In Mahon v FBN Bank (UK) Ltd, the claimants' company entered into a loan with FBN to support its property development business. The claimants (who were husband and wife) entered into guarantees guaranteeing the company's indebtedness to FBN. The company defaulted on its loan, demand was made under the guarantees and statutory demands were subsequently issued. The claimants applied to set the demands aside. The husband claimed FBN had misrepresented its experience and interest in establishing banking relationships with property developers. The wife claimed undue influence by the husband.
On appeal, the demands were set aside. The court held that credible evidence that a wife placed trust and confidence in her husband in relation to her financial affairs, coupled with a transaction that called for explanation (such as a loan to the husband's business), would generally suffice for a rebuttable presumption of undue influence to arise. The wife had raised a genuinely triable issue that FBN were put on enquiry. FBN had not met the minimum requirements of established guidelines to satisfy itself that the wife had received a meaningful explanation of the transaction. The debt was therefore disputed on substantial grounds and the statutory demand against the wife should be set aside.
As to the husband's application, the court held that there was sufficient, credible evidence to raise a genuinely triable issue that there had been an actionable misrepresentation by FBN which had induced him to enter into the transaction. That issue was not suitable for determination at the hearing of a bankruptcy petition. That, taken together with other issues raised by the husband, led to the court exercising its discretion to set aside the statutory demand.
Things to consider
Allegations of undue influence will often have to be dealt with at trial, rather than at a set aside application or summary judgment application due to the nature of the allegations. This will be the case unless there is clear evidence to show that the lender had met the core minimum requirements set down in the Etridge guidelines.