Barclays Bank v. O’Brien

C.I.B.C. Mortgages v. Pitt

In two speeches of great simplicity in Barclays Bank Plc v. O’Brien 1 and C.I.B.C. Mortgages Plc v. Pitt 2 Lord Browne-Wilkinson3 has clarified the equitable principles on which a wife’s guarantee of her husband’s debts may be set aside. At the same time he reinterpreted National Westminster Bank Ltd. v. Morgan 4 to remove, in a case of actual (as opposed to presumed) undue influence, the need for the claimant to show that the transaction was manifestly disadvantageous to him. The casualties of Lord Browne-Wilkinson’s speeches include the Privy Council’s decision in Turnbull & Co. v. Duval 5 (described by him as “the foundation of the modern law” on securities given by married women), the reasoning in 11 Court of Appeal decisions since 19856 and the interpretation placed in four recent cases7 on Lord Scarman’s speech in National Westminster v. Morgan. Moreover, Morgan has itself sustained critical injury so far as it applies to fiduciaries. It is proposed to consider first O’Brien, which establishes the basic equitable principles, and then Pitt, a major case as regards undue influence.

Policy—the need for balance

Lord Browne-Wilkinson noted that a high proportion of privately owned wealth is invested in the matrimonial home. He emphasized the need to keep a sense of balance. Sympathy for the wife threatened with the loss of her home should not lead to safeguards that would make matrimonial homes unacceptable as security.

Clearing the ground

Lord Browne-Wilkinson noted the two different lines of authority which Scott, L.J.,8 had identified when O’Brien was in the Court of Appeal. Under “the agency theory”, the bank’s rights cannot be prejudiced by a wrongful act committed by the husband (the principal debtor) in obtaining his wife’s guarantee unless he acted as the bank’s agent in obtaining it or the bank had knowledge of the relevant facts. By contrast, “the special equity theory”9; recognizes a “protected class” of sureties,