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

Key points

  • To raise the presumption of undue influence, it must be proven that there is 1. a relationship of trust and confidence and 2. a transaction which calls for an explanation
  • The bank is placed on inquiry where: 1. the relationship between the debtor and guarantor is non-commercial and 2. the loan is not advanced jointly to both parties


  • There were 8 combined appeals heard by the House of Lords, all which involve a wife who charged her interest in her home in favour of a bank as security for her husband’s debt or debts of his company
  • In 7 of the 8 appeals the bank sought to enforce the security and the wife raised the defence that the bank had notice of the husband’s undue influence over her
  • In the 8th appeal the wife claimed damage damages from a solicitor who advised her before she entered into a guarantee obligation under the undue influence of her husband
  • Given the amount of cases the application to the facts shall be excluded in this case note

Lord Nicholls (Leading Judgment)

General points on undue influence

  • Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused: [6]
  • The law will not permit a transaction procured by undue influence to stand where ‘whenever the consent thus procured ought not fairly to be treated as the expression of a person’s free will’: [7]
  • ‘The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable’: [11]

Actual undue influence

  • The general rule is that the burden of proof of undue influence is on the party claiming to have been wronged: [13]
  • The amount of evidence required depends on the circumstances, including the parties, their relationship and the nature of the transaction: [13]

Presumed undue influence

  • A presumption of undue influence is raised by proving (1) the complainant placed trust and confidence in the other party in relation to the management of financial affairs and (2) a transaction which calls for explanation: [14]
  • This is the equitable equivalent of the principle of res ipsa loquitur in common law: [16]
  • The law presumes trust and confidence where one party has influence over another who is vulnerable and substantial gifts by the vulnerable person are not normally to be expected: [18]
    • Examples include parent and child, guardian and ward, trustee and beneficiary, solicitor and client, and medical adviser and patient
  • Husband and wife does not fall under the presumption of trust and confidence, since there is nothing unusual or strange in a wife, from motives of affection or other reasons, conferring substantial financial benefits on her husband: [19]

Transaction which calls for an explanation

  • As stated by Lindley LJ in Allcard v Skinner, the transaction calls for an explanation where it is not a small gift, but ‘so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act’: [22]
  • The label of manifest disadvantage adopted by Lord Scarman in National Westminster Bank v Morgan for the second requirement should not be adopted: [26]

Third party suretyship transactions

  • Lord Nicholls argued in favour of the application of the concept of constructive notice laid down in Barclays v O’Brien in the context of suretyship transactions as it provides a balance between giving the wife a reasonable measure of protection without unreasonably adding to the expense for the transaction and protecting the bank’s ability to have confidence in its security: [37] – [42]
  • He also pointed out that it will not have an unsettling effect on the principles of contract as it is concerned with guarantees that are gratuitous: [43]

When is a bank put on inquiry?

  • It was held that Lord Browne-Wilkinson’s two factors for when a bank is put on inquiry in Barclays v O’Brien implies that ‘a bank is put on inquiry whenever a wife offers to stand surety for her husband’s debts’: [44]
  • Lord Nicholls then went into greater depth on the scope of factors (a) and (b) in the criteria (see case note Barclays v O’Brien):
    • (a) Type of relationship
      • The bank is put on inquiry in ‘every case where the relationship between the surety and the debtor is non-commercial’: [87]
      • This includes husband and wife, including where the husband stands as surety for the wife and unmarried couples, heterosexual or homosexual, provided that the bank is aware of the relationship: [47]
      • There is no need for the bank to be aware of the state of the relationship and the degree of trust and confidence placed by the complainant on the debtor to be put on inquiry: [46]
    • (b) Type of transaction
      • The bank is not put on inquiry where the money is advanced to the parties jointly, unless it is aware that the loan is made for the husband’s purposes only: [48]
      • The advance of a loan to a company where the husband and wife both have a shareholding cannot be equated with a joint loan, even when the wife is a director or secretary of the company: [49]

Duties of a bank put on inquiry

  • ‘The furthest a bank can be expected to go is to take reasonable steps to satisfy itself that the wife has had brought home to her, in a meaningful way, the practical implications of the proposed transaction.’: [54]
  • The bank are not obliged to provide the necessary information to the wife themselves, ‘[o]rdinary it will be reasonable that a bank should be able to rely upon confirmation from a solicitor, acting for the wife, that he has advised the wife appropriately’: [56]
  • If the bank ‘knows that the solicitor has not duly advised the wife or … knows facts from which it ought to have realised that the wife has not received the appropriate advice … the bank will proceed at its own risk’.: [57]
  • More precise steps the bank should take were stated in the judgment

Lord Scott

  • While Class 2A is useful in identifying particular relationships where the Class 2 presumption of undue influence will arise, the utility of Class 2B is doubtful since it does no more than recognising that evidence of the relationship and other evidence is relevant to establishing undue influence on a balance of probabilities; it has the same function as res ipsa loquitur in negligence: [161]
  • In surety wife cases undue influence is unlikely, O’Brien itself was a misrepresentation case and undue influence actual or presumed was not found: [162]

Lord Hobhouse

  • Agreed with Lord Scott that Class 2B is not useful, and that it should not be adopted; a person that does not fall in Class 2A will have to prove a prima facie case that there was a wrong on a balance of probabilities, after which the evidential burden shifts to the opposite party, similar to res ipsa loquitur in negligence: [107]


Departures from Barclays v O’Brien

  • This case departs from the prior leading case in the field of undue influence Barclays v O’Brien in two important respects
  • Firstly, Lord Nicholls’ leading judgment pointed out that a relationship of trust and confidence alone is not enough to raise the presumption of undue influence, there must also be a transaction that calls for explanation, as opposed to Barclays v O’Brien, where Lord Browne Wilkinson held that a relationship of trust and confidence if proven, will raise presumed undue influence on its own
  • Secondly, all three judgments above did not adopt the Class 2B label from Barclays v O’Brien, with Lords Scott and Hobhouse actively rejecting it

Two presumptions

  • One rather confusing aspect of Lord Nicholls’ judgment is that he listed two presumptions
  • To clarify, the first presumption is the presumption of undue influence, the second presumption is the presumption of trust and confidence being reposed
  • The second presumption fulfils one of the two requirements to raise the first presumption

‘Put on inquiry’

  • Lord Nicholls offered a much needed clarification that strictly speaking, ‘put on inquiry’ is a misnomer as the bank is not required to make inquiries but rather has to eliminate the risk of the wife entering into the transaction by undue influence of the husband: [44], [41]