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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> The Royal Bank of Scotland Plc v Chandra & Anor [2010] EWHC 105 (Ch) (28 January 2010) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2010/105.html Cite as: [2010] EWHC 105 (Ch), [2010] 1 Lloyd's Rep 677

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY

		28/01/2010

Mr Justice David Richards :

Introduction

1. The Royal Bank of Scotland plc (the bank) brings these proceedings to enforce guarantees given by the defendants of borrowings made by a company jointly owned by the defendants. The relief sought is judgment for the amount said to be due under the guarantees and an order for possession of their matrimonial home, which is charged to secure the guarantees. The proceedings were commenced in the County Court but transferred to the High Court in the light of the defences raised. It is necessary to summarise briefly the basic facts, which I do in paragraphs 2 to 14, before summarising the defences.

The facts : an overview

2. The defendants are Bala Perampalam Chandra and Maria Perpetua Chandra. Mr Chandra was born in Sri Lanka in 1946, came to the UK as a student and became a UK citizen in 1978. He was a chemical engineer by training and profession, becoming a corporate member of the Institute of Chemical Engineers in 1980. In 1984 he was awarded a certified diploma in accountancy and finance by the Association of Certified Accountants. Mrs Chandra is an Irish citizen, born in 1950, who came to the UK in 1968 to train as a nurse, qualifying as a registered general nurse in 1972. She became a nursing sister in 1974. Mr and Mrs Chandra were married in 1972 and have two adult children.
3. Mr and Mrs Chandra had over a period of 17 years built up from scratch a chain of nursing homes in the North West. Their roles in the nursing home business reflected their respective experience in business and finance and in nursing. Mrs Chandra was responsible for the recruitment of staff and the effective running of the homes from a nursing and general services point of view, while Mr Chandra concentrated on the financial and commercial side. It was a successful business and in 1997 they sold it for £23m which left them with a net profit of approximately £5.3m. The nursing home business was owned by a jointly-owned company which sold the business and changed its name to BPC Enterprises Limited.
4. Mr Chandra was anxious to pursue further business opportunities and was anxious also to shelter the gain on the sale of the business for capital gains tax purposes by making use of roll-over relief. He identified a property in central Manchester which could be developed as a hotel. The property was a grade 2-listed Victorian office building in Princess Street. It was decided to use a wholly-owned dormant subsidiary of BPC Enterprises Limited to purchase and develop the property and to run the hotel once it opened. It was granted a franchise to run the hotel as a 4-star Holiday Inn. The subsidiary was re-named as BPC Hotels Limited (the company). Mr and Mrs Chandra were its directors. The guarantees in issue in this case were given in respect of liabilities of the company.
5. Mrs Chandra was content to support Mr Chandra in his plan, although I accept her evidence that she would have preferred them simply to enjoy the fruits of their labours in the nursing home business. It was envisaged that she would become involved in the staff and service side of the hotel. She was not actively involved in the acquisition and development of the property or in its financing.
6. The property was acquired by the company in 1998 for £1.5m. The purchase price was provided from the sale proceeds of the nursing home business. It was at first estimated that the total cost of acquisition and development would be £11.9 million but in 2000 the proposed size of the hotel was increased and the projected cost revised to £15.25m. Costain Limited (Costain) was engaged as the contractor.
7. The bank agreed to provide loan finance to the company for the project, following an introduction from Holiday Inn. It was initially envisaged that the bank would provide loan finance of £7.3 million but this was increased to £10.65m and it was this figure which the bank committed to lend in a finance agreement dated 20 September 2000 (the first finance agreement). Costain started work on the property on 2 October 2000 under an interim agreement dated 7 September 2000. Formal building contracts were entered into on 30 April 2001, comprising a contract in the JCT Standard Form of Building Contract 1998 Edition with Quantities and a supplemental bespoke contract, varying some of the terms of the main contract.
8. The first drawdown under the first finance agreement was made towards the end of July 2001. As pre-conditions to drawdown, the company granted on 23 July 2001 a debenture creating fixed and floating charges over the company's business and assets, with the usual power to appoint administrative receivers, and a first legal charge over the property. As a further pre-condition, a deed of warranty was executed on 18 July 2001 by Costain, the company and the bank. It will be necessary to look in detail at some of the provisions of these financing documents.
9. On 12 July 2001 the bank provided overdraft facilities, limited to £300,000 and repayable on demand, to assist the company with VAT timing differences.
10. In September 2001 the estimated cost of redevelopment rose by a little over £755,000 and on 30 October 2001 a second finance agreement was made between the bank and the company, whereby further loan finance of £700,000 was to be provided by the bank. It was a term of this further agreement that Mr and Mrs Chandra should give a personal guarantee of the company's borrowings, limited in amount to £700,000 and secured by a second charge on their matrimonial home. The guarantee and charge were executed by them on 30 October 2001. It was an all monies guarantee, limited to £700,000, and did not therefore secure any specific or particular borrowing from the bank.
11. There were difficulties in the redevelopment, and in particular disputes developed between Costain and the company from about mid-2002. It became clear that the costs were increasing and that the company would require further funds to complete the development. In February 2003 Mr Chandra informed the bank that the company would not be seeking further funding from the bank, but that he and Mrs Chandra would inject £700,000 in April 2003 to be raised from the sale of their home, which they put on the market with offers invited at over £2m. Mr Chandra later told the bank that he expected to sell the house in May 2003 and inject £900,000.
12. Mr and Mrs Chandra's house was not sold and further funds were not forthcoming from them. A payment of over £485,000 was due to Costain on 20 May 2003 but there was a shortfall of nearly £99,000 in the facilities available to the company. Failure to pay Costain was likely to lead to a cessation of work on site. The company requested further funding from the bank to enable the payment to be made to Costain. The bank agreed to do so on terms that Mr and Mrs Chandra gave a further guarantee, increased from £700,000 to £1.15m and secured by the second charge on their home. The guarantee was signed by them on 20 May 2003 and the funds were provided by the bank to enable payment to be made to Costain.
13. The further funding provided in May 2003 was in effect emergency funding to deal with an immediate shortfall but further funds were required to complete the project. Discussions with a view to a further finance agreement were not successful, principally as the bank says, and as I accept, because it was impossible to reach a reasonable degree of certainty as to future costs. Efforts to do so were hampered by Mr Chandra's refusal to allow the bank to discuss these issues, and particularly Costain's claims, directly with Costain. The bank had lost confidence in Mr Chandra's ability to manage the project and Mr Chandra refused the proposal for the introduction of a new manager. On 28 August 2003 demands for payment were made by the bank. On the same day, the bank appointed administrative receivers over the business and assets of the company. The total indebtedness of the company to the bank was then a little under £12.3m.
14. It appeared to be commercially desirable to complete the development of the property and to retain Costain as the contractors. Under the terms of the deed of warranty Costain could require the bank, or a person nominated and guaranteed by the bank, to become the employer under the building contracts. A structure was put in place whereby on 12 September 2003 the bank nominated a clean company owned by the receivers' firm (the special purpose vehicle or SPV) and guaranteed its liabilities to Costain.
15. By a letter dated 18 September 2003, the company and SPV agreed that SPV was carrying on its business, which meant the contract with Costain, as agent for the company, and the company agreed to indemnify it against all liabilities. The funding to complete the development, including the sum required to settle Costain's claims against the company, was advanced by the bank to the company in receivership. This comprised £1,655,800 to complete the development and to pay other receivership expenses and £3,207,333 to settle Costain's claims at a figure reached after negotiations. The property was sold in March 2004 for £13.5m, leaving a shortfall of £4.118m on the amount due to the bank.

The defences : an overview

16. Both Mr and Mrs Chandra defend the bank's claim by reference to the effect of the arrangements made for the continuation of the development after the appointment of the receivers. Their basic point is that, by reason of the terms of the deed of warranty, the company was released from any obligation to Costain and the bank was itself, or through a nominee guaranteed by it, obliged to replace the company under the contract with Costain. While the property remained in the ownership of the company and any increase in its value resulting from the completion of building works would accrue to the benefit of the company, it was the bank not the company which was obliged to complete the development. It was not therefore legitimate to create a structure which re-imposed on the company a continuing liability in respect of the construction contract.
17. It is submitted for Mr and Mrs Chandra that this imposition of liability on the company was a sham so that in truth and in law the company was under no liability either as the SPV's principal or to the bank under the purported borrowing after the appointment of the receivers. Alternatively, it was a breach of equitable duty by the bank and that on these and other grounds its effect was to discharge Mr and Mrs Chandra from liability under the guarantees either totally or in respect of any borrowing following the appointment of the receivers.
18. It is further and separately submitted for Mr and Mrs Chandra that the settlement of Costain's claims was negligently agreed and that, using reasonable skill and care, the company should have avoided any liability to Costain. In order for this to provide a defence to the bank's claim under the guarantee, as opposed to founding a claim in damages by the company against the receivers and their advisers, it is essential to establish that the bank itself is liable. As the receivers were, as is usual, the agents of the company under the terms of the debenture, this cannot be achieved by any reliance on agency principles or vicarious liability in the absence of special facts. The defendants' case is that the settlement was procured by the bank which instructed the receivers to settle on the terms agreed, so that the bank is liable to the company as a joint tortfeasor or on the basis that in this respect the bank was the receivers' principal. On either basis, if the alleged negligence and interference or instructions can be established, the guarantors can themselves rely on it as a defence to the bank's claim, so as to reduce their liability on the guarantee or perhaps extinguish it after the proceeds of sale of the hotel are taken into account.
19. At the start of the trial I directed that, in respect of this defence, the trial would be confined to determining the issue of whether the bank controlled the receivers in respect of agreeing the settlement. If the defendants succeeded on this issue, the separate issue of negligence could be determined at a later hearing. If the defendants failed, the defence also failed and an investigation of their case of negligence would be unnecessary. There had already been excluded from this trial any issue relating to the settlement agreement which required expert evidence.
20. There have been numerous amendments to the defences. Defences of economic duress and allegations of a sale of the property at an undervalue, introduced by amendment in September 2006 nearly two years after service of the original defence and with the latter defence being the subject of further amendments after substantial argument in July 2008, were abandoned in June 2009. A defence based on a challenge to an adjudication of a disputed claim by Costain against the company was introduced in September 2006 but was abandoned in September 2009. In his skeleton argument for the trial, Mr Kent QC set out a submission that, by reference to the terms of the agreements and other instruments between the bank and the company, no valid demand had been made on the company and hence there was no enforceable liability under the guarantees. This was addressed by Mr Cawson QC for the bank in his opening, who submitted that Mr Chandra had not pleaded this case and stated that the bank would wish to rely on notices served in March 2004 as constituting in any event valid demands. I indicated that I did not think that the point had been pleaded by Mr Chandra and, on the following day, Mr Kent informed me that it would not be further pursued.
21. In July 2008 a separate defence was served in draft by Mrs Chandra which, in addition to adopting Mr Chandra's defence, raised a defence of undue influence in respect of both guarantees.
22. Mrs Chandra's defence of undue influence raises for the most part issues of fact and law which do not arise in relation to the other defences. I shall deal with those defences before turning to the question of undue influence.

Witnesses

23. Oral evidence was given at the trial by a total of nine witnesses. The bank called four of its officers who had been involved in dealing with the company between 1999 and 2003. It also called one of the administrative receivers and another partner in Deloittes who is a chartered quantity surveyor and assisted the receivers in relation to the construction contract and the settlement of Costain's claim. It will be necessary to examine in some detail the evidence of one of the bank's officers, Christopher Logan, in relation to the facts relevant to the defence of undue influence. Leaving his evidence for later consideration, I found the bank's witnesses to be satisfactory, assisting the court to the best of their recollection and on many issues giving evidence which was clear and firm.
24. Mrs Chandra gave evidence which I shall consider when dealing with her defence of undue influence to which it was directed. She also called the former accountant of the nursing home business whose evidence on her role in that business can be readily accepted. At the start of the trial it was not proposed that Mr Chandra should give evidence. I could understand why he was not giving evidence in support of his own defence which rested on legal submissions and facts outside his knowledge. I was however surprised that Mrs Chandra was not proposing to call him, since her case depended in part on events in which he participated and on allegations as regards his conduct towards her. They remain married and together, and there was no apparent difficulty in calling him. Mr Knox QC, counsel for Mrs Chandra, responded to my concerns by providing a witness statement and calling him. This meant of course that he could be cross-examined on other issues which had been raised with the bank's witnesses. I regret to say that I found him to be in a number of respects, to which I will later refer, an unsatisfactory witness.

Bank structure

25. By way of background to both defences, it is helpful to summarise the structure within the bank as regards those divisions and individuals involved with the company. At first a corporate banking team was responsible for dealing with the company, and the person most closely involved was Jeremy Bell. As a result of the growing difficulties in 2002, responsibility was passed to the Specialised Lending Services division (SLS) based in Manchester. So far as relevant, it had three units: action/exit, recoveries and litigation, and property management. The managing director of SLS to which all units reported was Derek Sach.
26. The action/exit team was itself divided between two teams, action/turnaround and exit. Martyn Taylor of the action/turnaround team was the relationship manager following the transfer of the company to SLS. In March 2003 the bank concluded that, while it wished the hotel to be completed and was considering providing finance for that purpose, it wanted to be repaid after completion of the hotel, either through refinancing or a sale of the hotel. Responsibility was therefore passed to the exit team and Christopher Logan became the relationship manager. His line manager in the exit team was Mike Gray. Both teams reported to Chris Macklin, regional director for the North of England, and above him to Jose Brena, head of action/exit.
27. If the bank decided to take insolvency proceedings or other action to recover loans, responsibility passed within SLS to the recoveries and litigation unit. This occurred in the case of the company in August 2003, although as was commonly the case with companies where insolvency was a possible outcome the unit was briefed at an earlier stage. Mark Hughes was the manager with immediate responsibility and he reported to Karen Johnson, corporate director for the North of England, and Sandy Wilson, head of recoveries and litigation. The head of the property management unit, David Cartledge, provided advice to the other teams as regards the development of the hotel.

Terms of the financing documents

28. In considering the defences based on the structure adopted for the continuation of the building contract and the completion of the development it is necessary to set out some of the detailed provisions of the financing documents.
29. The first finance agreement, executed on 20 September 2000, required a number of conditions to be satisfied before the company was to entitled to draw down under the facility. In particular, security had to be provided in the form of a debenture creating fixed and floating charges over the company's undertaking and assets, a fixed charge over the property and "Collateral Warranties" defined as "collateral warranties in favour of the Bank to be executed by each member of the Professional Team in a form and substance satisfactory to the Bank." Importantly, the "Professional Team" included the contractor, Costain.
30. Collateral warranties provided by contractors to lenders are a standard feature of construction financing. They give the lenders a direct right of action against the contractor in respect of its performance of the construction agreement, without which the lender's security over the building and property might well be significantly less valuable. Typically, they also confer on the lender a right, but not an obligation, to step in and take over the building contract as employer, either itself or through a person nominated by it. In this way, the lender can ensure the continuation of the construction works by the original contractor, and so avoid either a costly re-negotiation of the contract or the time and probably even greater cost involved in the engagement of a replacement contractor.
31. The unusual, and in the experience of witnesses in this case unique, feature of the deed of warranty provided by Costain is that, instead of the step-in provision conferring a right exercisable only at the option of the bank, it is a mandatory provision, requiring the bank to step in. This was not a mistake. The evidence establishes that Costain was concerned as to the ability of the company to meet its obligations under the building contract. In the company's letter of intent dated 7 September 2000 to Costain, it undertook "to provide your company [Costain] with suitable financial surety for the Contract". In the course of negotiations in the autumn of 2000, Costain insisted on the provision of some security for its benefit. The bank was not prepared to agree an escrow account, but it was prepared to agree to a step-in obligation as a means of providing security for Costain. Mr Chandra maintained in his evidence that these terms were negotiated between the bank and Costain, without any involvement by the company. I reject this evidence. It is clear from the contemporary documents that the company and its solicitors were closely involved in the negotiations. They were not terms in any way imposed on the company. It is, however, the case that without this or some other form of security Costain would not have committed itself as contractor for the development. The deed of warranty was negotiated in 2000 but, as with the other security, not executed until shortly before the first drawdown in July 2001.
32. The terms of the deed of warranty containing the step-in provisions are as follows:

"8. 8.1 The Main Contractor covenants with the Beneficiary that it will not exercise nor seek to exercise any right of determination of its employment under the Main Contract or to discontinue the performance of any of its obligations in relation to the Project by reason of breach on the part of the Employer without giving to the Beneficiary not less than 21 days' notice of its intention to terminate its employment under the Main Contract and specifying the grounds for the proposed termination.

8.2 Compliance by the Main Contractor with the provisions of Clause 8.1 hereof shall not be treated as a waiver of any breach on the part of the Main Contractor giving rise to the right of determination nor otherwise prevent the Main Contractor from exercising its right after the expiration of the notice unless a notice shall have been served under the provisions of Clause 9.

8.3 In the event that the Main Contractor's employment under the Main Contract is not determined for whatever reason, the provisions of Clause 9 shall not apply notwithstanding that a notice may have been served under Clause 8.1 and the notice served under Clause 8.1 shall be deemed to have lapsed and be of no effect.

9. 9.1 subject to Clause 8.3, the Beneficiary shall give notice to the Main Contractor within the period of not less than 21 days specified in the notice under Clause 8.1:

9.1.1 requiring it to continue its obligations under the Main Contract in relation to the Project; and

9.1.2 acknowledging that the Beneficiary is assuming all the existing and future obligations of the Employer under the Main Contract; then upon determination of the Main Contractor's employment under the Main Contract the provisions of Clause 9.2 shall apply.

9.2 Subject to Clause 8.3, and in the event that a notice is served in accordance with Clause 9.1, notwithstanding determination of the Main Contractor's employment as specified in Clause 9.1 the Main Contract shall be deemed (as between the Main Contractor and the Beneficiary or the Beneficiary's nominee) to continue in full force and effect as if the right of determination on the part of the Main Contractor had not arisen and in all respects as if the Main Contract had been made between the Main Contractor and the Beneficiary to the exclusion of the Employer whereby:

(a) the Beneficiary assumes all the existing and future obligations of the Employer under the Main Contract; and

(b) the Main Contractor acknowledges all of its obligations under the Main Contract in favour of the Beneficiary.

10. Notwithstanding the provisions of Clauses 8 and 9 hereof, if at any time the Beneficiary gives notice to the Main Contractor that the Finance Agreement has been determined or that the Employer is in breach or default of the Finance Agreement and that the Beneficiary proposes itself or through others to proceed with the development upon the Beneficiary agreeing to be responsible for unpaid sums properly due to the Main Contractor under the Main Contract then the Main Contract shall be deemed (as between the Main Contractor and the Beneficiary) to continue in full force and effect as if in all respects the Main Contract had been made between the Main Contractor and the Beneficiary or such other person as the Beneficiary may nominate in writing to the exclusion of the Employer whereby:

(a) the Beneficiary or such other person as is herein referred to assumes all the existing and future obligations of the Employer under the Main Contract;

(b) the Main Contractor acknowledges all of its obligations under the Main Contract in favour of the Beneficiary or such other person as is herein referred to; and

(c) otherwise with the intent that the Beneficiary or such other person as is herein referred to and the Main Contractor had been the original parties to the Main Contract.

11.1 The Main Contractor shall not be concerned to enquire whether and shall be bound to assume that as between the Employer and the Beneficiary the circumstances have occurred permitting the Beneficiary to give notice under Clause 9.1 or Clause 10.

11.2 The Main Contractor acting in accordance with the provisions of Clause 9 or 10 shall not by so doing incur any liability to the Employer.

11.3 Should the Beneficiary appoint such a nominee as is herein referred to the Beneficiary shall guarantee the obligations of such nominee, provided always that the Beneficiary shall not by virtue of this guarantee acquire or assume any liability which is greater in nature or degree or of longer duration than it would have owed had no such nominee been so appointed and had the Beneficiary been a party to the Main Contract in substitution for the Employer."

33. At the time of negotiating and executing the deed of warranty, the bank clearly understood that the step-in provisions were mandatory, not optional, and were enforceable against it by Costain. Jeremy Bell, who led a corporate lending team at the bank, was closely involved in these arrangements and in dealing with the company until the difficulties in 2002 led to the transfer of the account to the bank's specialised leading services group (SLS) in December 2002. Mr Bell understood the provisions to be mandatory, as did Mr Logan who was the officer in SLS with day-to-day responsibility for the account from April 2003 until the decision was taken in August 2003 to appoint receivers. Mr Logan's understanding came from what he was told by representatives of Costain at a meeting on 17 July 2003 and from advice received from the bank's solicitors a few days later. As appears from an internal document dated 19 October 2000, the bank was prepared to assume this obligation because it did not envisage circumstances in which the company would default, as it would be funded by the bank, and in any event the bank thought it more than likely that it would wish to exercise step-in rights, even if optional, so as to complete the development. I mention this only because another of the bank's witnesses, Mark Hughes, who became responsible for the account once it was decided to appoint receivers, insisted in his evidence that in the period up to and immediately following the appointment of the receivers, the bank never received definitive advice that the step-in provisions were mandatory. I accept that evidence in the sense that there was no formal opinion letter to that effect, but as early as 21 July 2003 Mr Logan was reporting in an internal email, which Mr Hughes accepts that he would have seen, that "Addleshaw Goddard, the solicitors advising us on the bank's potential step-in rights/obligations and having worked throughout the weekend, have come back to me to confirm that the step-in rights are mandatory". From then at the latest it was clear to the bank's officers involved with the company that the provisions were mandatory, or that it was a near certainty that they were mandatory.
34. The debenture required by the first finance agreement was executed by the company on 23 July 2001. By cl.1 it covenanted to discharge on demand the "Company's Obligations" and granted the fixed and floating charges as a continuing security for the covenant. The Company's Obligations are defined as:

"All the Company's liabilities to the Bank of any kind and in any currency (whether present or future actual or contingent and whether incurred alone or jointly with another) together with the Bank's charges and commission Interest and Expenses."

"Expenses" are defined as:

"All expenses (on a full indemnity basis) incurred by the Bank or any Receiver at any time in connection with the Property or the Company's Obligations or in taking or perfecting this Deed or in preserving defending or enforcing the security created by this Deed or in exercising any power under this Deed or otherwise with Interest from the date they are incurred."

35. The covenant in cl.1 and the definitions are significant because it is part of the bank's case that the costs which it would have incurred in completing the development if it had been substituted as employer under the building contract would have been recoverable from the company and secured by the debenture as "Expenses" as defined. I shall return to this issue.
36. Clause 8 conferred a right on the bank to appoint administrative receivers of the business and assets of the company, and provided as is usual that such receivers were deemed to be agent of the company and that the company was to be solely responsible for the Receiver's acts, defaults and remuneration.
37. Clause 9.1 conferred on the receivers, in addition to all powers conferred on them by law, a number of express powers, including

"9.1.2 To carry out on any freehold or leasehold property of the Company any new works or complete any unfinished works of building reconstruction maintenance furnishing or equipment

9.1.5 To carry into effect and complete any transaction by executing deeds or documents in the name of or on behalf of the Company

9.1.11 To borrow any money and secure the payment of any money in priority to the Company's Obligations for the purpose of the exercise of any of his powers

9.1.12 To do any other acts which the Receiver may consider to be incidental or conducive to any of his powers or to the realisation of the Property"

Clause 9.2 provided:

"A Receiver shall apply all money received first in repayment of all money borrowed by him and his expenses and liabilities and in payment of his fees and secondly towards satisfaction of the Company's Obligations in such order as the Bank decides."

Events leading to the structure established in September 2003

38. I have referred briefly to the existence of difficulties in 2002. It is not necessary to go into any detail but it is the background to the problems in 2003. Disputes developed between Costain and the company, particularly as regards cost overruns and EOT (extension of time) claims, on which the first adjudication took place in June 2002. In late 2002 Costain threatened to leave site. Relations continued to be very difficult. In July 2003 the bank engaged David Evans of Manley Property Services Limited to review the development and its completion. He reported on 8 August 2003 that there was no meaningful working relationship between Mr Chandra and Costain, and an air of total distrust existed, with acrimony and adversity between them. Having seen Mr Chandra give evidence, I am in little doubt that he would have been a very difficult client, compounded as at least one witness thought by inexperience in a project of this sort.
39. The bank was concerned to know whether and how the company would be able to complete the development. The failure of Mr Chandra to produce in 2003 the funds which he had said would be available created a funding crisis for the development. I am satisfied by the bank's evidence that it was anxious that the development should be completed and would probably have advanced the funds necessary to do so if it could have obtained assurance as to the likely overall cost. It was, however, impossible to achieve this assurance because Mr Chandra would not permit the bank or its surveyors to discuss costs or Costain's claims directly with Costain. The bank did make further funds available, in excess of facility limits, of nearly £99,000 on 20 May 2003 and and over £221,000 in late July 2003, but it could not obtain the assurance it needed to be able to offer a facility to take the project to completion.
40. Following receipt of Mr Evans' report dated 8 August 2003, the bank concluded that it could not continue to support the company while Mr Chandra remained in control. He refused the bank's suggestion to appoint Mr Evans to take control of the project. On 28 August 2003 the bank appointed the administrative receivers.
41. Meetings within the constraints set by Mr Chandra took place between the bank and Costain in June and July 2003. At the third meeting on 17 July 2003, Costain advised the banks that the step-in provisions in the deed of warranty were mandatory on the bank, not optional. This took Mr Logan and others at the bank dealing with the company by surprise but they took legal advice and, while never formally definitive, it was accepted that Costain's interpretation was correct.
42. I am satisfied on the evidence that the bank's strong view was that it was in everyone's interest that the development should be completed. This too was the view of the receivers before and following their appointment. The evidence of William Dawson, one of the receivers, on this issue, as on others, was impressive. It was important in this respect that the development was not far from practical completion, with the majority of the original scope of work having been completed. It was important to retain Costain, as the appointment of an alternative contractor to complete the development would have led to significant additional cost.
43. It was important too that work should resume quickly, because delay would lead to further claims even if Costain continued as the contractor. This was the unchallenged evidence of Mr Shilton, a quantity surveyor and partner at Deloittes who assisted the receivers.
44. In response to the appointment of the receivers, Costain as expected, suspended the works on 29 August 2003 and gave notice of its intention to determine its employment under the building contract. The notice was expressed also to be a notice under cl.8.1 of the deed of warranty. The immediate strategy, adopted on legal advice, was for the receivers on behalf of the company to negotiate with Costain with a view to a continuation of the contract without step-in. Costain made clear that this was unacceptable. The alternative of a nomination by the bank of the company under the step-in provisions with a guarantee provided by the bank was also rejected, as the consent of Costain was required and it made clear that it would not be given.
45. The bank decided that in order to minimise delay and maximise potential return it would nominate the SPV (an off-the-shelf company called Inhoco 2859 Limited owned by Deloittes) under cl.10 of the deed of warranty. It did so by notice dated 12 September 2003. As provided by cl.11.3 of the deed, the bank became guarantor of SPV's liabilities under the construction contract to Costain. The receivers had arranged for the company to be the sole owner of SPV's share capital and on 15 September 2003 it was appointed as SPV's sole director.
46. The agency relationship between the company and SPV is set out in a letter dated 18 September 2003 from the company to SPV. The letter was signed on behalf of Mr Dawson for the company and signed as agreed and accepted by SPV. The receivers had arranged for SPV, previously a shelf company owned by Deloittes, to become a wholly-owned subsidiary of the company. The company was made a corporate director of SPV and the letter was signed on behalf of SPV by Mr Dawson acting for the company as corporate director.
47. The letter dated 18 September 2003 (the agency agreement) states:

"This is to confirm that the business carried on by you in your name is and has been since 12 September 2003 carried on by you as agents for us and on terms that you manage the same to the best of your ability (but subject to any instructions we may from time to time give) that we shall be entitled to all profits and bear all losses and that we will at all times indemnify you against all liabilities (including taxation) costs and expenses which you howsoever incur in carrying on the business as our agents."

Defences based on the structure established in September 2003

48. As previously mentioned, both defendants rely on defences arising from this structure. It is the defendants' contention that this structure was put in place for the sole or principal purpose of imposing on the company liability for the completion of the development under the contract with Costain and for ensuring its liability for the further funding required to complete the development, in circumstances where the company would otherwise have had no liability for either. The defences are pleaded in Mr Chandra's defence and adopted by Mrs Chandra. By a very late amendment, a further defence based on the structure was raised by Mrs Chandra, but on essentially the same facts. The submissions were made principally by Mr Kent, and adopted by Mr Knox for Mrs Chandra.
49. The defences were summarised by Mr Kent in his opening skeleton as follows:

"i) the post step in lending was, in truth, not lending to the company and cannot be relied upon as creating a liability to the bank over and above such liabilities as were fully cleared by the net proceeds of the hotel sale;

ii) alternatively, if post step in lending can be treated as in fact and in law made to the company, this lending amounted to a breach of the equitable duty owed by the bank to the Defendants as sureties because it was effected for the sole purpose of relying upon the security made available by the company, including the guarantee, with the consequence that the Defendants have suffered loss equalling the demand which the bank by such manoeuvres enabled themselves to make;

iii) (allied to the previous point) the post Receivership lending (at a time when the Defendants were kept in ignorance of the fact, purpose or amount of such lending) , constituted a prejudicial change in the arrangements provided for by the underlying principal contracts not contemplated by the Defendants when the guarantee was executed. Without notice of these changes to the defendants they were discharged from liability under the guarantee in respect of such further lending."

The third defence is that raised by Mrs Chandra and was developed by Mr Knox. He submitted that the effect of the structure was to re-impose on the company "the very liability from which it was relieved by the deed of warranty – i.e. the liability to continue to pay Costain, with a corresponding need to borrow from the Bank". In this way, the bank fundamentally altered to the detriment of Mr and Mrs Chandra the nature of the underlying principal agreements guaranteed by them. Mr and Mrs Chandra are therefore discharged from liability under the guarantees either altogether or for any lending by the bank to the company after 12 September 2003.

50. There are issues common to each of these defences which are largely determinative of them and which it is convenient to consider before addressing each of the defences in turn. The issues are:

i) Following step-in, did the company have any direct or indirect liability for the costs of completing the hotel and settling Costain's claims?

ii) What were the purposes of the bank and the receivers in establishing the structure?

Did the company have any liability for the costs of completing the hotel after step-in?

51. It is the defendants' case that following step-in by the bank or its nominee, the company was free of liability for the costs which would be incurred in completing the hotel but, by virtue of its continuing ownership of the property, the resulting benefits and increase in value would nonetheless accrue to it. Some concession is made that there might be some restitution remedy available to the bank, but it would depend on establishing that the costs were reasonable and in any event would be a charge against the equity of redemption in the hotel, rather than a personal liability of the company. The borrowings from the company to which the defendants' guarantees related, and which were secured by a first fixed charge, would be fully met out of the proceeds of sale.
52. The bank maintains on a number of different grounds that, without the structure established in September 2003, it would have had a right of recourse against the company or the property, such that the guaranteed liabilities would have remained unpaid at least to the full amount of the guarantees. The grounds relied on are as follows.
53. First, the company was not discharged from the contract with Costain by step-in but remained liable on it. The bank's pleaded case is that upon step-in, a new contract would come into existence between Costain and the bank or its nominee on identical terms to the contract with the company, while the contract between Costain and the company would remain in full force and effect subject to its terms. This was developed by Mr Cawson in opening, but in closing he recognised that there were difficulties with this submission. Although it was pleaded in Mr Chandra's defence, and remains without amendment, that the bank owed to the defendants a duty "to preserve and realise the asset of the company's rights in the building contract", Mr Kent is in my judgment correct in his submissions that following step-in the company had no further rights or obligations under the building contract, certainly as regards any future events. It was not therefore liable in respect of the completion of the development.
54. This in my judgment results from the terms of the deed of warranty, to which the bank, Costain and the company are all parties. The effect of the notice given by the bank pursuant to cl.10 was that "the Main Contract shall be deemed (as between the Main Contractor and the Beneficiary) to continue in full force and effect as if in all respects the Main Contract had been made between the Main Contractor and the Beneficiary or such other person as the Beneficiary may nominate to the exclusion of the Employer". As a matter of law, a thing is deemed where it is not otherwise the case. The building contract is deemed to continue in full force and effect, as between Costain and the bank and its nominee, because as against the company it is terminated, as the words "to the exclusion of the Employer" make clear. This is underlined by the following three sub-paragraphs which provide (i) that all existing and future obligations of the company are assumed by the bank or its nominee, (ii) that Costain acknowledges all of its obligations under the building contract in favour of the bank or its nominee and (iii) that the contract continues "otherwise with the intent that the [bank or its nominee and Costain] had been the original parties to the Main Contract". As Mr Kent submitted, this reflects a clear commercial requirement that there should be only one employer under the contract. The building contract confers many rights and powers on the employer, and neither Costain nor the bank could sensibly tolerate a situation in which they might be exercised both by the company and by the bank or its nominee.
55. In his closing submissions, Mr Cawson put forward an alternative argument that cl.10, whilst taking effect as between the bank and Costain, had no effect between the bank and the company "so that as between them the company is still properly to be regarded as primarily liable under the Building Contract". It would be a curious position where the company ceased to be a party to the contract and ceased to be liable to Costain, at least for the future, but nonetheless as between the company and the bank it was to be regarded as still primarily liable to Costain. In my view, it cannot be spelt out of the deed of warranty.
56. The second ground on which the bank submitted that it would in any event be entitled to recover the costs of completing the development from the company and out of the proceeds of sale of the property is that such costs were "expenses" under the terms of the debenture. This was introduced by an amendment to the reply to the defence of the first defendant made shortly before the trial.
57. I have earlier set out the relevant provisions of the debenture. By cl.1 the company covenanted to discharge on demand "the Company's Obligations" and granted the fixed and floating charges as security for the covenant. The "Company's Obligations" are defined to include "Expenses" which are defined as "all expenses (on a full indemnity basis) incurred by the Bank or the Receiver at any time in connection with the Property….or in preserving, defending or enforcing the security created by this Deed or in exercising any power under this Deed or otherwise".
58. The Bank submits that the costs which it would have incurred in completing the development, if it had directly stepped in as employer under the contract with Costain, would have been expenses falling within the words cited above from the definition of "expenses" in the debenture.
59. The defendants submit that the word "expenses" as used in the definition connotes something incidental or ancillary. Expenditure of several million pounds on completing the development cannot be characterised as "expenses". Further, expenses could not, it was submitted, extend to liabilities incurred pursuant to an obligation previously undertaken, in this case the step-in obligation of the bank.
60. In my judgment, the bank would have been entitled to recover the costs incurred in completing the development as "Expenses". I do not consider that "expenses" are confined, either as a matter of ordinary language or more importantly in the context of this definition in this debenture, to costs which are ancillary or incidental. The qualification is that the expenses must be "in connection with the Property" or the other matters set out in the definition. The words "in connection with the Property" seem to me very wide and certainly wide enough to include the costs incurred in completing the development of the Property. The word "expenses" cannot have different meanings depending on whether they were incurred by the Bank or the receivers. It cannot be doubted that if receivers incurred costs in completing the development, the costs would be expenses incurred in connection with the property and in exercising the power under cl.9.1.2 ("to carry out on any freehold or leasehold property of the Company any new works or complete any unfinished works of building reconstruction maintenance furnishing or equipment").
61. The fact that the Bank was under an obligation to Costain to step in and assume the obligations of employer does not, in my view, mean that the costs of completion would not be "expenses incurred…at any time in connection with the Property". If there were doubt about this, I would regard the fact that the step-in obligations were an integral part of the arrangements between the Bank, the company and Costain, which included also the debenture, as indicating that the costs of completion were within the definition of "Expenses".
62. The third ground on which the Bank relied for its submission that if the Bank had stepped in directly it would have been entitled to recover the resulting costs from the company was a right to a restitutionary remedy. It is submitted that the company would have been liable to give restitution equal to the amount by which the value of the property was enhanced as a result of the works after 12 September 2003. The defendants did not seriously argue that there would not be a restitutionary remedy, but they submitted that it would depend on proof of the enhanced value. While that has not been an issue for decision in this case, it cannot be argued that completion of the development did not result in a significantly enhanced price, an increase of something in the region of £3m.
63. A fourth basis, canvassed in submissions, was that if the Bank had taken possession of the hotel as mortgagee, it could have recovered the sums expended by it out of the proceeds of sale. They would not on this basis be recoverable as a debt from the company, but there would be a right of recoupment out of the sale proceeds – Ex p Fewings, In re Sneyd (1884) 25 Ch D 338, Sinfield v Sweet [1967] 1 WLR 1482.
64. A fifth basis advanced by the Bank was that as the purpose and effect of the deed of warranty was to provide security for the company's obligations to Costain under the building contract, it would be entitled to rights of subrogation or reimbursement against the company. To the extent that by stepping in the bank relieved the company of liabilities enforceable against it either immediately or contingently on, for example, an architect's certificate, this ground is in my view well-founded. It is more difficult in respect of liabilities arising in respect of works carried out after 12 September 2003, for which as a result of step-in no claim lay against the company. In view of my conclusions on the other grounds, it is not necessary to reach a concluded view on this ground. I should add also that Mr Kent objected that this submission was not open to the bank on its pleadings, because its appearance in paragraph 46.3.3(d) of the Reply was dependent on the submission that the contract between Costain and the company continued in being, notwithstanding step-in. Mr Kent is, I think, right on a close analysis of the Reply, but it was fully opened by Mr Cawson for the bank and it is a point of law which does not require further evidence. The bank should, in my view, be entitled to make the submission.
65. My overall conclusion is therefore that on more than one ground, the company would have been liable to the bank in respect of the liabilities it incurred and paid to Costain following step-in.

Purpose of the structure

66. I turn to the second common issue, the purpose of the structure. In considering the purpose or purposes sought to be achieved by the structure established in September 2003, it is important to note that the bank and the receivers may not have shared the same purposes. Their interests were not identical. The proper commercial purpose of the bank would be to ensure as far as possible the recovery of loans already made and of any further funds which might be required to complete the development. The receivers were required to have regard to the interests of the creditors of the company: Medforth v Blake [2000] Ch 86. They could not properly exercise their powers so as to re-impose a liability on the company for the benefit of the bank but to the detriment of the company and its creditors.
67. The bank's purpose is clear from its evidence. Their principal witness on this part of the case was Mr Hughes. His evidence in his witness statement was as follows:

"55.3 The SPV structure was decided on because the Bank would not lend to the nominee directly. To have done so would have meant the Bank lending to the SPV on an unsecured basis to complete a hotel owned by BPC. This would be a nonsense. There would be no reason for a third party such as SPV to borrow money to finish a hotel owned by BPC, and the Bank would not have lent it the money.

55.4 The Bank would lend BPC money to finish its own hotel, which is what happened. In relation to this lending, the Bank had the security provided by the debenture entered into by BPC (in administration) on 29 October 2003 (a copy of which is at page 126). This debenture provided the Bank with security over the Company as a whole, including the Company's rights in the Development

55.5 The method of step in, and then the agency arrangement between BPC and SPV, was used to enable the Bank to fund the Development on a secured basis (i.e., secured against the Hotel), whilst complying with the requirements of the Deed of Warranty. As I have said, this was based on the legal advice of Addleshaws."

His oral evidence was to the same effect. The consistent advice from Addleshaw Goddard was "don't divorce the asset from the debt", and thereby lose the ability to rely on the existing security.

68. The background to this is that the bank, like everyone else, thought that the development should be completed and that as a commercial matter, even without the step-in provisions, it knew that it would have to provide the funds to do so. In the normal course of events, the loans to provide the additional funding would have been secured by the debenture and charge. Once the mandatory nature of the step-in provisions was appreciated, following the meeting with Costain on 17 July 2003 and the legal advice from Addleshaw Goddard, the bank was alert to its potentially exposed position. No serious consideration was given to the bank itself stepping in as the employer and I am satisfied that it is highly unlikely that it would have done so. There were, as Mr Dawson explained, a number of good reasons for this: there was a major VAT issue, as banks are subject to a special regime and the bank would have been able to reclaim VAT at a rate only 4–5%; there were difficulties of accounting treatment; and more generally, there were possible reputational issues as the bank is not in business as a developer.
69. At first, it was hoped to persuade Costain not to exercise its step-in rights at all and simply continue with the contract in its existing form. When Costain made clear that this was not acceptable, the bank suggested that it should nominate the company, with the benefit of the bank's guarantee under cl.11.3 of the deed of warranty. Only when this was rejected, did the bank move to the nomination of a shelf company to be owned by the company and, under cl.11.3, guaranteed by the bank.
70. In the light of the evidence, I do not think that it was ever seriously considered that the additional lending would be provided without being secured on the property. While the effect of the step-in provisions was to make the bank liable to Costain on the building contract, a possible course would have been for the bank to cut its losses and agree a settlement with Costain or deal with a claim for damages from it. No consideration needed to be given to it, because on legal advice the structure was established. But Mr Hughes states in paragraph 55.3, that it would be nonsense for the bank to lend to SPV on an unsecured basis to complete a hotel owned by the company and that the bank would not have done so. I accept this evidence, subject to the qualification that the bank would have first weighed the relative financial consequences of further lending and cutting its losses.
71. The receivers were required to approach the issue from the very different perspective of their duties as receivers. I should in this respect state that Mr Dawson, in giving evidence, showed himself to be highly professional, with a clear understanding of his position and duties as receiver and, equally important, a robust approach which would enable him to perform his duties without interference from the bank or anyone else.
72. The steps taken to put the structure in place were decided and implemented after the appointment of the receivers. When they were appointed on 28 August 2003, the bank still hoped to persuade Costain not to activate the step-in provisions. It was the receivers, not the bank, who then decided on the company's continued involvement. Critically, it was the receivers, not the bank, who decided that the company should appoint SPV as its agent. There were, as I find, a number of elements which led to the receivers' decision to appoint SPV as the company's agent and thereby resume its liability on the building contract.
73. First, the receivers concluded that the development should be brought to practical completion in order to maximise realisations from the sale of the hotel and recommended that the bank should provide the additional funding required for this purpose. Secondly, there were very strong reasons for using Costain, rather than any other contractor, to complete the developments. This was analysed at the time on behalf of the receivers and the reasons set out on page 10 of a report of the receivers dated 5 September 2003. They regarded it as important that work on site should be resumed without delay. Thirdly, Mr Dawson's evidence, which I accept, is that his understanding was that in any event the cost of completing the hotel would fall on the company. He could not remember whether he checked this with Addleshaw Goddard. He had not given consideration to the legal route as to how this would be achieved, but I do not find it surprising that he, and indeed all others involved at the time, understood this to be the case. It would strike many people as surprising, to say the least, that the bank could be required to fund the completion of the hotel for the benefit of the company without any recourse to either the hotel or the company. His reaction to the suggestion that as receiver he could have relied on the company's good luck that the development would be completed by and at the expense of the bank was that it made no sense. More vividly still, he said that the company was never going to get a free lunch and have its hotel completed at someone else's expense.
74. In determining the reasons why the receivers established the structure in September 2003, it is their belief as to the legal position, rather than strictly the legal position itself, which is important. In fact, for the reasons already given, I consider that their belief, that the costs of completion would in any event be recouped by the bank from the company, was not only genuinely held but also correct. Even if not correct, it was a reasonable belief on their part.
75. The third consideration leads into the fourth, that it enabled the company acting by the receivers to deal directly with Costain. If further lending could be recouped by the bank from the hotel or the company (and in the latter case be secured by the all moneys charge and debenture), not only was there no obvious damage to the company in assuming its position as SPV's principal, but it gave it control over expenditure for which it would be responsible. As Mr Dawson explained in his oral evidence, the issue for the receivers was how to minimise cost to the company and maximise its commercial position. In the context of his understanding of the company's liability in respect of future lending, he understood that what was good for the company was also good for the bank.
76. A fifth consideration, and a significant one in the view of Mr Dawson, was the VAT position. Unless the company were the employer, all or much of the VAT payable on the contract would be irrecoverable. As already mentioned, the bank could recover only at a very reduced rate and, as has been accepted by the defendants in a note submitted by Mr Kent, SPV could not have recovered the VAT.
77. In circumstances where the cost of completion was believed to fall on the company or the hotel, the ability to recover VAT was a valuable advantage and, as I accept, a significant consideration in the receivers' decision to make SPV its agent. In his further submission, Mr Kent argues that on a different ground the VAT benefit would not have been obtained. By reference to authority on VAT, he submits that if the sole purpose of the structure from the company's standpoint was to obtain a VAT advantage the structure would be disregarded for VAT purposes. For reasons already given, I do not accept that it was the company's sole purpose.
78. I am satisfied that in committing the company to the structure established in September 2003 the receivers were acting conscientiously in accordance with their duties. It was their decision, not the bank's, and it was not taken for the purpose of re-imposing on the company a liability to pay for the completion of the hotel from which it had escaped, or for providing recourse or security to the bank which it would not otherwise have enjoyed.

Sham

79. Overall, as Mr Kent made clear, the primary defence is essentially that the agency arrangement between the company and SPV and the subsequent borrowing by the company to complete the developments "should be ignored as shams. They dress up what in truth was lending direct to SPV in order to discharge the bank's obligations under the Deed of Warranty, as an agreement to appoint and indemnify SPV and to borrow money from the bank for the purpose". It was a "pretence".
80. The classic and well-known exposition of sham as a legal concept is that given by Diplock LJ in Snook v London and West Riding Investments Ltd [1967] 2Q.B 786 at:

"As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a "sham," it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co. v. Maclure and Stoneleigh Finance Ltd. v. Phillips), that for acts or documents to be a "sham," with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating."

81. In my judgment it is not possible on the evidence to characterise the arrangements put in place in September 2003 as a sham. The company was under the control of the administrative receivers who had been appointed on 28 August 2003. It is not suggested that they did not have power to enter into the agency agreement with SPV or to borrow from the bank the funds required to complete the development. I am satisfied, as I have said, that in exercising those powers the receivers were acting not under the control or on the instructions of the bank but in an exercise of their own judgment. It was the intention of the company acting by its receivers that, as employer under the contract with Costain, SPV should be the company's agent and that the company should be liable for the further funds it borrowed from the bank. It was likewise the intention of the bank that it should lend to the company. In their alternative defence, the defendants argue that the receivers should not have committed the company to the structure and that to do so was a breach of their duty to the company, but that does not make the arrangements a sham.
82. Mr Kent accepted that the closing words in the passage from the judgment of Diplock LJ would cause the defendants difficulties if they were in a statute. The entire passage has long been recognised as an accurate statement of the law as regards sham and it does not apply to the arrangements in this case. They did not create, contrary to Mr Kent's submission, a fake or fictitious legal relationship. Mr Kent suggested, without citing any of the authorities, that the principles developed in IRC v Ramsay (W.T.) Ltd [1982] AC 300 and subsequent tax cases were applicable so as to lead to the conclusion that the arrangements involving the company should in law be disregarded. They were, he said, a paper trail designed to give the appearance that the company, rather than the bank, was liable in respect of the building contract. I hope Mr Kent will forgive me if I deal as briefly as he did with his submission and say only that there is, in my view, nothing in those principles which could lead to this conclusion.

Breach of equitable duty

83. The second defence is that, in re-imposing a liability on the company for the building contract from which it had been relieved as a result of the operation of the step-in provisions and lending to the company to meet such liability, the bank acted unconscionably and in breach of the equitable duty which it owed to the defendants as guarantors. It was done solely in order to utilise the security, including the guarantees, provided for the pre-receivership borrowing. It was submitted that equity should not give effect to these transactions even if they were not shams at common law.
84. The equitable duty on which the defendants rely is not a duty giving rise to a claim by the guarantor. It provides a defence to a claim against the guarantor. In appropriate circumstances, "equity intervenes to protect a surety" : China & South Seas Bank Ltd v Tan [1990] 1 AC 536 at 544 per Lord Templeman. The existence and limits of the principle have largely been developed either in relation to the creditor's dealings with the debtor, such as a release or giving time, or in relation to dealings with the security for the debt, such as surrender of the security or a failure to perfect it or a failure to realise it at market value at the time of the sale.
85. The underlying rationale as it appears from the authorities is that in these cases the guarantor's rights, either to sue the debtor in the creditor's name or to have the benefit of the security, if the guarantor pays off the principal debt, are adversely affected.
86. There is no authority to which I was referred where it has been held or argued that equity will intervene where the suggested prejudice takes the form of additional loans from the creditor to the debtor, thereby either increasing the guaranteed debt or increasing the amount secured by existing charges, assuming an all monies guarantee or charge.
87. By giving an all monies guarantee, or by being a guarantor of a debt which is secured by an all monies charge, the guarantor runs the risk that the debtor will incur further liabilities to the creditor, for example by further borrowing. In the ordinary case, the guarantor has no ground for complaint.
88. The defendants submit that this is not an ordinary case. They say that the sole purpose of the structure put in place in September 2003 was to re-impose on the company a liability from which it had escaped, so that the funds which the bank was in any event obliged to provide to SPV to complete the project could be secured on the hotel by the debenture and charge previously given by the company. There was no benefit to the company in participating in this structure and it did so not to further its own interests but to further the bank's interests.
89. I will assume in favour of the defendants that in such circumstances, equity would intervene to protect the guarantor. But, as I have already stated, there is in my judgment no factual basis for this defence. The structure was not established for the purpose, whether sole, predominant or otherwise, of imposing on the company a liability from which it had escaped so as to take advantage of the security. While the bank undoubtedly wished the provision of any further funds to be secured by the existing charges, the decision to establish the structure was taken in good faith and for proper commercial purposes, in circumstances where the receivers and the bank believed that the further costs would in any event be recouped from the company or the hotel. Neither the bank nor the receivers acted unconscionably in any respect. I conclude therefore that this defence also fails.

Material variation of contracts between the bank and the company

90. The third defence arising out of the structure, advanced on behalf of Mrs Chandra, is that the arrangements pursuant to which the advances were made after 12 September 2003 materially varied to the defendants' prejudice the arrangements provided for by the underlying principal contracts and increased their liabilities beyond what was reasonably contemplated. It is said that the underlying principal contracts included the deed of warranty, under which once the bank exercised its step-in rights (a) it was obliged to complete performance of the building contract by paying Costain for all work it did thereafter, (b) the company was discharged from liability to pay Costain for that work, and accordingly (c) the company had no need for further advances to pay Costain. The effect of the new arrangements "was to re-impose upon [the company] the very liabilities from which it was relieved by the deed of warranty upon step-in". It is further alleged "so far as material" that the new arrangements were made without notice to, or the consent of, the defendants and "at the instigation of the [bank], because….the Administrative Receivers were at all material times…acting on the [bank's] instructions in assisting to effect it".
91. The pleaded result of these matters is that the defendants "are discharged from liability under both guarantees (and therefore under the mortgage) for any further lending" by the bank to the company after 28 August 2003. In his closing submissions, Mr Knox varied this by submitting that the defendants were "discharged altogether, or at least from any further lending to [the company] after 12 September 2003".
92. Mr Knox's variation is important. The bank does not, and does not need to, seek to recover from the defendants as guarantors loans made after 12 September 2003. It made demands under the guarantors on 28 August 2003 which have not been paid. The proceeds of sale of the hotel were insufficient to discharge outstanding indebtedness of the company to the bank, including loans made after 12 September 2003. Only if such loans are disregarded but the total proceeds of sale brought into account, will the indebtedness at 28 August 2003 be discharged. In order to succeed therefore on this defence, either the defendants must be treated as totally discharged from their guarantees or, which would come to the same thing on the figures but which would more accurately fit with the equity raised by this defence, the loans made after 12 September 2003 should be disregarded in determining whether there was outstanding indebtedness covered by the guarantees following sale of the property.
93. In support of this defence, Mr Knox relied on the principle set out in Chitty on Contracts (30^th Ed.) Vol.2 at para 44-091:

"It is a well established and strictly applied principle that any variation in the terms of the agreement between the creditor and the debtor which could prejudice the surety will, unless he consents thereto, discharge him from liability, unless the contract of suretyship provides to the contrary. It is immaterial that the variation has not in fact prejudiced the surety, or that the likelihood that it may do so is remote. If the variation could prejudice the surety it alters the nature of the risk which he has undertaken and he is entitled to decide whether he wishes to continue bound or not. But if it is self-evident that the variation is unsubstantial or could not prejudice the surety he will not be discharged. The principle is applied very strictly so that even the most trifling variation may discharge the surety."

He cited Holme v Brunskill (1877) 3 QBND 495, on which the passage in Chitty is partly based, and Lloyds TSB Bank plc v Shorney [2001] EWCA Civ 1161.

94. In my judgment, this defence fails because its premise, that the new structure "fundamentally altered the nature of the underlying principal agreements which Mr and Mrs Chandra were guaranteeing to their detriment" (Mr Knox's closing submissions), is not well-founded.
95. First, unlike Lloyds TSB Bank plc v Shorney, this is not a case in which it could be said that at the time of the guarantees no further loans to the company were or could reasonably be contemplated. I have earlier referred to the fact that the debenture and charge given by the company were all monies securities, as were the guarantees albeit subject to a limit. The business of the company was to develop the property to completion and then run it as a hotel. It was clear when urgent funds were provided on 20 May 2003 that if the company were to be able to complete the development, it would need further funding from the bank, or an alternative source, to do so. Mrs Chandra knew by March 2003 at the latest that substantial further funds were required and she agreed to their jointly-owned house being put on the market to raise them.
96. In Lloyds TSB Bank plc v Shorney, Mr and Mrs Shorney had charged their house to secure Mr Shorney's guarantee of a company's indebtedness to a bank. The guarantee was limited to £150,000. Mr Shorney gave further guarantees, which had not been contemplated at the time of the first guarantee and which were taken by the bank without the knowledge or the consent of Mrs Shorney. About £210,000, most of it provided by Mrs Shorney, was paid to the bank in discharge of the first guarantee and reduction of the later guarantees. The issue was whether Mrs Shorney was precluded by a term of the mortgage (cl.21) from enforcing her claim against Mr Shorney's share of the mortgaged property while sums were still due from him to the bank.
97. The Court of Appeal accepted the submission for Mrs Shorney that the bank could not enforce cl.21 against her. Waller LJ, with whom the other members of the court agreed, said at para 33:

"Mrs Shorney's liability under the mortgage was limited to £150,000. That liability reflected a guarantee for precisely that sum in relation to liabilities of the company GT Lighting Ltd. The matrimonial home was being put up as security for that liability and that liability alone. This was not a case of supplying a security of a limited nature to provide part security for a running account where it may be that the surety should contemplate that even though his liability was limited, as between bank and customer, liabilities might well increase. This was a case where Mr Shorney was providing a guarantee limited to £150,000 to secure the running account of a company for which he would otherwise have no liability. Any material increase in Mr Shorney's liability above £150,000 would thus prejudice her position if the bank relied on cl 21."

98. Clause 16 of the mortgage provided that the bank might without the consent of the mortgagor and without affecting the mortgage renew, vary, increase or determine any advances or facilities given to "the Customer" Mr Shorney. The court held that this was inapplicable to a case where "the customer" was providing further guarantees. Waller LJ said at para 38:

"The fact that what the bank did in this instance did not fall within the main part of cl.16, seems to me to be of considerable significance. First, what is contemplated by the general words is very much the norm so far as increase in facilities affecting guarantees is concerned. If this mortgage had been granted to support the grant of facilities on a current account of Mr Shorney, then an increase above an original £150,000 (a) might be expected, and (b) would clearly fall within cl.16. But in this instance the mortgage was to support a guarantee for £150,000, which was itself to support facilities to a company for whom otherwise Mr Shorney would have no liability to the bank. It seems to me to be outside the norm to expect that further guarantees would be given without notification to Mrs Shorney. Clause 16 cannot be said itself to warn her that that might happen. Secondly, and this is the most significant point so far as Mr Pymont's arguments are concerned, since the taking of further guarantees does not come within cl 16, the bank simply cannot rely on that clause. The distinction drawn in argument between 'consent' and 'notification', a distinction which the judge accepted, is of no consequence in my view, even if there is such a distinction. Clause 16 simply does not apply."

99. For the reasons already given, the position in the present case is quite different. There was a clear possibility of further advances to the company, and no provision that such further advances required notice to or the consent of the defendants as guarantors. The most they could expect was that the bank would not make advances in circumstances where it knew or was put on notice that those in control of the company were not acting in good faith or for a proper purpose. For the reasons which I have already given, I consider that in agreeing the structure and borrowing the further funds, the receivers acted in good faith and for proper purposes.
100. In order to succeed, Mr Knox must go further and show that under the original arrangements it was agreed that the company would not re-assume responsibility for completing the development after step-in. In my view, this cannot be found in those arrangements. It would be a wholly fortuitous result for the company and the guarantors if it could be, because unless and until step-in occurred the company remained liable on the building contract. The step-in obligation was undertaken by the bank not to confer a benefit on the company and its shareholders but in effect as surety for the benefit of Costain. There is nothing in the arrangements to suggest that, in proper circumstances, the company could not resume, directly or indirectly, liability under the building contract. Moreover, as I have held, the bank was in any event entitled to recoup the costs incurred in completing the development as expenses, and would have been entitled to recoup them from the proceeds of sale of the hotel if it had become a mortgagee in possession. I do not accept Mr Knox's submission that the arrangements involving loans to the company was materially worse from the company's or the guarantors' point of view. This submission was based on the proposition that in seeking recoupment as expenses or out of the proceeds of sale, the bank was entitled to recover only its reasonable expenses. The true position is that on either basis the bank was entitled to recover its expenses, unless they were unreasonably incurred or unreasonable in amount and the onus of establishing that they were unreasonable would lie on the company or the guarantors: see Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, Fisher & Lightwood's Law of Mortgage (12^th Ed) para 55.12. Similarly, if costs were incurred unreasonably by the receivers, the company and the guarantors would have remedies against the receivers.
101. Mr Knox submits the provision in cl.4 of the guarantee that the bank could grant new or increased facilities to the company without the guarantors' consent and without affecting their liability, and other provisions, are void as unfair terms prohibited by the Unfair Terms in Consumer Contract Regulations 1999.
102. In Barclays Bank plc v Kufner [2009] 1 All ER (Comm) 1, Field J held that the Regulations did not apply to a guarantee unless both the principal debtor and the guarantor were natural persons contracting as consumers (as defined in the Regulations). Just as in that case, the principal debtor was neither a natural person nor contracting as a consumer. I see no good reason to differ from Field J and it follows that the Regulations do not apply to the guarantees in this case. In any event, the relevant provisions cannot in my judgment be characterised as unfair within the meaning of regulation 5(1) in the circumstances of this case. For the reasons which I have earlier given, it was well within the contemplation of the parties, including the guarantors, that further loans might in proper circumstances be provided by the bank to the company.

The settlement with Costain

103. Costain advanced EOT and other claims against the company. These, and the company's own claims, were the subject of negotiations between the receivers, with the benefit of professional advice, and Costain. A settlement was agreed on 27 May 2004, under which all claims and counterclaims were settled on the basis that the total sum due to Costain under the building contract was £16.595m. Costain's claim had been for about £22m. The settlement required a further payment of £3.2m by the company which was funded as to £2.1m by an advance from the bank, with the balance coming from the proceeds of sale of the hotel still held by the receivers.
104. The defendants allege that the settlement was agreed in breach of equitable duty owed by the bank to the company and the defendants. This is put in two ways. The first is that following step-in the benefits and burdens of the building contract were no longer an asset or liability of the company and that, in negotiating and agreeing the settlement, the receivers acted not in their capacity as receivers of the company but as agents for the bank or SPV. This is on the basis, which I have earlier considered and rejected, that following step-in the company had no liability in respect of the building contract and the arrangements made in September 2003 were ineffective to re-impose any such liability on the company. It is not necessary to address further this defence.
105. The second way assumes that the receivers acted as agents of the company in relation to the completion of the development and the settlement with Costain. It is alleged that as the receivers, rather than taking their own decisions, looked to the bank for instructions, the bank became liable for any lack of reasonable competence and diligence. In support of the legal basis for this defence, the defendants rely on American Express International Banking Corp. v Hurley [1985] 3 All ER 564 and on the observations of Sir Richard Scott V-C in Medforth v Blake [2000] Ch 86 at 95 B-E. In the American Express case, it was held that a claim for damages could be advanced directly by a guarantor against the bank by way of defence, so as to reduce or extinguish the liability on the guarantee.
106. The alleged liability of the bank depends on establishing that the settlement reached with Costain was made by the receivers acting not independently but on the directions or instructions of the bank or as a result of interference by the bank. This was the issue which I directed should be dealt with at the trial, leaving all allegations of negligence to be heard later if I found in favour of the defendants on the issue of control or interference by the bank.
107. The defendants' case on the facts was that the bank's control and the lack of independent judgment on the part of the receivers could be seen in the record of contact between the receivers and the bank between August 2003 and May 2004. It is said to be clear that the receivers deferred to the bank at every stage and, while making recommendations, left final decisions to the bank.
108. I have already addressed and rejected the allegation that the receivers did not act independently in August-September 2003 in the establishment of the structure involving SPV acting as agent for the company.
109. In relation to the period after September 2003, involving the marketing and sale of the property and the settlement with Costain, the defendants rely in part on the regular reports made by the receivers to the bank. There is nothing surprising or suggestive of control or agency in the fact of reports by the receivers to the bank as debenture-holder as to the progress of the receivership, including details of the marketing of the property and the negotiations with Costain. The reports in my judgment demonstrate that the marketing and negotiations were being conducted by the receivers, through and with the benefit of their own professional advisers and independently of the bank.
110. The defendants laid particular stress on certain statements of recommendation. In a letter dated 26 February 2004 Mr Dawson gave a full summary of the various offers made for the property and recommended that "the Bank accepts the offer from Arora of £13.5m". It is clear from the whole letter that it is the receivers who have independently been conducting the marketing exercise. Even in the sentence containing the recommendation, Mr Dawson says of the other main bidder that he cannot confirm that it is capable of "concluding on terms acceptable to the receivers" (emphasis added). The bank agreed with the recommendation.
111. Mr Dawson explained that a sale required the bank's approval because the bank's charge had to be released. Moreover, as both he and Mr Hughes explained, it is usual for receivers to give the bank the opportunity to challenge major decisions. The reality, as Mr Dawson said, is that the debenture holder and the receivers have to work together. But I am satisfied, after hearing Mr Dawson's evidence, that the receivers were not acting on the bank's instructions but were acting independently and reaching their own decisions.
112. The defendants relied on similar statements as regards the settlement with Costain. In a letter dated 29 March 2004, Mr Dawson reported to the bank on the current state of the negotiations. Mr Shilton's evidence established that the negotiations with Costain were conducted by himself and professional advisors on behalf of the receivers until they reached a point when meetings between principals were required. Meetings took place on 9 and 26 March 2004 when Mr Dawson, with Mr Shilton, met one of Costain's regional directors. Mr Dawson reported on the meetings in his letter of 29 March 2004, drafted by a member of his staff. He concluded as follows:

"We will continue to pursue a settlement with Costain in line with our previous offer of £16.3m with a view to minimising the cash outlay to the Company…we believe that in the interests of achieving a commercial settlement, in the event that Costain will not move from Peter Mason's current offer, we would recommend agreeing to a full and final settlement of all Costain's current and future claims at £16.75m. We confirm that we could justify such a settlement to the Bank, the Guarantor and any subsequently appointed liquidator."

113. Negotiations continued and culminated in the agreed figure of £16.595m. Mr Dawson summarised the position in a letter to the bank dated 26 April 2004. He reported that "We have now exhausted our settlement discussions with Costain". He said that in light of the advice received and the risks involved "We would recommend agreeing to a full and final settlement of all Costain's current and future claims at £16.595m…I confirm that we could justify such a settlement to the Bank, the Guarantor and any subsequently appointed liquidator". He ended by saying "I should therefore appreciate a prompt response that you will put the Receivers in funds to make this payment".
114. Mr Dawson's evidence, which I accept, was again clear that the decision to settle at the agreed figure was his, subject only to the need to obtain the bank's approval as funder, which was given. The bank's internal position was that two sanctions were given, one from the managing director of SLS for a settlement at the agreed figure of £16.595m and the other from the credit committee for funding of £2m for the purposes of the settlement. These arrangements do not, in my judgment, detract from the conclusion that the decision to settle at the agreed figure was taken by the receivers, not the bank. I think it clear that if the receivers had held sufficient funds to implement the settlement, they would not have sought approval as such from the bank, although doubtless the bank would have been given an opportunity to challenge it.
115. The defendants relied also on a document prepared by the receivers in about January 2004, the purpose of which was to consider the issues involved in the company running the hotel after completion of the development if a sale of the property was deferred. As any such trading would require the bank's financial support, this was a paper to enable the bank to consider whether to provide the required funding. The proposal was not pursued and in my judgment it sheds no light on the respective roles of the receivers and the bank in reaching the settlement with Costain.
116. I am entirely satisfied that, in negotiating and agreeing the settlement with Costain, the receivers acted independently and not on the instructions of the bank and that there was no interference by the bank such as to make the receivers its agents. I therefore reject this defence.

Undue influence

117. Mrs Chandra alleges that she signed both of the guarantees as a result of undue influence and misrepresentations by her husband. She alleges that the circumstances of each guarantee were such that the bank was put on enquiry and that it failed to take the steps necessary to ensure that it did not have notice of the undue influence and misrepresentations. She is therefore entitled, as she says, to have both guarantees set aside as against her.
118. I will start with a consideration, so far as necessary, of the relevant legal principles and then consider the evidence and law as regards each of the guarantees.

The law on undue influence

119. Subject to a couple of important points, there was a large measure of agreement on the relevant legal principles. The leading authority is the decision of the House of Lords in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, and the leading speech is that of Lord Nicholls of Birkenhead (see Lord Bingham at para 3).
120. As Mr Cawson for the bank was right to stress, there are in cases such as the present two essentially distinct issues to be addressed. First, was the guarantee of A (often, as here, a wife) procured by the undue influence of B (often, as here, her husband). Secondly, did the bank have notice of the undue influence so as to render the guarantee unenforceable against A.
121. The first issue requires a consideration of what in law amounts to undue influence and a consideration of the facts to ascertain whether the wife has established that the guarantee was procured by her husband's undue influence. The burden of proof, as Mr Knox accepted, rests on the wife. The combination of a relationship in which a wife entrusts financial decisions to her husband and a transaction which is sufficiently disadvantageous to her to call for explanation may shift the evidential burden to the party relying on the transaction, but when the principal participants have given oral evidence, the issue for the Court is whether on the totality of the evidence, including any appropriate inference, it finds that the transaction was in fact brought about by undue influence. It should be noted that ordinarily a guarantee given by a wife of her husband's business debts, and still less a guarantee of the debts of a company owned equally by them, is not of itself a transaction which calls for explanation: Etridge paras 30-31.
122. Only if the court finds that the guarantee was procured by undue influence does it become relevant to ask whether the bank was put on inquiry that there was a real possibility of undue influence and, if so, whether the bank took the steps necessary to prevent it having notice of any undue influence.
123. As regards the issue of undue influence, there was some agreement as to what it could involve and it was agreed that causative misrepresentations, often closely linked with undue influence, would have the same effect as undue influence. Alleged misrepresentations form a significant part of Mrs Chandra's case on both guarantees and it will be necessary to consider the evidence relating to them in some detail. Mrs Chandra relies on an allegation of in effect bullying in relation to the second guarantee and the bank accepts that, if established, it could amount to undue influence. She relies also on a more general allegation of pressure. The major area of disagreement as to the law is whether a failure by the husband to disclose all material information to the wife, where it was not motivated by a desire to conceal material information from her, amounts to undue influence in circumstances where the wife places trust and confidence in her husband in relation to the transaction in question.
124. As regards the second main area of enquiry, whether the bank was put on notice and whether it took the appropriate steps to reduce the risk of undue influence and so ensure as a matter of law that it did not have notice of any undue influence, it is not seriously argued by the bank that it was not put on notice. As to whether it took the appropriate steps, there is an issue of law as to whether the requirements identified by Lord Nicholls in Etridge for future transactions applied to the first guarantee. The judgment of the House of Lords was delivered on 11 October 2001, while the steps necessary to obtain the first guarantee were started before that date but the guarantee was executed on 30 October 2001. I will consider this issue when dealing with the first guarantee. Even if the guidance given by Lord Nicholls as regards past cases applies, Mrs Chandra submits that it was not sufficiently followed to provide protection to the bank. If the guidance for future transactions applies, the bank does not contend that it was followed. As regards the second guarantee, the bank accepts that it was a "future transaction" for the purposes of the guidance in Etridge and it accepts that it cannot show that the guidance was followed.
125. I shall deal here with the issue as to whether the failure by the husband to disclose material information amounts to undue influence.
126. In his speech Lord Nicholls deals separately with the two issues of undue influence and whether the bank is on notice. He deals with the issue of undue influence at paras 6 to 33 and with notice at paras 34 to 89. It is important to keep the distinction in mind, because the discussion as to the need for advice and explanations in the latter paragraphs is in the context of the bank being put on inquiry and being required, if it is to avoid being on notice of any undue influence which may in fact occur, to ensure that the wife takes a fully informed decision with the benefit of independent legal advice. The statements in those paragraphs as they relate to fully-informed consent should not automatically be applied to the anterior issue of undue influence. It should not be assumed, by reference to those paragraphs, that if a husband does not disclose all material facts to his wife that the guarantee was procured by his undue influence.
127. The starting point is that the wife is influenced by her husband to give the guarantee and, typically, this will arise where, as regards the transaction in question, the wife places trust and confidence in her husband to assist her in deciding whether to give the guarantee. The objective of the law is not to prevent such influence but to give relief against its abuse (Etridge para 6). In para 7, an important paragraph in the context of the present case, Lord Nicholls said:

"Here, as elsewhere in the law, equity supplemented the common law. Equity extended the reach of the law to other unacceptable forms of persuasion. The law will investigate the manner in which the intention to enter into the transaction was secured: "how the intention was produced", in the oft repeated words of Lord Eldon L.C., from as long ago as 1807 (Huguenin v. Baseley 14 Ves 273, 300). If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or "undue" influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to be more precise or definitive. The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion."

128. Two points of particular relevance to the present case are made in that paragraph. First, undue influence consists in the use of "unacceptable means". Secondly, there can be no exhaustive definition of such means. The circumstances of human life are too varied to allow it. Lindley LJ observed in Allcard v Skinner (1887) 36 Ch D 145 at 183 that "no court has ever attempted to define undue influence", to which Lord Clyde added in Etridge at para 92, "It is something which can be more easily recognised when found than exhaustively analysed in the abstract".
129. In para 8, Lord Nicholls identifies two broad forms of unacceptable conduct, overt acts of improper pressure or coercion (such as the bullying alleged in relation to the second guarantee) and the taking of "unfair advantage" by one person who has influence over another. One example of the latter is where the husband prefers his own interests to those of his wife. At para 33 Lord Nicholls said:

"Inaccurate explanations of a proposed transaction are a different matter. So are cases where a husband, in whom a wife has reposed trust and confidence for the management of their financial affairs, prefers his interests to hers and makes a choice for both of them on that footing. Such a husband abuses the influence he has. He fails to discharge the obligation of candour and fairness he owes a wife who is looking to him to make the major financial decisions."

130. Mr Knox relied on the reference in this passage to the "obligation of candour and fairness he owes a wife who is looking to him to make the major financial decisions" in support of his submission that the husband's failure, whether deliberately or not, to disclose material information amounted to undue influence. But Lord Nicholls is using the phrase in the context of a husband who prefers his own interests to those of his wife in his management of their financial affairs. It cannot, in my view, support a general duty of disclosure, which finds no support in the rest of Lord Nicholls' speech. It might well be objected that if, as Lord Nicholls posits in the paragraph, the wife looks to the husband to make the decision, a duty of disclosure, which would be designed to enable the wife to make her own decision, is beside the point.
131. Mr Knox relied also on para 36 of Lord Nicholls' speech:

"At the same time, the high degree of trust and confidence and emotional interdependence which normally characterises a marriage relationship provides scope for abuse. One party may take advantage of the other's vulnerability. Unhappily, such abuse does occur. Further, it is all too easy for a husband, anxious or even desperate for bank finance, to misstate the position in some particular or to mislead the wife, wittingly or unwittingly, in some other way. The law would be seriously defective if it did not recognise these realities."

Mis-stating the position or misleading the wife is different from an inadvertent failure to disclose, a distinction familiar in the law of misrepresentation. Of course a statement which, though strictly true, is misleading without qualification will fall within these observations of Lord Nicholls. Likewise, a deliberate suppression of information because the husband knows that, if disclosed, it will deter the wife from giving the guarantee will involve an abuse by him of her confidence. It would be unconscionable and rightly categorised as unacceptable means. I do not, however, accept Mr Knox's submission that if deliberate concealment can lead to a finding of undue influence, so too should inadvertent non-disclosure. As it seems to me, they are quite different in nature.

132. There is, in my view, nothing in the other speeches in Etridge to support Mr Knox's submission and much that runs counter to it. In para 93 Lord Clyde said:

"There is a considerable variety in the particular methods by which undue influence may be brought to bear on the grantor of a deed. They include cases of coercion, domination, victimisation and all the insidious techniques of persuasion. Certainly it can be recognised that in the case of certain relationships it will be relatively easier to establish that undue influence has been at work than in other cases where that sinister conclusion is not necessarily to be drawn with such ease. English law has identified certain relationships where the conclusion can prima facie be drawn so easily as to establish a presumption of undue influence. But this is simply a matter of evidence and proof. In other cases the grantor of the deed will require to fortify the case by evidence, for example, of the pressure which was unfairly applied by the stronger party to the relationship, or the abuse of a trusting and confidential relationship resulting in for the one party a disadvantage and for the other a collateral benefit beyond what might be expected from the relationship of the parties."

133. Lord Hobhouse in para 103 said that actual undue influence "is an equitable wrong committed by the dominant party against the other which makes it unconscionable for the dominant party to enforce his legal rights against the other" and he instanced misrepresentation and "some express conduct overbearing the other party's will". More specifically, in the context of a wife's guarantee of her husband's liabilities, Lord Hobhouse said at para 107:

"The wife or other person alleging that the relevant agreement or charge is not enforceable must prove her case. She can do this by proving that she was the victim of an equitable wrong. This wrong may be an overt wrong, such as oppression; or it may be the failure to perform an equitable duty, such as a failure by one in whom trust and confidence is reposed not to abuse that trust by failing to deal fairly with her and have proper regard to her interests."

134. If a failure to disclose material facts, or to explain the transaction, was itself undue influence in a case such as the present, the actual decision in Etridge would have been different: see paras 194 to 228. Likewise, Lord Scott could not have expressed the views he did in para 244 in relation to Barclays Bank v Harris, one of the other appeals heard with Etridge.
135. There are three passages in the speech of Lord Hobhouse on which Mr Knox placed particular reliance. The first is at para 106:

"That there is room for an analogous approach to cases concerning a wife's guarantee of her husband's debts is clear and no doubt led to Lord Browne-Wilkinson saying what he did. The guarantee is given by the wife at the request of the husband. The guarantee is not on its face advantageous to the wife, doubly so where her liability is secured upon her home. The wife may well have trusted the husband to take for her the decision whether she should give the guarantee. If he takes the decision in these circumstances, he owes her a duty to have regard to her interests before deciding. He is under a duty to deal fairly with her. He should make sure that she is entering into the obligation freely and in knowledge of the true facts. His duty may thus be analogous to that of a class 2(A) fiduciary so that it would be appropriate to require him to justify the decision."

136. Mr Knox went so far as to submit that the relationship of husband and wife was analogous to the fiduciary relationship between solicitor and client. The speeches in Etridge, however, clearly demonstrate a rejection of that proposition. The relationship of husband and wife is not one where undue influence is presumed, with the burden of justifying the transaction being cast on the husband. When Lord Hobhouse states that the husband "should make sure that [his wife] is entering into the obligation freely and in knowledge of the true facts", he is not as I read his speech saying that a failure to do so amounts to undue influence. But if the facts give rise to an inference of undue influence he will or may need to prove that the obligation was freely entered into with knowledge of the true facts in order to rebut the inference.
137. At para 111, the second passage on which Mr Knox relied, Lord Hobhouse said:

"The need to guard against lack of comprehension is important and applies in any event to a non-business surety. But it is not the same as guarding against undue influence. It may be a first step but it is a fallacy to confuse the two. Comprehension is essential for any legal documents of this complexity and obscurity. But for the purpose of negativing undue influence it is necessary to be satisfied that the agreement was, also, given freely in knowledge of the true facts. It must be remembered that the equitable doctrine of undue influence has been created for the protection of those who are sui juris and competent to undertake legal obligations but are nevertheless vulnerable and liable to have their will unduly influenced. It is their weakness which is being protected not their inability to comprehend."

This is said, not in the context of a discussion of what constitutes undue influence, but in the context of the practical steps which banks must take to ensure that they do not have notice of any undue influence which may have occurred. The critical words in the above passage are "for the purpose of negativing undue influence". To provide the banks with protection, they must have a solicitor's confirmation that the guarantor has received independent advice and explanation, of which the true facts form a necessary part. But undue influence itself is something to be proved, not negatived, unless the circumstances are such as to have shifted the evidential burden. The passage does not support the proposition that a non-disclosure of material facts amounts to undue influence. The same is true of the third passage on which Mr Knox relies at para 115:

"The crux of this situation is that the bank requests the solicitor to give a certificate which the bank then treats as conclusive evidence that it has no notice of any undue influence which has occurred. But the wife may have no knowledge that this certificate is to be given and will not have authorised the solicitor to give it and, what is more, the solicitor will deny that he is under any obligation to the wife (or the bank) to satisfy himself that the wife is entering into the obligations freely and in knowledge of the true facts."

138. Mr Knox relied on a passage in CIBC Mortgages v Pitt [1994] 1 AC 200, heard shortly after Barclays Bank plc v O'Brien [1994] 1 AC 180 by the same committee and with judgment given on the same day. The House of Lords held that it was no answer to a well-founded claim of undue influence to say that the transaction was beneficial. At p 209, Lord Browne-Wilkinson said:

"A man guilty of fraud is no more entitled to argue that the transaction was beneficial to the person defrauded than is a man who has procured a transaction by misrepresentation. The effect of the wrongdoer's conduct is to prevent the wronged party from bringing a free will and properly informed mind to bear on the proposed transaction which accordingly must be set aside in equity as a matter of justice.

I therefore hold that a claimant who proves actual undue influence is not under the further burden of proving that the transaction induced by undue influence was manifestly disadvantageous: he is entitled as of right to have it set aside."

139. Mr Knox cannot in my view spell out of this passage that non-disclosure of material facts itself constitutes undue influence. All the more so as the following passage from Lord Browne-Wilkinson's speech in Barclays Bank plc v O'Brien at p 188 shows that a lack of independent mind and will is not the same as, or sufficient to establish, undue influence:

"In a substantial proportion of marriages it is still the husband who has the business experience and the wife is willing to follow his advice without bringing a truly independent mind and will to bear on financial decisions. The number of recent cases in this field shows that in practice many wives are still subjected to, and yield to, undue influence by their husbands. Such wives can reasonably look to the law for some protection when their husbands have abused the trust and confidence reposed in them."

140. In my judgment, non-disclosure, as opposed to the deliberate concealment or suppression, of material facts is insufficient by itself to amount to undue influence. More is needed. In UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555, Jonathan Parker LJ (with whose judgment Peter Gibson and Kay LJJ agreed) said at para 86 that "Undue influence is exerted when improper means of persuasion are used to procure the complainant's consent to participate in a transaction, such that "the consent thus procured ought not fairly to be treated as the expression of [the complainant's] free will" (see Etridge at para 7 per Lord Nicholls).

Was there a relationship of trust and confidence between Mr and Mrs Chandra

141. The first issue of fact is whether there existed between Mr and Mrs Chandra a sufficient and relevant relationship of trust and confidence to found the defence of undue influence raised by Mrs Chandra. This is an issue common to the giving of both guarantees. No-one has suggested that it may have existed at the date of one only of the guarantees.
142. Mr Cawson for the bank rightly made the point that the issue is whether Mrs Chandra placed trust and confidence in Mr Chandra in respect of her decision, affecting her own financial position, to give the guarantees. He accepted, and the evidence clearly demonstrated, that she left it to Mr Chandra to be responsible on behalf of the company for the development of the hotel property, including dealings with Costain, the bank and the company's solicitors and other professional advisers. To that extent she placed trust and confidence in him to look after the business of the company, of which she was an equal shareholder and a director, during the development of the property. Mr Cawson pointed out that it does not necessarily follow that Mrs Chandra relied on her husband when it came to giving a personal guarantee and a second mortgage over her matrimonial home to secure borrowings by the company.
143. Mr Cawson drew attention to the evidence which establishes that Mrs Chandra had a will of her own and was well able to make her own decisions. These were, however, for the most part decisions as regards their personal lives, rather than business or quasi-business dealings. She vetoed a plan for Mr Chandra to run a hotel in Stratford-upon-Avon while she stayed in Cheshire where their children were still at school. She wanted a house with a garden, not a flat, if their home had to be sold. As the development dragged on, taking far longer than originally expected, and she saw Mr Chandra under increasing pressure, she questioned why they had ever gone into the venture and there were arguments between them.
144. Mr Cawson pointed too to the close involvement of Mrs Chandra in the nursing home. I am satisfied on the evidence, including that of their accountant Anthony Collier, that Mrs Chandra had no real involvement in the financial or commercial side of the business. Her role, obviously one of central importance in such a business, was primarily to be responsible for the nursing staff and standards.
145. Just as leaving the development of the property to Mr Chandra does not necessarily mean that Mrs Chandra placed trust and confidence in him in relation to the guarantees, her independence in their personal lives does not mean that she did not do so. In my judgment, she did place a large measure of trust and confidence in her husband as regards these personal financial decisions which were bound up with the company's business. In practice, she was almost bound to depend on him for information about the development and the need for further finance and for an assessment or view of the risk involved in giving the guarantee, and I find that she in fact did so. Mr Cawson pointed out that she remained worried about giving the guarantee and mortgage up to the last moment, when she had her private discussion with Mr Lopeman before executing the documents. In my view that is not inconsistent with a large measure of trust and confidence in Mr Chandra. The law does not require blind faith. Nor does the evidence that Mr Chandra put some pressure on her to sign negate the existence of trust and confidence.

The first guarantee : the facts

146. The first guarantee was given by Mr and Mrs Chandra to support a loan facility of £700,000 provided by the bank to the company under the terms of a loan agreement dated 30 October 2001. This was provided to cover a likely cost overrun in the development of the property which appears first to have been identified by the bank's own monitoring surveyors. The minutes of the credit committee meeting on 20 September 2001 record a recommendation that a facility of £700,000 be provided, against a guarantee. It was reported "that the Bank's monitoring surveyors feel that the further £700k should be sufficient to complete the project, and that this budgeted figure includes a further element on contingency in case of need". The credit committee required further consideration of the request and the most appropriate way forward.
147. Mr Chandra confirmed in further discussions that he did not have £700,000 available in cash but was prepared to give a guarantee, supported by a second charge over the matrimonial home. An internal bank memorandum dated 28 September 2001 continues that "In exchange for providing the supported guarantee, Mr Chandra has asked that we mark the increase at £950k, being the potential cost overrun identified at £700k, plus in effect a further contingency of £250k. The earlier £700k included a contingency of £200k of which Mr Chandra's professional team were already aware but the extra contingency requested will be retained as an ultimate backstop and may in fact not be required". Approval was requested from the credit committee for an additional facility of £950,000.
148. The credit committee approved a facility of £700,000. One member was concerned that Mr Chandra might use a further contingency of £250,000 to change the design specification again.
149. The company's quantity surveyor had prepared a cost report, indicating an anticipated final account of £11,432,441 and therefore a potential cost overrun of £782,441 against the approved facility of £10.65m, as to which Mr Bell noted in mid-October 2003:

"Facility now approved at £11,350k. Also, of the £782k, this includes contingencies of c. £200k which any excess needs applying against, i.e. leaves £118k of unused contingencies. Also, the straight comparison of the build costs to the facility is not strictly correct, as this discounts the cash contribution of £4.6m but there are also other costs. The CFF also needs to be reviewed to assess the full project. This reveals that with the £700k agreed there are currently sufficient available facilities to BPC to complete the project. We continue to monitor our exposure carefully going forward".

150. As part of its procedures before personal guarantees were taken, the bank requested Mr and Mrs Chandra to nominate solicitors to advise them in relation to the proposed guarantees. They nominated Brooke North, of Leeds, to whom the bank wrote on 10 October 2001, enclosing copies of the guarantees. The letter stated that the bank encouraged all potential guarantors to take independent legal advice "to make sure that they understand their commitment and the potential consequences of their decision". The guarantees were sent to Brooke North "to enable it to be fully explained to them prior to execution" and to be executed if "your Clients are happy to proceed".
151. Stephen Lopeman, a partner in Brooke North, had previously advised and acted for Mr and Mrs Chandra and the company, particularly in relation to the agreements with Costain and the bank. Following receipt of the bank's letter, he visited Mr and Mrs Chandra at their home to discuss the guarantees. Mr Lopeman has not given evidence, but Mrs Chandra's evidence was that Mr Lopeman saw her alone. She told him that she was a bit worried about giving the guarantee and charging the house. Mr Lopeman warned her that by signing the documents the house could be at risk, but also said that Mr Chandra "has never let you down so far". Mrs Chandra agreed to give the guarantee.
152. Mr Lopeman witnessed the signatures of Mr and Mrs Chandra on the guarantee. The guarantee as provided by the bank contained endorsements which Mr Lopeman signed, "I confirm that I am a Solicitor/Legal Executive, and that prior to the execution of this deed I explained the nature, content and effect of this deed to [Mr/Mrs Chandra] who informed me that he/she fully understood the same". In each case Mr Lopeman crossed out Legal Executive.

First guarantee : undue influence and misrepresentation

153. Mrs Chandra's case for setting aside the guarantee as against her rests on three alleged misrepresentations by Mr Chandra and an alleged failure by him to give her "a full explanation of any material facts relating to the proposed transaction", save that the bank was proposing to lend an extra £700,000 to the company.
154. Mrs Chandra relied principally on one of the alleged misrepresentations, that the extra loan of £700,000 would be enough to complete the hotel. This is said to have been a misrepresentation because the amount needed to fund the existing cost overrun was £782,246 and it could not be said with confidence that there would be no further cost overruns in the future.
155. I accept the evidence of Mr and Mrs Chandra that he said words to the effect that the further £700,000 would be enough to complete the project. This was indeed what he genuinely believed, his evidence being that he was "confident we could complete the project if we got a further £700,000". There was no misrepresentation in this. It was essentially a matter of judgment and Mr Chandra's view, and that of the bank, was that £700,000 would be sufficient. The figure of £782,246 pleaded by Mrs Chandra refers to the figure in the quantity surveyor's report, but as Mr Bell noted at the time this included £118,000 of unused contingencies. No reliance can be placed on Mr Chandra's request for further funding of £950,000 because the entire excess over £700,000 was for contingencies, in addition to the figure for contingencies forming part of the figure of £700,000, and because of Mr Chandra's own confidence that £700,000 would be sufficient.
156. It is said that while it was believed that £700,000 would be enough, it could not be said with certainty. Given that it was a forecast, it would be clear to any reasonable person that it could not be a certainty. Mrs Chandra knew there was risk involved, as her conversation with Mr Lopeman makes clear, and I am satisfied that she did not understand Mr Chandra's statement to be said as a complete certainty.
157. The second alleged misrepresentation by Mr Chandra was that "if the guarantee was not given, they would be left with nothing, because not only would they not have a completed hotel to sell, but [the bank] would come after them and take away everything including their home". If said, this would certainly have been untrue. Mr and Mrs Chandra might lose their investment in the property, but they would not lose their home nor could the bank have come after them, because they had no liability under a guarantee or otherwise to the bank. Mr Chandra's evidence did not support the allegation that this statement was made. His evidence was that he said that there was a risk that if the extra money was not raised, they would lose the hotel and therefore lose their income and perhaps their home as a result. I think Mrs Chandra's recollection is wrong and that she has confused this with the consequences of giving a personal guarantee. I am satisfied that the alleged statement was not made.
158. A third misrepresentation was pleaded by a late amendment concerning the step-in provisions. It is alleged that Mr Chandra said that if the company defaulted on its terms with the bank or Costain, the bank was obliged to step in to the contract with Costain and complete the hotel. If said, this involved no misrepresentation. In her first witness statement dated 30 July 2009, Mrs Chandra said that Mr Chandra reminded her of the bank's step-in obligations under the deed of warranty but in her third witness statement dated 14 September 2009 she said that:

"I also believed, from what Bala had told me, that if BPC defaulted in its contract with the Bank or Costain, then the Bank would have to step in and finish off the hotel to the standard of a four star Holiday Inn without being able to claim all the extra lending (after step in) back from BPC."

159. This is the first mention by Mrs Chandra that she understood that if the bank had to step in, it would have no claim against the company for the further costs. I reject this evidence without hesitation. Mrs Chandra's entire stance has been that she did not know, and did not want to know, anything about the arrangements for the financing and construction of the hotel. This is backed up by her comments in the exhibit to her second witness statement on the various agreements made in 2000-2001, including those signed by her as a director of the company. I am very sceptical about all her evidence that, alone of the many contractual provisions, she knew about the step-in obligations. In the exhibited comments, she says of the deed of warranty that "I have no idea of the content or effect of the document". But I am in any case satisfied that what she says in her third witness statement does not reflect her understanding in 2001. She described in her first witness statement how she had gone with Mr Chandra to Costain's offices to sign the building contract on behalf of the company. Mr Lopeman was also present and she describes a discussion between him and Mr Chandra about the bank's step-in obligations. There is no mention of this being "to the exclusion of the company" but in cross-examination she asserted that this was said. I am satisfied that neither this nor anything else to indicate that the company would have no liability for the costs of completion was said at that meeting.
160. Reliance was also placed on evidence given principally by Mr Chandra that he put pressure on Mrs Chandra to sign the guarantee. All that Mrs Chandra said in her evidence was that he said to her that if she did not sign she "could just go and I would not have anything at the end of the day". In his witness statement produced during the trial, Mr Chandra said:

"I said she should sign and support me. I told her I was working hard and believed in what I was doing. I put her under some pressure. I am also fairly sure that I said to her words to the effect that if she didn't sign she could "get lost"."

In oral evidence, Mr Chandra said it was "Gentle pressure. A bit more than gentle pressure".

161. When asked why it was necessary to put pressure on Mrs Chandra, given that she placed such trust in him, Mr Chandra replied that she was reluctant to sign a personal guarantee. She discussed her concerns on that score with Mr Lopeman and only then signed the guarantee. I am far from satisfied that the remarks said to constitute "pressure" would in any case be sufficient to set aside the guarantee on the grounds of undue influence, but I am satisfied that whatever was said by Mr Chandra by way of pressure had no appreciable effect on her. If it had, it would have been relied on in her defence, itself amended four times, or in her witness statements.
162. Mrs Chandra's defence relies also on a more general allegation that Mr Chandra abused Mrs Chandra's trust and confidence because he did not give to her a full explanation of the material facts, apart from the loan of an extra £700,000. In particular, it is said that he did not explain the current indebtedness to the bank, Costain and others, the current or anticipated value of the hotel or the remedies which the bank would have against the company in the event of default. This was not pursued by Mr Knox in his closing speech or written submissions. As a matter of law, for the reasons already given, I would have rejected it. On the facts, and leaving aside the question of possible further cost overruns, it amounts to little or nothing because all are agreed that the only sensible course was to complete the hotel.
163. I am satisfied that the first guarantee was not signed by Mrs Chandra as a result of any misrepresentation or undue influence on the part of Mr Chandra. Mrs Chandra also alleged that the mortgage given to secure the guarantee was also liable to be set aside as against her on the same grounds as the guarantee. For the reasons given above, I hold that her execution of the mortgage was not procured by undue influence or misrepresentation and is not therefore liable to be set aside but is enforceable against Mr and Mrs Chandra.
164. A further point was raised by Mr Knox in relation to the mortgage. The express terms of the mortgage do not limit Mrs Chandra's liability to the amount due under her guarantee. "Mortgagor" is defined as Mr and Mrs Chandra and cl.11.2 provides that if two or more persons are included in the expression "Mortgagor", it refers to them both together and separately and that "Mortgagor's Obligations" are their joint and several obligations and each is primarily liable for the liabilities of the other. "Mortgagor's Obligations" are defined as all liabilities to the bank. These terms are capable of securing liabilities to a much greater extent than those under the guarantee, a factor which was not explained to Mrs Chandra or envisaged at the time. The bank, however, accepts that the mortgage was not intended, at any rate so far as concerns Mrs Chandra, to secure more than her liability under the guarantee. This concession is in my view plainly right and deals with the submission made by Mr Knox.

Was the bank on notice

165. In the light of this conclusion, it is strictly unnecessary to consider whether, if the first guarantee had been given by Mrs Chandra as a result of Mr Chandra's undue influence, the bank was affected by notice of it. This was, however, fully argued and it is right that I should deal with the issue.
166. The bank accepts that it was put on inquiry, in the absence of firm evidence that Mrs Chandra was actively involved in the company's business. The bank had no dealings with her as regards the company. It is true that there were some indications that Mrs Chandra was involved in the business. She was a director. The company's business plan put to the bank stated that the company had two hands-on directors; I reject the evidence that this was a reference to Mr Chandra and a former director Christine Embleton, rather than to Mr and Mrs Chandra, but I accept that Mrs Chandra did not read or approve the business plan. In February 2001 Brooke North wrote a letter stating that Mr and Mrs Chandra were actively involved in negotiating the building contract, in support it would appear of a possible insurance claim arising from the cancellation of a holiday. I do not know the basis on which this statement was made, but on the evidence which I have heard it was not true. These were all indications on which in opening and cross-examination the bank placed some weight. But the bank is right in the position adopted in closing that, looking at the evidence as a whole, the bank was not entitled to assume that Mrs Chandra had any substantial involvement in the business of the company.
167. The bank treated itself as put on inquiry and therefore required that Mr and Mrs Chandra take independent legal advice and that their solicitor should certify, as he did, that he had "explained the nature, content and effect of this deed to [Mr/Mrs Chandra] who informed me that he/she fully understood the same". In dealing with guarantees and other "past transactions" Lord Nicholls said in Etridge at para 80:

"..In respect of past transactions, the bank will ordinarily be regarded as having discharged its obligations if a solicitor who was acting for the wife in the transaction gave the bank confirmation to the effect that he had brought home to the wife the risks she was running by standing as surety."

168. In Barclays Bank v Coleman, one of the appeals determined by the House of Lords with Etridge, it was held that, in a case where undue influence was on the facts established, Barclays Bank was entitled to rely on a certificate in very similar terms to that used in the present case, so that it was entitled to enforce the joint charge on the matrimonial home given by the husband and wife: see paras 282-293 per Lord Scott of Foscote.
169. This, as it seems to me, deals with the submission made by Mr Knox that the form of certificate signed by Mr Lopeman was insufficient for its purpose, in that it did not state that he had advised Mrs Chandra about the transaction or the risks she was running, as opposed to just stating that he had "explained" the nature, content and effect of "this deed".
170. Mr Knox also submitted that the certificate was insufficient as it did not state that Mr Lopeman had been instructed to give independent, or separate, advice. Nor did the certificate in Barclays Bank v Coleman. In that case, no legal advice, separate or otherwise, was in fact given to Mrs Coleman, whereas in this case Mrs Chandra had a private discussion with Mr Lopeman in which he gave her advice. It matters not that Mr Lopeman acted for both Mr and Mrs Chandra: see Etridge at paras 69-74.
171. Mr Knox submitted further that the bank was obliged to inform Mr Lopeman of the financial position of the company and hence the risks that Mrs Chandra would be running if she gave the guarantee. This, however, is no part of the obligations recognised in Etridge as imposed on a lender if it is to avoid notice of any undue influence in "past transactions". Moreover, the bank's own view was the same as Mr Chandra's that the further facility of £700,000 would be sufficient to complete the development. Mr Knox cannot in my view find support in Lord Hobhouse's speech in Etridge at paras 109-110 on which he relied.
172. If the first guarantee and second mortgage were "past transactions" for the purpose of the guidance given in Etridge as to the steps to be taken by a bank, I hold that the bank had taken sufficient steps so as not to be on notice of any undue influence exercised by Mr Chandra over his wife.
173. The issue arises, though, as to whether they were "past transactions". The decision and speeches in Etridge were given on 11 October 2001, 19 days before the guarantee and mortgage were executed on 30 October 2001. Steps had already been started with a view to the new facility, secured by the guarantee and mortgage, before 11 October 2001. The bank had resolved to grant the facility, Mr and Mrs Chandra had been asked to nominate solicitors to advise them, they had nominated Mr Lopeman and on 10 October 2001 the bank wrote to Mr Lopeman with a copy of the proposed guarantee.
174. The new guidelines given in Etridge represented, and were intended to represent, a significant change in practice. It would inevitably take some time for banks and other lenders to absorb the speeches in Etridge and adjust their practices. This was not a straightforward task. The speeches themselves run to a total of 374 paragraphs and occupy 89 pages in the law reports. There are three fully reasoned speeches and two shorter speeches. The possibility of conflict between them is recognised by Lord Bingham at para 3. The task of digesting these speeches and formulating new guidelines for practical implementation by bank officials would lie with central departments of large banks which would then disseminate them to the departments and officials dealing on a day to day basis with financing transactions.
175. It could hardly be supposed that all lending activity should be put on hold while these steps were taken. Inevitably, for a period after 11 October 2001, transactions would proceed under the "old" guidelines. No-one suggests that the banks could have introduced the new guidelines first thing on 12 October 2001. If these changes were introduced by legislation, there would inevitably be a period provided for adjustment. So also a reasonable period must elapse after 11 October 2001 before the new guidelines had to be observed. I do not have to decide the duration of what would be a reasonable period. All I have to decide is whether the new guidelines applied to a transaction which was already in train on 11 October and was completed on 30 October 2001. I am satisfied that it would not be reasonable to apply the new guidelines to the first guarantee and the mortgage. I do not think, as Mr Knox submitted, that it was necessary for the bank to plead and prove the facts that made 19 days an unreasonably short period for this purpose. This would have become a major factual investigation in its own right. The bank's case was that while it was no doubt possible to introduce the new guidelines in that period it was not reasonably practicable to do so. I consider that to be an issue which the court can decide without the detailed process for which Mr Knox pressed.
176. My conclusion overall is that the defence as regards the first guarantee fails. I have found on the evidence that it was not procured by any undue influence or misrepresentation on the part of Mr Chandra. Even if it had been, the steps taken by the bank to obtain confirmation from Mr Lopeman that he had explained the guarantee to Mrs Chandra meant that the bank was not on notice of any undue influence or misrepresentation.

Second guarantee : the facts

177. I turn now to the second guarantee, signed on 20 May 2003, and will consider first the facts. It is necessary to do so in some detail, because a major part of Mrs Chandra's defence is that Mr Chandra believed, and told Mrs Chandra, that the second guarantee was given in return for a third finance agreement which would fund the completion of the project.
178. It became clear early in 2003 that although the company was still within its agreed facilities, further funds would probably be needed in due course to complete the project. On 9 February 2003 Mr Chandra informed the bank that he would not be seeking additional finance from the bank but was going to inject £700,000 from the sale of the matrimonial home which he and his wife were putting on the market. He expected it to be sold and the funds to be available by mid-April.
179. By the latter part of March 2003, it was estimated that the shortfall on funding would be some £900,000, without taking account of EOT claims. Mr Chandra told the bank that he expected the house to be sold in May 2003 and that he would inject £900,000 into the company.
180. On 21 March 2003 Weatheralls prepared a detailed evaluation for the bank. They provided an open market value of £17.15m on completion of the hotel, reduced to £14.5m if the time allowed for a sale was limited to 6 months. At a meeting on 24 March 2003, Mr Taylor of the bank told Mr Chandra of the bank's concerns as to the increase in costs and the fact that it was looking increasingly unlikely that his cash injection of £900,000 would be received in May. He told Mr Chandra that the bank was not looking to support the business once the hotel was completed and would wish it to be sold or refinanced. Mr Chandra understandably did not wish to sell the hotel and he was told that he should immediately start to try to arrange a re-financing. His request for a period of 6 months to achieve this was not regarded as satisfactory. Mr Taylor noted that there was a need to establish the realistic amount needed to complete the project. All of this was reiterated in a letter dated 27 March 2003 from Mr Taylor to Mr Chandra.
181. The bank's clear strategy was to complete the hotel. This was underlined in a discussion between Mr Taylor and Mr Cartledge, of the property management unit of SLS, who advised that until completion the hotel had a low value. As Mr Cartledge put it in an email on 27 March 2003, there was "no option but to finish as quickly and cheaply as poss."
182. At the end of March 2003 the exit team in SLS took over responsibility for the bank's relationship with the company. Mr Logan became the relationship manager. The view then was that it should be fairly easy for the project to be refinanced after completion. While one broker did not share this view, informing the bank and Mr Chandra of his view on 2 April 2003, another was more optimistic, writing to the bank on 25 April 2003 that they had received indicative terms from a major UK bank which were broadly acceptable to Mr Chandra.
183. It became clear in April 2003 that Mr and Mrs Chandra's home would not be sold, certainly not in time to provide funds in May 2003. Mr Chandra requested further funding from the bank. He dealt with Mr Logan and there were from now until 20 May 2003 frequent discussions, mainly by telephone, between them. Notes of these conversations were not made.
184. The position as at the beginning of May 2003 was described in an email from Mr Logan to Mr Cartledge, copied to others within the SLS team:

"Our total indebtedness is currently some £11.7m and the company has requested an increase in facilities to complete the build out. It has been accepted that in order for the bank to protect its current position and benefit from the consequential security uplift it is imperative that the build process is completed, following which a full refinance is expected.

The director is aware that we have no appetite to fund the trading hotel and that he must seek an early rebank.

This increase in facilities is proving problematic. Based on current information total costs to complete is some £2,635k, which suggests new money of £1,833k is required. The difference of £802k is made up of the headroom in current facilities (£184k), utilisation of the retentions account monies (£368k) and a separately agreed £250k loan to the director from Costains (the contractor).

However this assumes that the costs to complete will not move substantially between now and completion, and based on representations from the QS, architects and the bank appointed monitoring surveyor, this is unlikely.

The difficulty is that it seems impossible to get certainty on the final cost figure and hence the potential ultimate bank exposure.

At present, I am in the process of preparing a credit application for new money of £2,333k which includes a £500k contingency. It should be noted however that there is a very real danger of costs increasing further such that the bank exposure may be as high as £15m.

By way of mitigation, it was hoped that the director would be able to raise c£1m on his domestic property. For various reasons this has not happened (yet) and pressure is on him to deliver this. Time scales are uncertain but for the sake of my submission, I have had to assume that this will not be forthcoming in time to help.

In the circumstances, I should be grateful if you would let me know whether you remain supportive of the strategy to complete the build out notwithstanding the potential scale of the increase in facilities and whether the overall strategy remains appropriate.

I am aware that the potential uncertainty in final figures would be a major concern for the credit committee, but given the current position, it is difficult to present an alternative position without the prospect of the bank either stepping in under its legal charges, through the appointment of an admin receiver or both."

185. Mr Cartledge discussed this with Mr Logan and restated his basic view that the project must be finished. Overall, with a valuation of £17.5m on completion, it represented a better outcome than stopping at that stage. As far as a credit application was concerned, he felt that it was necessary to be as firm as possible on the future costs and that they should not go to the credit committee for £x, but suggesting that they might have to come back for £y.
186. Although there was some internal debate about the right course for the bank to follow, the basic approach remained to finance completion of the project provided that there was a clear view of the future costs involved and that it still made commercial sense to proceed on the basis of those costs. It is, in my judgment, clear from the events in May 2003 and over the period from 20 May 2003 to the appointment of the receivers at the end of August that this throughout remained the bank's approach.
187. An immediate issue was that the next drawdown under the existing facilities was due on 20 May 2003. Mr Logan reported on this to Mr Gray, in an email on 9 May 2003:

"The next draw down is due on 20 May – for about £450k. There is headroom of about £150k so far so the pressure is on to get sanction (somehow – see below) from Cred Committee before then.

Jose is in on Friday 16 May and it is suggested that he could sanction the drawdown "excess" and review our credit application whilst he is here. Timing is against us but if Jose can give his approval/recommendations then we should be OK (subject to the numbers from Weatheralls & F & G)."

188. The need for increased personal guarantees was discussed between Mr Logan and Mr Chandra. Mr Chandra accepted that increased guarantees would be required. On 12 May 2003 Mr Logan or a member of his team submitted a security request form to the bank's credit documents department. The form requested the preparation of a guarantee to be given by Mr Chandra for £1.65m. The figure of £1.65m represented the estimated value of Mr and Mrs Chandra's house at £2m, less the amount outstanding under a first mortgage on it. The form contained the following extra information:

"Chandra is a director BPC Hotels Limited.

He has agreed to the increase of his existing guarantee and charge over his property (IDs 00688788 & 00688786) from 700k to cover the lending of a further £2m+ to the company.

This request therefore is to extend our second charge to cover as much of the equity as is available in the property. This is estimated to be some £1.65m."

189. On 13 May 2003 Mr Logan sent a letter in the following terms to Mr Chandra:

"Further to our recent discussions regarding the provision of additional personal security to support the company's indebtedness to the bank, please find enclosed a disclosure consent form requiring the signature of the directors of the company.

This form enables the bank to disclose relevant corporate information to the providers of the third party security. I appreciate that, in this case you and your wife are both third party guarantors as well as directors, but bank protocol will not allow us to continue with the security process unless the company gives its formal written consent in this way.

In the circumstances, I should be grateful if you and Mrs Chandra would sign the form where indicated and return it to me as soon as possible."

The enclosed disclosure consent form referred to a "Guarantee supported by second legal charge over domestic property… which secures all my/our liabilities to the Bank of any kind" to be given by Mr and Mrs Chandra.

190. The form was signed by them both on 14 May 2003 and returned to the bank. Mrs Chandra's evidence is that she signed it at Mr Chandra's request without realising that it was connected with a further guarantee or increased security on their house. I will return to this issue.
191. On 14 May 2003 the credit documentation department of the bank sent letters in identical terms to Mr and Mrs Chandra. The letters were headed in bold type "Borrower: BPC Hotels Limited…" and "Security: Guarantee for £1,650,000 by Bala Peram Chandra and Maria Perpetua Chandra in respect of all liabilities of the Borrower to the Bank of any kind supported by a Legal Charge over Graystone 26 Hilltop Hale Cheshire in favour of the Bank". The letter states that "Before we proceed we need written confirmation from a solicitor acting for you that the solicitor has fully explained to you the nature of the documentation you will be asked to sign in relation to the Security and the legal and practical implications the documentation will have for you" and goes on to ask for the name and address of their solicitor for this purpose. The last paragraph reads:

"Once you have supplied your solicitor's details to us and the Borrower has consented to us sending details of the Borrower's Bank liabilities to your nominated solicitor the relevant documentation will be sent to your nominated solicitor. At that point we will contact you so that you can arrange a convenient appointment with the solicitor."

192. On 15 May 2003 Mr and Mrs Chandra each signed the form enclosed with the letter and the forms were returned to the bank. The form repeats the definitions of Borrower and Security as they appeared in the letter. Each of them nominated Mr Lopeman of Brooke North. His name and address were written on Mrs Chandra's form by Mr Chandra, who also dated Mrs Chandra's signature. Again, her evidence, to which I will return, is that she signed without seeing the covering letter and without any idea as to the purpose or what it concerned. Then as now, Mr Chandra opens her letters, except those which are from her family, and she would just sign when he asked her to do so.
193. Mr Logan had been preparing drafts of a credit application and on 15 May 2003 sent the latest draft to Mr Brena who was due to attend SLS's offices the following day. In the accompanying email Mr Logan wrote:

"This company is currently building out a 4* 141 bedroom Holiday Inn badge Hotel in Manchester city centre. Total bank exposure is currently some £11.6m and further facilities of some £2.5m may be required to complete the project. Completion is anticipated for the end of June/early July.

The finished property is valued at some £17.1m and so on the face of it we are fully secured on an OMV basis. However, it has not been possible, even at this late stage to get the QS and architects to commit to a final cost figure. In the circumstances I have had to prepare a credit application (which is attached below in draft form for your consideration) based on best known information.

The figures contained within the submission are subject to change as we are awaiting confirmation of costs and values from our agents. These were promised for this lunchtime and are now not expected until late today. However, I believe that the submission provides sufficient overview for meaningful consideration to be given to it. I recognised that such estimates create inevitable uncertainty, but I am confident that by the time the document is ready for presentation to the credit committee all outstanding information will be to hand.

The advice we have received from the bank appointed monitoring surveyors (Faithful & Gould) believe that the figures quoted in the application are reasonable and should not significantly increase. To cover any variance a contingency fund of c£500k has been built into the application.

Ultimately the funding variances will be as a result of extension of time claims by the builders. However, we can take comfort from the fact that these are unlikely to be agreed (and therefore payable) until after completion, when it is hoped (expected) that the business will rebank.

The director along with RBS appointed brokers are making good progress with refinancing the business. I understand that agreement has been reached with a third party bank (believed to be HBOS) to provide £15m immediately on the hotel opening. I am pressing for sight of letters of comfort etc.

It is the view of both David Cartledge and Weatheralls (valuers) that the best outcome for the bank would be to complete the project."

194. The detailed figures in the draft credit application are prefaced by a note stating "the following paragraphs in red have been prepared on the basis of currently known information. It is hoped that the costings etc will have been confirmed in time for our discussions on Friday", that is 16 May 2003. The conclusions were stated as follows:

"The general view of PMU, Weatheralls and Faithful & Gould remains that the best outcome for the bank is to complete the buildout of the project outside of any precipitate action by any of the involved players.

The loss to the bank of not completing or completing under an insolvency procedure or other step-in action is substantial and therefore it would appear sensible to make sufficient funds available to at least achieve practical completion, estimated by the end of June 2003. This involves funding ongoing contract costs until then and further EOT awards granted by the architect. As mentioned previously, once an EOT award is granted, the associated cost becomes immediately payable.

Overall, we are seeking to achieve the continued co-operation of Costain pending practical completion. If, following completion, further liabilities arise that require additional funding then insolvency may ensue, albeit at that time the bank's security will be far more saleable than is currently the case.

As noted above, based on estimated outcome statements prepared in a range of scenarios, the best scenario is one where the bank provides the necessary funding to complete the project as, based on current information, this should result in full debt repayment through a refinance on completion.

Nonetheless, the request for additional funding is unwelcome, but in view of the goal of completing the hotel and facilitating a refinance, they are recommended for approval."

195. Mr Logan discussed the draft credit application with Mr Brena, following which he sent it to Mr Sachs late in the afternoon of 16 May 2003. Mr Brena and Mr Sachs were due to discuss it on Monday 19 May 2003. Mr Logan's covering email reflected the immediate need for sanction for the drawdown which had to be made on 20 May 2003:

"The reason for this email is that sanction is sought for an excess pending the outcome of the application, such an excess is to be secured by an additional supported personal guarantee from the director. In the immediate short term, the next drawdown to the contractors and others is some £650k gross to be made on Tuesday 20 May, which will create an excess of some £450k. On the basis that we wish to complete the project it is essential for the payment to the contractors to be made-failing which they may leave site and cause further problems. In the circumstances, your consideration is sought to the approval of the excess.

As noted above, it is our view and the view of the agents that the project is completed and so I should be grateful if you would let me know whether, based on the information presented, you would be prepared to sanction such an excess.

The draft credit application hopefully covers all of the salient points in sufficient detail for a provisional assessment to be made."

The only changes to the draft credit application from the previous draft sent to Mr Brena were the addition of two extra paragraphs:

"Whilst the director remains confident that a rebank on completion will be achieved, this is far from certain. In the event that this does not prove possible and comfort cannot be provided regarding an early rebank, then our strategy should be one of urgently mitigating our position and trading risk.

In such circumstances, the appointment of an administrative receiver may be appropriate to allow an element of control to be gained over the business, curtail unnecessary expenditure and allow the hotel to be sold as a going concern. Should offers received for the hotel not be sufficient to repay bank debt or provide a satisfactory outcome then the direct involvement of West Register should be actively considered."

An estimated outcome statement was also sent to Mr Sachs showing four options : complete hotel with a full refinance, complete hotel and sell once completed, sell the hotel now in an uncompleted state, and complete through receivership/step-in. The bank would make a full recovery under the first option and it was noted that the second and third options "may almost certainly involve some form of insolvency".

196. Mr Knox submitted, partly on the basis of this outcome statement, that the bank appreciated that it was very likely that the company would go into insolvency and that it was obviously unlikely that Mr Chandra would be able to refinance it. I do not accept this submission. I am satisfied by Mr Logan's evidence that the bank was anxious to avoid insolvency and was anxious to arrange financing to complete the hotel, which would then make it easier to arrange a refinancing. Of course it was appreciated that there was a risk of insolvency, particularly if it was not possible to obtain a clear picture on future costs, but it was not regarded as a likelihood.
197. In the course of Monday 19 May 2003 Mr Sach gave approval to the excess drawdown of £450,000 for 20 May and Mr Logan reported to Ms Johnson that "the next step is to get before credit committee requesting c£3.6m". There was still no certainty as to costings, so it remained premature to submit an application to the credit committee, and that in fact remained the position until the appointment of receivers.
198. The need for the excess drawdown on 20 May 2003 made it urgent to obtain increased guarantees from Mr and Mrs Chandra. The guarantees which they signed on 20 May 2003 increased the limit from £700,000 in the first guarantee to £1.15m. This was, of course, less than the limit of £1.65m which appeared in the security request form submitted on 12 May 2003 and in the draft guarantees sent out to Mr and Mrs Chandra two days later.
199. The difference in these limits was investigated in some detail in the cross-examination of Mr Logan. His evidence was that it was not at any time during May envisaged that the limit would be other than £1.15m, calculated by adding £450,000 to the limit under the existing guarantees. He thought that the limit of £1.65m appearing in the guarantees sent out on 14 May 2003 was a mistake. Disclosure of the security request form, which came from the credit document department's files rather than the SLS files, was not made by the bank until after Mr Logan had given evidence. I agreed to his recall.
200. There are handwritten notes on the security request form made by personnel in the credit document department. One of them is "Limitation changed to £1,150,000" and another was to note that Mrs Chandra was also to provide a guarantee. The credit document department's checklists, which had been disclosed earlier, show the receipt on 13 May 2003 of the request for a guarantee for £1.65m and the receipt on 20 May 2003 of a request for a guarantee for £1.15m. The credit document department worked through the morning to prepare and send out the necessary paperwork. That this was a busy time is made clear by an email sent by Mr Logan at 13.22 on 20 May 2003 to Denise Leonard of the department, saying "I am very grateful for all your assistance. It has been a little stressful this morning for which I apologise."
201. It remained Mr Logan's evidence following his recall that the only guarantee envisaged in May 2003 was for £1.15m. I am satisfied that Mr Logan was not seeking to mislead the court in giving this evidence, but I am equally satisfied that his recollection is wrong in this respect. The sequence of events as shown by the contemporary documents makes sense only on the basis that the guarantee was planned to be for £1.65m, being the amount of equity in Mr and Mrs Chandra's home, and was only reduced to £1.15m at the last minute, on the morning of 20 May 2003. Mr Logan was not able to give a satisfactory answer to Mr Knox's question as to why it was necessary to request a guarantee for £1.15m on 20 May 2003 if he thought that a request for that amount had already been made.
202. I think it likely that up until 15 May 2003 Mr Logan was hoping to be able to obtain firm figures for costings in time for credit approval to be sought for a full facility before 20 May 2003. I have already referred to the note in the draft credit application sent by him to Mr Brena on 15 May 2003 that it was "hoped that the costings etc. will have been confirmed in time for our discussions on Friday". At the same time, he knew that it was imperative to get approval at least for the excess drawdown of £450,000 which did not need credit committee approval but was within the authority of Mr Sach or perhaps Mr Brena, as his emails of 9 May 2003 to Mr Gray and of 16 May 2003 to Mr Sach and Mr Brena show.
203. The absence of firm costings to put before the credit committee and the receipt of Mr Sachs' authority for the excess drawdown of £450,000 resulted in the reduction of the guarantee limit to £1.15m. I accept Mr Logan's evidence that he and his team decided that it was not necessary or fair to ask Mr and Mrs Chandra to provide a guarantee to cover more than the expected excess drawdown of £450,000.
204. It was put to Mr Logan, and strongly denied by him, that the reason for requiring a guarantee for only the lower amount was that it was now unlikely that the bank would provide a full facility. I accept Mr Logan's evidence, which is consistent with the efforts up to 20 May 2003, and in the weeks which followed, to obtain certainty on the figures so as to enable a facility to be granted to complete the project, efforts which were stymied by Mr Chandra's lack of co-operation.
205. I come now to the events of 20 May 2003. Mr Logan requested the credit documents department to produce the documents necessary for guarantees limited to £1.15m. Payments to Costains had to be made and the absolute deadline for same day payments was 3 pm. Mr Logan decided that it was sensible to fix 2 pm as the deadline for the guarantees to be signed. Mr Logan rang Mr Chandra. Both are agreed that Mr Logan told Mr Chandra that he and Mrs Chandra would need to attend the bank's offices to sign increased guarantees by 2pm. I accept Mr Logan's evidence that he told Mr Chandra that the bank had agreed to the excess drawdown being paid that day. I am satisfied that he said nothing to suggest that the bank had agreed to any other facility. Mr Logan told Mr Chandra that, if the guarantees were not given, Costain would not be paid, with serious implications for the company's ability to continue to trade.
206. At 11.48 am, Ms Leonard of the credit documentation department faxed or emailed the draft guarantee to Mr Lopeman, under cover of a letter which referred to Etridge and referred to the written confirmation of advice which the bank would require from him. At about 12.30 pm Mrs Chandra, who had been out shopping, returned home. Mr Chandra told her that he had received a call from Mr Logan and that they had to go to the bank's offices to sign documents by 2pm to enable payments to be made to Costain and, as Mrs Chandra recalls, to avoid receivership. Mrs Chandra's evidence is that he did not at this point use the word "guarantee" and she did not know what had to be signed. He told her that Mr Lopeman would call them in the car while they were on their way to Manchester.
207. While Mr and Mrs Chandra were driving to the bank's offices, Mr Lopeman did indeed call. Mr Chandra's mobile phone was in hands-free mode, so both could hear what he said. While Mrs Chandra claimed perfect recall of precisely what Mr Lopeman said, which I do not accept, there is no challenge to the evidence of Mr and Mrs Chandra as to the substance of his advice. It was simply that the format of the draft guarantee was the same as the guarantee given in September 2001 and that it was fine for them both to sign it. It was a short conversation. At 1.03pm Mr Lopeman faxed confirmation to the credit documentation department that he had provided Mr and Mrs Chandra "with independent legal advice on the nature of the guarantee and the legal and practical implications and they informed us that they wished to proceed". At 1.12 pm Ms Leonard emailed Mr Logan that she had received the confirmation, so that he could now proceed with the guarantees, and he replied ten minutes later.
208. Mrs Chandra's evidence, supported by Mr Chandra, is that it was only with Mr Lopeman's call that she knew that the document to be signed was a personal guarantee. Her account in her first witness statement of what then happened is:

"Accordingly I became very worried and concerned. I felt I was being pressured. I was crying and shouting in the car. I said I had not even seen SL and I was being asked to sign for more money. Bala told me to shut up or he might crash the car. He got very cross. He said he was trying to concentrate on driving. Bala told me to wipe my face as he did not want the Bank seeing me in such an obviously distressed state and giving them the wrong impression. Bala then explained the situation to me. He said that if we did not sign the personal guarantee document before 2.00 pm that day, the Bank would not make the payment due to Costain. The Company would thus breach the terms of its main contract with Costain. He said that as a consequence the Bank would appoint a Receiver instead of "step in" and complete the development in accordance with Clause 9 of Deed of Warranty and we would lose our investment of £5.05m and our house would be at risk, as well as the hotel development. He said it would take at least one and a half hours for us to drive to SL's office in Leeds and another one and a half hours to drive back to Chris Logan's office in Manchester to sign the personal guarantee document. It was he said therefore impossible for me or Bala to receive an independent face-to-face advice from SL prior to signing the personal guarantee document before 2.00 pm. He said we were going to sign the document in return for a third Finance Agreement which would enable the Company to pay Costain and thus to complete the hotel development, prior to the Company completing a refinance with another Bank and ending the relationship with the Bank. He said there was no risk involved in me signing the personal guarantee document. He told me that "If you don't sign we will lose everything as they will put in the receivers. If you sign, we still have a hotel."

Despite Bala's reasoning I was still very upset and worried. He said I had to sign or we would lose the house and I still had trust in him. I also believed, based on Bala's assurances, that there was no risk involved in me signing the personal guarantee document without receiving such face to face advice. In simple terms Bala convinced me that if I did not sign the document I would lose the house, the hotel and everything we had and that if I did sign I would not. In other words he convinced me that I had no option other than to sign. I now feel that Bala and the Bank effectively prevented me from getting independent legal advice on that day. "

209. It is on the basis of this account that the case is made that Mrs Chandra was bullied by Mr Chandra into signing the guarantee. I reject this. Mrs Chandra made clear in her oral evidence that she was not suggesting that Mr Chandra was threatening to crash the car if she refused to sign. She was shouting and crying. He shouted back, saying that he was concentrating on driving. He also, she says, shouted that if she did not sign they would lose everything. In between he appears to have a given a rational and succinct explanation of the position facing them, leaving aside anything about a third finance agreement and an absence of risk to which I will later return. In my judgment, this evidence describes no more than a stressful situation for them both. It involved no bullying or harassment on the part of Mr Chandra.
210. Mrs Chandra's evidence that they arrived at the bank's office at about 1.30 pm is consistent with the timing of the emails between Mr Logan and Ms Leonard. Mr Logan's own evidence is that it was a short meeting, of no more than 20 minutes. Mr Logan and a Mr Walker from the bank's credit documentation department attended for the bank. In the course of the meeting Mr and Mrs Chandra signed the guarantee.
211. There are differences in the evidence as to the meeting. The first, and most important, is what if anything was said about the guarantee. Mrs Chandra says that the guarantee document was taken out of a file, opened by Mr Logan at the signature page and given to Mr Chandra. Mr Chandra signed it and Mr Walker witnessed the signature. Mr Logan then turned the page, without letting Mrs Chandra see the front page and asked her to sign. She hesitated and said to Mr Logan that she was worried about signing it. He said that he assumed that "you" have received independent legal advice. Mrs Chandra hesitated and was about to tell Mr Logan that she had not when Mr Chandra said that they had received a call from their solicitor while driving to the bank and that he had said that it was OK for both of them to sign. Mrs Chandra then signed, and both she and her husband were given copies. Mr Chandra supported this evidence. He says that he only saw the signature page and did not check the rest. He thought that a businessman under reasonable circumstances would check the document but he felt cornered and had no choice given the deadline for payment to Costain.
212. Mr Logan's evidence was that he first asked, and they confirmed, that they had received legal advice. In his oral evidence, he accepted that it was likely that Mr Chandra said that they had received legal advice on the way to the bank, but he believed that both answered that they had received advice. He then asked Mr Walker to "walk Mr and Mrs Chandra through the documentation", who explained "the nature and effect" of the guarantee. He or Mr Walker asked them if they had any questions, which they did not, and then they signed. Mr Logan strongly denied that he presented them with the signature page, as being something he would never do. He and Mr Walker did not go through every clause line by line but they did highlight the key features or salient points, such as that it was for an increased amount and secured on the house. Mr Knox was rightly critical of the phrase "walk through" as lacking any precision as to what was explained, and perhaps as suggesting more than occurred. However, I accept that Mr Logan would not have just opened the guarantee at the signature page, but saw to it that Mr Walker explained the principal features. I think it very unlikely that the limit on the guarantee was not mentioned, as this was essentially the only difference from the guarantee given in September 2001 and was, as I have found, a deliberate change from the guarantee proposed the previous week. Mr Logan cannot remember mentioning the limit, either in his telephone call to Mr Chandra in the morning or at the meeting, but in view of his firm belief that it was always to be for £1.15m this is not surprising. He was reasonably confident that Mr Walker would have stated the amount of the guarantee. I find that the amount was mentioned at the meeting and I also think it likely that Mr Logan would have mentioned the new lower limit in his telephone call to Mr Chandra. I also reject Mr Chandra's evidence that he did not himself look at or check the document before signing it.
213. Secondly, there appeared on the witness statements to be a considerable difference as to what, if anything, was said about the financial position of the company. Mr Logan said in his statement that he took the opportunity to discuss "(albeit in general terms) the current position with regards to the Bank debt, security position, the rationale for requiring additional security and other matters in respect of the Development". It was, he said in his oral evidence, a general discussion about the financial state of the company. Mr and Mrs Chandra do not accept that there was any such discussion. I think something almost certainly was said about the stop-gap nature of the excess drawdown and the need for further funding to complete the development, but nothing which would amount to a real consideration or explanation of the financial position of the company.
214. Thirdly, there is a difference as to how Mrs Chandra appeared at the meeting. It sticks in Mr Logan's mind that she surprised him by how chirpy she was, saying how grateful she was for the bank's support and not suggesting that she was an unwilling party. He denies that she said that she was worried about signing the guarantee. In contrast, Mrs Chandra said that she was very solemn, had no conversation or chit-chat with Mr Logan and certainly never expressed any thanks. I prefer the evidence of Mr Logan. He was clear that Mr Chandra did most of the talking but I do not believe that he has invented the clear recollection that he has of Mrs Chandra's general demeanour. Having see Mrs Chandra give evidence, I think it likely that, whatever her private misgivings, she would want to give the impression that she was supporting her husband.
215. I turn now to consider the bases on which it is said that Mrs Chandra's agreement to give the second guarantee was procured by the undue influence or misrepresentations of Mr Chandra. I have earlier summarised these. I have already rejected the case that she was bullied by Mr Chandra during the car journey on 20 May 2003.

Alleged misrepresentations

216. Three misrepresentations are alleged. First, and the one on which Mr Knox most relied in his closing submissions, is that Mr Chandra innocently misrepresented that the guarantee was in return for a third finance agreement which would enable the company to complete the project. He believed this to be the case because, he says, the bank agreed in discussions with him that in return for a guarantee of £1.8m or £1.65m the bank would grant and provide the third finance agreement. The bank, he says, never told him that it was not going to honour this agreement or that the guarantee proffered for his and his wife's signature was not to be provided on this basis. It is not suggested that, if Mr Chandra did not in fact believe this to be the case, he would deliberately mislead his wife. My impression is that he would be very unlikely to lie to her, however much he might seek to persuade her to follow a particular course.
217. The case on this misrepresentation as pleaded by the start of the trial was that Mr Chandra misrepresented to Mrs Chandra that the company would get a new finance agreement enabling it to complete the hotel if the guarantee was signed, whereas (so far as Mrs Chandra knows), the bank had not agreed to provide a new finance agreement to complete the hotel. It was not, however, part of Mrs Chandra's case that Mr Chandra had lied about this. Rather the case was that Mr Chandra understood from his dealings with the bank that this agreement had been reached. As the case developed the focus was that the bank had at least represented to Mr Chandra that it would provide a new finance agreement, or indeed that it had agreed either on a binding basis or in principle to do so.
218. In the course of his closing speech Mr Knox applied to introduce a further amendment (a second paragraph 25A and paragraphs 25B-25G) which spelt out a case that the bank had represented to Mr Chandra "in or around early May 2003 that it would be prepared to grant (alternatively that it would in principle be prepared to grant) to BPC a facility of over £2m in order to enable it to complete the hotel if in return he gave a guarantee secured by the property in the sum of £1.65m" (para 25A). Pursuant to this agreement the bank on 14 May 2003 sent the letters to Mr and Mrs Chandra concerning a guarantee for £1.65m (para 25C). In fact, by 20 May 2003 the bank no longer had a present intention of granting a loan facility to complete the hotel but only of permitting an excess drawdown, and it was by then unlikely to grant a full facility in the future (para 25D). The bank failed to inform Mr Chandra of its change in intention (para 25E), so that its earlier statement became a misrepresentation (para 25F).
219. This was ground which had been gone over in oral evidence but I was concerned to know whether Mr Chandra supported the factual allegations so far as they concerned him. Having taken instructions overnight, Mr Kent told me that he did confirm the allegations.
220. Mr Cawson opposed the amendment on the entirely reasonable ground that it was very late to plead a new factual ease, after all the evidence had been heard. He pointed to significant inconsistencies with the evidence, including evidence given by Mr Chandra. I have, however, concluded that the disclosure of documents in this case and the extent of oral evidence dealing with the issues are more than sufficient to allow a fair determination of the issues raised by the proposed amendment. They are in any case bound up with the allegation of misrepresentation on which Mrs Chandra already relied and which is really based on a case that Mr Chandra knew or believed that the guarantee was given in return for a new finance agreement, whether as a result of a contract or agreement in principle with the bank or a representation by the bank. I accordingly allow the amendment.
221. In my judgment, the case that Mr Chandra knew that the guarantee was not given in return for a third finance agreement is overwhelming.
222. As can be seen from the internal bank documents prepared in May 2003, no credit application for a third finance agreement was submitted and no credit committee approval was given. It would be very surprising that in these circumstances Mr Logan or any other bank officer would represent to Mr Chandra that there was any commitment, or even agreement in principle, to provide a finance agreement. It is not at all surprising that there were discussions to the effect that further personal guarantees would be required if a new facility were agreed and that on 12 May 2003 the necessary procedure was initiated with a view to obtaining the guarantee if the facility were agreed. In my judgment, the note on the security request form that Mr Chandra "has agreed to the increase of his existing guarantee and charge over his property…from £700k to cover the lending of a further £2m+ to the company" means no more than this.
223. Mr Chandra's evidence that there was any agreement, whether binding or in principle, lacks clarity and consistency. On 18 May 2009 he procured the company to issue proceedings against the bank in the Queen's Bench Division, originally just for damages for alleged but unspecified breaches in or about May 2003 or thereafter of the deed of warranty. On 11 September 2009 the claim form was amended to include a number of other heads of relief, including damages for "breach of an oral contract made between the Claimant and the Defendant in or around March 2003 pursuant to which the Defendant agreed to make available further funds to the Claimant under a Third Finance Agreement". Particulars of claim, verified by a statement of truth signed by Mr Chandra, were served on or after 14 September 2009. Paragraph 18 states:

"Towards the end of March 2003 or at the beginning of April 2003, Mr Chandra (acting on behalf of the Claimant and in his personal capacity) entered into an oral agreement with Martin Taylor (a Corporate Director of the Defendant's specialist lending services) on behalf of the Defendant that he (Mr Chandra) would provide a further personal guarantee for the liabilities of the Claimant in the sum of £1.8 million in return for the provision to the Claimant of a third finance agreement ("the Third Finance Agreement") which would make funds in excess of £14.2 million available to the Claimant to meet its ongoing liabilities to Costain under the Building Contract."

224. The case put forward by Mr Chandra on behalf of the company in the Queen's Bench action is inconsistent with the case pleaded in paras 25A-25G. First, an agreement reached in late March or early April between the bank and Mr Chandra acting for himself and the company that a third finance agreement would be provided in return for a guarantee, is in practical terms inconsistent with a separate and subsequent representation that the bank would provide a third finance agreement. Secondly, the agreement alleged in the Queen's Bench action was in return for a guarantee of £1.8m, whereas the representation alleged in May 2003 is said to be in relation to a guarantee for £1.65m. Thirdly, no explanation is given for the change from £1.8m to £1.65m. Mr Kent told me on instructions that paragraph 18 of the particulars of claim is referring to an earlier occasion, in March or April 2003, and that there could be an added paragraph immediately after paragraph 18 which pleaded the representation now alleged in the present proceedings. But if that is so, why is it not already pleaded? If, as Mr Chandra now suggests, there was an agreement or representation in May 2003, it would surely have been pleaded in the Queen's Bench action. Further, any such representation could make sense only if the earlier alleged agreement had ceased to have effect or had been replaced by a different agreement, but it would make the claim pleaded in the Queen's Bench action unsustainable.
225. In any case, the evidence is entirely inconsistent with an agreement being made with Mr Taylor in March or April 2003. I have already referred to Mr Taylor's meeting with Mr Chandra on 24 March 2003, of which Mr Taylor prepared a note the same day. Both the note and Mr Taylor's follow-up letter dated 27 March 2003 referred to the bank's concerns as to the cost overruns and how they and other costs would be funded over the following few months and expressed concern as to whether the cash injection in May promised by Mr Chandra would in fact be made. In his letter, Mr Taylor suggested that Mr Chandra might consider an increased mortgage on his house to cover the cash injection, rather than rushing into a possible sale. At the meeting the possibility of further bank funding was discussed but Mr Taylor made clear that the company with its professional advisers should present a realistic cost forecast which could be reviewed by the bank and its advisers. In his letter, Mr Taylor wrote:

"For the avoidance of doubt, there is no commitment from the bank to fund these additional costs at this moment in time, but we will consider once we have the information to hand. I do see this as a very urgent situation and would request that this information is provided to the bank within the next seven days. I would also highlight that if the bank were to consider an increase in facilities, this may well be conditional upon an increased personal guarantee and an up to date valuation on your house. We can discuss this further when we meet next week."

226. There is no evidence whether the further meeting referred to by Mr Taylor took place or, if so, what was discussed. If there were a meeting at which the agreement alleged by Mr Chandra was made, it is very surprising there is no note on the files by Mr Taylor, who was in the habit of making notes of meetings, and no follow-up letter to Mr Chandra. In fact, at this time Mr Taylor's team at SLS was handing over responsibility for the company to Mr Logan's team and by 7 April 2003 Mr Chandra is writing to Mr Logan, the company's new relationship manager.
227. If there were the oral agreement alleged by Mr Chandra, it is also very surprising that he did not raise it with Mr Logan and that Mr Logan was not informed of it by Mr Taylor. I have earlier noted that Mr Logan's activities in May 2003 are inconsistent with knowledge of any such agreement.
228. In his witness statement in these proceedings, Mr Chandra says that:

"The Bank did actually write to the two of us confirming the £1.8m personal guarantee in return for an increased facility. That letter came from the RBS Documentation Department in Manchester. There were two letters – one addressed to me, one addressed to Mrs Chandra. I opened them both. I didn't show Mrs Chandra the letter. I cannot now find the letter and it has not been disclosed in these proceedings by the Bank."

229. Mr Logan is unaware of any such letters and there is no evidence except from Mr Chandra that these letters were sent. I am satisfied that there were no such letters. Moreover, there is no mention in any contemporaneous document of a guarantee for £1.8m.
230. Mr Chandra's evidence, supported by Mrs Chandra, is that it was only after they got home on 20 May 2003 that Mr Chandra realised that the guarantee was for £1.15m, not £1.65m as indicated in the letter dated 14 May 2003, and that he had been "cheated" because there was no third finance agreement. If that was true, one would expect Mr Chandra to raise it with the bank, but he did not do so either immediately or over the following weeks. I find implausible his explanations that it was too late, that he was hoping the bank would see sense and that he had to co-operate with the bank.
231. The bank's records show that, contrary to standard practice, the guarantee once signed by Mr and Mrs Chandra was not immediately returned by Mr Logan to the credit documentation department, which had to send out a reminder before it was finally returned in July 2003. It was put to Mr Logan that he deliberately retained it because he knew that Mr Chandra thought he was getting a third finance agreement in return and he hoped that one could be arranged before the guarantee was returned.
232. For the same submission Mr Knox also placed some reliance on the circumstances in which letters were sent by Mr Logan on 24 July 2003 to Mr and Mrs Chandra and counter-signed by them. The letters referred to the guarantee dated 20 May 2003 and to the legal mortgage dated 30 October 2001 over Mr and Mrs Chandra's house and continued:

"We confirm that the Bank continues to rely on these securities according to their respective terms for all the Company's present and future accounts with the Bank and all the Company's present and future actual and contingent liabilities to the Bank including but not limited to the present excess (beyond the overdraft limit of £300,000) in the Company's borrowing on its overdraft facility with the Bank and any further excess or excesses the Bank may allow."

The letters were counter-signed by Mr and Mrs Chandra and returned to the bank. The letters provided for the counter-signatures to be witnessed but this was not done. On their return, Mr Logan signed as witness, although of course he had not witnessed the signatures. He was pressed on this. He accepted that they were his signatures but said that he could not recall signing them or why he did so.

233. Mr Knox submitted that these letters also showed that Mr Logan knew that Mr Chandra thought that he and Mrs Chandra gave the guarantee in return for a third finance agreement, and that he held back on completing the documentation relating to the guarantee while he thought there was a prospect of a third finance agreement. Mr Macklin had emailed him on 19 May 2003 after the decision to approve the excess drawdown of £450,000 that "we need to make sure we cover the point, via firm documentation, about reliance on the increased PG for this xs in the absence, at this stage, of an overall agreement re ongoing support". It was suggested that the letters of 24 July 2003 were a late attempt to provide "firm documentation".
234. I reject these submissions. The suggested motive for retaining the guarantee and for allegedly not acting on Mr Macklin's email until July 2003, that Mr Logan hoped that a third finance agreement would be agreed and thereby make good the agreement or understanding with Mr Chandra, is not sustainable in the light of, first, my finding that the amount of the guarantee and the limited further funding were discussed between Mr Logan and Mr Chandra and, secondly, the terms of a letter sent by Mr Logan to Mr Chandra on 20 May 2003:

"Further to our recent telephone conversation, I write to confirm that your existing personal guarantee (currently £700,000) is being increased at your request to £1,150,000 to secure the proposed excess on your facilities. This excess is to allow the payment of the May drawdown to Costains and other suppliers."

I am also satisfied that it was by sending this letter that Mr Logan sought to ensure that "firm documentation" was in place. It certainly makes clear the limited purpose of the guarantee and is inconsistent with the agreement on which Mr Chandra relies.

235. The letters dated 24 July 2003 were unconnected, as I find, with Mr Macklin's email. I accept Mr Logan's evidence that they were sent as a result of legal advice given in the preceding few days. The reason for sending them and requiring them to be counter-signed is apparent from a letter addressed to the company and sent on the same day. It stated that the bank was prepared to consider allowing a further excess drawdown on the overdraft to fund the July payments to Costain and other suppliers "if the Bank first receives an acknowledgment from Mr Bala Chandra and Mrs Maria Chandra in terms it considers satisfactory".
236. As to the reasons for not returning the guarantee to the credit documentation department until July 2003, Mr Logan could not remember why he had not returned it but assumed that he simply overlooked it, which I accept is the likely explanation. Mr Logan was embarrassed by having signed the letters of 24 July 2003 as witness to the signatures of Mr and Mrs Chandra. He could provide no explanation, but in all the circumstances the explanation is in my judgment the obvious one: seeing that Mr and Mrs Chandra had counter-signed the letters but not got them witnessed, he thought the easiest course to avoid further delay was for him to sign as witness.
237. In the face of all this evidence, I am satisfied that there was never either a contract or an agreement in principle that the bank would grant a third finance agreement to complete the project in return for a guarantee from Mr and/or Mrs Chandra. I am also satisfied that Mr Chandra never believed or understood that there was any contract or agreement. What was discussed with the bank, and what he did know, was that if the bank were to agree to provide facilities to complete the project, he and Mrs Chandra would have to provide guarantees for £1.65m. The evidence of both Mr Logan and Mrs Chandra was that Mr Logan and Mr Chandra were in almost daily contact in May 2003. I am further satisfied that once the decision was made early on 20 May 2003 to take a guarantee with the lower limit of £1.15m, Mr Chandra was informed, either by Mr Logan in his call that morning and/or at the meeting.
238. I reject Mrs Chandra's evidence that she was told by Mr Chandra that in return for the guarantee the bank would provide facilities to complete the project. He knew that was not the case and he would not have misled Mrs Chandra. At most he said, as was the case, that unless a guarantee was given that day the project would be at an end and there would be no possibility of facilities in the future.
239. The second alleged misrepresentation is that Mr Chandra told Mrs Chandra that there was no risk involved to her in signing the guarantee. I am satisfied that Mr Chandra did not tell her that there was no risk and that Mrs Chandra knew that the giving of a further guarantee did involve some risk. There clearly was some risk, as she knew there was with the first guarantee. Her own evidence was that at the meeting with Mr Logan she remained worried and, while I do not accept that she said so to him, I do not doubt that she was still worried about it.
240. The third alleged misrepresentation is that Mrs Chandra had no real option but to sign. It is alleged that Mr Chandra told her in the car journey to Manchester on 20 May 2003 that without the guarantee they would lose everything, because the bank would put in the receivers and they would lose everything including the house. Most of this was true. Without the increased guarantee, the bank would not advance the funds needed on 20 May 2003 and would almost certainly appoint receivers. Mr and Mrs Chandra would then lose control of the company and their investment in it. The bank would almost certainly make a call on their existing guarantee and they would be unable to meet it. The bank would therefore enforce its mortgage over the house which would be sold. It is true that following a sale there would be substantial equity in the proceeds of sale, of up to about £1m, but Mrs Chandra knew the extent of their existing liability to the bank. I am satisfied that if Mr Chandra said that they would lose everything, Mrs Chandra understood that he did not mean literally everything, but was referring to the company and the house.
241. I therefore reject Mrs Chandra's defence so far as it is based on misrepresentations said to have been made by Mr Chandra.
242. It follows from what I have earlier said, that Mrs Chandra cannot succeed simply on the basis pleaded in para 24 (1) of her defence that Mr Chandra did not give her a full explanation of any material fact concerning the proposed transaction and in particular failed to explain the current amount of the company's indebtedness and existing facilities, the purpose of the further borrowing, the current value of the hotel and the level of risk involved in the second guarantee. It is not suggested that any of this was deliberately concealed by Mr Chandra.
243. This leaves a final way in which the case for Mrs Chandra is put. It is said that Mr Chandra failed to have proper regard to her interests, as he failed to give her any proper chance to consider whether or not to sign the guarantee, given that she first learnt of it in the car journey to Manchester.
244. I have earlier set out the sequence of relevant events and the evidence relating to them. Until 20 May 2003, Mrs Chandra played virtually no part at all, consistently with this being very much her husband's project, albeit one where their financial interests were equal. She knew in early 2003 that the company needed further funds to complete the hotel. She agreed to their house going on the market in order to raise the required finance.
245. There is no evidence of any further involvement by her, or knowledge of the progress of the project, until on 14 May 2003 she signed the company's consent to the disclosure of information, and shortly afterwards her nomination of Mr Lopeman as her solicitor to advise her in relation to the guarantee. The issue at this point is whether she appreciated that she was to be asked to give a further personal guarantee. I accept her evidence that her husband opened her post unless it was clearly personal. That he filled in Mr Lopeman's name, firm and address is some indication supporting her evidence that he simply presented the documents to her for signing. Having seen each of them give evidence, I find her evidence in that respect entirely plausible. It may be surprising that she did not appreciate that it was proposed that she would give further guarantees, but it is nonetheless plausible. I am satisfied by her evidence that she became very distressed in the car on 20 May 2003 when, following the call from Mr Lopeman, Mr Chandra told her that she was expected to give a further guarantee. This would not have occurred if she had understood the content of the documents she signed a few days earlier.
246. I therefore accept that Mrs Chandra first appreciated that she was being asked to give a further personal guarantee, which would be secured by the existing mortgage, in the car en route to Manchester. She had been shopping in the morning and on return at about 12.30 pm was told by Mr Chandra that they had to go immediately to Manchester to sign some documents. She did not then know what the documents were and there was no reason for her to realise that she would be asked to give an increased guarantee. She did from time to time sign documents on behalf of the company.
247. Only when Mr Lopeman called was there any mention of personal guarantees. It was a short call. Mr Lopeman was not in possession of any of the financial information from the bank that the guidance in Etridge required and he was in no position to provide the advice and explanation envisaged by Etridge. It was immediately after this call that Mrs Chandra became angry and upset. Mr Chandra briefly explained why the guarantee was needed, without as I have found, any misrepresentation but equally without any real explanation of the current financial position, other than the need for immediate funds, or the future prospects. By the time they arrived in Mr Logan's office at about 1.30 pm Mrs Chandra had acquiesced in Mr Chandra's wish that they both give the necessary guarantee. In my judgment, Mrs Chandra was given no real opportunity to consider whether to give the guarantee. There are of course times when decisions have to be taken under great pressure of time. However, the pressure of time in this case as it affected Mrs Chandra was unnecessary. Mr Chandra had known for some time that guarantees would be required. He knew too that Mrs Chandra was likely to be very reluctant to give a further guarantee. Nearly a year earlier Mr Chandra had told the bank, as recorded in an internal bank note dated 8 August 2002, that he would be prepared to give a further guarantee "as he believes totally in the project, however his wife maybe a different matter i.e. not wanting to loose (sic) a roof over her head".
248. Mr Chandra's evidence, which I accept, is that in April/May 2003 he delayed telling Mrs Chandra about the need for a guarantee because he wanted to wait until the bank had agreed financing to complete the project and he could then present it to her as a package. He thought, perhaps correctly, that it would be easier to sell to her in those circumstances.
249. If he had informed her earlier as to the likely need for a guarantee, she would have had a proper opportunity to consider it and, as required by the bank, to take independent advice. As with the first guarantee, there would have been the opportunity of a separate discussion with Mr Lopeman. The lower limit of £1,150,000 emerged at a very late stage but there could have been proper consideration of the current position and future prospects of the project, and in the days leading to 20 May 2003 consideration of a guarantee of £1.65m with the real possibility that by 20 May 2003 the bank would not yet be in a position to agree to more than the excess drawdown needed for the payments due on that date. It is nothing to the point that Mrs Chandra generally refused to get involved in discussions concerning the project. She was entitled to the opportunity of doing so in this context and I am inclined to think that with her home at greater risk she would have done so. I should add also that, while Mrs Chandra placed trust and confidence in her husband in relation to financial decisions of this sort, she would come to her own view given the opportunity, as she did with the first guarantee.
250. The circumstances of the car journey provided a hopelessly inadequate opportunity for Mrs Chandra to make a decision. Because of these circumstances, there was no adequate legal advice and a fraught conversation with Mr Chandra in which, without any bullying or misrepresentation, she came under great pressure to agree. Mr Chandra is, I can confidently say, a strong-willed, even obdurate, man. He continued to believe totally in the project and he was overwhelmingly concerned that Mrs Chandra should support him. This pressure, combined with the lack of opportunity for any reflection and her strong sense of loyalty to her husband, led to her acquiescence in the proposal to give the further guarantee.
251. In my judgment, Mrs Chandra's agreement was in these circumstances induced by the actual undue influence of Mr Chandra. If the time had been taken to follow the steps required of banks by Etridge, Mrs Chandra would have received proper legal advice of the sort envisaged by Etridge from Mr Lopeman. Not only would the bank then have been protected against the effects of any undue influence, but Mrs Chandra would have been protected against undue influence and if Mrs Chandra had then decided to give the guarantee, it would not have been the result of undue influence.
252. The bank accepts that it is in difficulty in showing that it took the steps required by Etridge. In particular, it did not provide either to Mrs Chandra at a meeting in the absence of Mr Chandra or to Mr Lopeman sufficient information about the company's financial circumstances and the underlying transaction. The bank can derive no protection from Mr Lopeman's confirmation that he had provided the "guarantors" with advice.
253. The bank's reply raised arguments that, even if the guarantee could otherwise be set aside, Mrs Chandra was precluded from raising the defence because (a) she signed the letter dated 24 July 2003 acknowledging that the bank was relying on the guarantee, (b) she signed the company's statement of affairs which referred to her guarantee without objection and (c) the defence was raised very late. These arguments, rightly in my view, were not relied on by the bank in its closing submissions.
254. I conclude therefore that as against Mrs Chandra the second guarantee should be set aside.

Overall conclusion

255. I reject all defences raised by both Mr and Mrs Chandra to the bank's claim, except for Mrs Chandra's defence that the second guarantee was procured by undue influence on the part of Mr Chandra, of which the bank had notice. The second guarantee is not therefore enforceable against Mrs Chandra. She remains liable on the first guarantee.
256. I will invite counsel to agree, if possible, the terms of appropriate declarations, and such further directions or other orders as may be appropriate, including such as may be agreed in respect of the bank's claim for an order for possession.