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IN THE SUPREME COURT OF JUDICATURE No. CCRTF 95/0491/C

Royal Courts of Justice

Strand

London WC2

Wednesday, 8 October 1996

B e f o r e :

THE VICE-CHANCELLOR

(Sir Richard Scott)

LORD JUSTICE ROCH

LORD JUSTICE POTTER

BANCO EXTERIOR INTERNACIONAL SA

(formerly Banco Exterior - UK a limited liability company incorportaed under the laws of Spain)

Plaintiff/Appellant

-v-

(1) EDWARD HUGH GWYN THOMAS

(2) JOHN EDWARD BARRY

the Executors of Patricia Dempsey)

Defendants/Respondents

(Handed Down Transcript of the Palantype Notes of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

MR. HAZEL WILLIAMSON QC & MR. T. JEFFERIES (Instructed by Messrs Eversheds, Norwich, NR1 4DX) appeared on behalf of the Appellant

MR. CHARLES FALCONER QC & MR. M. SMITH (Instructed by Messrs Keene Marsland, London, E1 7LT) appeared on behalf of the Respondents

JUDGMENT

(As approved by the Court )

©Crown Copyright

THE VICE-CHANCELLOR:

This is an appeal against the judgment of Mr. Recorder Ross Martyn given on 2 November 1994 in the Mayor's and City of London Court.

The plaintiff in the action, and appellant before us, is Banco Exterior Internacional SA ("the Bank"). The point at issue is whether or to what extent the Bank was entitled to rely on and enforce, first, a Guarantee dated 12 February 1985 under which Mrs Patricia Dempsey guaranteed the liability to the Bank of a Mr John Patrick Mulchay (up to a limit of £75,000 plus interest and costs) and, second, a Legal Charge signed by Mrs Dempsey on the same date, 12 January 1985, but dated 7 June 1985, whereby she charged her residence, 4 Arran Mews, Crossland Avenue, Ealing, as security for the payment to the Bank of Mr Mulchay's indebtedness.

The Bank's action to enforce the Guarantee and the Legal Charge was commenced against Mrs Dempsey by Originating Summons dated 28 October 1988. Mrs Dempsey died, however, on 15 August 1992 before the action had been brought to trial. An order to carry on against her executors was made on 5 January 1983. They, therefore, were the defendants when the trial took place and are the respondents before us. Following Mrs Dempsey's death, 4 Arran Mews was, by agreement between the Bank and the executors, sold. The Bank's claim under the Legal Charge became, therefore, transferred to the proceeds of sale.

The executors' defence to the Bank's action is, very summarily stated, as follows::

(i) Mrs Dempsey was induced by Mr Mulchay's undue influence to agree to provide security (in the form of the Guarantee and the Legal Charge) for the overdraft facility that the Bank was willing (if it obtained the security) to allow him;

(ii) The Bank was, in the circumstances of the case, on notice of that undue influence;

(iii) The Bank, accordingly, was not entitled to enforce its security.

The judge held that the undue influence had been proved. He held that the bank did not, at the time the Guarantee and Legal Charge were signed, have notice, actual or constructive, of the undue influence. However he went on to hold that certain events that took place in April 1988, some three months after the Guarantee and the Legal Charge had been signed, did put the Bank on notice of the undue influence. He held that the Bank could not rely on the Guarantee and Legal Charge in respect of overdrawings by Mr. Mulchay after April 1988. For reasons that I will later explain he thought, however, that the bank were entitled to £30,000 out of the proceeds of sale.

In this appeal the Bank has challenged the judge's conclusion that undue influence had been established and has challenged his conclusion that the events of Aril 1988 put the Bank on notice of any undue influence. The executors have served a respondents' Notice challenging the judge's conclusion that prior to the signing of the documents the Bank did not have constructive notice of undue influence and challenging the decision regarding the £30,000.

Accordingly, it is necessary for me to describe the facts of the case with some care.

Mrs Dempsey was, in 1985, forty six years old. Her partner of many years, Mr Dempsey, had died in 1982. Prior to his death she had carried on a small retail business, a dress shop, in premises owned by Mr Dempsey and adjacent to those in which he carried on his own business. Mr Dempsey died without having made testamentary provision for Mrs Dempsey. The residence they occupied was in their joint names and passed to Mrs Dempsey by virtue of survivorship but, thereapart, none of his estate passed to her. Her straitened financial circumstances obliged her to cease carrying on the dress shop business. She sold the residence and with the proceeds purchased a smaller residence, namely, 4 Arran Mews. The capital left over after the purchase of 4 Arran Mews provided her with a small income.

Mrs Dempsey's difficulties brought about by the death of her long-standing partner were added to by the discovery in 1983 that she was suffering from cancer. This cancer was the cause of her death in 1992.

In 1983 Mrs Dempsey met Mr Mulchay. He was some six years younger than she was. They became friendly. The judge recorded, and I should do so as well, that although a relationship of close friendship developed between them their relationship was neither a romantic nor a sexual one.

Mr Mulchay was in business as a dealer in secondhand motor cars. By November 1984 he had been a customer of the Bank for about a year and was allowed an overdraft of up to £4,000. He had in mind plans to expand his car dealing activities but for that purpose required additional capital. The Bank made it clear to Mr Mulchay that additional overdraft facilities would require suitable security to be provided. So Mr Mulchay suggested to Mrs Dempsey that if she would guarantee his borrowing and provide her house as security, he, in return, would pay her a regular income. The evidence regarding this arrangement, which was never recorded in writing, left unclear the exact terms that were agreed. It was certainly agreed that a regular sum should be paid, but it is not clear whether it would be £500 per calendar month or £125 per week. In his evidence Mr Mulchay referred on occasion to £150 per week. There was also some agreement under which Mr Mulchay would pay various household and other bills for Mrs Dempsey. The judge found that:

"... the regular payment was to be of the order of £500 a month, and ... any payment of bills were recoverable by Mr Mulchay from Mrs Dempsey, so far as they had not been debited against the regular payments ..."

The arrangement between Mr Mulchay and Mrs Dempsey having been agreed upon, the Bank agreed to allow Mr Mulchay an overdraft of £70,000 supported by Mrs Dempsey's guarantee (limited to £75,000) and by a legal charge of 4 Arran Mews securing Mr Mulchay's indebtedness (up to the same limit). The Bank's records show that they placed a value of £120,000 on 4 Arran Mews. Very shortly before 12 February 1985, Mrs Dempsey and Mr Mulchay visited the Bank and discussed the proposed transaction with Mr Guirao, the manager of the Bank's Spitalfield branch at which Mr Mulchay kept his account. Mrs Dempsey was not a customer of the Bank. Mr. Guirao told Mrs Dempsey that she would have to go to a solicitor independent of the Bank for the solicitor to explain to her the nature and effect of the Guarantee and Legal Charge that it was proposed she should sign.

The Bank had a standing practice that a third party proposing to provide security in support of a loan by the Bank to a customer would be required to go to an independent solicitor to be advised about the nature and effect of the proposed transaction. This very sensible practice preceded the decision of the House of Lords in Barclays Bank Ltd v. O'Brien [1994] 1 AC 180. The wisdom of the practice was endorsed by the judgments in that case. The Bank's Spitalfield branch had an arrangement with a local solicitor, Mr David Bishop, that it would refer to him individuals who did not have solicitors of their own to whom they would prefer to go. So Mr Guirao referred Mrs Dempsey to Mr Bishop. Mr Guirao was not told about the collateral arrangement under which Mr Mulchay was to pay a regular income to Mrs Dempsey. Of that the Bank knew nothing.

On 12 February 1985, Mrs Dempsey visited Mr Bishop at his office. Mr Mulchay accompanied her. Mr Bishop could not recall whether Mr Mulchay had been present while he advised Mrs Dempsey but he said, in evidence, that his "normal practice ... would be not to have anybody else in the room, other than the person signing." Mrs Dempsey had with her the Guarantee and Legal Charge that she was being asked to sign. She signed both documents in the presence of Mr Bishop. Mr Bishop witnessed her signature and on each document added the words: "In the presence of the undersigned who prior to the execution hereof explained the nature and effect of this [Guarantee] [Legal Charge] which Mrs Dempsey appeared to fully understand." Mr Bishop, when questioned about the occasion, understandably could not recall any details, but there is no reason to doubt that Mr Bishop did advise Mrs Dempsey as to the "nature and effect" of the two documents or to doubt that Mrs Dempsey fully understood his advice. Mr Bishop did not, on the other hand, give Mrs Dempsey any advice as to the wisdom of her agreeing to provide the requested security. He did not seek to discover why she was willing to do so. He was not told and knew nothing about the collateral arrangement for Mr Mulchay to pay a regular income to Mrs Dempsey.

The Guarantee signed by Mrs Dempsey was in an unexceptionable form, common for bank guarantees. It was expressed to be "in consideration of the Bank making or continuing advances or otherwise giving credit or affording banking facilities or other financial accommodation ..." to Mr Mulchay. It provided that Mrs Dempsey would "... on demand in writing made to the Guarantor pay or discharge to the Bank all liabilities of the Debtor to the Bank whether present or in future ..." together also with interest, banking charges and other costs and expenses but subject to the following proviso:

"Provided always that ... the aggregate amount for which the Guarantor shall be liable under the guarantee shall not exceed the sum of £75,000 ... together with interest thereon or on such part or parts of the total balance remaining unpaid by the Debtor (not exceeding in aggregate the net amount specified above) as may be due from the date of the Debtor's default, until payment thereof..."

Mr. Mulchay was not a party to and did not sign the Guarantee. An issue of construction arises as to the date from which the interest referred to in the proviso should run. As the proviso stands it seems arguable that interest would run on the £75,000 before the date on which demand for payment by the Guarantor was first made. We do not need to decide the issue, however, for Miss Williamson Q.C., counsel for the Bank, has told us that the Bank does not claim interest on the £75,000 from any earlier date than the date of the demand on Mrs Dempsey for payment.

The Legal Charge was expressed to be made between Mr Mulchay, Mrs Dempsey and the Bank. It was not, however, signed by Mr Mulchay. It contained a covenant by "the Borrower", ie Mr Mulchay, to pay on demand any indebtedness of his to the Bank and expressed "the Estate Owner", ie Mrs Dempsey, to charge 4 Arran Mews "... with payment to the Bank of all principal money liabilities interest and other money hereby covenanted to be paid by the Borrower." The Legal Charge appears, therefore, to secure the repayment of the whole of Mr Mulchay's indebtedness to the Bank.

Miss Williamson has accepted that the indebtedness of Mr Mulchay secured by the Legal Charge should have been subject to the same £75,000 limitation as was expressed in the Guarantee. If it were necessary the Legal Charge could be rectified accordingly. But since both sides agree that, assuming the Legal Charge is enforceable, it should be given only the limited effect intended by the parties, a formal order for rectification is not necessary. This feature of the Legal Charge might, however, be thought to cast somewhat of a cloud over the advice given by Mr Bishop to Mrs Dempsey as to the effect of the Legal Charge. It was not, however, a point that was put to Mr Bishop in the course of his evidence and I do not think it has any importance in deciding the issues that arise on this appeal.

On 12 February 1985, the day on which Mrs Dempsey signed the two documents, Mr. Mulchay's account with the Bank was already overdrawn by about £25,000. A note dated 18 February 1985 records the receipt by the Bank of the two documents duly signed and witnessed and that the Bank was awaiting receipt of the deeds to 4 Arran Mews.

The deeds to 4 Arran Mews were in the custody of a Mr Frere-Smith, a solicitor who had acted for Mr Dempsey, and also for Mrs Dempsey, in the past. It was necessary for Mrs Dempsey to ask him to forward the deeds to the Bank. In order to do so she had a meeting with Mr Frere-Smith in the course of which she informed Mr Frere-Smith of her arrangement with Mr Mulchay under which he was to pay her a regular income. Mr Frere-Smith thought that the arrangement, under which Mrs Dempsey provided capital assets as security for Mr Mulchay's indebtedness in exchange for a regular income to be paid to her by him, was a highly improvident one for her to be entering into. He advised in very strong terms against it. He recorded his advice in an attendance note dated 4 March 1985 in the following terms:

"I advised you as strongly as I could against your proposal to mortgage your property to the Bank of Bilbao for the benefit of a man who will in return pay you £125 a week (Mrs Dempsey was clearly in a very emotionally upset state)."

In his evidence Mr Frere-Smith described his view of the arrangement thus:

"I smelt a rat straightaway because I thought it sounded a very familiar story, that widows and elderly women and the very naive fall for: you produce capital and I will pay you something each week."

When asked how the matter was left, he said: "I am afraid I thought she probably was not going to accept my advice ... I was subsequently asked to send the papers to his solicitors."

Having spoken to Mrs Dempsey, Mr Frere-Smith communicated by telephone with the Bank. Since it is this telephone call (it may be there were two calls) that the judge relied on as fixing the Bank with notice of undue influence, it is necessary to pay careful attention to the content of the call or calls.

Mr Frere-Smith's evidence-in-chief contained these passages:

"Q. Can you remember the import of your conversation with the bank?

A. I know the impression I formed at the time, because I hoped that the bank would stop her from doing this.

Q. What was the impression you formed?

A. I know what the response was, the bank simply took an entirely different view to the view I had taken ... they were not prepared to stop her doing anything ...

Q. Can you recall whether you made that [ie, Mr Frere-Smith's view that Mrs Dempsey was a vulnerable person being taken advantage of] clear to the bank?

A. I cannot honestly say at this stage because I have not seen the files ... all I can say is that the bank were not prepared to take the line which I hoped they would take, and they appeared to go along with the proposal of Mrs Dempsey."

Later the judge took up the questioning:

"The Recorder: ... I was not entirely clear whether you gave evidence that you actually had a telephone conversation with the bank? ...

A. To the best of my recollection I did, but I could not say that I definitely did.

Q. How many such conversations ...?

A. It would not be many, probably two.

Q. ... who did you speak to?

A. It would be the person who was dealing with the transaction.

Q. ... what did you say to him?

A. I think I said, because I cannot be certain about this - the tenor of what I would have said would have been that I did not think that the proposal should be accepted by the bank, bearing in mind Mrs Dempsey's position, financially and otherwise."

The telephone communications between Mr Frere-Smith and the Bank probably took place on 5 March. On 6 March 1985 Mrs Dempsey signed an authority for Mr Frere-Smith to deliver to the Bank the deeds of 4 Arran Mews. This authority was lodged with the Bank. The Bank forwarded it to Mr Frere-Smith under cover of a letter referring to "our telephone conversations of yesterday". The judge found that the authority had been prepared in the Bank. Mr Frere-Smith responded on 12 March by saying that he would take Mrs Dempsey's instructions. He plainly did so for, by letter to the Bank dated 11 April 1985, he said that Mrs Dempsey, despite his strong advice to the contrary, had decided to proceed but only on the basis that a limit of £30,000 should be placed on the indebtedness of Mr. Mulchay secured by the Legal Charge. The Bank had no record of having received this letter but the judge expressed himself as satisfied on the balance of probabilities that the Bank had received it. In the event Mr. Mulchay's liability to the Bank was already well in excess of the proposed £30,000 limit. By 1 March he was over £35,000 overdrawn, by 1 April over £67,000 overdrawn and by 11 April the figure stood at over £76,000. The Legal Charge was dated 7 June 1985. The evidence does not disclose any obvious reason for the delay in the dating of the document. However, the delay is, in my view, immaterial. Both the Guarantee and the Legal Charge were, in my opinion, prima facie effective from the time they were lodged, duly signed, with the Bank. That was done on, or very shortly after, 12 February.

Mr Mulchay's indebtedness to the Bank continued to increase. By February 1986 it stood at over £90,000 and by 24 November 1986 at over £108,000. In 1987 there were letters from the Bank to Mr Mulchay pressing for repayment and, in August, at a meeting at the Spitalfields branch between Mrs Dempsey and bank officials the situation regarding Mr Mulchay's indebtedness and her liabilities under the Guarantee and Legal Charge were discussed. On 4 January 1988 the Bank made a formal demand on Mrs Dempsey for payment under the Guarantee. In December 1988, the action was commenced.

I should record also that Mr Mulchay's payments of income to Mrs Dempsey and his payment of her bills did not continue beyond 1986 or 1987. The relevant evidence was given by Mr Mulchay:-

"Q. How long did you go on making payments to her?

A. Up to 1986, something like that, 1987.

Q. 1986/1987?

A. Yes ... I paid - first of all I paid her money every week, her £125 or £150. She got that every week. And I paid other bills of hers, yes.

...

Q. Then what happened in 1986 or 1987?

A. I think the bills came to £40,000 or something that I paid and then I said "Look we cannot keep up the same arrangement as this" but I did pay other bills for her after that, I did not pay weekly money any more but I still paid some of her bills.

Q. So you sort of stopped the arrangement?

A. Yes ... what stopped in 1986/1987 was the weekly money.

Q. And you had paid out about £40,000 in total?

A. Yes.

The Recorder: ... you say £40,000 in total. Is that £40,000 including the £125 or £150 per week?

A. No, Sir".

It seems from this evidence that the total amount paid by Mr Mulchay to Mrs Dempsey may have been something approaching £50,000.

In presenting the executors' case, Mr Falconer has placed very great reliance on a passage from the judgment of Lord Browne-Wilkinson in Barclays Bank PLC v. O'Brien . At p. 195E, Lord Browne-Wilkinson said this:

"A wife who has been induced to stand as a surety for her husband's debts by his undue influence, misrepresentation or some other legal wrong has an equity as against him to set aside that transaction."

In the O'Brien case itself the husband was joint owner with his wife of the mortgaged property. So the second mortgage whereby the matrimonial home was charged with repayment of the husband's indebtedness to the bank was a transaction to which the husband, the wife and the bank were all parties. An analysis under which that transaction could have been set aside by the wife against the husband on account of misrepresentation and by the wife against the bank if the bank had constructive notice of that misrepresentation presents no conceptual difficulty. What would have been the situation, however, if the husband had not been a party to the Legal Charge? If the O'Brien facts had been identical save that the wife had been the sole owner of the matrimonial home, would the result have been any different? I do not think that any sensible system of jurisprudence could justify a difference in result that depended on whether the debtor (the husband) happened to be a party to the transaction between the surety (the wife) and the lender (the bank). In such a case, if the lender had constructive (or actual) notice of the misrepresentation or undue influence by the borrower that had led the surety to contract with the bank, the surety would surely be able to set aside the contract.

In the present case Mr Mulchay was not a party to the Guarantee nor, although named as a party, did he sign the Legal Charge. The Bank knew, of course, that Mrs Dempsey had agreed to stand as surety for Mr Mulchay and to provide her house, 4 Arran Mews, as security, but it did not know, actually or constructively, or have any interest in knowing, on what, if any, terms Mrs Dempsey had agreed with Mr Mulchay to do so. In a case such as the present it does not seem to me to make any sense to ask whether Mrs Dempsey had an equity as against Mr Mulchay to set aside the transaction she had entered into with the Bank. The question to my mind is simply whether the Bank had any actual or constructive notice that she had entered into the transaction with the Bank under undue influence exerted by Mr Mulchay.

The case depends, of course, on the requisite undue influence being established. The judge dealt with this part of the case by asking himself, first, whether there was a presumption of undue influence. He found that there was The Bank has challenged this finding. There is, to my mind, some substance to their challenge. Mrs Dempsey was advised by Mr Bishop as to the "nature and effect" of the transaction. Mr Bishop was satisfied that she understood it. After receiving Mr Bishop's advice, she continued with it. Later, she received very strong and positive advice from Mr Frere-Smith against the transaction. She rejected Mr Frere-Smith's advice and decided to continue with the transaction. She took no step, having received that advice, to have the transaction set aside. It is not alleged, and the evidence does not justify the conclusion, that Mrs Dempsey lacked the capacity to contract with the Bank. Yet that is the conclusion towards which Mr Falconer's submissions seem to me to tend. I would accept that the arrangement made between Mrs Dempsey and Mr Mulchay was one that any adviser would advise strongly against. But the purpose of advisers is to advise. The recipient of the advice does not have to accept it. He or she can decide, fully informed by the advice that has been received, whether or not to proceed with the allegedly ill-advised and improvident transaction. In the present case, Mrs Dempsey may well have been attracted by the offer of £500 per month (or £125 per week). She was of full age. She suffered from no mental infirmity. And she had had the nature and effect of the transaction with the Bank explained to her by an independent solicitor.

The so-called "presumption" of undue influence does no more than to require that in the absence of any rebutting evidence a conclusion of undue influence should be reached. The classic rebutting evidence would be evidence that advice had been given by an independent solicitor. Mr Bishop was such a solicitor. Having received his advice Mrs Dempsey signed the two documents. It cannot be said that when she did so she lacked a full understanding of their nature and effect. In my judgment, there was, at the foot of Mrs Dempsey's meeting with Mr Bishop, no further part to be played by the presumption and I would hold that the presumption was rebutted. Mr. Falconer argued that her signing of the two documents showed that she was so fully under the influence of Mr Mulchay that Mr Bishop's advice made no difference. This argument is circuitous and, if accepted, would turn what is only a presumption of undue influence into an irrebuttable conclusion. In my judgment, the evidence did not justify a finding that, when she signed the documents, Mrs Dempsey lacked a free and full will and informed understanding of what she was doing (see Allcard v. Skinner (1887) 36 Ch. 145 and Zamet v. Hyman [1961] 1 W.L.R 1442, both of which were referred to by the judge).

In any event, the judge was, in my opinion, correct in rejecting the assertion that, at the time the two documents were signed, the Bank had constructive notice of undue influence. The Bank knew no more of Mrs Dempsey's affairs and relationship with Mr. Mulchay than that she was prepared to stand surety for his indebtedness to the Bank. It was not the Bank's business to ask itself why she was willing to do this. It was the Bank's business to make sure that she knew what she was doing. So the Bank required her to go to an independent solicitor to be advised about the "nature and effect" of the transaction and in whose presence she could, if so advised, sign the documents. Mrs Dempsey did so. The signed documents were returned to the Bank with Mr. Bishop's confirmation endorsed thereon that she had had the documents explained to her and understood them. That put an end, in my opinion, to any question of constructive notice of any vitiating element undermining Mrs Dempsey's apparent consent to the transaction.

In any case in which constructive notice of some alleged impropriety is relied on, it is relevant to ask what inquiries ought to have been made or what steps ought to have been taken by the person said to have been affected by the constructive notice. The answers to these questions will sometimes show the unreasonableness of the constructive notice charge. So here. Mr Falconer submitted that the Bank should have made inquiries of Mr Mulchay and Mrs Dempsey as to the nature of their relationship and as to the nature of the arrangement between them under which Mrs Dempsey had agreed to stand surety for Mr Mulchay's indebtedness. These inquiries, he said, would or should have revealed four things: -

(i) that Mrs Mulchay had no assets other than her house;

(ii) that she had no source of income other than Mr Mulchay;

(iii) that she was a friend of Mr Mulchay and that he assisted her in a number of ways, and;

(iv) that the arrangement was, as Mrs Dempsey saw it, a way of relieving her financial predicament.

The Bank would thus, Mr Falconer submitted, have been alerted to the possible existence of undue influence. These submissions are, in my opinion unacceptable for a number of reasons. First, the inquiries that it is suggested the Bank should have made would have constituted unwarrantable impertinence on the Bank's part. A bank has no business inquiring into the personal relationship between those with whom it has business dealings or as to their personal motives for wanting to help one another. A bank is not to be treated as a branch of the social services agencies. Second, if these impertinent inquiries had been made, and if answers on the lines suggested had been elicited, the answers, far from suggesting undue influence, would have revealed that Mrs Dempsey might have had a very firm and clearly thought out reason for entering into the arrangement, namely, that she wanted extra income and was prepared to take a risk with her capital in order to achieve it. The critical point, however, to my mind is that the Bank was engaging in a business transaction and had no reason to do more than to ensure that Mrs Dempsey knew what she was doing and wanted to do it.

I now come to Mr Frere-Smith's involvement. As to this, the judge referred to Mr Frere-Smith's telephone conversations with the Bank and then continued as follows:

"In my view, the Bank must be treated from the time of those telephone conversations, or a reasonable time thereafter (to allow it to consider its position), as having notice that Mrs Dempsey might have an equity to set aside the guarantee and legal charge. My reasoning is this. A lender has taken a guarantee and legal charge as security. A short time thereafter it has at least two telephone conversations with a solicitor who had been consulted by the guarantor. That solicitor expresses himself forcefully in the terms I have found Mr Frere-Smith did express himself. If that is not enough to give the notice I ask rhetorically, what would be, short of some document?"

In this passage, in my opinion, the judge fell into error. What was it of which it is said the Bank had notice? The "equity" could not be a right to set the Legal Charge and Guarantee aside, for those transactions had already been entered into in circumstances that were not, as the judge had correctly found, impeachable by Mrs. Dempsey. Was it an equity to prevent the Bank from making any further advances to Mr. Mulchay that would be secured by the Guarantee and Legal Charge? This, I think, is what the judge must have had in mind. But Mrs Dempsey had had full and firm advice from Mr Frere-Smith as to the inadvisability and improvidence of the transaction but had nonetheless decided to proceed. This decision was evidenced by her signing on 6 March 1988 the authority to deliver up the title deeds and by her leaving that authority with the Bank. Those acts constituted, in my opinion, an unequivocal decision, made after receiving Mr Frere-Smith's advice, to proceed with the transaction. Mrs Dempsey was not bound to accept Mr Frere-Smith's advice and she did not do so. It was not for the Bank to decline to allow her to proceed.

In any event, Mr Frere-Smith's evidence of what he said to the Bank official to whom he spoke on the telephone did not, in my judgment, come within a mile of putting the Bank on notice that Mrs Dempsey was a victim of undue influence. If the strong views expressed by Mr Frere-Smith had come from a lay friend, it might, at most, be said that the Bank should have advised Mrs Dempsey to consult a solicitor about her position. But Mr Frere-Smith was a solicitor. He had advised her. And she had decided to proceed.

In my judgment, the telephone communication between Mr Frere-Smith and the Bank did not put the Bank on notice of any equity or any continuing impropriety that might affect the validity of the Bank's security.

I would, accordingly, allow the Bank's appeal. The Bank was, in my judgment, entitled to enforce the Guarantee and Legal Charge that Mrs Dempsey had granted. In the circumstances the Bank is entitled to be paid out of the net proceeds of sale of 4 Arran Mews (and the accumulated interest thereon) the sum of £75,000 together with interest thereon calculated from 4 January 1988.

LORD JUSTICE ROCH:

I agree. I would wish to reserve the question whether the principles in Barclays Bank plc -v- O'Brien [1994] AC 180 can apply where there is no transaction between the person said to be the subject of the undue influence or misrepresentation and the person said to have applied the undue influence or to have made the misrepresentation, for another case.

In the present case it suffices that Mrs Dempsey was advised on the legal consequences to her of entering into the guarantee and the legal charge. She had those transactions explained to her. Mrs Dempsey received strong advice on the wisdom or rather lack of wisdom of the steps she proposed to take from another solicitor, yet still went ahead with the two transactions.

Mrs Dempsey was not a customer of the Bank, who had no knowledge of her financial affairs at the time the guarantee and the legal charge were signed by her. There was no obligation on the bank to enquire into her affairs, either financial or personal. I agree with the Vice-Chancellor that any such enquiry would have been an impertinence on the Bank's part.

There was no actual or constructive notice on the Bank's part of any equity in Mrs Dempsey. I too would allow the plaintiff's appeal and make the orders proposed by the Vice-Chancellor.

LORD JUSTICE POTTER: I also agree.

Order: appeal allowed in terms to be agreed by counsel with liberty to restore if agreement cannot be reached.