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

Appeal by wife against order for possession of the matrimonial home by a mortgage company on the grounds that the mortgage being enforced had been agreed by her as a result of undue influence and abuse of trust. Appeal allowed.

The appellant and her former husband had taken out a mortgage on the family home, to which the appellant agreed, in order to secure credit card debts run up by the husband. At the time that the mortgage was granted the appellant still considered that she was in a stable and happy relationship with her husband. However, the husband at that time was having an affair which he did not disclose to his wife. He also forged the signature of his mother-in-law, who lived with them, so as to get approval for the mortgage. At first instance, the judge had found that the wife had been exercising her own will, although it was acknowledged that the mortgage company had constructive notice of any misrepresentation or undue influence by the husband and that the company had failed to comply with guidelines in Royal Bank of Scotland v Etridge.

In this appeal, counsel for the wife submitted that, from the facts available, the court could infer that the husband had decided to leave the wife and that the husband therefore made three fraudulent misrepresentations, any one of which could justify setting aside the order. Briggs J swiftly rejects two of those, as the judge's conclusion that the husband was not planning to leave the wife at the time of the re-mortgage could not be interfered with. However, he accepts the third: that "his deliberate concealment of his affair, a highly material fact which his wife needed to know, if she were to make an informed decision whether or not to accede to his request". In his reasons he reviews, among others, the cases of Allcard v Skinner and Royal Bank of Scotland v Etridge concluding from them that

"It would in my opinion be wrong to confine a husband's obligation of candour and fairness when proposing a risky financial transaction to his wife as confined to cases where the wife meekly follows her husband's directions without question.  The purpose of an obligation of candour is that the wife should be able to make an informed decision (with or without the benefit of independent advice) properly and fairly appraised of the relevant circumstances."

He also concludes that the husband's affair was a material fact that should be disclosed as the test was an objective one and had nothing to do with how it may have affected the wife's decision-making.


Case No: B2/2009/2118
Neutral Citation Number: [2010] EWCA Civ 312

His Honour Judge Darroch
8PC 14707
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 24/03/2010

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JAYNE HEWETT (Appellant)
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Mr Simon Redmayne (instructed by Hatch Brenner, Norwich NR2 1QY) for the Appellant

Mr Jeremy Lightfoot (instructed by Eversheds LLP, Cardiff CF10 5BT) for the Respondent

Hearing date: 16th March 2010
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Mr Justice Briggs:

1. This is an appeal by the second defendant Mrs Jayne Ann Hewett from the Order of HHJ Darroch made on 17th August 2009 in the Norwich County Court, whereby he ordered Mrs Hewett and her former husband Mr Hewett to give possession of the dwelling house known as 72 Colomb Road, Gorleston, Norfolk to the claimant First Plus Financial Group plc ("First Plus"), together with a money judgment for £47,372.79, by way of enforcement of a mortgage dated 30th January 2004 granted by the Hewetts to First Plus.  Mr Hewett had played no part in the proceedings, and Judge Darroch rejected Mrs Hewett's defences of undue influence and misrepresentation.

2. The main issue raised by this appeal (albeit not one which appears to have been in the forefront of the parties' arguments in the court below), is the extent to which non-disclosure by a husband when seeking to persuade his wife to join with him in a charge of their matrimonial home as security for his separate debts may constitute misconduct on his part sufficient to afford his wife with a defence of undue influence or misrepresentation, when that charge comes to be enforced against her by the chargee.  In the present case, the Judge held that First Plus had constructive notice of whatever undue influence or misrepresentation might have been perpetrated upon Mrs Hewett by her husband, and that finding is not challenged on appeal.  Although the consequences of any such misconduct on Mr Hewett's part are therefore to be visited upon First Plus, the analysis of the consequences of that misconduct upon the enforceability of the mortgage falls to be conducted by reference to the merits of the matter as between husband and wife. 

3. The fact which Mr Hewett failed to disclose to his wife when persuading her to join with him in the execution of the mortgage was that, unknown and unsuspected by her, he was at that time having an affair with another woman which, albeit some time later, led in due course to his separation and divorce from Mrs Hewett.  The question is not whether failure to disclose that fact automatically vitiates the transaction, but whether it was sufficiently material to the decision facing Mrs Hewett that its non-disclosure or, worse, deliberate concealment amounted to an abuse by Mr Hewett of the trust and confidence reposed in him by his wife.

4. There is no significant dispute as to primary fact, although a challenge to the judge's findings as to misrepresentation and undue influence necessarily involves a dispute as to his inferences as to secondary facts.  I can therefore take the primary facts from the Judge's clear and concise reserved judgment.  It is evident that his findings of fact were based mainly upon Mrs Hewett's own written and oral evidence, as to the credibility of which he expressed no reservations.  I have therefore found it appropriate to have limited regard to that evidence for matters of uncontentious detail.

5. After a short period of cohabitation, Mr and Mrs Hewett were married in about 1991.  During the 1990s they lived together in a flat rented by Mr Hewett.  By 2000 there were two children of the marriage, by then aged (so we were informed) 7 and 4.

6. By 1999 Mr Hewett had begun to get himself into financial difficulties by overspending on his credit cards.  Mrs Hewett owned a half beneficial share in her mother's home, and the three of them (Mr and Mrs Hewett and her mother) decided to buy a property using approximately £21,000 released to Mrs Hewett upon the sale of her mother's home, together with a mortgage, as a home for Mr and Mrs Hewett, their two children and Mrs Hewett's mother.

7. The property at Colomb Road ("the Property") was acquired by Mr and Mrs Hewett in their joint names for £51,000.  It was a bungalow, but was extended largely by Mr Hewett's efforts, assisted by members of his family with the necessary skills, so as to be sufficient to accommodate all five of them.  The Judge found that the financial arrangements made upon the acquisition of the Property were also sufficient to discharge Mr Hewett's then credit card debts.

8. The Property was re-mortgaged in June 2002 for £70,000, releasing a further £23,000 equity which Mr and Mrs Hewett used to cover the costs of the (still incomplete) extension and to pay other debts of his.  In the event the extension was never fully completed.

9. By the end of 2003 Mr Hewett's credit card debts had substantially increased again and, but unknown to Mrs Hewett, he had started an affair.  The Judge found that, at the time of the grant of the mortgage to First Plus in January 2004, Mrs Hewett continued to believe that she was in "a happy, stable relationship" with her husband.  Despite being pressed to do so by Mr Redmayne, counsel for Mrs Hewett, he declined to find that Mr Hewett had, by the beginning of 2004, already decided to leave his wife and family.

10. The Judge accepted Mrs Hewett's evidence that, by 2004, she continued to regard Mr Hewett as being primarily responsible for decision-making about the family's finances.  Nonetheless, her participation in the arrangements made for the purchase of the Property and the re-mortgage in 2002 demonstrated that Mrs Hewett was by no means unable to play a part in financial decision-making.  In the Judge's words, Mrs Hewett was "not a lady who left every aspect of finance to her husband and stayed at home looking after the children".  She was also, by 2004, well aware of her husband's propensity for running up debts on his credit cards.

11. The financial arrangements then in place involved both Mr and Mrs Hewett contributing their earnings to the family pot, and the Judge concluded that the family also received some assistance towards their outgoings from Mrs Hewett's mother who continued to live with them at the Property.

12. The circumstances in which the mortgage to First Plus came to be executed were as follows.  Mr Hewett's credit card debts had increased to a level which made it impossible for him, even with his wife's and mother in law's assistance, to pay the high level of interest due on those debts, while also discharging the mortgage instalments due on the Property and the other family outgoings.  Mr Hewett recognised that he and his family faced the loss of their home if his debts could not be re-financed on a secured basis, so as to reduce the overall interest burden to a level within the family's means.

13. All this Mr Hewett explained to his wife, coupled with a promise of financial responsibility in the future, including a promise to pay all future mortgage instalments, to which he swore to adhere on their children's lives.  His request was that she should join with him in a re-financing of his debts, by which they were to be charged on the Property.

14. The Judge found that Mrs Hewett's initial reaction was to refuse to do so, being unwilling to risk the family home.  She was told by her husband that a charge on the Property was the only way to rescue the family from its plight, and eventually decided to accede to her husband's request.  In cross-examination she said:

"I was told it was the only way of keeping the house.  It was a horrible choice."

The Judge concluded that:

"A reluctant choice, an unenthusiastic choice, a horrible choice are nevertheless choices.  I am unable to say that she was not exercising her own will."

15. At an early stage during the trial, and as the result of late disclosure, First Plus very properly acknowledged that, having been aware that the re-mortgage was designed to secure payment of debts owed by Mr Hewett, rather than the Hewetts jointly, it was on notice of the risk of the exercise of undue influence by Mr Hewett against his wife.  The Judge concluded that First Plus did nothing thereafter which came anywhere near compliance with the guidelines laid down by the House of Lords in Royal Bank of Scotland v. Etridge [2001] UKHL 44, with the result that First Plus had constructive notice of any undue influence or misrepresentation practised by Mr Hewett upon his wife, if that could be proved. 

16. The proposed mortgage of the Property to First Plus also required Mr Hewett to obtain his mother-in-law's written consent to mortgage on First Plus's standard form, since she was an occupier of the Property.  Rather than risk his mother-in-law causing difficulties, Mr Hewett chose to forge her signature on the consent form, a crime for which he was later convicted.

17. Mrs Hewett found out about her husband's affair in May 2004.  His initial reaction was to accede to her request that he telephone the lady concerned, in his wife's presence, to put an end to it.  This proved however only to provide a temporary solution since, in January 2005 Mr Hewett left the Property to live with the lady concerned, and divorce proceedings duly followed, leading to a decree nisi in July 2006, and a consent order for a clean financial break in September 2006.

18. In the meantime Mr Hewett lost his job in January 2006 and was made bankrupt on his own petition on 17th March 2006.  His debts included a further £40,000 odd of credit card liabilities.  Subsequently, Mrs Hewett acquired her former husband's beneficial interest in the Property from his trustee in bankruptcy for £1.  She found it impossible to maintain the instalments due to First Plus from her own and her mother's resources, and possession proceedings were instituted in October 2008.  The amount originally lent by First Plus was £38,000, but the amount claimed by First Plus as owing by then was £59,624.61.

19. Although the Judge found that Mr Hewett had, in connection with the grant of the mortgage to First Plus, being behaving extremely badly, not only by cheating on his wife but by forging his mother in law's signature, he was not persuaded that Mr Hewett had been guilty either of undue influence or misrepresentation.  In the forefront of Mrs Hewett's case was the allegation that her husband's statement that the mortgage to First Plus was "the only way" of preserving the family's continued occupation of the Property from his creditors was a deliberate falsehood.  Nonetheless the Judge concluded that it was neither a fraudulent nor an even innocent misrepresentation.  As he put it:

"Many couples would regard re-mortgaging as the best way and possibly the only way of rescuing a tight financial situation where one party had run up large debts."

20. As for undue influence, the Judge directed himself by reference to the dictum of Ward LJ in Daniel v. Drew [2005] EWCA Civ 507, at paragraph 36 to the effect that:

"The donor may be led but she must not be driven and her will must be the offspring of her own volition, not a record of someone else's."

He concluded (as I have already described) that although Mrs Hewett faced a horrible choice, she made her own choice to participate in the re-mortgage.  He found that there had been no oppression, no coercion, bullying or threats, and that Mrs Hewett had neither been frightened nor intimidated by her husband when deciding to accede to his request.

21. On this appeal Mr Redmayne for Mrs Hewett submitted that this court could, on the primary facts found by the Judge, together with material in his client's witness statement upon which the Judge had expressed no adverse conclusion, decide by inference that by January 2004 Mr Hewett had decided to leave his wife, and that the means whereby he obtained, in effect, a discharge from his financial predicament at her expense involved three fraudulent misrepresentations, each of which was sufficient on its own to justify the setting aside of the transaction as between the Hewetts, either for misrepresentation or for undue influence.  The first was that the re-mortgage to First Plus was "the only way" to preserve the Property as the family's home.  The second was a promise known by him to be false, that Mr Hewett would pay the instalments due to First Plus thereafter.  The third was his deliberate concealment of his affair, a highly material fact which his wife needed to know, if she were to make an informed decision whether or not to accede to his request.

22. I have not been persuaded by either the first or the second limbs of Mr Redmayne's submissions.  The starting point is that the Judge was in my view entitled to conclude on the evidence before him that Mr Hewett had not by January 2004 decided to leave his wife and family.  As he put it at paragraph 26 of the judgment:

"I have no reason to assume that he was at the stage when the mortgage was taken out planning to leave his wife.  He may have liked the set up with a comfortable home, a caring wife, children and mother in law sharing expenses."

23. As to the first limb, I consider that the Judge's conclusion that it had not been shown that Mr Hewett did not honestly believe that the re-mortgage was the only way of preserving the Property from the clutches of his creditors is, on the available evidence, also a finding with which this court should not interfere.  As to the second limb, Mr Hewett's subsequent track record in staying at the Property for another year, even after his wife found out about his affair in May, and in paying the instalments due to First Plus during that period, was also a sufficient basis for the Judge's conclusion that his promise to his wife to pay those instalments was not dishonest.

24. I have however been persuaded that Mr Hewett's concealment of his affair from his wife did amount to the exercise of undue influence against her, sufficient to vitiate the re-mortgage transaction, as between them.  My reasons follow.

25. This case calls for a more detailed analysis of the law relating to undue influence than appears in the Judgment.  The judge confined himself mainly to citations from Drew v. Daniel (supra).  That is a convenient starting point.  At paragraph 33 Ward LJ cited a passage from the judgment of Lindley LJ in Allcard v. Skinner (1887) 36 Ch Div 145 at 181-2, which included the following citation about undue influence from Lord Eldon in Huguenin v. Baseley (1807) 14 Ves Jun 273:

"Take it that she (the plaintiff) intended to give it to him (the defendant): it is by no means out of the reach of the principle.  The question is, not, whether she knew, what she was doing, had done, or proposed to do, but how the intention was produced:"

It is implicit in that dictum that a finding of undue influence does not depend, as a necessary pre-requisite, upon a conclusion that the victim made no decision of her own, or that her will and intention was completely overborne.  No doubt there are many examples where that is shown, but a conscious exercise of will may nonetheless be vitiated by undue influence.

26. The speech of Lord Nicholls in Royal Bank of Scotland v. Etridge (supra) has come to be regarded as the most authoritative recent re-statement of the law relating to undue influence.  It was, as he himself acknowledged, firmly based upon the principles to be found in Allcard v. Skinner.  At paragraphs 32 to 33, Lord Nicholls said this:

"32.  I add a cautionary note, prompted by some of the first instance judgments in the cases currently being considered by the House.  It concerns the general approach to be adopted by a court when considering whether a wife's guarantee of her husband's bank overdraft was procured by her husband's undue influence.  Undue influence has a connotation of impropriety.  In the eye of the law, undue influence means that influence has been misused.  Statements or conduct by a husband which do not pass beyond the bounds of what may be expected of a reasonable husband in the circumstances should not, without more, be castigated as undue influence.  Similarly, when a husband is forecasting the future of his business, and expressing his hopes or fears, a degree of hyperbole may be only natural.  Courts should not too readily treat such exaggerations as misstatements.

33.  Inaccurate explanations of a proposed transaction are a different matter.  So are cases where a husband, in whom a wife has reposed trust and confidence for the management of their financial affairs, prefers his interests to hers and makes a choice for both of them on that footing.  Such a husband abuses the influence he has.  He fails to discharge the obligation of candour and fairness he owes a wife who is looking to him to make the major financial decisions."

After referring to the need for the law to recognise the freedom of home-owners to make economic use of their homes, he continued:

"36.  At the same time, the high degree of trust and confidence and emotional interdependence which normally characterises a marriage relationship provides scope for abuse.  One party may take advantage of the other's vulnerability.  Unhappily, such abuse does occur.  Further, it is all too easy for a husband, anxious or even desperate for bank finance, to misstate the position in some particular or to mislead the wife, wittingly or unwittingly, in some other way.  The law would be seriously defective if it did not recognise these realities."

27. Lord Nicholls' analysis makes it clear that, 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.  But in Thompson v. Foy [2009] EWHC 1076 (Ch) Lewison J said this at paragraph 100:

"100.  In the light of the arguments before me, there are some additional observations I should make.  First, although in Etridge Lord Nicholls of Birkenhead described the paradigm case of a relationship where influence is presumed as being one in which the complainant reposed trust and confidence in the other party in relation to the management of the complainant's financial affairs (§ 14), I do not consider that this description was intended to be exhaustive.  To restrict the type of trust and confidence in this way would not be consistent with the authoritative exposition by Lindley LJ in Allcard v Skinner (1887) 36 Ch D 145 in which Lindley LJ referred to "cases in which the position of the donor to the donee has been such that it has been the duty of the donee to advise the donor, or even to manage his property for him".  This very sentence was paraphrased by Lord Nicholls (§ 9).  In addition, when describing the circumstances in which the burden of proof would shift (§ 21) Lord Nicholls used much more general language…….  Second, the requisite trust and confidence can arise in the course of the impugned transaction itself: Turkey v Awadh [2005] 2 P & CR 29 (§ 11)…."

28. In Royal Bank of Scotland plc v. Chandra & anr [2010] EWHC 105 (Ch) David Richards J provided the following perceptive analysis of the difference between inadvertent failure to disclose and a deliberate suppression of information, in the context of a confidential husband and wife relationship:

"Mis-stating the position or misleading the wife is different from an inadvertent failure to disclose, a distinction familiar in the law of misrepresentation.  Of course a statement which, though strictly true, is misleading without qualification will fall within these observations of Lord Nicholls.  Likewise, 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…."

29. Applying those principles to the present case, the first question is whether Mrs Hewett reposed a sufficient degree of trust and confidence in her husband to give rise to what Lord Nicholls described as an obligation of candour and fairness owed to her.  I consider that she did, for two reasons.  The first is that, as the Judge found, she regarded Mr Hewett as being in charge of the family finances, albeit not to an extent that excluded her from any participation in important decisions: see paragraph 21 of the Judgment.  It would in my opinion be wrong to confine a husband's obligation of candour and fairness when proposing a risky financial transaction to his wife as confined to cases where the wife meekly follows her husband's directions without question.  The purpose of an obligation of candour is that the wife should be able to make an informed decision (with or without the benefit of independent advice) properly and fairly appraised of the relevant circumstances.

30. The second reason is that the specific transaction which Mr Hewett put to his wife required her to take on trust his promise to make the instalment payments due to First Plus arising from the re-mortgage.  As the Judge put it, at paragraph 22 of the Judgment, that is what Mr Hewett swore to do on their children's lives.  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.

31. The second question is whether the fact that Mr Hewett was having an affair was something which his obligation of fairness and candour towards his wife required him to disclose, in connection with his request that she charge her interest in the Property as security for his debts.  Mr Lightfoot for First Plus submitted that it depended upon whether that was a material fact, a question which he invited the court to decide in the negative.  I consider that it was plainly a material fact calling for disclosure.

32. The horrible decision (as the Judge correctly put it) facing Mrs Hewett may be summarised as follows.  Should she accede to her husband's proposal, in the hope of saving her family's home from her husband's creditors, as the basis for the continuation of a stable family life to which both she and her husband would contribute, taking the grave risk that his tendency towards financial irresponsibility would lead to the loss of both his and her beneficial interests in the Property?  Or should she, by refusing his proposal, preserve her significant beneficial interest in the Property from the claims of his creditors as, in effect, a plank in the shipwreck?  Central to that decision was a balancing of the reliability of her husband's promise to support the family in the future by making sure that the increased mortgage instalments were duly paid, against the risk that a failure on his part would lead to the loss not merely of his, but also of her, beneficial interest in the Property.

33. It is evident that Mrs Hewett's decision to accede to her husband's request was based upon an assumption on her part that he was as committed as she was to the marriage, to the family and to the preservation of their home life in the future.  The truth was that he had already embarked upon an affair which, although by no means a certainty, carried with it the serious risk that it would lead in due course to Mr Hewett's departure from the family and withdrawal of both emotional and financial support, as eventually occurred.  On that analysis of the decision facing Mrs Hewett, I consider that Mr Hewett's affair cried out for disclosure.

34. Mr Lightfoot submitted that there was no evidence at trial that, had Mrs Hewett known of her husband's affair in January 2004, she would have decided not to participate in the re-mortgage.  That is in my judgment nothing to the point.  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. 

35. In my judgment the question whether Mr Hewett's affair was a material fact calling for disclosure is to be decided by an objective test, rather than by asking the hypothetical question whether disclosure would have made all the difference to his wife's process of decision making.  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.

36. The above analysis may make it strictly unnecessary to ask the additional question whether Mr Hewett's non-disclosure of his affair was innocent and inadvertent, or a deliberate concealment.  Either way, the result was a breach of his duty of fairness and candour.  Nonetheless I consider it plain, on the evidence before the Judge, that Mr Hewett was guilty of a deliberate concealment of the affair, well knowing that its disclosure would have significantly undermined his prospects of obtaining his wife's consent to his proposal.  It is evident from his forgery of his mother in law's signature on the consent form that Mr Hewett was prepared to stop at nothing to achieve his objective.

37. For those reasons I consider that Mrs Hewett's decision to participate in the charge of the Property to First Plus was, as between herself and her husband, vitiated by his abuse of her trust.  Since as the Judge found, First Plus is affected by such undue influence as may be proved to have occurred between husband and wife, it can be in no better position.  The result is that I would allow the appeal and set aside the mortgage upon which First Plus's claim is based.

38. 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.

Lord Justice Leveson:
39. I agree.

Lord Justice Jacob:
40. I also agree.