Royal Bank of Scotland v Etridge [2002] 2 AC 773

KEY POINTS

• Undue influence is a legal basis for seeking relief that has been developed by the equity courts, which function as courts of conscience. Its purpose is to prevent the abuse of influence exerted by one person over another.

• The responsibility for providing evidence to support a claim of undue influence lies with the individual making the allegation and asserting that they have suffered harm.

• A presumption of undue influence arises when there is a relationship of trust and confidence between the parties, such as between spouses.

FACTS

• The case involved a group of individuals, known as the Etridge defendants, who had jointly and severally guaranteed the debts of a company called Etridge (Builders) Ltd.

• The Etridge defendants had signed legal charges and guarantees to secure the company's debts, which included mortgages on their respective properties.

• They argued that their spouses, acting in concert with the bank, had exerted pressure and influence on them to enter into the transactions without fully understanding their consequences.

• Furthermore, they contended that they were not provided with independent legal advice and that the bank failed to take reasonable steps to ensure they understood the implications of the transactions.

COMMENTARY

• The court emphasised that lenders have a duty to ensure that individuals providing guarantees or entering into mortgage transactions fully understand the nature, implications, and risks involved.

• Additionally, lenders must take reasonable steps to ensure that borrowers obtain independent legal advice to protect their interests.