‘There were three people in this mortgage’

Hewett v First Plus Financial Group Plc [2010] EWCA Civ 312

We are a little late on this one, which the family law bloggers have already noted, but it is a bit irresistible.

Mrs Hewlett was appealing a possession order obtained by First Plus against her home. First Plus had a mortgage against the property agreed by both Mr and Mrs Hewett. By the time of the possession order, the amount outstanding was £47,372.79.

Mr Hewett had played no part in proceedings. Mrs Hewett appealed the first instance Judge’s rejection of her defence that the mortgage had been procured by undue influence and misrepresentation.

Mr H had something of a bad history of running up un-payable credit card debt. The property – itself bought by sale of Mrs H’s mother’s home –  had been remortgaged in 2002, in part to repay his debts. The property was in joint names and was the home of Mr H, Mrs H, their two children and Mrs H’s mother.

By the end of 2003, Mr H had started an affair, unbeknown to Mrs H. His debts had reached a point that the combined income of the family could not cover them and the mortgage payments. He proposed a re-mortgage to Mrs H. She, the Court found, was by no means unable to take a part in financial decision making and was aware of her husband’s propensity to run up debt. However, told by her husband that it was the only way to keep the family home, and with his promises on future conduct, she decided to agree. The first instance Judge found that this was a ‘horrible choice’ but a choice nonetheless.

First Plus, belatedly, acknowledged that as it was aware that the mortgage was to repay Mr H’s debts, rather than the H’s jointly, it was on notice of the risk of undue influence, but was found to have done nothing thereafter, in breach of the Royal Bank of Scotland v. Etridge [2001] UKHL 44 guidelines.

As an occupier, Mrs H’s mother was also required to sign a mortgage consent. Mr H instead forged her signature.

In May 2004, Mr H’s affair came to light. He left in January 2005 and the Hs were divorced in 2006. Meanwhile Mr H was made bankrupt on his own petition, owing £40,000 plus. Mrs H had been unable to meet mortgage payments and the original loan by First Plus of £38,000 had grown to £59K by October 2008.

On appeal, Mrs H argued that Mr H had already, by January 2004, decided to leave his wife. His misrepresentations to her were i) that the mortgage was the only way to preserve the family hone; ii) that he would pay the mortgage payments thereafter; and iii) his concealment of his affair, a material fact.

The Court of Appeal were not taken with i) or ii). In view of the history, it was far from clear that Mr H had intended to leave the family in January 2004. Mr H had indeed paid the mortgage for the following year.

However, on iii) concealment of the affair did amount to the exercise of undue influence against her, sufficient to vitiate the mortgage transaction.

It is not a requirement that a person’s decision was completely not her own, or her own will overborne. But, “for an obligation of candour and fairness to be owed by the husband, it is necessary to show that the wife reposes trust and confidence in him. Usually that means, trust and confidence in his conduct of the family’s financial affairs”. Following Thompson v. Foy [2009] EWHC 1076 (Ch), this description of trust and confidence is not exhaustive.

In Royal Bank of Scotland plc v. Chandra & anr [2010] EWHC 105 (Ch), it was held that “a deliberate suppression of information because the husband knows that, if disclosed, it will deter the wife from giving the guarantee will involve an abuse by him of her confidence. It would be unconscionable and rightly categorised as unacceptable means”.

Following these principles, Mrs H did place a sufficient degree of trust and confidence in Mr H so as to give rise to the obligation of duty and candour. She regarded Mr H as being in charge of the family finances, and she had to take on trust his promise to make the mortgage repayments.

The affair was just such a thing that the obligation would require him to disclose. First Plus had argued that it wasn’t a material fact, but it clearly was, as it went to the commitment to the marriage and home that Mrs H clearly took to be concomitant with her own.

There was no evidence that Mrs H would not have entered the mortgage if Mr H had disclosed the affair, but this went to nothing:

It has never been part of the proof of undue influence that, but for the relevant abuse of trust, the impugned transaction would not have been entered into. The right to set aside the transaction arises not because, on a but for causation analysis, it would otherwise have been avoided, but because of the equitable wrong constituted by the abuse of confidence was part of the process by which the victim’s consent to it was obtained. In the present case that wrong is constituted by Mr Hewett’s breach of his duty of fairness and candour to his wife, when persuading her to agree to the re-mortgage.

The proper test is objective:

The issue may be best addressed by asking whether a solicitor, consulted by Mrs Hewett for advice about the wisdom of the transaction, would have thought it relevant to know that her husband was, while asking for her unqualified trust, at the same time conducting a clandestine affair. There can in my view only be an affirmative answer to that question.

Appeal allowed and mortgage set aside. However:

It is however common ground that Mr Hewett’s execution of the mortgage to First Plus operated as an equitable charge of his beneficial interest in the Property, and that Mrs Hewett acquired that interest from her husband’s trustee in bankruptcy subject to that equitable charge. The Judge recognised, at paragraphs 3 and 4 of his Judgment, that if the mortgage was to be set aside, it would be necessary to hear argument about the question whether, and if so when, First Plus should be entitled to enforce that equitable charge by obtaining an order for sale of the Property by an application under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. Counsel are agreed that in the event that Mrs Hewett succeeds in this appeal, that question should be remitted to the Judge, if a consensual solution to it cannot be arrived at between the parties.

What I love here is the vision of a conveyancing solicitor’s reaction to news of the husband’s affair as a hypothetical benchmark for the material relevance of the lack of disclosure. It also suggests that there may be some interesting new questions on re-mortgaging application forms…

[Apologies for the Diana reference. I remember watching that interview and thinking that she was the Rasputin of the British Royal family, but obviously we didn’t get the February and October revolutions.]

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Housing law - All, Mortgage possession and tagged , .

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