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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> National Westminster Bank Plc v Morgan [1985] UKHL 2 (07 March 1985) URL: http://www.bailii.org/uk/cases/UKHL/1985/2.html Cite as: [1985] UKHL 2, [1985] 1 AC 686, [1985] AC 686

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Parliamentary Archives,
HL/PO/JU/18/245

National Westminster Bank plc (Appellants)

^v.
Morgan (A. P.) (Respondent)




JUDGMENT

Die Jovis 7° Martii 1985

Upon Report from the Appellate Committee to whom was
referred the Cause National Westminster Bank plc against
Morgan (A.p.), That the Committee had heard Counsel on
Monday the 10th, Tuesday the 11th, Wednesday the 12th and
Thursday the 13th days of December last upon the Petition
and Appeal of National Westminster Bank plc whose registered
office is at 41 Lothbury London EC2P 2BP praying that the
matter of the Order set forth in the Schedule thereto, namely
an Order of Her Majesty's Court of Appeal of the 29th day of
June 1983, might be reviewed before Her Majesty the Queen in
Her Court of Parliament and that the said Order might be
reversed, varied or altered or that the Petitioners might
have such other relief in the premises as to Her Majesty the
Queen in Her Court of Parliament might seem meet; as also
upon the Case of Janet Morgan lodged in answer to the said
Appeal, and due consideration had this day of what was
offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Order of Her Majesty's Court of
Appeal of the 29th day of June 1983 complained of in the said
Appeal be, and the same is hereby, Set Aside, save for legal
aid taxation: and that the Order of the County Court of the
5th day of November 1982 be, and the same is hereby Restored
and that possession of the house be given within 28 days of
this judgment: And it is further Ordered, That there be no
Order as to Costs in the Court of Appeal or in this House,
save that the Costs incurred by the Respondent in respect of
the said Appeal to this House be taxed in accordance with
Schedule 2 to the Legal Aid Act 1974: And it is also further
Ordered, That the Cause be, and the same is hereby, remitted
back to the County Court to do therein as shall be just and
consistent with this Judgment.

Cler: Parliamentor





HOUSE OF LORDS

NATIONAL WESTMINSTER BANK PLC
(APPELLANTS)

V.

MORGAN (A.P.)
(RESPONDENT)

Lord Scarman
Lord Keith of Kinkel
Lord Roskill
Lord Bridge of Harwich
Lord Brandon of Oakbrook




LORD SCARMAN

My Lords,

The appellant, the National Westminster Bank Plc., seeks
against Mrs. Janet Morgan, the respondent in the appeal, an order
for the possession of a dwelling-house in Taunton. The house is
Mrs. Morgan's family home. She acquired it jointly with her
husband, and since his death on 9 December 1982 has been the
sole owner. The bank relies on a charge by way of legal
mortgage given by her and her husband to secure a loan granted
to them by the bank. The manner in which Mrs. Morgan came to
give this charge is at the heart of the case. The only defence to
the bank's action with which your Lordships are concerned is Mrs.
Morgan's plea that she was induced to execute the charge by the
exercise of undue influence on the part of the bank. The bank,
she says, procured the charge by bringing to bear undue influence
upon her at an interview at home which Mr. Barrow, the bank
manager, sought and obtained in early February 1978.

The action was heard in the Bridgwater County Court in
November 1982. The deputy judge, Mr. C. S. Rawlins, delivered a
careful judgment in which after a full review of the facts he
rejected the defence of undue influence and made the possession
order sought by the bank. He also rejected Mrs. Morgan's
counterclaim for equitable relief.

Mrs. Morgan appealed. The Court of Appeal reversed the
judge, dismissed the bank's claim, and granted Mrs. Morgan relief
in the shape of a declaration that the legal charge was not a good
and subsisting charge.

The bank appeals with the leave of the House. Two issues
are said to arise: the first, the substantive issue, is whether Mrs.
Morgan has established a case of undue influence: the second, said
to be procedural, is whether, if she has, she ought properly to be
granted equitable relief, and the nature of any such relief. The
two issues are, in truth, no more than different aspects of one
fundamental question: has Mrs. Morgan established a case for
equitable relief? For there is no longer any suggestion that she
has a remedy at law. Unless the transaction can be set aside on
the ground of undue influence, it is unimpeachable. The House is
not concerned with the claim for damages for negligence raised by
Mrs. Morgan in her counterclaim but not pursued by her in the
Court of Appeal: nor has any case of misrepresentation been
advanced.

- 1 -

In the appeal the bank invites the House to review the
decision of the Court of Appeal in Lloyd's Bank Ltd, v. Bundy
[1975] QB 326. The case, it would appear, has been widely
misunderstood - though not, I hasten to add, by the judges of our
courts. The majority of the court in that case addressed
themselves to its very special facts and held that the customer's
banking transaction (a legal charge on the home, as in this case)
was procured by undue influence exercised by the bank manager:
but Lord Denning preferred to base his judgment on inequality of
bargaining power. Because this difference of approach may have
led to some confusion, I have no doubt that the House should
accede to the bank's invitation. Whether the bank is correct in
its submission that the majority decision was wrong in law is,
however, another matter, to which I shall return later in my
speech.

The facts of the case

There is no dispute as to the primary facts: they were
agreed by counsel in the county court. Mr. and Mrs. Morgan
bought the house on 17 September 1974 with the assistance of two
loans secured by a first and a second mortgage. The first was a
charge by way of legal mortgage to the Abbey National Building
Society to secure a loan of £12,800: the second was a legal charge
to an investment company to secure a loan of £4,200. The total
of £17,000 thus borrowed almost certainly approximated at the
time to the value of the property: and the consequence of the two
loans was to saddle the property with a burden of debt, the
servicing of which was to cause Mr. Morgan great difficulty. The
mortgage repayments soon fell into arrears.

Mr. Morgan was in business as an earth-moving contractor, a
business which he conducted first through a company, Highbell
Ltd., and later through a company named D. A. Morgan Contracts
Ltd. The business was under-capitalised and subject to alarming
fluctuations of fortune. Highbell ceased to trade in July 1975.

Between 1975 and 1977 Mr. Morgan banked at the
Basingstoke branch of the National Westminster, though he and his
family were living at Taunton. He was frequently in overdraft
upon his personal account, so that Basingstoke asked the North
Street, Taunton branch to try to collect what was due. On at
least six occasions Mr. Barrow, the North Street manager, visited
the Morgan house in an attempt to collect the debt. Certainly on
one occasion he had a discussion with Mrs. Morgan when she told
him that the house was on the market and that the debt would be
repaid. The trial judge found as a fact that during this period
Mrs. Morgan's relationship with the bank was a business one, that
the family was in financial difficulty, and that husband and wife
were concerned about their inability to maintain the mortgage
repayments.

In June 1977 Mr. Morgan put a proposal to Basingstoke: it
was to borrow from the bank sufficient to pay off the second
mortgage, and to set up a new company (D. A. Morgan Contracts
Ltd.) which he declared to have a rosy future.

- 2 -

The bank agreed subject to a legal charge to be given by
both owners of the property, i.e. by Mrs. Morgan as well as Mr.
Morgan. The bank suggested, very wisely and fairly, that Mrs.
Morgan should take legal advice, which she did and for which the
bank paid. The advice was that the amount to be secured should
be limited to £6,000: and the bank accepted the limit.

A few days later (end of June 1977) the bank discovered
that a possession order in respect of the house had been made by
a court in favour of the second mortgagee. The trial judge found
that Mrs. Morgan knew of this order when she executed the legal
charge in favour of the bank.

The bank now had second thoughts. In the result it did not
make the loan to Mr. Morgan, who was rescued by the generosity
of his father who paid off the second mortgagee. The charge to
secure £6,000 stood, however; and it continued as a support for
the husband's borrowing, subject to the limit demanded and
obtained by Mrs. Morgan. During these unhappy events husband
and wife were, the judge found, desperately anxious not to lose
their home.

In October 1977 a crisis arose on the first mortgage. The
Abbey National warned the bank that they were starting
proceedings for possession in default of payment of mortgage
instalments. On 19 October 1977 Mr. Morgan transferred his
personal account (in overdraft £588) to North Street. The Abbey
National began their proceedings, alleging a debt of over £13,000.
On 12 December 1977 Mrs. Morgan transferred her account to
North Street. From this date onward the Morgans' banking
transactions were with Mr. Barrow, the North Street manager.

A bank rescue operation was decided upon by Mr. and Mrs.
Morgan, if they could arrange it. On 30 January 1978 Mr. Morgan
asked the bank "to re-finance" the Abbey National loan. By this
time the society had obtained a possession order. Mr. Morgan told
the bank that all he needed was a bridging loan of £14,500 for
some five weeks. If the bank would pay off the society, he would
arrange for the bank's repayment by his company, which it would
appear was currently in a prosperous phase and had, it was then
believed, good prospects.

The bank accepted the proposal upon the recommendation of
Mr. Barrow. He was informed of the approval by his area office
by letter of 31 January 1978 in these terms:

"D. A. A. Morgan and another: In reply to your letter of 30
January 1978 the following limit has been granted: £14,500
on current account to 7.3.78 on the short term bridging
basis submitted, subject to completion of a new unlimited
legal mortgage on NWB 1016 over Crossmoor Meadow to
replace the existing limited second mortgage."

The "existing limited second mortgage" was the 1977 legal charge
limited to £6,000. In place of it Mr. Barrow was being instructed
to obtain an unlimited mortgage to secure a loan limited to
£14,500. There was considerable discussion by counsel as to the
true meaning of this approval. But it is really quite simple: the
debt to be secured was the loan of a sum which Abbey National



- 3 -

required to be paid if they were to call off their proceedings for
possession and to discharge their mortgage: the security for the
loan limited to £14,500 was to be a mortgage without express
limit. The document of approval sent by the area office and
quoted above limited the mortgage to the Abbey National debt and
did not authorise Mr. Barrow to use the security to support any
other lending transaction.

On 1 February 1978 Mr. and Mrs. Morgan signed an
authority to the bank to pay off the Abbey National and to charge
Mr. Morgan's personal account. The bank, however, required the
mortgage to secure the loan to be in joint names (the property
being in joint ownership). Between 3 and 6 February a joint
account was opened. The details of the transaction were these.
In the first week of February the debit of £14,207.22 was
transferred from Mr. Morgan's personal account to the joint
account, being the sum which the bank had paid to the Abbey
National, and Mr. and Mrs. Morgan signed the legal charge, which
is the transaction which Mrs. Morgan seeks in these proceedings to
have declared null and void on the ground that it was procured by
the bank's exercise of undue influence upon her. The charge bears
the date 8 March 1978: no point arises on the discrepancy between
this date and the date early in February when it was signed, the
delay being attributable to the fact that the bank did not receive
from the Abbey National the deeds of the property until the end
of February.

There can be no doubt as to the terms of the charge: it
was a charge to secure "all present or future actual or contingent
liabilities" of Mr. Morgan to the bank. Mrs. Morgan had,
therefore, signed a charge the terms of which were without limit
and covered all the liabilities of Mr. Morgan to the bank. It was,
however, plainly the intention of the bank, as it was also its
instruction to Mr. Barrow, to treat the security as limited to the
bridging finance (capital and interest) needed by the joint owners
of the house to pay off the Abbey National and to obtain a period
of time (about five weeks) in which to repay the bank. The bank
had at no time sought to use the security for any other purpose.

I now come to the heart of the case. It is not suggested -
nor could it be - that prior to the interview at which Mrs. Morgan
signed the charge the relationship between the bank and its two
customers, Mr. and Mrs. Morgan, had been other than the normal
business one of banker and customer. It was business for profit so
far as the bank was concerned: it was a rescue operation to save
their house so far as the two customers were concerned.

But it is said on behalf of Mrs. Morgan that the relationship
between the bank and herself assumed a very different character
when in early February Mr. Barrow called at the house to obtain
her signature to the charge: Mr. Morgan had already signed.

The trial judge set the scene for the critical interview by
these findings of fact: husband and wife were looking for a rescue
operation by the bank to save the home for themselves and their
children; they were seeking from the bank only a breathing space
of some five weeks; and Mrs. Morgan knew that there was no
other way of saving the house.

- 4 -

Mr. Barrow's visit to the house lasted 15 to 20 minutes.
His conversation with Mrs. Morgan lasted only five minutes. Mrs.
Morgan's concern was lest the document which she was being
asked to sign might enable the husband to borrow from the bank
for business purposes. She wanted the charge confined to paying
off the Abbey National and to the provision of bridging finance for
about five weeks. She told Mr. Barrow that she had no confidence
in her husband's business ability and did not want the mortgage to
cover his business liabilities. Mr. Barrow advised her that the
cover was so limited. She expressed her gratitude to the bank for
saving their home. The judge found that the bank was not seeking
any advantage other than to provide on normal commercial terms
but at extremely short notice the bridging finance necessary to
secure their home. He rejected the suggestion that Mrs. Morgan
had any misgivings on the basis that she would prefer the house to
be sold. He accepted that it was never the intention of Mr.
Barrow that the charge should be used to secure any other liability
of Mr. Morgan.

The atmosphere in the home during Mr. Barrow's visit was
plainly tense. Mr. Morgan was in and out of the room, "hovering
around." Mrs. Morgan made it clear to Mr. Barrow that she did
not want him there. Mr. Barrow did manage to discuss the more
delicate matters when he was out of the room.

Such was the interview in which it is said that Mr. Barrow
crossed the line which divides a normal business relationship from
one of undue influence. I am bound to say that the facts appear
to me to be a far cry from a relationship of undue influence or
from a transaction in which an unfair advantage was obtained by
one party over the other. The trial judge clearly so thought: for
he stated his reasons for rejecting Mrs. Morgan's case with
admirable brevity. He made abundantly clear his view that the
relationship between Mr. Barrow and Mrs. Morgan never went
beyond that of a banker and customer, that Mrs. Morgan had made
up her own mind that she was ready to give the charge, and that
the one piece of advice (as to the legal effect of the charge)
which Mr. Barrow did give, though erroneous as to the terms of
the charge, correctly represented his intention and that of the
bank. The judge dealt with three points. First, he ruled upon the
submission by the bank that the transaction of loan secured on the
property was not one of manifest disadvantage to Mrs. Morgan
since it provided what to her was desperately important, namely
the rescue of the house from the Abbey National. He was
pressed, of course, with the contrast between the unlimited terms
of the legal charge and the assurance (to which at all times the
bank adhered) by Mr. Barrow that the charge was limited to
paying off the Abbey National and the bridging finance. He
considered the balance to be between the "enormous" advantage of
preserving the home from the Abbey National and the "essentially
theoretical" disadvantage of the terms of the written charge, and
accepted the submission that the transaction was not manifestly
disadvantageous to Mrs. Morgan.

Secondly, he rejected the submission made on behalf of Mrs.
Morgan that Mr. Barrow put pressure on her. In his view the
pressure upon her was the knowledge that Abbey National were on
the point of obtaining possession with a view to the sale of her
home. It was, however, suggested that Mr. Barrow had made a



- 5 -

mistake in the advice which he gave her as to the nature of the
charge. Mr. Barrow's mistake was not as to the bank's intentions
but as to the wording of the charge. He accurately stated the
bank's intention and events have proved him right. I would add in
passing that no case of misrepresentation by Mr. Barrow was
sought to be developed at the trial and the case of negligence is
not pursued.

The judge recognised that Mr. Barrow did not advise her to
take legal advice: but he held that the circumstances did not call
for any such advice and that she was not harried into signing.
She was signing to save her house and to obtain short-term
bridging finance. "The decision," the judge said, "was her own."

Thirdly, he rejected the submission that there was a
confidential relationship between Mrs. Morgan and the bank such as
to give rise to a presumption of undue influence. Had the
relationship been such as to give rise to the presumption, he would
have held, as counsel for the bank conceded, that no evidence had
been called to rebut it. He concluded that Mrs. Morgan had failed
to make out her case of undue influence.

The Court of Appeal, [1983] 3 All E.R. 85, disagreed. The
two Lords Justices who constituted the court (surely it should have
been a court of three?) put an interpretation upon the facts very
different from that of the judge: they also differed from him on
the law.

As to the facts, I am far from from being persuaded that
the trial judge fell into error when he concluded that the
relationship between the bank and Mrs. Morgan never went beyond
the normal business relationship of banker and customer. Both
Lords Justices saw the relationship between the bank and Mrs.
Morgan as one of confidence in which she was relying on the bank
manager's advice. Each recognised the personal honesty, integrity,
and good faith of Mr. Barrow. Each took the view that the
confidentiality of the relationship was such as to impose upon him
a "fiduciary duty of care." It was his duty, in their view, to
ensure that Mrs. Morgan had the opportunity to make an
independent and informed decision: but he failed to give her any
such opportunity. They, therefore, concluded that it was a case
for the presumption of undue influence.

My Lords, I believe that the Lords Justices were led into a
misinterpretation of the facts by their use, as is all too frequent
in this branch of the law, of words and phrases such as
"confidence," "confidentiality," "fiduciary duty." There are plenty
of confidential relationships which do not give rise to the
presumption of undue influence (a notable example is that of
husband and wife, Bank of Montreal v. Stuart [1911] A C 120);
and there are plenty of non-confidential relationships in which one
person relies upon the advice of another, e.g. many contracts for
the sale of goods. Nor am I persuaded that the charge, limited as
it was by Mr. Barrow's declaration to securing the loan to pay off
the Abbey National debt and interest during the bridging period,
was disadvantageous to Mrs. Morgan. It meant for her the rescue
of her home upon the terms sought by her - a short-term loan at
a commercial rate of interest. The Court of Appeal has not,
therefore, persuaded me that the judge's understanding of the facts
was incorrect.

- 6 -

But, further, the view of the law expressed by the Court of
Appeal was, as I shall endeavour to show, mistaken. Dunn L.J.,
at p. 90, while accepting that in all the reported cases to which
the court was referred the transactions were disadvantageous to
the person influenced, took the view that in cases where public
policy requires the court to apply the presumption of undue
influence there is no need to prove a disadvantageous transaction.
Slade L.J. also clearly held that it was not necessary to prove a
disadvantageous transaction where the relationship of influence was
proved to exist. Basing himself on the judgment of Cotton L.J. in
Allcard v. Skinner (1887) 36 ChD 145, 171, he said, at p. 92:

"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."

I can find no support for this view of the law other than
the passage in Cotton L.J.'s judgment in Allcard v. Skinner to
which Slade L.J. referred. The passage, at p. 171, is as follows:

"The question is - Does the case fall within the principles
laid down by the decisions of the Court of Chancery in
setting aside voluntary gifts executed by parties who at the
time were under such influence as, in the opinion of the
court, enabled the donor afterwards to set the gift aside?
These decisions may be divided into two classes - First,
where the court has been satisfied that the gift was the
result of influence expressly used by the donee for the
purpose; second, where the relations between the donor and
donee have at or shortly before the execution of the gift
been such as to raise a presumption that the donee had
influence over the donor. In such a case the court sets
aside the voluntary gift, unless it is proved that in fact the
gift was the spontaneous act of the donor acting under
circumstances which enabled him to exercise an independent
will and which justifies the court in holding that the gift
was the result of a free exercise of the donor's will. The
first class of cases may be considered as depending on the
principle that no one shall be allowed to retain any benefit
arising from his own fraud or wrongful act. In the second
class of cases the court interferes, not on the ground that
any wrongful act has in fact been committed by the donee,
but on the ground of public policy, and to prevent the
relations which existed between the parties and the
influence arising therefrom being abused."

The transactions in question in Allcard v. Skinner were gifts: it is
not to be supposed that Cotton L.J. was excluding the applicability
of his observations to other transactions in which disadvantage or
sacrifice is accepted by the party influenced. It is significant for
the proper understanding of his judgment that gifts are
transactions in which the donor by parting with his property
accepts a disadvantage or a sacrifice, and that in Allcard v.
Skinner the donor parted with almost all her property. I do not,
therefore, understand the Lord Justice, when he accepted that Miss
Allcard's case fell into the class where undue influence was to be

- 7 -

presumed, to have treated as irrelevant the fact that her
transaction was manifestly disadvantageous to her merely because
he was concerned in the passage quoted to stress the importance
of the relationship. If, however, as Slade L.J. clearly thought, the
Lord Justice in the last sentence quoted should be understood as
laying down that the transaction need not be one of disadvantage
and that the presumption of undue influence can arise in respect
of a transaction which provides "reasonably equally benefits for
both parties," I have with great respect to say that in my opinion
the Lord Justice would have erred in law: principle and authority
are against any such proposition.

Like Dunn L.J., I know of no reported authority where the
transaction set aside was not to the manifest disadvantage of the
person influenced. It would not always be a gift: it can be a
"hard and inequitable" agreement (Ormes v. Beadel (1860) 2 Gif.
166, 174); or a transaction "immoderate and irrational" (Bank of
Montreal v. Stuart [1911] AC 120, 137) or "unconscionable" in
that it was a sale at an undervalue (Poosathurai v. Kannappa
Chettiar (1919) L.R. 47 I.A. 1, 3-4). Whatever the legal character
of the transaction, the authorities show that it must constitute a
disadvantage sufficiently serious to require evidence to rebut the
presumption that in the circumstances of the relationship between
the parties it was procured by the exercise of undue influence. In
my judgment, therefore, the Court of Appeal erred in law in
holding that the presumption of undue influence can arise from the
evidence of the relationship of the parties without also evidence
that the transaction itself was wrongful in that it constituted an
advantage taken of the person subjected to the influence which,
failing proof to the contrary, was explicable only on the basis that
undue influence had been exercised to procure it.

The principle justifying the court in setting aside a
transaction for undue influence can now be seen to have been
established by Lindley L.J. in Allcard v. Skinner, 36 ChD 145. It
is not a vague "public policy" but specifically the victimisation of
one party by the other. It was stated by Lindley L.J. in a famous
passage, at pp. 182-183:

"The principle must be examined. What then is the
principle? Is it that it is right and expedient to save
persons from the consequences of their own folly? or is it
that it is right and expedient to save them from being
victimised by other people? In my opinion the doctrine of
undue influence is founded upon the second of these two
principles. Courts of equity have never set aside gifts on
the ground of the folly, imprudence, or want of foresight on
the part of donors. The courts have always repudiated any
such jurisdiction. Huguenin v. Baseley (1807) 14 Ves.Jr. 273
is itself a clear authority to this effect. It would obviously
be to encourage folly, recklessness, extravagance and vice if
persons could get back property which they foolishly made
away with, whether by giving it to charitable institutions or
by bestowing it on less worthy objects. On the other hand,
to protect people from being forced, tricked or misled in
any way by others into parting with their property is one of
the most legitimate objects of all laws; and the equitable
doctrine of undue influence has grown out of and been
developed by the necessity of grappling with insidious forms
of spiritual tyranny and with the infinite varieties of fraud."



When the Lord Justice came to state the circumstances which give
rise to the presumption, he put it thus, at p. 183:

"As no court has ever attempted to define fraud so no court
has ever attempted to define undue influence, which includes
one of its many varieties. The undue influence which courts
of equity endeavour to defeat is the undue influence of one
person over another; not the influence of enthusiasm on the
enthusiast who is carried away by it, unless indeed such
enthusiasm is itself the result of external undue influence.
But the influence of one mind over another is very subtle,
and of all influences religious influence is the most
dangerous and the most powerful, and to counteract it
courts of equity have gone very far. They have not shrunk
from setting aside gifts made to persons in a position to
exercise undue influence over the donors, although there has
been no proof of the actual exercise of such influence; and
the courts have done this on the avowed ground of the
necessity of going this length in order to protect persons
from the exercise of such influence under circumstances
which render proof of it impossible. The courts have
required proof of its non-exercise, and, failing that proof,
have set aside gifts otherwise unimpeachable."

And in a later passage, at p. 185, he returned to the critical
importance of the nature of the transaction:

"Where a gift is made to a person standing in a confidential
relation to the donor, the court will not set aside the gift
if of a small amount simply on the ground that the donor
had no independent advice. In such a case, some proof of
the exercise of the influence of the donee must be given.
The mere existence of such influence is not enough in such
a case; see the observations of Turner L.J. in Rhodes v.
Bate (1866) L.R. 1 Ch.App. 252, 258. But if the gift is so
large as not to be reasonably accounted for on the ground
of friendship, relationship, charity, or other ordinary motives
on which ordinary men act, the burden is upon the donee to
support the gift."

Subsequent authority supports the view of the law as
expressed by Lindley L.J. in Allcard v. Skinner. The need to show
that the transaction is wrongful in the sense explained by Lindley
L.J. before the court will set aside a transaction whether relying
on evidence or the presumption of the exercise of undue influence
has been asserted in two Privy Council cases. In Bank of
Montreal v. Stuart [1911] AC 120, 137 Lord Macnaghten,
delivering the judgment of the Board, said:

"It may well be argued that when there is evidence of
overpowering influence and the transaction brought about is
immoderate and irrational, as it was in the present case,
proof of undue influence is complete. However that may
be, it seems to their Lordships that in this case there is
enough, according to the recognized doctrine of courts of
equity, to entitle Mrs. Stuart to relief. Unfair advantage of
Mrs. Stuart's confidence in her husband was taken by Mr.
Stuart, and also it must be added by Mr. Bruce."

- 9 -

In Poosathurai v. Kannappa Chettiar L.R. 47 I.A. 1, 3 Lord
Shaw of Dunfermline, after indicating that there was no difference
upon the subject of undue influence between the Indian Contracts
Act and English law quoted the Indian statutory provision, section
16 (3):

"Where a person who is in a position to dominate the will
of another enters into a contract with him, and the
transaction appears on the face of it, or on the evidence, to
be unconscionable, the burden of proving that such contract
was not induced by undue influence shall lie upon the person
in the position to dominate the will of the other."

He then proceeded, at p. 4, to state the principle in a
passage of critical importance, which, since, so far as I am aware,
the case is not reported in the Law Reports, I think it helpful to
quote in full:

"It must be established that the person in a position of
domination has used that position to obtain unfair advantage
for himself, and so to cause injury to the person relying
upon his authority or aid. Where the relation of influence,
as above set forth, has been established, and the second
thing is also made clear, namely, that the bargain is with
the "influencer," and in itself unconscionable, then the
person in a position to use his dominating power has the
burden thrown upon him, and it is a heavy burden, of
establishing affirmatively that no domination was practised
so as to bring about the transaction, but that the grantor of
the deed was scrupulously kept separately advised in the
independence of a free agent. These general propositions
are mentioned because, if laid alongside of the facts of the
present case, then it appears that one vital element -
perhaps not sufficiently relied on in the court below, and
yet essential to the plaintiff's case - is wanting. It is not
proved as a fact in the present case that the bargain of
sale come to was unconscionable in itself or constituted an
advantage unfair to the plaintiff; it is, in short, not
established as a matter of fact that the sale was for
undervalue."

The wrongfulness of the transaction must, therefore, be
shown: it must be one in which an unfair advantage has been
taken of another. The doctrine is not limited to transactions of
gift. A commercial relationship can become a relationship in
which one party assumes a role of dominating influence over the
other. In Poosathurai's case the Board recognised that a sale at
an undervalue could be a transaction which a court could set aside
as unconscionable if it was shown or could be presumed to have
been procured by the exercise of undue influence. Similarly a
relationship of banker and customer may become one in which the
banker acquires a dominating influence. If he does and a
manifestly disadvantageous transaction is proved, there would then
be room for the court to presume that it resulted from the
exercise of undue influence.

This brings me to Lloyd's Bank Ltd, v. Bundy [1975] Q.B.
326. It was, as one would expect, conceded by counsel for the
respondent that the relationship between banker and customer is



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not one which ordinarily gives rise to a presumption of undue
influence: and that in the ordinary course of banking business a
banker can explain the nature of the proposed transaction without
laying himself open to a charge of undue influence. This
proposition has never been in doubt, though some, it would appear,
have thought that the Court of Appeal held otherwise in Lloyd's
Bank Ltd, v. Bundy. If any such view has gained currency, let it
be destroyed now once and for all time: see Lord Denning M.R.,
at p. 336F, Cairns L.J., at p. 340D, and Sir Eric Sachs, at p.
341H-342A. Your Lordships are, of course, not concerned with the
interpretation put upon the facts in that case by the Court of
Appeal: the present case is not a re-hearing of that case. The
question which the House does have to answer is: did the court in
Lloyd's Bank Ltd, v. Bundy accurately state the law?

Lord Denning M.R. believed that the doctrine of undue
influence could be subsumed under a general principle that English
courts will grant relief where there has been "inequality of
bargaining power" (p. 339). He deliberately avoided reference to
the will of one party being dominated or overcome by another.
The majority of the court did not follow him; they based their
decision on the orthodox view of the doctrine as expounded in
Allcard v. Skinner, 36 ChD 145. This opinion of the Master of
the Roils, therefore, was not the ground of the court's decision,
which has to be found in the view of the majority, for whom Sir
Eric Sachs delivered the leading judgment.

Nor has counsel for the respondent sought to rely on Lord
Denning's general principle: and, in my view, he was right not to
do so. The doctrine of undue influence has been sufficiently
developed not to need the support of a principle which by its
formulation in the language of the law of contract is not
appropriate to cover transactions of gift where there is no bargain.
The fact of an unequal bargain will, of course, be a relevant
feature in some cases of undue influence. But it can never
become an appropriate basis of principle of an equitable doctrine
which is concerned with transactions "not to be reasonably
accounted for on the ground of friendship, relationship, charity, or
other ordinary motives on which ordinary men act" (Lindley L.J. in
Allcard v. Skinner, at p. 185). And even in the field of contract I
question whether there is any need in the modern law to erect a
general principle of relief against inequality of bargaining power.
Parliament has undertaken the task - and it is essentially a
legislative task - of enacting such restrictions upon freedom of
contract as are in its judgment necessary to relieve against the
mischief: for example, the hire-purchase and consumer protection
legislation, of which the Supply of Goods (Implied Terms) Act
1973, Consumer Credit Act 1974, Consumer Safety Act 1978,
Supply of Goods and Services Act 1982 and Insurance Companies
Act 1982 are examples. I doubt whether the courts should assume
the burden of formulating further restrictions.

I turn, therefore, to consider the "ratio decidendi" of Sir
Eric Sachs's judgment.

In so far as Sir Eric appears to have accepted the "public
policy" principle formulated by Cotton L.J. in Allcard v. Skinner, I
think for the reasons which I have already developed that he fell
into error if he is to be understood as also saying that it matters



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not whether the transaction itself was wrongful in the sense
explained by Lindley L.J. in Allcard v. Skinner, by Lord
Macnaghten in Bank of Montreal v. Stuart and by Lord Shaw of
Dumfermline in the Poosathurai case. But in the last paragraph of
his judgment where Sir Eric turned to consider the nature of the
relationship necessary to give rise to the presumption of undue
influence in the context of a banking transaction, he got it
absolutely right. He said, at p. 347:

"There remains to mention that Mr. Rankin, whilst conceding
that the relevant special relationship could arise as between
banker and customer, urged in somewhat doom-laden terms
that a decision taken against the bank on the facts of this
particular case would seriously affect banking practice.
With all respect to that submission, it seems necessary to
point out that nothing in this judgment affects the duties of
a bank in the normal case where it obtains a guarantee, and
in accordance with standard practice explains to the person
about to sign its legal effect and the sums involved. When,
however, a bank, as in the present case, goes further and
advises on more general matters germane to the wisdom of
the transaction, that indicates that it may - not necessarily
must - be crossing the line into the area of confidentiality
so that the court may then have to examine all the facts
including, of course, the history leading up to the
transaction, to ascertain whether or not that line has, as
here, been crossed. It would indeed be rather odd if a bank
which vis-à-vis a customer attained a special relationship in
some ways akin to that of a 'man of affairs' - something
which can be a matter of pride and enhance its local
reputation - should not, where a conflict of interest has
arisen as between itself and the person advised, be under
the resulting duty now under discussion. Once, as was
inevitably conceded, it is possible for a bank to be under
that duty, it is, as in the present case, simply a question
for 'meticulous examination' of the particular facts to see
whether that duty has arisen. On the special facts here it
did arise and it has been broken."

This is good sense and good law, though I would prefer to
avoid the term "confidentiality" as a description of the relationship
which has to be proved. In truth, as Sir Eric recognised, the
relationships which may develop a dominating influence of one over
another are infinitely various. There is no substitute in this
branch of the law for a "meticulous examination of the facts."

A meticulous examination of the facts of the present case
reveals that Mr. Barrow never "crossed the line." Nor was the
transaction unfair to Mrs. Morgan. The bank was, therefore, under
no duty to ensure that she had independent advice. It was an
ordinary banking transaction whereby Mrs. Morgan sought to save
her home; and she obtained an honest and truthful explanation of
the bank's intention which, notwithstanding the terms of the
mortgage deed which in the circumstances the trial judge was
right to dismiss as "essentially theoretical," was correct: for no
one has suggested that Mr. Barrow or the bank sought to make
Mrs. Morgan liable, or to make her home the security, for any
debt of her husband other than the loan and interest necessary to
save the house from being taken away from them in discharge of
their indebtedness to the building society.

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For these reasons, I would allow the appeal. In doing so, I
would wish to give a warning. There is no precisely defined law
setting limits to the equitable jurisdiction of a court to relieve
against undue influence. This is the world of doctrine, not of neat
and tidy rules. The courts of equity have developed a body of
learning enabling relief to be granted where the law has to treat
the transaction as unimpeachable unless it can be held to have
been procured by undue influence. It is the unimpeachability at
law of a disadvantageous transaction which is the starting-point
from which the court advances to consider whether the transaction
is the product merely of one's own folly or of the undue influence
exercised by another. A court in the exercise of this equitable
jurisdiction is a court of conscience. Definition is a poor

instrument when used to determine whether a transaction is or is
not unconscionable: this is a question which depends upon the
particular facts of the case.

I propose, therefore, that the House order as follows: (1)
that the appeal be allowed; (2) that possession of the house be
given within 28 days of the date of judgment in this House; (3)
that no order be made as to costs in the Court of Appeal or in
this House save for a legal aid taxation of the respondent's costs.

LORD KEITH OF KINKEL

My Lords,

I agree that this appeal should be allowed for the reasons
set out in the speech of my noble and learned friend, Lord
Scarman.

LORD ROSKILL

My Lords,

I have had the advantage of reading in draft the speech of

my noble and learned friend, Lord Scarman. I respectfully and

entirely agree with it and for the reasons he gives I would allow
this appeal.

LORD BRIDGE OF HARWICH

My Lords,

For the reasons given in the speech by my noble and
learned friend Lord Scarman, with which I fully agree, I would
allow this appeal.

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LORD BRANDON OF OAKBROOK

My Lords,

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

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