Disclosure – Misrepresentation - Mortages – Spouses

Jayne Hewett v First Plus Financial Group Plc: CA (Civ Div) (Lords Justice Jacob, Leveson, Mr Justice Briggs): 24 March 2010

The appellant (W) appealed against a decision ordering her and her former husband (H) to give possession of their house to the respondent lender (F), together with a money judgment, by way of enforcement of a mortgage.

H and W lived in their matrimonial home with their children and her mother. H got himself into financial difficulties by overspending on his credit cards. He persuaded W that they needed to remortgage their home to manage his debts. Shortly after they granted a mortgage to F, W found out that H had been having an affair. In due course they divorced, and then H lost his job and was made bankrupt on his own petition. W acquired H’s interest in the house from his trustee in bankruptcy for £1. She found it impossible to maintain the instalments due to F and it started possession proceedings.

The judge rejected W’s defences of undue influence and misrepresentation by H, finding that she had made her own choice to participate in the mortgage. It was common ground that F had had constructive notice of any undue influence or misrepresentation that might have been perpetrated by H, so its position would be affected by the outcome.

W submitted that the court could, on the judge’s primary facts coupled with her own evidence, decide by inference that by the time of the mortgage H had decided to leave her, and that the mortgage involved three fraudulent misrepresentations, each of which was sufficient on its own to justify the setting aside of the transaction: first, that it was the only way to preserve the house as their home; second, his false promise that he would pay the instalments to F; third, his deliberate concealment of his affair.

Held: (1) The starting point was that the judge had been entitled to conclude on the evidence that by the time of the mortgage H had not decided to leave W and his family. As to the first alleged misrepresentation, the court should not interfere with the judge’s conclusion that it had not been shown that H did not honestly believe that the mortgage was the only way of protecting their home from his creditors.

(2) As to the second alleged misrepresentation, H’s subsequent track record in staying at the house for another year, even after W found out about his affair, and in paying the instalments due to F during that period, was a sufficient basis for the judge’s conclusion that his promise to W to pay those instalments was not dishonest.

(3) H’s concealment of his affair from W did amount to undue influence sufficient to vitiate the mortgage transaction as between them. A finding of undue influence did not depend, as a necessary prerequisite, upon a conclusion that the victim made no decision of her own, or that her will and intention was completely overborne.

A conscious exercise of will could nonetheless be vitiated by undue influence, Drew v Daniel [2005] EWCA Civ 507, [2005] 2 FCR 365 applied. The first question was whether W reposed a sufficient degree of trust and confidence in H to give rise to an obligation of candour and fairness on his part, Royal Bank of Scotland Plc v Etridge (No2) [2001] UKHL 44, (2002) 2 AC 773 followed. For two reasons, she did. First, she regarded H as being in charge of the family finances, albeit not to an extent that excluded her from any participation in important decisions.

It would be wrong to confine a husband’s obligation of candour and fairness when proposing a risky financial transaction to his wife to cases where she meekly followed his directions without question. The purpose of an obligation of candour was that the wife should be able to make an informed decision properly appraised of the relevant circumstances. Second, the specific transaction that H put to W required her to take on trust his sworn promise to pay the instalments due to F. There was therefore both a pre-existing relationship of trust and confidence, and an intensification of it derived from the very basis of the proposed transaction, Thompson v Foy [2009] EWHC 1076 (Ch), (2010) 1 P & CR 16 considered.

The second question was whether H’s affair was something which his obligation of fairness and candour towards W required him to disclose in connection with his request that she charge her interest in their home as security for his debts.

Given the difficulty of the choice she faced, and that her decision to agree to his request was based on her assumption that he was as committed as she was to their marriage and family life, there was no doubt that his affair should have been disclosed, Royal Bank of Scotland Plc v Chandra [2010] EWHC 105 (Ch) considered. Moreover, his non-disclosure of it was deliberate.

Appeal allowed.

Simon Redmayne (instructed by Hatch Brenner (Norwich)) for the appellant; Jeremy Lightfoot (instructed by Eversheds (Cardiff)) for the respondent.