Court of Appeal allows wife's appeal on personal guarantee, finding arguable undue influence case due to lack of independent advice.

THE COURT OF APPEAL

Neutral Citation Number: [2016] IECA 371

Birmingham J.

Peart J.

Hogan J.

No. 2015/355

BETWEEN/

ULSTER BANK (IRELAND) LTD.

PLAINTIFF/

RESPONDENT

- AND -

WALTER DE KRETSER AND GILLIAN FOX

DEFENDANTS/

APPELLANTS

JUDGMENT of Mr. Justice Gerard Hogan delivered on the 7th day of December 2016

1. This is an appeal from a decision of Hedigan J. in the High Court delivered on 10th June 2015 (Ulster Bank Ltd. v. de Kretser [2015]

IEHC 359) in which he held that the defendants, Mr. de Kretser and Ms. Fox (“the appellants”), had not established an arguable

defence to a claim for €89,391 plus interest brought against them by the plaintiff bank. The appellants (who are husband and wife),

now appeal to this Court against that decision of the High Court to grant summary judgment in this amount.

2. While I agree that the appeal of the husband must be dismissed, I regret that I cannot share the conclusion of my colleagues to

the effect that the wife has established no arguable defence. In order to explain these conclusions it is first necessary to set out the

relevant facts.

3. The proceedings themselves arise from a personal guarantee given the appellants on 5th July 2007 in respect of the obligations of

a company known as Stones Finishes Supply Ltd. (“the company”). This was a company of which Mr. de Kretser was the 99%

shareholder. Ms. Fox owed the remaining 1% shareholding, but she also drew a salary of some €2,000 per month. The guarantee in

question was a condition for the granting of an overdraft facility to the company by a facility letter dated 29th June 2007. The

company ultimately defaulted on its obligations, thus triggering a demand for payments from the guarantors. The fundamental

question is whether that guarantee is a valid one.

4. In the course of the appeal to this Court, the appellants focussed almost entirely on the question of whether there was an

arguable case that Ms. Fox was subject to undue influence in executing the guarantee and, specifically, whether the Bank ought to

have insisted that she had access to independent legal advice.

5. It should be noted at the outset that Ms. Fox was a businesswoman in her own right and she ran her own company, Heavenly Spa

Ltd. Indeed, the evidence is that it was she who in fact provided the business introduction to Ulster Bank in respect of her husband.

As might be expected from a person with her business experience, Ms. Fox was not unfamiliar with the execution of personal

guarantees. As it happens, she had in fact already executed personal guarantees in favour of her husband’s company on four earlier

occasions in 2002, 2003 and 2006.

6. There is no doubt but that the 2007 guarantee was executed in circumstances which suggested that the company urgently needed

the funds. While it is accepted that Ms. Fox had not seen the guarantee in advance of its execution and that she signed it at the

Bank’s premises on the day it was executed, it is equally clear that Mr. de Kretser knew that such by Ulster Bank was required two

weeks in advance of its execution, so that Ms. Fox must have had some inkling of what was required.

7. While the guarantee is not phrased exactly as the earlier guarantees and although there are at least some textual differences

between the wording of the 2007 guarantee and the earlier guarantee, it cannot really be disputed that the 2007 guarantee was in

substance similar to the earlier guarantees which both defendants had executed in the past.

8. It is true that the 2007 guarantee involved a guarantee and indemnity, whereas the earlier guarantees were simply guarantees.

There are, of course, potentially significant differences between a guarantee and indemnity, principally because of the all

encompassing nature of the latter: see generally, Breslin, Banking Law (Dublin, 2013) at 535-537. But in the context of the present

case where there was no dispute regarding the validity of the original debt or the obligation to pay same, there is no difference of

substance as between the obligations of the defendants qua guarantors on the one hand as compared with indemnitors on the other.

The judgment of the High Court

9. In his judgment Hedigan J. found that the guarantee was duly executed under seal, so that any question of past consideration

simply did not arise. So far as the critical issues of undue influence were concerned, Hedigan J. stated:-

"(a) The defendants are both experienced business people with a track record of multiple guarantees provided to the

bank. It is entirely unreal to suggest that they did not know what they were doing. Even were this not so, between the

letter of facility and the signing of the guarantee two weeks later, they had every opportunity to acquaint themselves

with all they needed to know. During this time they also had every opportunity to obtain legal advice. It should be noted

in passing that absent some clear evidence of the need to insist upon customers obtaining, it there is no obligation on a

bank to insist on customers obtaining legal advice before entering into contracts with them….

(b) There is no evidence of any duress or undue influence. There is simply an assertion. That assertion flies in the face of

the evidence. This is, as noted above, that both defendants were experienced business people. Moreover, it was in fact

the second defendant who introduced the bank to the company Stone Finishes. Also the second defendant was in receipt

of a monthly salary of €2,000 from the company. Far from there existing any evidence to show duress or undue influence,

in fact the evidence shows the opposite.”

Whether the Bank had affirmative duties vis-à-vis Ms. Fox

10. The essence of the appellants’ case is that the Bank were under an affirmative duty to ensure that Ms. Fox in particular

understood the nature of the guarantee and that it had taken appropriate steps to ensure that she had access to independent legal

advice given that she was being called upon to guarantee business debts of her husband and his company. I should observe at this

point that the husband has not advanced any argument such as would suggest that he could avoid liability in respect of these

liabilities.

11. The extent of the duties of a bank vis-à-vis a spouse in cases such as this has been the subject of extensive judicial

consideration in recent times. In Ulster Bank Ltd. v. Roche [2012] IEHC 166, [2012] 1 I.R.765 Clarke J. was required to consider this

matter both in the context of a non est factum plea, together with an argument based on un due influence. The facts of Roche were

somewhat similar to the present case (although there are important differences which I will presently outline) in that one party gave a

guarantee on behalf of the business of another party in circumstances where she had not had the opportunity for independent

advice. The two parties were not, in fact, married, although they were living together as a couple. The case can therefore be treated

for the purposes of the law on guarantees as if the parties were, in fact, married.

The non est factum defence

12. Clarke J. first rejected the non est factum defence for reasons that are not altogether surprising ([2012] 1 I.R. 765, 771-772):

“The fact remains that [the partner of the defendant] Ms. Buttimer signed a guarantee in circumstances where it was

likely that that guarantee would be given to Ulster Bank as representing her guarantee. It will be necessary to turn to the

circumstances in which she signed the guarantee when dealing with the second issue to which brief reference has already

been made. However, in the ordinary way (and as I pointed out in ACC Bank PLC v. Kelly [2011] IEHC 7 and as Kelly J.

adopted in Irish Bank Resolution Corporation Ltd v. Quinn [2011] IEHC 470), a person who signs a document which may

well have significant legal effect and does so, either without reading the document or without applying themselves to the

content of the document, "must accept the consequences of having signed a commercially binding agreement in those

circumstances" and will, prima facie, be bound by what they have signed. The fact is that Ms. Buttimer signed a

document without making any attempt to ascertain what it was or what its consequences might be. In the ordinary way,

she has to bear responsibility for her own actions in so doing. As I pointed out in ACC v. Kelly, the situation might be

different where the bank concerned itself misrepresents the content of the document or otherwise acts in a way which

would allow the party to have the transaction set aside. However, there does not seem to me to be any evidence to

suggest that the bank in this case acted improperly. Even if, therefore, the way in which the guarantee came to be

signed is as Ms. Buttimer asserts, I am not satisfied that that would afford her any defence. She signed banking

documents on behalf of a company which was owned by her partner and of which she was a director. Any bank receiving

those documents is entitled to assume that she has committed herself to guarantee the loan referred to in the

documentation. Subject, therefore, to the undue influence question, it seems to me that Ms. Buttimer bound herself to

the guarantee when she signed it. I, therefore, turn to the undue influence question.”

13. It seems to me that this is sufficient in itself to dispose of the non est factum plea insofar as this argument was advanced by Ms.

Fox. She executed documents, the general provenance, status and effect of which she was surely aware. Even if she was not, then,

adopting the words of Clarke J. in Roche, any bank receiving those documents was entitled to assume that she had committed herself

to guarantee the loan in question.

14. In these circumstances, I do not think that the non est factum defence is an arguable one.

Whether there was undue influence

15. I can now proceed to the examination of the general issue of undue influence and, specifically, whether the bank was under a

duty to take affirmative steps to ensure that the other spouse (i.e., in this case, the wife) obtained independent advice. I agree, of

course, the fact that the parties are husband and wife does not in itself create any presumption of undue influence. Article 41 of the

Constitution presupposes marriage between equals and the suggestion of some presumption in favour of a wife would presuppose “a

disparity in status and capacity between husband and wife which runs counter to the normal relations between a married couple in

modern times”: The State (Director of Public Prosecutions) v. Walsh [1981] I.R. 412, 449, per Henchy J.

16. The real question, therefore, is first whether the other spouse was actually under the undue influence of the other. If not, then

the subsidiary question is whether the bank was under some positive or affirmative duty to ensure that where one spouse was

guaranteeing the liabilities of the other spouse, the nature of this guarantee was fully and independently explained.

17. In Roche Clarke J. found that Ms. Buttimer was indeed under the undue influence of her partner, Mr. Roche ([2012] 1 I.R.

765,773-774):

“Having heard the evidence of Ms. Buttimer and the evidence of her clinical psychologist, I am satisfied that Ms. Buttimer

was under the undue influence of Mr. Roche at the time in question. I am satisfied that she had no involvement in the

business of Roche Motors of any material variety and that she was in a dependent and quite abusive relationship. Of

particular assistance, on the evidence in this case, is the fact that the professional contact between Mr. Buttimer and

her clinical psychologist was contemporaneous to the events with which this case is concerned. This is not one of those

cases where a mental health professional is attempting to reconstruct a situation some time (often years) after the

events which are crucial to the proceedings. Rather, this is a case where Ms. Buttimer was in receipt of counselling at the

time in question and where her clinical psychologist is in a position to give a professional judgment as to her mental state

and the relationship between that mental state and the actions of Mr. Roche, at the very time when the events which

are at the heart of this case occurred. I fully accept the evidence of Ms. Buttimer's clinical psychologist and, on that

basis, am satisfied that she was in the sort of dependent and abusive relationship with Mr. Roche at the relevant time

where she would have done anything that he asked. That leg of the test is, therefore, in my view, met. Ms. Buttimer

signed the guarantee in question while under the undue influence of Mr. Roche.”

18. Clarke J. then turned to consider the question of whether this fact afforded Ms. Buttimer a defence to the claim of the bank. The

judge found as a matter of fact that there was no evidence that the bank were actually aware of such undue influence. But were

there circumstances such as ought to have put them on further inquiry?

19. Clarke J. noted that in Ulster Bank Ireland Ltd. v. Fitzgerald [2001] IEHC 259, O'Donovan J. had considered that it was not

necessary for him to reach a conclusion as to whether undue influence actually existed on the facts of the case because he was

satisfied that the bank in question had neither actual nor constructive notice of any undue influence. As O'Donovan J. put it, the bank

did not have "even an inkling" of any reason why the guarantor might not have been a free agent. O'Donovan J. considered that a

bank is not put on inquiry simply because a wife guarantees a loan to her husband's business and also accepted the proposition that

the surety in the case in question had a stake in her husband's business (even though she was not a shareholder or a director)

because she and her family relied on the income generated by the company, whose debts were to be guaranteed, for their day-to-

day living. On the basis of those views, O'Donovan J. came to the conclusion that there was no obligation on the bank in question to

seek to ensure that the surety should obtain independent legal advice.

20. Clarke J. observed, however, that in the seminal decision of Royal Bank of Scotland plc v. Etridge (No. 2) [2002] 2 A.C. 733 the

House of Lords had subsequently clarified the law in respect of third party undue influence so far as the United Kingdom is concerned.

In this respect Clarke J. noted that the decision in Fitzgerald had been the subject of considerable criticism (see, e.g., Mee, “Undue

Influence and Bank Guarantees” (2002) 37 Irish Jurist 292), the substance of which was that the approach taken in Fitzgerald offered

insufficient protection to potential vulnerable sureties and leaves a lender with no obligations arising from knowledge that the parties

are married or otherwise closely connected unless it has some special reason to believe that a wrong has actually taken place.

21. Clarke J. then acknowledged that the issue here was really one of constructive knowledge and the circumstances in which a bank

may be placed on appropriate inquiry. On this point the judge stated ([2012] 1 I.R. 765, 777-778):-

“In that context it is appropriate to consider the views on that question expressed by the House of Lords in Etridge. It

must be recalled that the House of Lords was considering, in that case, appeals in some eight different cases raising, at

least in general terms, the same types of issues. The head note to the judgment suggests that the finding of the court

was as follows:-"Whenever a wife offered to stand surety for the indebtedness of her husband or his business, or a

company in which they both had some shareholding, the lender was put on inquiry and was obliged to take reasonable

steps to satisfy itself that she had understood and freely entered into the transaction. The steps reasonably to be

expected of a lender in relation to past transactions were to bring home to the wife the risk she was running by standing

surety, either at a private meeting with her or by requiring her to take independent advice from a solicitor on whose

confirmation the lender might rely that she had understood the nature and effect of the transaction. In respect of future

transactions the lender should contact the wife directly, checking the name of the solicitor she wished to act for her and

explaining that for its protection it would require his confirmation as to her understanding of the documentation to prevent

her from subsequently disputing the transaction. The lender should not proceed until it had received an appropriate

response from the wife and should in every case receive the written confirmation from the nominated solicitor. Subject to

the husband's consent to disclosure, without which the transaction could not in any event proceed, the lender should

routinely furnish to the nominated solicitor financial information relating to the facility and the husband's existing

indebtedness to enable a proper explanation to be given to the wife. The nominated solicitor should require confirmation

that the wife wished him to act for her, and he might, so long as no conflict of duty or interest arose and he was satisfied

that it was in her best interests to do so, also act for the husband or the lender. His advice should be given at a face-to-

face meeting in the absence of the husband, and its contents need not be directed to the commercial wisdom of the

transaction but should include, as a core minimum, an explanation of the documentation, its practical consequences and

inherent risks based on the financial information provided by the lender; he should also state that the choice whether to

proceed was to be exercised by her and should check that she wished to continue and, if so, he should obtain her

consent to his giving the confirmation required by the lender. Since in so advising her the solicitor assumed professional

responsibilities to the wife he did not act as agent for the lender, who was entitled to assume that he had acted properly,

and, in consequence, knowledge of the contents of advice given to the wife, whether negligently or otherwise, was not

to be imputed to the lender".

22. Clarke J. then noted that in Etridge Lord Nicholls had found that a bank was put on inquiry when faced with a transaction which

called for explanation and thus is put on inquiry: where a wife stands surety for her husband's debts; where a husband stands surety

for his wife's debts; and where unmarried couples, whether heterosexual or homosexual, stand surety for each other's debts in

circumstances where the lender is aware of the relationship. As Clarke J. put it, Lord Nicholls went so far “as to suggest that the only

practical way of dealing with the matter was to regard the lender as on inquiry in every case where ’the relationship between the

surety and the debtor is non-commercial.’” While Lord Nicholls distinguished between cases where the surety guaranteed the debts of

a spouse or partner from a case where the monies were advanced to the spouses or partners jointly (the lender not being on inquiry

in the latter case unless it was known to the bank that the loan was for the benefit of one person only), Lord Nicholls nonetheless

took the view that a guarantee over the debts of a company in which the shares were held by both spouses or partners did place the

lender on inquiry having regard to what was said to be the fact that, in many such cases, the shareholding did not reflect the true

situation.

23. Clarke J. then commented ([2012] 1 I.R. 765, 778-779):

“It seems to me that this issue raises very difficult questions. It is not, in my view, necessary to fully explore the precise

parameters of the circumstances in which a bank may be placed on inquiry for the purposes of determining the issues in

this case….. Nothing in this judgment should be taken as, therefore, necessarily implying that the law in Ireland goes as

far as the position in the United Kingdom as identified in Etridge in placing a bank on inquiry.”

24. As it happens, it was not necessary for Clarke J. to go that far, because the judge could point to circumstances where the Bank

was, in fact, on notice of the potential undue influence. Clarke J. then concluded on this point ([2012] 1 I.R. 765, 780):

“It seems to me that the academic criticism of Fitzgerald is well founded. A regime which places no obligation on a bank

to take any steps to ascertain whether, in the presence of circumstances suggesting a non-commercial aspect to a

guarantee, the party offering the guarantee may not be fully and freely entering into same, gives insufficient protection

to potentially vulnerable sureties. While not necessarily accepting that the precise parameters, identified in Etridge, are

those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied

that the general principle, which underlies Etridge, is to the effect that a bank is placed on inquiry where it is aware of

facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general

principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware

of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct

interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position

than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or

income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has

very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should

guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at

which a bank is placed on inquiry. In those circumstances I am satisfied that the bank was on inquiry on the facts of this

case.”

25. Clarke J. then addressed the second question, namely, what a bank was required to do when placed on inquiry ([2012] 1 I.R.

765,781):

“I have already cited the position in the United Kingdom as per Etridge. Again, under this heading, nothing which I say

should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents

the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some

measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security. As

Ulster Bank, in this case, took no such steps it is, in my view, unnecessary to consider the precise level of steps which a

bank must take.”

The implications of the decision in Roche for the present case

26. It remains to consider what the implications of Roche for the present case might be. One may say immediately that in contrast to

that case there is actually no evidence – and certainly no clinical evidence – of the kind of undue influence which was established by

expert evidence in Roche at play in the present case. There is no suggestion at all that the relationship between Mr. de Krester and

Ms. Fox is anything other than a happy one. Certainly, the circumstances of this case are very different to those of Roche where

Clarke J. expressly found that the relationship in that case was a dependent and quite abusive one.

27. It is also true that, as Hedigan J. expressly found, Ms. Fox was an experienced businesswomen with considerable experience of a

banking relationship and, indeed, the giving of personal guarantees. It was she, after all, who introduced her husband as a potential

customer to the plaintiff Bank. To that extent, her case and general circumstances are rather different to those of the partner in

Roche who was called upon to act as surety. It is also the case that Ms. Fox had a small 1% shareholding in her husband’s company

and that she drew a monthly salary of some €2,000 per month

28. The fact remains, however, that the Bank took no affirmative steps to protect Ms. Fox prior to the execution of the guarantee of

her husband’s business debts (and those of his company) by her. Those are the critical considerations so far as the decision in

Etridge (No.2) is concerned, since that case is, in some respects, rather less about undue influence as such and rather more about

ensuring that banks insist on independent advice where one spouse is guaranteeing the commercial debts of the other spouse, almost

regardless of the personal circumstances of the spouse called upon to act as surety.

29. In the course of an exceptionally thorough review of the authorities, Lord Nicholls stated ([2002] 2 A.C. 773, 803) that the effect

of the earlier decision of the House of Lords in Barclays Bank v. O’Brien [1994] 1 A.C. 180 was that “quite simply that a bank is put on

inquiry whenever a wife offers to stand surety for her husband’s debts.” In Mee’s graphic words, the decision in Etridge has

accordingly “collapsed into a regime which requires the lender to insist on independent legal advice”: see (2002) 37 Irish Jurist 292,

305.

30. The test for summary judgment is, of course, that as stated by Hardiman J. in Aer Rianta c.p.t. v. Ryanair Limited [2001] 4 I.R.

607, 623:

“In my view, the fundamental questions to be posed on an application such as this remain: is it “very clear” that the

defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the

defendant’s affidavits fail to disclose even an arguable defence?”

31. Judged by these standards, it seems to me that, in the light of cases such as Etridge (No.2) and Roche, Ms. Fox has raised an

arguable case that the Bank were under an affirmative duty to insist that she obtain independent legal advice before she executed a

guarantee of her husband’s business debts. In the light of this case-law, I cannot say that Ms. Fox has no case so far as her Etridge-

style defence to the guarantee is concerned.

Conclusions

32. In summary, therefore, I am of the view that, save in one respect, the defendants have not raised any arguable defences to the

Bank’s application for summary judgment. As I have indicated, Ms. Fox has, however, advanced an arguable case to the effect that

the Bank was under an affirmative duty to see that she was independently advised before she executed the guarantee in question.

Nothing in this judgment should be interpreted as expressing any further views on the merits of this defence, save that, in my view,

Ms. Fox has in this respect met the threshold for resisting summary judgment.