[1998] 3 All ER 876
Court of Appeal
The issue before the court was whether a wife had established a case of presumed undue influence and whether the transaction at issue was manifestly disadvantageous to her.
The facts are set out in the opinion of Millett LJ.
Millett LJ
The facts, which are unusual, can be stated as follows. The property is Mr and Mrs Nadeem's matrimonial home. They have lived there since 1982. Mr Nadeem formerly occupied the property under a lease for a term of 13 3/4 years from 25 March 1983 granted by the Cadogan Estate. He was the sole beneficial owner of the lease; Mrs Nadeem had no beneficial interest in it. By 1990 the lease had only some three years unexpired, though Mr Nadeem may have enjoyed security of tenure under the Rent Acts.
At the beginning of 1991 Mr Nadeem was in arrears to the bank for approximately £32,000 in respect of the interest payable in September 1990 and was unable to pay the £52,000 interest which had fallen due in December 1990. In the meantime, however, he had been offered the opportunity to acquire a longer lease of the property in place of his existing lease for a sum of £210,000. The new lease was to be for a term of 33 years from September 1990. It was valued by independent valuers at £400,000. For the surrender of the remainder of his existing lease, therefore, Mr Nadeem was in a position to acquire an extended lease of his matrimonial home at a price which was roughly £190,000 less than its estimated value.
Mr Nadeem saw this as a means of helping to alleviate his financial difficulties. He approached the bank to provide the finance for the acquisition of the new lease. The bank was willing to agree in principle to advance £260,000 on the security of the new lease... At first Mrs Nadeem was not involved in the transaction at all. Before the end of 1991, however, Mr Nadeem informed the bank that Mrs Nadeem was to acquire the new lease jointly with himself. The explanation which Mr Nadeem gave in evidence was that he thought that his wife should have an interest in the property as he himself was 'getting on'. This did not cause the bank any concern, save that it required Mrs Nadeem's signature to the documentation. The negotiations continued to be conducted by Mr Nadeem alone.
The facility letter is dated 28 February 1991. It was addressed to Mr and Mrs Nadeem...
On 6 March 1991 Mr Nadeem returned the copy of the facility letter duly signed by himself and Mrs Nadeem. The judge found ([1997] 2 All ER 253 at 258):
'Although Mrs Nadeem did sign the letter, I have no doubt, having heard and observed her giving evidence before me, that she merely signed because her husband asked her to do so. She did not read the letter before signing and, if she had read it, she would not have understood it. She always signed all documents dealing with financial matters simply because her husband told her to sign. I doubt very much whether her husband gave her any explanation at all about the matter. At most, she would have understood that the document was something to do with the house.'
... The transaction was completed on 9 May 1991 when the new lease was granted to Mr and Mrs Nadeem and charged by them to the bank by an all moneys charge in the bank's standard form. This purported to make each of the mortgagors jointly and severally liable for all moneys and liabilities owed by either of them on any account. On the face of it, therefore, Mrs Nadeem covenanted to be personally liable for and charged her interest with not only the £260,000 advanced to her and her husband to enable the property to be acquired and Mr Nadeem's accounts to be 'regularised' but also Mr Nadeem's other liabilities to the bank which were in excess of £1.267m.
The property market continued to decline. Mr Nadeem was unable to make interest payments when they fell due, or to remortgage the property, and on 22 February 1994 the bank made demand for repayment of the facility by letters addressed separately to Mr and Mrs Nadeem. The bank demanded payment of the amount of the facility in the sum of £332,379.64, being the amount owed under the facility at the date of the letters. Mr and Mrs Nadeem defaulted. The bank sought to enforce its legal charge, and Mrs Nadeem counterclaimed to have the legal charge set aside as against her for undue influence.
The bank's cross-appeal
The judge found that the transaction was manifestly disadvantageous to Mrs Nadeem because of the presence of two features. The first is that £50,000 of the joint loan facility of £260,000 was to be applied by the bank to meet Mr Nadeem's own indebtedness to the bank. Mrs Nadeem obtained no benefit thereby. The second is that the legal charge expressly made Mr Nadeem personally liable for and charged the property with the whole of Mr Nadeem's present and future indebtedness to the bank amounting, at the date of the legal charge, to more than £1.2m...
In my judgment it is not necessary to reach a conclusion on this question...
On this footing the transaction was not manifestly disadvantageous, or, in my opinion, at all disadvantageous to Mrs Nadeem. She was obtaining for the first time a beneficial joint interest in an equity of redemption in the property having an estimated value of £140,000. The fact that £50,000 of the advance for which she was making herself jointly liable was to be used for her husband's sole benefit does not affect this conclusion; I have already taken this into account in reducing the value of the benefit to her from £190,000 to £140,000.
In the course of argument before us, Mrs Nadeem challenged the need to establish manifest disadvantage. On the law as it stands at present, a person who can prove the exercise of actual undue influence by another in respect to a transaction is entitled to have the transaction set aside without proof of manifest disadvantage: see CIBC Mortgages plc v Pitt [1993] 4 All ER 433, [1994] 1 AC 200. But such proof is required where the exercise of undue influence is only presumed: see Bank of Credit and Commerce International SA v Aboody (1988) [1992] 4 All ER 955, [1990] 1 QB 923...
... neither coercion, nor pressure, nor deliberate concealment is a necessary element in a case of actual undue influence. Moreover, the judge did to my mind find more than a relationship in which Mrs Nadeem was content to leave it to Mr Nadeem to make decisions in financial matters because she trusted him. He expressly found that she did not read the facility letter and could not have understood it if she had read it. She simply signed the documents because her husband told her to sign, probably without any explanation at all.
In my view, the judge's description of the parties' relationship is closely similar to that which has been described in a number of the cases -- for example Tufton v Sperni [1952] 2 TLR 516 at 528 -- what Jenkins LJ called 'actual domination . . . over the mind and will' and what Morris LJ (at 532) has called 'complete domination by the defendant over the plaintiff so that the mind of the latter became a mere channel through which the wishes of the former flowed'. Lord Donaldson of Lymington MR in Re T (an adult) (consent to medical treatment) [1992] 2 FLR 458 at 471 said:
'The real question in each case is, "Does the patient really mean what he says or is he merely saying it for a quiet life, to satisfy someone else or because the advice and persuasion to which he has been subjected is such that he can no longer think and decide for himself?" In other words, "Is it a decision expressed in form only, not in reality?'''
Such a situation has been described in many different ways. Before us Mr Price QC, to my mind, aptly described it as a case where although the pen may have been the pen of Mrs Nadeem, the mind was the mind of Mr Nadeem.
But I need not decide this question because of the judge's clear finding that Mr Nadeem did not take unfair advantage of his position. Seen through his eyes, the transaction was obviously beneficial to his wife and was intended by him to be for her benefit. She was obtaining a beneficial interest in the matrimonial home for the first time. Far from seeking to exploit the trust which she reposed in him for his own benefit, he was seeking to give her an interest in the matrimonial home 'because he was getting on'. He may well also have thought it expedient to give her some protection in case his precarious financial position disintegrated further, because if he did not take the opportunity to acquire the new lease, at least in part for his wife, it would be available in its entirety for his creditors, leaving her without a roof over her head. It is true that he did not give evidence to this effect. If he did not do so, it may be that he was not certain that his conduct was lawful. In my judgment, his own evidence, coupled with the situation in which he found himself, and, to my mind, objective criteria, he was not exploiting the trust reposed in him for his own benefit but seeking to turn an opportunity of his own, at least in part, to his wife's advantage.
The court of equity is a court of conscience. It sets aside transactions obtained by the exercise of undue influence because such conduct is unconscionable. But however the present case is analysed, whether as a case of actual or presumed influence, the influence was not undue. It is impossible, in my judgment, to criticise Mr Nadeem's conduct as unconscionable.
Accordingly, in my view, the cross-appeal succeeds. The judge's order must be set aside and an order substituting an order for possession must be substituted.