Royal Bank of Scotland v. Etridge (AP)

Factual and Procedural Background

Eight conjoined appeals reached the House of Lords. In each, a wife (or, in one matter, an alleged surety acting through her solicitor) had executed a guarantee or legal charge over the matrimonial home to secure the borrowings of her husband or a family-controlled company. The wives later contended that their apparent consent was procured by undue influence or misrepresentation and that the creditor banks were fixed with constructive notice. Some of the claims had been struck out or dismissed in the lower courts; others had succeeded, producing inconsistent results. The instant opinion resolves the appeals and, more importantly, restates the principles governing a creditor’s ability to rely on security obtained from a non-commercial surety.

Legal Issues Presented

1. When, and on what factual basis, is a creditor bank “put on inquiry” that the surety’s consent may have been procured by undue influence or misrepresentation?
2. What steps must a bank take, once on inquiry, to ensure that it can rely on the surety’s consent?
3. What is the role and evidential value of a solicitor’s confirmation that independent advice has been given to the surety?
4. How do the equitable burdens of proof, presumptions of undue influence, and the concept of manifest disadvantage operate in suretyship cases?
5. How should these principles be applied to the individual appeals before the House of Lords?

Arguments of the Parties

Appellant Banks’ Arguments

• The existence of a solicitor’s certificate (or reasonable belief that a solicitor acted for the wife) was sufficient to dispel any constructive notice of undue influence.
• Banks should not be saddled with the solicitor’s failures; their duty ends once they ensure independent advice is available.
• In several cases the sureties affirmed the transactions or delayed too long to challenge them.

Respondent Sureties’ Arguments

• The banks were automatically on inquiry whenever a wife stands surety for a husband’s debts and therefore owed a duty to take reasonable steps to verify informed consent.
• Solicitors who actually acted only for the husband—or not at all for the wife—could not provide the requisite independent advice, so the banks’ reliance on their confirmations was misplaced.
• In the absence of full financial disclosure by the bank, any advice the wives received was necessarily defective.

Table of Precedents Cited

Court’s Reasoning and Analysis

1. Undue Influence Framework. The Law Lords (principally Judge Nicholls) affirmed that undue influence is an equitable doctrine designed to prevent the abuse of relationships of trust. Where a relationship gives rise to trust and confidence (for example, between spouses), the complainant may raise a presumption of undue influence once the transaction appears to call for explanation or is disadvantageous.

2. Burden of Proof and Presumptions. The burden initially lies on the complainant to establish the relationship of trust and a transaction requiring explanation. If that burden is met, the wrongdoer must rebut the inference that influence was improperly exerted. The concept of “manifest disadvantage” is evidential only; it is not a free-standing requirement.

3. When a Bank Is Put on Inquiry. The Lords held that a creditor is always on inquiry when a wife (or analogous non-commercial surety) offers to stand surety for her husband’s debts. Constructive notice follows because such transactions are inherently suspicious.

4. Reasonable Steps Required of a Bank. Once on inquiry, the bank must:

• Communicate directly with the surety, explaining that the bank will rely on independent legal advice for its protection;
• Ask the surety to nominate her own solicitor and refrain from proceeding until the bank receives that nomination;
• Provide the solicitor with sufficient financial information (purpose of facility, existing indebtedness, proposed terms) so that meaningful advice can be given;
• Obtain written confirmation from the solicitor that the nature and practical implications of the transaction have been fully explained.

5. Content and Scope of Legal Advice. The advice must cover the documents’ legal effect, the seriousness of the risk, and the practical consequences of default. The solicitor acts solely for the wife in this context and owes her a duty to ensure informed consent.

6. Agency and Reliance on Solicitors. A bank cannot rely on assurances from a solicitor who does not in fact act for the wife. If the solicitor is acting only for the husband, any confirmation is ineffective, and the bank remains fixed with notice.

7. Application to the Individual Appeals. Applying the above principles:

• Wallace and Harris: The banks were on inquiry; there was an arguable case that no solicitor advised the wives. Strike-out orders were set aside and the actions remitted for trial.
• Moore: The wife’s appeal succeeded because the lender relied solely on a mortgage application form and never ensured genuine independent advice.
• Etridge, Gill and Coleman: The wives’ appeals failed; on the evidence, solicitors had actually advised them or the banks had a reasonable belief that proper advice had been given.
• Bennett and Kenyon-Brown: The surety and the solicitor respectively succeeded, reflecting failures by the lender and solicitor to meet their obligations.

Holding and Implications

HOLDING: The House of Lords allowed some appeals and dismissed others, but unanimously established that a bank is inevitably put on inquiry when a non-commercial surety (typically a spouse) offers security for the borrower’s debts. The validity of the security depends on the bank’s adherence to the procedural safeguards set out in the opinion.

Implications: The decision standardises the protective steps required of creditors and clarifies the evidential burdens in undue-influence cases. Although tailored to matrimonial sureties, the guidance applies to any analogous relationship of trust. Banks that neglect the outlined procedures risk losing their security, while solicitors assume a clearly defined advisory role to ensure the surety’s informed consent.