Lloyd's Maritime and Commercial Law Quarterly
EQUITABLE PROTECTION OF CERTAIN SURETIES
A.G.J. Berg*
If the House of Lords upholds the decision of the Court of Appeal in Barclays Bank Plc v. O’Brien,1 there will be significantly increased equitable protection for a wife who provides security (usually over the matrimonial home) for debts of her husband or his business. Scott, L.J., with whom Butler-Sloss, L.J., agreed, combined a notable judgment of Sir Owen Dixon2 with a statement of social policy to support the recognition, or creation, of a “protected class” of sureties safeguarded by equitable principles inapplicable to sureties generally. It is thought that the decision extends to an unsecured guarantee, as well as to a mortgage or charge, although Scott, L.J., left this point open. Scott and Butler-Sloss, L.JJ., declined to follow the approach adopted by the Court of Appeal in four recent decisions.3 The true equitable principles were to be found in earlier cases. In particular, the recently introduced “agency” doctrine was discredited.4 This is that a wife who has been induced
* Solicitor, Watson Farley & Williams.
1. [1992] 3 W.L.R. 593 (C.A.); pet. all. [1992] 1 W.L.R. 1269 (H.L.).
2. In Yerkey v. Jones (1939) 63 C.L.R. 649 (H.C.A.); noted and summarized (slightly inaccurately) by Meagher, Gummow and Lehane, Equity, Doctrines & Remedies, 3rd edn. (Sydney, 1992), 1517–1518; noted (briefly and inaccurately) in Rowlatt on the law of Principal and Surety, 4th edn. (1982), 130; but not referred to in Paget’s Law of Banking (10th edn., 1989), Snell’s Equity (29th edn., 1990) or Goff and Jones’ Law of Restitution (3rd edn. 1986).
3. Coldunell Ltd. v. Gallon [1986] Q.B. 1184, Midland Bank Plc. v. Perry [1987] F.L.R. 237, Bank of Baroda v. Shah [1988] 3 All E.R. 24 and Bank of Credit and Commerce International S.A. v. Aboody [1990] 1 Q.B. 923. Moreover, Scott, L.J.’s judgment is difficult, but not impossible, to reconcile with the decision of the Court of Appeal (unreported, 30 April 1992) to strike out as “unarguable” the appeal in Barclays Bank Plc v. Khaira [1992] 1 W.L.R. 623; this decision was made after the argument but before delivery of the judgments in Barclays Bank v. O’Brien. Scott, L.J.’s judgment is also inconsistent with one aspect of the Court of Appeal’s decision in Lloyds Bank v. Egremont [1990] 2 F.L.R. 351 and that of the New Zealand Court of Appeal in Contractors Bonding Ltd. v. Snee [1992] 2 N.Z.L.R. 157 (noted by Mr Peter Watts in (1992) 108 L.Q.R. 384), in which Slade, L.J.’s analysis in Aboody was applied, although neither of these decisions was cited in Barclays Bank v. O’Brien. If Scott, L.J., is correct, Midland Bank Plc v. Shephard [1988] 3 All E.R. 17 also requires re-examination.
4. The “agency” doctrine had its genesis in a statement by Dillon, L.J., in Kings North Trust Ltd. v. Bell [1986] 1 All E.R. 423, 427, to the effect that it is the “general law of principal and agent” which makes a creditor, however personally innocent, who instructs the husband to achieve a particular end (the signing of the document by the wife) liable for any fraudulent representation made by the husband in achieving that end. This particular statement of Dillon, L.J., was not quoted by Scott, L.J. (although he did quote an earlier passage in Dillon, L.J.’s judgment) but it is thought that this statement is the ratio of Kings North v. Bell since it was the basis on which Dillon, L.J., rejected the view taken by the judge at first instance that Turnbull & Co. v. Duval [1902] A.C. 429 (P.C.) and Chaplin & Co. v. Brammall [1908] 1 K.B. 233 were inapplicable to a case in which the husband’s false explanation relates to the reason why the wife should sign rather than the nature of the document she is to sign. The “agency” doctrine was consolidated in Coldunell v. Gallon, decided nine months after Kings North, and particularly in the judgment of Oliver, L.J. The doctrine reached its most rigid form in Midland Bank v. Perry [1987] F.L.R. 237, which Scott, L.J., criticized (at p. 618) as “inconsistent with the previous authorities”.
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