added that one of the leases had less than five years to run but that the tenant was expected to renew at the end of the term. At this point, I take up the story in the judge's own words:
"Mr Coleman had another potential interest. His brother-in-law owned a half share in an apartment block in Crown Heights, Brooklyn, New York at 481 Crown Street. The other co-owners of the building wished to sell their half share, and Mr Coleman had the opportunity of buying that share and thus becoming a part owner with his brother-in-law. An application to confer co-operative status on the building was envisaged by Mr Coleman's brother-in-law, which would enable the owners of the block to sell each of the apartments. Mr Coleman therefore saw the possibility of a substantial capital gain in the relatively short term if he purchased the half share in the building."
The husband decided to seek the assistance of the bank, first, in the purchase of the two commercial properties in Hayes. On 18th December 1990 he called at the Lower Tottenham branch, where he met Mr P G Saggers, who was a corporate lending manager at that branch between 1989 and 1995 and had responsibility for the husband's accounts. The judge said that Mr Saggers had very little personal recollection of what occurred at his meetings with the husband and was constrained to reconstruct events from the personal memoranda cards ("PM cards") which recorded what Mr Saggers dictated onto tape after the meetings, the cards then being typed up by his secretary. However, Mr Saggers did retain an overall impression that the husband was talkative, knew what he wanted, and had an agenda for each meeting. The judge said:
"Having observed Mr Coleman, I find this was likely to have been the case. Mr Coleman has a far better personal recollection than Mr Saggers of what occurred at each meeting. His reliability as a witness of what occurred, however, is undermined firstly by his personal interest in demonstrating that the bank is responsible for the financial misfortune which has befallen him, and secondly by insisting on certain points which are demonstrably false."
The entry in the PM cards for 18th December starts by recording the husband's request for a loan of £120,000 over 20 years to assist with the purchase of the two properties in Hayes at a combined purchase price of £250,000. Having stated that the rental income would adequately service the repayment programme, the entry gave certain background information about the husband. It continued:
"He owns his own property at Stamford Hill, valued at approx. £200,000 with a £30,000 mortgage. He has recently been working as a property broker for a number of substantial clients, his current money coming from fees in respect of this source. He now wishes to enter into the investment property market at a time when he considers, in line with advisers, the market has bottomed out."
Although the entry for 18th December does not refer to the prospect of buying the half share in 481 Crown Street, the judge found that that was mentioned by the husband and that Mr Saggers suggested that he should attempt to borrow the necessary funds in New York on the security of that property. The judge also found that although 52 Ashtead Road was mentioned at the meeting, it was not then proposed, either by the husband or by Mr Saggers, that it should stand as security for the loan.
The judge found that the next meeting between the husband and Mr Saggers took place early on Friday 21st December, and that by that time someone in the branch had enquired of Barclays Bank, New York whether a dollar loan could be made there in order to purchase the half share in 481 Crown Street and whether the loan could be secured on that property. The entry in the PM cards for that meeting, so far as material, reads:
"In addition to the above facilities already agreed, Mr Coleman has another project under way and has requested our assistance in funding requirements. His brother currently owns 50% of an apartment block in the Jewish Area of New York. The other shareholders need to realise their investment and Coleman wishes to purchase the 50% now on offer. The consideration is to be US$145,000 (say £76,000). We have already introduced customer to our New York branch and they have agreed to lend the money, although for technical reasons the property in question cannot be used as security. Barclays New York therefore require Bank Guarantee from us to arrange the funding. It has been suggested to Coleman that we advance the moneys ourselves via a US$ loan, repayments to come from the sale of the flats within the apartment block within approximately 12 months time . . . The deal could net Coleman in the region of £200,000 profit . . . As security we shall be taking a second charge over customer's private property with an estimated value of £200,000, equity £170,000. Coleman is to let us have details of the first mortgage in order that the appropriate documentation can be drawn up.
Overall facilities for Coleman will therefore be:
(1)Loan for investment property purchase at Uxbridge £120,000, security value £240,000.
(2)US$ Loan for American property purchase US$145,000 - £76,000, second charge equity F/D £170,000.
[Totals are then given as £196,000 for lending and £410,000 for security.]
. . . We await details of customer's private property."
The next entry in the PM cards is dated 3rd January 1991. It records that the position regarding the dollar loan had been deferred for the time being while the husband considered his position, and that in the meantime valuations had been received for the two properties in Hayes at an aggregate figure of £245,000. It also records the bank's agreement, given the high equity available, to the loan to the husband for the purchase of those properties being increased from £120,000 to £142,000.
The next entry in the PM cards is dated 14th January. It starts by dealing with the proposed mortgage of the two properties in Hayes, with the rents being mandated to a new account out of which the mortgage repayments were to be made. It continues:
"With regard to the dollar loan for the purchase of the US property, Coleman has confirmed that he wishes this to go ahead and is currently signing the necessary documentation regarding his private property."
The judge said that the documentation for charging 52 Ashtead Road (which consisted of the legal charge and a certificate of occupancy) had been prepared some days earlier by the bank's securities department. In accordance with the bank's normal practice, given that the house was in joint names, the husband and the wife were required to take the documents to a solicitor.
The judge found that on some date between 9th and 15th January 1991 the husband and the wife together visited the office of Reuben Gale, an elderly solicitor and sole practitioner, at 240 Stamford Hill, London N16. He found that Mr Gale was chosen by the husband, it appears for no other reason than that his office was conveniently placed to 52 Ashtead Road. The judge thought it likely that the documents were sent by post from the bank to Mr Gale's address and that an appointment to go there was made by the husband.
When the husband and the wife arrived at the office, Mr Gale was not there. The matter was attended to by Mr David Spring, a legal executive employed by Mr Gale. The legal charge, though engrossed and ready for execution, was undated. It was expressed to be made between (1) the husband (called "the principal debtor"), (2) the husband and the wife (called "the mortgagor") and (3) the bank. By clause 1(A):
"The Principal Debtor hereby covenants with the Bank that the Principal Debtor will on demand in writing made to the Principal Debtor pay or discharge to the Bank all the moneys and liabilities which shall for the time being (and whether on or at any time after such demand) be due owing or incurred to the Bank by the Principal Debtor."
By clause 1(B) the mortgagor entered into a similar covenant with the Bank, but it is agreed that since there was never any joint indebtedness of the husband and wife that provision was of no effect and can be ignored. By clause 2:
"The Mortgagor as Beneficial Owner hereby charges by way of legal mortgage ALL THAT the property [52 Ashtead Road] . . . with the payment or discharge of all moneys and liabilities hereby covenanted to be paid or discharged whether by the Principal Debtor or by the Mortgagor . . ."
The testimonium to the legal charge was completed by the signatures of the husband and the wife in the presence of Mr Spring, who signed his name in each case above a rubber stamp bearing the legend "D SPRING LEGAL EXECUTIVE 240 STAMFORD HILL LONDON N16". On the following page there is a typed endorsement which reads:
"I confirm that this document was signed in my presence and that the full effect of its contents have been explained to and were understood by Miriam Mara Coleman, and she has signed this document of her own free will."
Below that appears Mr Spring's signature. Underneath, a bank official had written in pencil the words "Messrs Reuben Gale, Solicitors", which were partially obliterated by the affixation of the same rubber stamp, below which Mr Spring wrote in the words:
"With R Gale 240 Stamford Hill, London N16. Solicitor."
As the judge correctly observed:
"A bank official, looking at Mr Spring's signature, could have been left in no doubt that the signature was that of a legal executive, not a solicitor, and that Mrs Coleman had been attended by a legal executive."
The consequences of that will have to be examined in due course. At the same time, the husband and the wife signed a certificate of occupancy showing themselves as the only occupiers of 52 Ashtead Road. That was countersigned by Mr Spring in confirmation that the certificate had been completed in his presence.
The legal charge, though now executed, was not dated at that stage. The bank obtained a report and valuation for mortgage purposes dated 17th January, which valued the house with vacant possession at £175,000. The next entry in the PM cards, dated 21st January, states:
"The US$ loan has now been drawn down at US$145,000, Sterling equivalent £75,500. The security has been put in place in respect of this facility, namely Coleman's private property valuation £175,000, equity £145, 000. We await the return of the facility letter to complete formalities."
A copy of a facility letter dated 22nd January 1991 and addressed to the husband was signed by him and, underneath the words "I acknowledge receipt of a copy of this facility letter", by the wife. It was then returned to the bank. The letter was expressed to relate to a loan of £75,500 to be advanced in US Dollars to the husband for a maximum term of 15 months. In paragraph 1, headed "Purpose", it was stated that the loan was to be used to assist the husband with "the purchase of an investment property in New York". Paragraph 2, headed "Security" stated that the loan was to be secured by second legal mortgage over 52 Ashtead Road.
The next entry in the PM cards is dated 5th February 1991 and relates solely to the two properties in Hayes, the purchase of and separate legal charge on which, both in the husband's sole name, were completed on 31st January. The next entry after that, dated 18th February, relates to 52 Ashtead Road and contains the following:
"All the security documentation in this respect have now been completed by Mr and Mrs Coleman. Prior to the signing of the Second Charge documentation with regard to 52 Ashtead Road, Mrs Coleman attended a local firm of independent Solicitors, whereby she received legal advice, as to the Bank's Charge Forms content. Her signature was witnessed by those Solicitors who confirmed that the document was signed of her own free will."
The legal charge was dated, and thus became effective, on 8th February 1991, being the date the judge took to be that by which the bank had received from Mr and Mrs Coleman the signed facility letter. Although the purchase of 481 Crown Street turned out to be a financial disaster for Mr Coleman, the judge said that no evidence had been adduced to prove that it was imprudent as of January 1991. What appears to have happened is that the rents from the property were insufficient to finance the loan; there were inordinate delays in obtaining the co-operative status which had been the purpose of the investment; and then the value of properties in the Crown Heights area was badly affected by riots about a year after the purchase was made. In spite of what the judge described as the husband's valiant efforts to service the dollar loan, he was ultimately constrained to file for bankruptcy in New York in respect of the building.
On top of that, although the rents from the two properties in Hayes were initially sufficient, or almost sufficient, to service the loan secured on them, first one and then the other became vacant and could not be relet. The result was, as the judge put it, that the husband was ultimately overwhelmed by the size of his debts. Formal demand for repayment in respect of the two loan accounts was made by the bank in letters dated 15th May and 26th July 1995, and on the former date a consequential notice was given to the wife advising her that in the event of continued default the bank might proceed with the sale of 52 Ashtead Road without further notice to her. On 31st July 1995 the originating summons in these proceedings was issued in the Chancery Division claiming payment of £239,548.96 against the husband and possession of 52 Ashtead Road against both husband and wife. Pleadings and discovery were directed, and the proceedings were in due course transferred to the County Court. The two properties in Hayes were sold in May 1996 for £124,171 and we are not concerned with them.
The husband's case at trial
Before turning to the husband's appeal against the judge's refusal to grant him an adjournment I will deal briefly with his substantive case at the trial. In summary, he claimed that in relation both to the two properties in Hayes and to 481 Crown Street he asked Mr Saggers to advise him as to whether they were good investments; that Mr Saggers undertook to advise him accordingly; and that in advising him to go ahead in each case Mr Saggers made material misrepresentations which induced him to enter into the purchases, further or alternatively was negligent in the advice that he gave him.
As to the two properties in Hayes, the judge said:
"I reject the suggestion that Mr Saggers was asked to advise or could be understood as advising upon the purchase of the Uxbridge Road properties. I would add that, judged at December 1990 and January 1991, the evidence does not demonstrate that the proposed transaction was imprudent or inadvisable."
As to 481 Crown Street, the judge said:
"It is Mr Coleman's case that the Bank owed him a duty of care in respect of the investment in 481 Crown Street and that they were in breach of that duty. In my judgment, Mr Coleman has signally failed to prove that the Bank undertook any duty in that regard or could be reasonably supposed to have done so. Moreover, I reject the submission that Mr Saggers positively advised Mr Coleman that it was a sound investment or could reasonably have been supposed to have done so. Mr Coleman visited the Bank for the purpose of obtaining a dollar loan. He neither sought nor expected Mr Saggers' advice on the soundness of the investment in New York. The best that can be said is that Mr Saggers was being asked as to the best means of obtaining the loan."
In short, the judge rejected the evidence of the husband and preferred that of Mr Saggers on every material point, including an astonishing assertion that the husband had not known that he was executing a legal charge over 52 Ashtead Road. He gave judgment against the husband in the sum of £183,298.92 and dismissed his counterclaim. He made an order against him for possession of 52 Ashtead Road.
The husband's appeal - the facts
It is necessary to set out the facts relating to the husband's appeal in some detail. On 23rd April 1996 he was issued with a legal aid certificate to defend and counterclaim in the proceedings. On 20th September 1996 the certificate was amended:
"by removal of the existing limitation and substituting therefor: Limited to all steps up to and including trial/final hearing."
On 18th November 1996 a defence and counterclaim, settled by counsel, was served on the husband's behalf. The action did not proceed speedily to trial. On 9th September 1997 an unless order was made against the husband in respect of his failure to serve a supplementary list of documents. There was then a delay in the preparation of his witness statement, for some of which at any rate he himself was responsible. By an order made on 29th January 1998 statements were to be exchanged on 19th February following, but the husband's statement was not ready by that date. So the bank had to seek a further unless order, to which the husband consented, for service of his statement by 3rd April 1998. In the meantime, on 4th February, the trial had been fixed to start on 18th May 1998, with an estimated hearing of five days.
The husband's statement having been prepared and served by 3rd April, the papers were returned to counsel (not Miss Harington, who has appeared for the husband only in this court), presumably for her to advise as to preparations for the trial and generally. By that time it would have been into the week before Easter, which fell that year on 12th April. In any event, counsel was not able to deal with the matter immediately after Easter. It was not until 1st May that her opinion was sent to the husband's solicitors, who did not themselves send it to the Legal Aid Board until 5th May. We of course do not know what was in that opinion. What we do know is that on 8th May, a Friday, the certificate was further amended:
"by removal of the existing limitation and substituting therefor: Limited to negotiations as to settlement and, if appropriate, an application by consent."
It appears that the amended certificate may not have been received by the husband's solicitors until Tuesday 12th May, on which day they applied to reinstate the legal aid as a matter of urgency. However, on 13th May the Legal Aid Board informed the solicitors on the telephone that they were refusing the application and instituting the show cause procedure. That was confirmed in writing on 14th May, when it was said that it was open to the solicitors to instruct counsel to attend court to explain the position on 18th May. It is not clear whether the husband was himself informed of the amended certificate on 12th May, though I think it likely that he was. In any event, he was informed by telephone on Thursday 14th May of the Board's refusal to reinstate his legal aid.
It was against that background that the application was made for an adjournment at the start of the hearing on Monday 18th May. The application was introduced by counsel, but it was made in the first instance by the husband himself. Having described the events of the previous ten days, he said:
"If I may say to his Honour that I wish to seek an adjournment for, first of all, to respond to legal aid, put my responses to show cause, and also to consider new counsel in the light of the lateness of the matter being left the way it was last week placing me in a very difficult situation to come to trial at this very late hour without any - - effectively no representation and no legal aid."
The application was opposed by counsel for the bank and for the third party. Counsel for the wife said that she could not say that she did oppose the adjournment. There was then a lengthy series of exchanges between the judge and counsel for the husband, in which she gave him, in some detail, an outline of the husband's case. She also further explained the legal aid position, indicating, however, not that a legal aid certificate covering the trial had been cut down but rather that the existing legal aid certificate had run out on 13th May, so that what was needed was an extension.
At the end of those exchanges the judge turned again to counsel for the bank, saying that the case sounded very complicated. Counsel was at pains to point out that it was not as complicated as all that. He said that counsel for the husband had already put in a draft skeleton argument; that the matter was fully prepared by all parties; that there was only effectively one material witness for the bank, Mr Saggers, to whom the judge would be well able to put questions and to assist the husband in putting questions; and that the disputes were really just disputes of fact. Counsel also submitted that on what the judge had been told there was little left open to him than to assume that if there was an adjournment legal aid would not subsequently be granted. There followed further exchanges between the judge and counsel for the husband and the bank and a final word from the husband himself.
The judge then delivered a short judgment, which I read in full:
"This case has been listed for five days. It was listed as long ago as February. It seems to have taken a long time for Mr Coleman's solicitors to apply for an extension of his legal aid certificate. An extension was required in order for the certificate to cover the trial. It appears that only during the first week of this month did the solicitors communicate with the Legal Aid Board with a view to getting this certificate extended and that was met with a refusal by the Legal Aid Board. The certificate has now expired and has not been extended, except for the purpose of Mr Coleman's counsel to attend this morning to explain the position.
I have to take into account the prejudice to Mr Coleman that might ensue if the trial proceeds. On the other hand, I have also to take into account the inconvenience to the other parties and to the court if this matter is adjourned. I see no real excuse why the matter was delayed for so long for the Legal Aid Board to consider extending the certificate. Moreover I am not convinced that if there were an adjournment the certificate would be restored. I refuse the adjournment. The trial will start at 2 o'clock."
The husband's appeal - ought there to have been an adjournment?
The leading authority on the approach of this court to an appeal against the refusal of a judge of first instance to grant an adjournment is Maxwell v. Keun [1928] 1 KB 645, where each of the members of the court (Lord Hanworth MR, Atkin and Lawrence LJJ) expressed himself in slightly different language, though all to the same effect. The import of the decision is to be found in these words of Lawrence LJ, at p. 658:
"This Court never interferes with the discretion of a judge below in arranging his list or in fixing the time for trying any cases before him unless that discretion is exercised so as to result in a denial of justice."
A denial of justice test is a high one, higher than that which this court usually applies in deciding whether to interfere with a judge's exercise of discretion. No doubt the higher test is justified where the decision is not substantive but procedural, more especially where it is given in exercise of the inherent power of a judge of first instance to order the business of his court.
While I believe that the denial of justice test has not been expressly relaxed by any later decision of this court, it is my experience that it is from time to time relaxed in practice. Such indeed was the assumption inherent in the argument of Miss Harington, who submitted that the judge's decision was unfair to him and thus unreasonable or plainly wrong. In other words, her argument assumed the applicability of the usual test for this court's interference with a judge's exercise of discretion, and she supported her submission by reference to authorities on Article 6(1) of the European Convention on Human Rights (see below). For my part, I am prepared to approach this case on the footing that the lower test is applicable to it.
The essence of Miss Harington's argument was that it was not until Thursday 14th May that the husband knew that he was not going to be legally represented at a trial beginning on the following Monday, a period which, with the intervention of the Sabbath, was wholly inadequate to enable him to prepare himself. She said that the case was complex, both factually and legally, with two bundles of documents, several witness statements and affidavits and lengthy pleadings. She added that to have legal representation withdrawn with almost no notice is a circumstance liable to induce panic in almost any litigant in person. By having to face an opponent represented by counsel and solicitors who had acted in the proceedings from their outset, the husband was seriously disadvantaged, especially in circumstances where he was faced with a large money claim and the potential loss of his family home.
I reject Miss Harington's argument. While it is only natural to sympathise with the husband in the predicament in which he found himself, it was not so serious as to make the judge's decision to go ahead with the trial unreasonable or plainly wrong. In giving judgment, the judge recognised that he had to take into account the prejudice to the husband that might ensue if the trial proceeded. Although he did not refer to them, he doubtless had in mind the points made by counsel for the bank when responding to his suggestion that the case sounded very complicated. The judge was evidently satisfied that the trial could be conducted without unfairness to the husband, whose essential task was to put his version of the meetings to Mr Saggers, referring in the process to the comparatively few contemporary documents, and to give his own version of events to which he had already deposed in his witness statement. It is possible that another judge might have arrived at another decision. But to say that is very far from saying that this decision of this judge, made after balancing the competing considerations, was unreasonable or plainly wrong.
It is important to emphasise that this was not a case, like Maxwell v. Keun and the majority of such cases which come before this court, where the judge's decision was questioned before the trial began. It would have been possible for counsel for the husband to ask the judge to defer the start of the trial for a short time, perhaps until the Tuesday morning, so that an urgent application could be made to this court for leave to appeal. For the reasons I have given, I think that such an application would have been refused. But that is not the point. The point is that there has now been a trial and what is asked for is a retrial. As to that, the bank relied on RSC O.59, r.11, now reenacted in CPR Schedule 1, which provides:
"The Court of Appeal shall not be bound to order a new trial on the ground of misdirection . . . unless in the opinion of the Court of Appeal some substantial wrong or miscarriage of justice has thereby been occasioned."
So at this stage the test is quite clear. Even if the judge misdirected himself, we are not bound to order a retrial unless we think his refusal to grant an adjournment occasioned some substantial wrong or miscarriage of justice. I am unable to hold that that test is satisfied. Although Miss Harington argued that the husband did not put at least one important point to Mr Saggers, I am satisfied, on a perusal of the transcripts, that he did have a sufficient opportunity to put his case. The plain fact is that the outcome of the proceedings as between the bank and the husband was always going to depend on the view taken by the judge of the diametrically opposed accounts of what took place at the meetings between Mr Saggers and the husband. After hearing their evidence, he preferred that of Mr Saggers on every material point. No substantial wrong or miscarriage of justice was occasioned to the husband by his decision. The husband's version of events having been so improbable and contrary to the contemporary documents, there is no real prospect of a retrial leading to some different result. It would be quite wrong to order one.
Two further points must be mentioned. First, as to the European authorities, Miss Harington did not dissent from the summary of their effect propounded by Mr Elliott QC and Mr Marks for the bank, which was that the relevant question for the judge was whether, in all the circumstances, the trial could be conducted in a fair manner in spite of the withdrawal of the husband's legal representation. For the reasons already stated, that test was satisfied here.
Secondly, Miss Harington based an argument of unfairness on the shortcomings and misunderstandings as to the husband's legal aid. First, she said, correctly, that the husband's counsel did not accurately explain to the judge what had happened. Secondly, she submitted that if the judge had known of the unusual form of the amendment made to the certificate on 8th May he would have taken a different view of the application for an adjournment. Miss Harington referred us to provisions of the Legal Aid Act 1988 and the Civil Legal Aid Regulations 1989 in support of an argument that the Legal Aid Board had had no power to make an amendment in that form. She submitted that the husband had been unfairly treated on that ground also.
While doubting that it is correct to do so, I will assume in the husband's favour that he can rely on his counsel's omission to give the judge an accurate account of the legal aid position. Even on that assumption, I am of the opinion that there is no force in this part of Miss Harington's submissions. Had he known the true position, the judge would still have been justified in criticising the failure to refer the matter back to the Legal Aid Board before 5th May. Further and more significantly, he would have known that the husband would still have been asked to show cause. At the end of his judgment he said that he was not convinced that if there was an adjournment the certificate would be restored. If he had known the true position, it is only reasonable to suppose that he would have come to the same overall conclusion; in other words, that when cause was shown it was unlikely that legal aid for the trial would be granted. That was a view he was entitled to take.
For these reasons I would dismiss the husband's appeal.
The wife's case at trial
The wife's case at the trial was in the now familiar O'Brien mould. She asserted (1) that there existed between herself and the husband at the material time a relationship of trust and confidence which enabled him to influence her into effecting the legal charge of 52 Ashtead Road; (2) that the legal charge was manifestly disadvantageous to her; (3) that it was not established on the evidence that she had entered into it only after full, free and informed thought about it; (4) that she was thus entitled to have the legal charge set aside as against the husband by reason of his presumed undue influence over her; (5) that the bank, in relying on an inadequate certificate of independent legal advice, did not take reasonable steps to avoid being fixed with constructive notice of the wife's right as against the husband; and (6) that she was therefore also entitled to have the legal charge set aside as against the bank.
The judge held that all the elements of the wife's case were established, except (2). He held that the legal charge was not manifestly disadvantageous to her and on that ground he rejected her defence and counterclaim. In regard to element (5), the judge held, as a general proposition of law, that a mortgagee who relies on a certificate of independent legal advice, given not by a solicitor but by a legal executive, does not take reasonable steps to ensure that he is not fixed with constructive notice of a wife's entitlement, as against her husband, to have the mortgage set aside. Elements (2) and (5) remain in dispute in this court. The bank does not seek to impugn the judge's findings in regard to elements (1) and (3), being findings which were clearly open to him on the evidence. Indeed, I think that he took element (3) for granted.
The wife's appeal - manifest disadvantage
The judge concluded that he was bound to hold that manifest disadvantage was a necessary ingredient in a case of presumed undue influence. On authority which binds both judges of first instance and this court he was without doubt correct in his conclusion, and Miss Williamson QC, for the wife, did not argue to the contrary. But since the authorities have now got into a very unsatisfactory state and the concept of manifest disadvantage is elusive and often difficult to apply to the facts of individual cases, a reexamination of what it really means is necessary.
Counsel have not traced the requirement of manifest disadvantage further back than National Westminster Bank Plc v. Morgan [1985] AC 656, where it was conceded at first instance that no presumption of undue influence could arise unless the transaction was manifestly disadvantageous to the person allegedly influenced; see the report of the case in this court [1983] 3 All ER 85, 90D and 92A. That was an unusual case, in that the relationship there in point was that between banker and customer. This court held, in line with its earlier decision in Lloyds Bank Ltd v. Bundy [1975] QB 326, that there had been a relationship of trust and confidence between the two and that the resultant presumption had not been rebutted. The House of Lords took the contrary view, and that part of their decision has occasioned no adverse critical comment.
By the time that that case reached this court no concession was made as to the need for manifest disadvantage. Slade LJ, having expressed the view that it was right not to make the concession, said at p. 92B:
"No doubt the obviously disadvantageous nature of a particular transaction may make it easier for a party to assert, in particular circumstances, that the presumption of law arises and, if it does arise, to show that it has not been rebutted. Nevertheless nothing in Lloyds Bank Ltd v. Bundy or other cases which have been cited to us, in my opinion establishes that it is always incumbent on a party to a transaction to show that it is manifestly disadvantageous to him before he can invoke the presumption. The purpose of the court in applying the presumption in appropriate cases, as I understand it, is, as a matter of public policy, to mitigate the risk of a particular relationship existing between two parties and the influence arising therefrom from being abused: see Allcard v. Skinner (1887) 36 Ch.D. 145, 171, per Cotton LJ. Where a transaction has been entered into between two parties who stand in the relevant relationship to one another, it is still possible that the relationship and influence arising therefrom has been abused, even though the transaction is, on the face of it, one which, in commercial terms, provides reasonably equal benefits for both parties."
In my respectful opinion that was an entirely correct statement of the law as it was then understood. However, the House of Lords disagreed on that point also, holding that a transaction must be shown to have been manifestly disadvantageous to the party allegedly influenced before a presumption of undue influence can arise. That part of their decision has occasioned much adverse critical comment and, even more significantly, judicial doubts expressed at the highest level; see CIBC Mortgages Plc v. Pitt [1994] 1 AC 200.
It is necessary to give a brief account of the developments which took place between the two decisions of the House of Lords. In the period immediately following National Westminster Bank Plc v. Morgan it was consistently assumed in this court, and also in at least one case at first instance, that in all cases where undue influence was alleged, whether actual or presumed, it was necessary to establish that the transaction in question was manifestly disadvantageous to the party allegedly influenced, and in Bank of Credit & Commerce International SA v. Aboody [1989] QB 923 this court held that that indeed was the law. However, that decision, so far as it extended to actual undue influence, was overruled by the House of Lords in CIBC Mortgages Plc v. Pitt, where Lord Browne-Wilkinson, with whose speech Lords Templeman, Lowry, Slynn of Hadley and Woolf agreed, said [1994] 1 AC at 209D:
"I therefore hold that a claimant who proves actual undue influence is not under the further burden of proving that the transaction induced by undue influence was manifestly disadvantageous: he is entitled as of right to have it set aside."
For present purposes, the important part of Lord Browne-Wilkinson's speech is that which immediately follows:
"I should add that the exact limits of the decision in Morgan may have to be considered in the future. The difficulty is to establish the relationship between the law as laid down in Morgan and the longstanding principle laid down in the abuse of confidence cases viz. the law requires those in a fiduciary position who enter into transactions with those to whom they owe fiduciary duties to establish affirmatively that the transaction was a fair one: [examples given, including the discussion in the Aboody case [1989] QB at 962-964.] The abuse of confidence principle is founded on considerations of general public policy, viz. that in order to protect those to whom fiduciaries owe duties as a class from exploitation by fiduciaries as a class, the law imposes a heavy duty on fiduciaries to show the righteousness of the transactions they enter into with those to whom they owe such duties. This principle is in sharp contrast with the view of this House in Morgan that in cases of presumed undue influence (a) the law is not based on considerations of public policy and (b) that it is for the claimant to prove that the transaction was disadvantageous rather than for the fiduciary to prove that it was not disadvantageous. Unfortunately, the attention of this House in Morgan was not drawn to the abuse of confidence cases and therefore the interaction between the two principles (if indeed they are two separate principles) remains obscure."
Those observations have put a serious question mark over the future of the requirement of manifest disadvantage in cases of presumed undue influence. While the difficulty of reconciling those cases with the abuse of confidence cases appears to have been the primary consideration in the minds not only of their Lordships in CIBC Mortgages Plc v. Pitt but also of this court in the Aboody case, my own view is that the real objection to the requirement in cases of presumed undue influence is that it is out of line with the well-established principles applicable to those very cases, as summarised by Slade LJ in National Westminster Bank Plc v. Morgan.
The true view is that the introduction of the requirement was an original creation of their Lordships' House. Although in CIBC Mortgages Plc v. Pitt judicial courtesy no doubt prevented Lord Browne-Wilkinson from saying so, my strong impression is that he thought that its introduction into cases of presumed undue influence was no more appropriate than into cases of actual undue influence. While it is not open to us not to follow that part of the decision in National Westminster Bank Plc v. Morgan, I would respectfully suggest that, if it is wrong, the error was in large part caused by Lord Scarman's reliance on Poosathurai v. Kannappa Chettiar (1919) LR 47 IA 1.
That was a case decided under section 16 of the Indian Contract Act 1872, subsection (1) of which provided that a contract was induced by undue influence:
"where the relations existing between the parties are such that one of the parties is in a position to dominate the will of the other, and uses that position to obtain an unfair advantage over the other."
The first of those requirements, i.e. that the party in whom the trust and confidence are reposed must be in a position to dominate the will of the other party, has been held by this court to form no part of English law; see Goldsworthy v. Brickell [1987] Ch. 378. The second requirement, i.e. that the party in whom the trust and confidence are reposed should use his position to obtain an unfair advantage over the other party, does form part of English law. But it does not at all follow that every transaction in which one party uses his position to obtain an unfair advantage over the other is, as Lord Scarman appears to have thought (see [1985] 1 AC at 707B-D), manifestly disadvantageous to that other. As Slade LJ had pointed out, the two things are not necessarily the same.
The position, as it confronts us in this court, can be summarised as follows. We, like the judge, are bound to hold that manifest disadvantage is a necessary ingredient in a case of presumed undue influence. At the same time, the House of Lords have signalled that it may not continue to be a necessary ingredient indefinitely. In the meantime, in continuing to look for manifest disadvantage, we have to ask ourselves what it really means. In the circumstances stated, I have no disposition to enlarge its significance. To some judges "manifest" seems to have connoted substance, not appearance. But I agree with Sir Donald Nicholls VC in Cheese v. Thomas [1994] 1 WLR 129, 134, that it means "clear and obvious". So there must be a disadvantage and it must be clear and obvious. But that does not mean that it must be large or even medium-sized. Provided it is clear and obvious and more than de minimis, the disadvantage may be small.
In deciding whether a transaction is manifestly disadvantageous, it is agreed both that an objective view must be taken of it and that that view must be taken as at the date at which the transaction is entered into. Here Judge Wakefield directed himself by reference to statements in the judgments of Sir Joseph Cantley at first instance and in this court in the Aboody case, and also of Peter Gibson LJ in CIBC Mortgages Plc v. Pitt. Having done that, the judge said:
"The present case, unlike many other cases, was not one where a husband was making a last desperate throw of the dice in order to salvage a failing business. Mr Coleman had made substantial profits from property broking. He was about to turn to property investment and speculation. He had substantial assets, both in cash and in the equity in his home. The purpose of making the further investment was to benefit himself and his family. It was perceived by him as his livelihood that he should make investments. . . In my judgment, I am bound to look at the question of manifest disadvantage in the broad way in which the Court of Appeal has directed in the cases of Aboody and Pitt. Perhaps the best that can be said is that Mr Coleman's departure from property broking to property speculation was a new departure and had risks which had not hitherto been undertaken by Mr Coleman. However, notwithstanding those risks, I take the view that he was providing for his family's livelihood."
He also looked at the transaction in a narrow way and again concluded that it was not manifestly disadvantageous to the wife.
Miss Williamson attacked the judge's view of the transaction on a number of grounds, including the absence of any need to charge the home in view of the £200,000 held by the husband on the Treasury deposit, the bank's willingness to take the cash as an alternative security, the absence of financial pressure on the husband to enter into the transaction at all and the risks inherent in investing in a venture in the unfamiliar conditions of the New York property market. Had those been the only objections, I think it doubtful whether we could properly have overruled the judge's decision on this question.
The point on which Miss Williamson came to place most reliance was the subjection of 52 Ashtead Road to a charge not simply for the £75,500 loan advanced by the bank in order to assist with the purchase of 481 Crown Heights plus interest, but also for the payment of all moneys for the time being owing by the husband to the bank. That would have enabled the bank to resort to 52 Ashtead Road for any future borrowings by the husband and without the necessity of obtaining the wife's consent to such borrowings. It would also appear to have enabled the bank to resort to 52 Ashtead Road for any shortfall under the legal charge on the two properties in Hayes.
About this point the judge said:
"I take account, of course, of the fact that the charge on the house was an 'all moneys' charge. It was sufficient to secure not only moneys borrowed under this proposed transaction but also any other transaction which Mr Coleman might embark upon. Judged at January 1991, however, there was no reason for Mr Saggers to suspect that Mr Coleman was going to embark on any manifestly improvident transactions."
Quite apart from the objection that the judge there appeared to consider the point in relation to constructive notice, rather than the advantages or disadvantages of the transaction to the wife, I cannot agree that it is disposed of by the absence of any reason to suspect that the husband was going to embark on any other transactions, improvident or otherwise. The objection is that the form of the legal charge enabled him, without resort to the wife, to subject the house to much greater financial risks than she could ever have known. That was a clear and obvious disadvantage to the wife. For my part, I do not think that it was outweighed by the advantages of the transaction as stated by the judge. Manifest disadvantage having been shown, I conclude that the wife was entitled to have the legal charge set aside as against the husband by reason of his presumed undue influence over her.
The wife's appeal - the adequacy of the certificate
On that view of the matter the success of the wife's appeal depends upon the correctness of the judge's view that a mortgagee who relies on a certificate of independent legal advice, given not by a solicitor but by a legal executive, does not take reasonable steps to avoid being fixed with constructive notice of a wife's right, as against her husband, to have the mortgage set aside. Although Miss Williamson sought to argue that this was a case which fell within the exceptional class recognised by Lord Browne-Wilkinson in Barclays Bank Plc v. O'Brien [1994] 1 AC at 197A, I am satisfied that that is very far from being so. On that footing, I think it plain that, subject to the legal executive point, the certificate was covered by propositions (2), (3), (5) and (6) of those listed in the judgment of this court in Royal Bank of Scotland v. Etridge (No. 2) [1998] 4 All ER 705, 721. The certificate confirmed that the full effect of the contents of the legal charge had been explained to the wife (obviously by Mr Spring) and were understood by her; and, further, that she had signed it of her own free will. So unless the legal executive point is a good one, the bank did not have constructive notice of the wife's right.
As I have said, the judge correctly observed that a bank official could have been left in no doubt that the signature on the certificate was that of a legal executive and not a solicitor. He concluded:
"Even were I to assume that legal executives commonly explain to clients the effect of a legal charge, I should not be prepared to hold the bank had discharged its duty. The rule which has now been established by the Court of Appeal authorities, and which enables a bank to rely on a solicitor's certificate, is a benevolent rule. It affords banks a simple and efficient method of ensuring that a wife has obtained proper legal advice before standing surety for her husband's debts, whilst at the same time affording the wife a degree of protection against the undue influence of her husband. I do not think that the Court of Appeal intended the procedure to be pushed any further or to enable banks to rely on certificates from persons who were not solicitors. To do so would endanger the very principle which has been established, which is that the solicitors' profession can, by and large, be relied upon to discharge their duty of explaining to wives, and others in a position of weakness, the effect of legal documents."
This is a short point, on which no authority cited to us was of any real assistance.The judge's view of it, based as it was on public policy, deserves great respect. But it does not allow for the realities of solicitors' practice in current conditions, when the responsibility for dealing with matters of this kind is frequently and properly delegated to legal executives. A legal executive is by definition a member of the Institute of Legal Executives. (Mr Spring had been a fellow of the Institute since 1963.) What is required is independent legal advice, by which is meant advice independent of the mortgagee. Advice given by a legal executive is legal advice and, provided that it is independent and given with the authority of his principal, there is no sound reason for holding it to be inadequate.
Miss Williamson was disposed to accept that a certificate from which it was apparent that the legal executive had been authorised by his principal to give the advice would be adequate. But she submitted that that was not the case here. This was a certificate by a legal executive, pure and simple. The addition of the words "With R Gale 240 Stamford Hill, London N16. Solicitor.", having been made by Mr Spring himself, did not entitle the bank to assume that the advice had been given with the authority of Mr Gale. This submission is unrealistic. The certificate was a record of advice given when, as the bank knew (see the entry in the PM cards for 18th February 1991), the husband and the wife attended at Mr Gale's office. A solicitor who allows his legal executive to give advice from the address at which he practises necessarily holds him out as having the authority to do so. The certificate therefore entitled the bank to assume that the advice had been given with Mr Gale's authority, as indeed it was. I hold that the bank took reasonable steps to avoid being fixed with constructive notice of the wife's right, as against the husband, to have the mortgage set aside.
In the result, though differing from the view of the judge on each of the two questions, I would affirm his decision and dismiss the wife's appeal.
Lord Justice Pill:
I agree.
Lord Justice Mummery:
I also agree.
Order:Appeals of both defendants dismissed.
First defendant's appeal dismissed with costs; provided it is shown that his contribution is nil, his liability under that order to be assessed at nil and order nisi made against the Legal Aid Board pursuant to section 18 of the Legal Aid Act 1988 (order not to be drawn up until it is shown to the court's satisfaction that his contribution is nil and, if it is not, matter to be referred to Nourse LJ in the first instance for directions); first defendant's solicitors directed to write a letter to the court explaining in full the first defendant's legal aid position and explaining why, if a request for information as to that position was made to them by the claimant's solicitors, it was not responded to, and also explaining why the court should, more than 20 minute after the time was listed for judgment, still be uncertain as to what exactly the legal aid position was.
Second defendant's appeal dismissed with costs; her contribution under that order being assessed at nil, order nisi made against the Legal Aid Board pursuant to section 18 of the Legal Aid Act 1988.
Both applications for leave to appeal to the House of Lords refused; no order made for a stay; order made for possession within six weeks from today; legal aid taxation of the costs of both defendants.