Deemster Rules Against Wife’s Defence of “Undue Influence” When Signing For £1.8m Loan

| February 21, 2014 | 0 Comments
Gillian Christian, Cains

A claim by a married woman that she had been subjected to “undue influence” in signing relevant documents with her husband for a £1.8 million loan to enable them to purchase land for development has failed after a two day hearing in the Isle of Man High Court.

The Court heard that the money was borrowed in 2010 from an Island based occupational pension scheme, but when the Onchan couple became victims of the property slump in 2008, and were unable to sell the developed land, they defaulted on repayment of the loan.

The circumstances presented His Honour Deemster Corlett with the opportunity to deliver an unequivocal judgment on the complex legal issue of “undue influence”.

The defence put forward in Court by the wife that she had been subject to undue influence and forced to enter into the relevant documentation was dismissed by the Deemster.

Deemster Corlett held that while the couple were in financial difficulties and she may have been reluctant to enter into the transaction, there was little alternative and she entered into it with her eyes open.

In his judgment, Deemster Corlett divulged how the wife claimed she had been forced by her husband into entering into the relevant loan documentation, which included a personal guarantee given by both herself and her husband, together with a legal charge over their home.

A key aspect to her defence was that while she had obtained legal advice in respect of the documentation and guarantee, the advocate in question had not spoken to her separately from her husband; therefore, she alleged that she had not obtained independent legal advice in the real sense.

Delving into case law on “undue influence”, Deemster Corlett confirmed the legal position that a ‘bank is put on inquiry as to the potential for undue influence whenever a wife offers to stand surety for her husband’s debts.  However, a bank is not put on inquiry if the money is advanced jointly to the couple, unless the bank is aware that the loan is being applied for the husband’s purposes’.

The Court found that the loan appeared to be for the joint benefit of the husband and the wife, and therefore the creditor (the pension scheme) was not fixed with constructive notice of any undue influence by the husband to secure the wife’s agreement.

In ruling against the wife’s defence, Deemster Corlett further noted that the wife fully accepted in evidence that she had understood the risks involved and the nature and legal effect of the guarantee.

The successful claimant was represented by Gillian Christian of Cains who, speaking after the Deemster’s decision, said the decision was a welcome reminder of the law in relation to undue influence and all its complexities and implications.  “It is reassuring that the pension scheme’s claim was wholly successful in this case and the outcome shows that courts continue to take the interests of lenders into account,” she added.

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