Barclays Bank plc v O’Brien [1994] 1 AC 180

Key points

  • Established Classes 2(A) and 2(B) under presumed undue influence, see judgment below
  • A transaction with a third party can be avoided if the third party has actual or constructive of undue influence


  • A husband persuaded his wife (D) to mortgage their matrimonial home to Barclays (C) so as to secure an overdraft for his business
  • The husband misrepresented the true extent of liability under the overdraft
  • The branch executing the mortgage had received but ignored instructions to ensure that the wife was aware of the risk and to advise her to consult a solicitor
  • When the husband defaulted, C sought to enforce the mortgage
  • D claimed that the mortgage was avoided against her due to misrepresentation from her husband

Held (House of Lords)

The mortgage was avoided against D as C had constructive notice of the misrepresentation by the husband

Lord Browne-Wilkinson

There are two classes of undue influence (at p. 189):

  • Class 1: Actual undue influence
    • In these cases, it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the impugned transaction
  • Class 2: Presumed undue influence
    • In these cases, the complainant only has to show that there was a relationship of trust and confidence between the complainant and the wrongdoer, it is presumed that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction

There are two sub-classes under Class 2 (at p. 189 – 190):

  • Class 2(A): Certain relationships (e.g. solicitor and client, medical advisor and patient) raises the presumption of undue influence as a matter of law
  • Class 2(B): Where there is no relationship falling within Class 2(A), the complainant has to prove the de facto existence of a relationship of trust and confidence

Relationship between husband and wife (at p. 190)

  • It does not fall under Class 2(A), but in any particular case, it can fall under Class 2(b) if the wife can prove that de facto she did leave decisions on financial affairs to her husband and simply does what he suggests
  • The law treats wives with ‘special tenderness’, thus a wife is more likely to establish presumed undue influence of class 2(B) than others due to the sexual and emotional ties between husband and wife

Third parties

  • A wife can set aside a transaction, procured by her husband through undue influence, misrepresentation or some other wrongdoing, not only against her husband, but also against the creditor bank where (at p. 191):
    1. the husband is acting as agent for the bank; or
    2. the creditor has actual or constructive notice of the wrongdoing
  • A creditor has constructive notice of the wife’s rights where (at p. 196):
    1. he is put on inquiry; and
    2. fails to take reasonable steps to satisfy himself that the wife’s agreement to stand as surety has been properly obtained
  • The creditor is put on inquiry if (at p. 196):
    • (a) the transaction is on its face not to the financial advantage of the wife; and
    • (b) there is a substantial risk in transactions of that kind that of wrongdoing by the husband
  • Reasonable steps the bank has to take (at p. 196)
    • Once under inquiry, creditor can reasonably be expected to bring home to the wife the risk of standing as surety and advise her to take independent advice
    • These requirements can be satisfied if the creditor insists that the wife attend a private meeting with a representative where she is told of the extent of her liability, warned of the risk she is running and urged to take independent legal advice

Rationale of rules on third parties (p. 197)

  • It will ‘hold the balance fairly’ between the vulnerability of the wife and the practical problems of financial institutions accepting a surety from the wife
  • A wife is bound unless there is some wrong by her husband and a financial institution can lend with confidence as long as it has taken the steps specified

Other relationships (p. 198)

  • They apply equally where the creditor is aware that the surety is cohabiting with the debtor, reason being that there is equally a sexual and emotional connection between the cohabitees
  • They can also apply to elderly parents acting as surety for their child where the creditor has actual notice of trust and confidence being reposed

Current case (p. 199)

  • C was put on inquiry as to the circumstances in which D had agreed to stand as surety
  • If C’s brand had properly carried out instructions D would have been informed


Constructive notice

  • In EtridgeLord Nicholls at [39] to [42] points out that constructive notice is not used conventionally here
  • The traditional use of the concept is where the transferee of legal title is able to take free of any equitable interests in the property that he does not have notice of, whereas in the present case, constructive notice relates not to any equitable interest a person other than the wife has in the matrimonial home that is charged but whether there was any undue influence used to procure the transaction
  • Secondly, in the traditional use of constructive notice, a purchaser is bound by whatever a reasonable purchaser would have discovered by making reasonable inquiries, here the steps that the bank has to take is not for it to discover undue influence, but to prevent it by ensuring that the wife full understands the transaction and has independent advice

Scope of rules on third parties

  • Although this case concerns misrepresentation, Lord Browne-Wilkinson was clear that the same principles on notice are applicable to undue influence
  • It should also apply to other forms of wrongdoing that render the contract voidable but not void, such as duress and unconscionable bargain, the latter was confirmed by Millet LJ in Credit Lyonnais v Burch
  • If the contract is void by mistake or non est factum induced by a wrongdoer, then it is void against irrespective of whether the bank/third party has notice or not

What does Class 2A entail? (I know it is extremely confusing)

  • In Class 2A, there is a conclusive presumption of trust and confidence (Lord Browne-Wilkinson stated ‘as a matter of law’), which in turn raises the rebuttable presumption of undue influence being exercised, in other words, a presumption raises a presumption
  • Therefore, given a case involving a relationship between a solicitor and client, undue influence is presumed without the client having to prove anything, the burden is entirely on the solicitor to prove that he did not exercise undue influence

Class 2B

  • In Etridge, the House of Lords rejected the use of Class 2B as it had no utility, since it simply suggested that a presumption can be inferred from the surrounding evidence and was analogous to the concept of res ipsa loquitur in negligence

Putting on inquiry

  • Note that the bank is put on inquiry only if the transaction is on its face not to the financial advantage of the wife
  • In Credit Lyonnais v Burch, it was held that if the loan is advanced not to the husband alone but to the wife and husband jointly, the bank will not be put on inquiry
  • In RBS v Etridge, it was held that where the loan is advanced to a company where both the husband and wife are shareholders or even if the wife is a director or secretary, the bank will be put on inquiry as those factors are not a reliable guide of who actually conducts a business.

Relationship between wife and husband

  • The ‘special tenderness’ with which the law treats such relationship has two implications:
    1. The law is more likely to find a relationship of trust and confidence that in other relationships
    2. The law puts the third party creditor on inquiry without actual knowledge of trust and confidence being reposed, only facts that suggest that it is likely being reposed