Neutral Citation Number: [2011] EWCA Civ 192
Case No: A3/2010/0975
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
Mr Justice David Richards
Vice-Chancellor of the County Palantine of Lancaster
4AL04859
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 2nd March 2011
Before :
LORD JUSTICE WARD
LORD JUSTICE PATTEN
and
LADY JUSTICE BLACK
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Between :

	ROYAL BANK OF SCOTLAND PLC	Respondent
(Claimant)	
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	BALA PERAMPALAM CHANDRA

MARIA PERPETUA CHANDRA	Respondent

Appellant
(2nd Defendant)	

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Mark Cawson QC and Kelly Pennifer (instructed by Eversheds LLP) for the Claimant
Peter Knox QC (instructed by Keoghs and Nicholls, Lindsell & Harris) for the Second Defendant (Appellant)

Hearing date : 13th December 2010
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Judgment

Lord Justice Patten : 
1.	This is an appeal by the second defendant, Mrs Maria Chandra, against an order of David Richards J (sitting as the Vice-Chancellor of the County Palatine of Lancaster) dated 15th March 2010.  The judge upheld a claim by the Royal Bank of Scotland plc (“RBS”) to enforce a personal guarantee and a second legal charge both dated 30th October 2001 which had been given by Mr and Mrs Chandra to secure the borrowings of a company called BPC Hotels Limited (“the Company”) of which they were both directors.
2.	The Company was a wholly owned subsidiary of BPC Enterprises Limited which was jointly owned by the defendants and had been used to run a highly successful nursing home business which had been built up from scratch over a period of 17 years.  The business was sold in 1997 for £23 million leaving the Chandras with a net profit of about £5.3 million.
3.	Mr Chandra was keen to pursue further business opportunities partly in order to obtain roll-over relief in respect of the capital gains on the disposal of the nursing home business.  He used the Company to acquire and develop a property in Princess Street, Manchester into a hotel. 
4.	The property was purchased in 1998 for £1.5 million using the proceeds of the nursing home business.  On completion it was to be granted a franchise to operate as a 4-star Holiday Inn.  The total cost of acquisition and development was originally estimated to be some £11.9 million but in 2000 the proposed size of the hotel was increased and the cost estimate was revised upwards to £15.25 million.
5.	RBS originally agreed to provide loan finance to the Company in the sum of £7.3 million but this was increased to £10.65 million under a finance agreement dated 20th September 2000.  Costain Limited (“Costain”) were engaged as the contractors and started work on 2nd October 2000 under an interim agreement dated 7th September 2000.  Formal building contracts were subsequently entered into on 30th April 2001 in the form of a JCT Standard Form of Building Contract 1998 Edition with Quantities and a supplemental bespoke contract.  Mr Chandra had opted for a traditional build-only contract rather than a design and build contract under which the contractor took responsibility for any subsequent amendments to the design within the agreed contract price.  Although initially cheaper, the build-only contract meant that design responsibility rested with the Company rather than with the contractor and additional design development during the course of the project led to significant cost overruns. 
6.	The first drawdown under the September 2000 finance agreement took place at the end of July 2001.  As a term of this, the Company granted to RBS a debenture incorporating fixed and floating charges over its business assets together with a first legal charge over the development property.  At the same time RBS granted overdraft facilities to the Company limited to £300,000 to assist it with VAT timing differences.
7.	By September 2001 the cost of the development had risen by some £755,000 and a second finance agreement was entered into under which RBS would provide the Company with a further £700,000.  It was as security for this further borrowing that Mr and Mrs Chandra agreed to give personal all monies guarantees limited in amount to £700,000 which were secured by a second legal charge over their matrimonial home.  These were executed on 30th October 2001. 
8.	There were, however, further increases in the costs of the development during 2002 which led to or involved a dispute between the Company and Costain.  In February 2003 Mr Chandra told RBS that the Company would not require further financing from the bank and that he expected to be able to inject a further £700,000 into the project from the sale of the matrimonial home.  In the event, the house was not sold and a payment to Costain of over £485,000 became due on 20th May 2003 which the Company was unable to pay in full.
9.	The Company therefore requested further finance from RBS to enable the payment to be made and to avoid any cessation of work by the contractors.  RBS agreed to increase the loan on terms that Mr and Mrs Chandra would increase their personal guarantees from £700,000 to £1.15 million secured by the second charge on their home.  A guarantee to this effect was executed by them on 20th May 2003. 
10.	Although the additional finance enabled the Company to overcome its immediate cash flow difficulties, it did not provide sufficient monies to complete the development.  Mr Chandra approached RBS for further assistance but the bank had by then lost confidence in his ability to manage the project and to provide any certainty in relation to the amount of any further expenditure.  As a consequence, formal demand was made in August 2003 for the repayment of the loans and administrative receivers were appointed over the Company’s assets and undertaking.
11.	The amount owed to the bank was then about £12.3 million.  RBS decided to retain Costain as contractors and in September 2003 a new company owned by the receivers’ firm was used to take over the building contracts as agent for the Company.  Under arrangements which are not material to this appeal, RBS provided sufficient funds to complete the development and to settle Costain’s claims against the Company.  The property was eventually sold in March 2004 for £13.5 million, leaving a shortfall due to the bank of £4.118 million.
12.	The claim to enforce payment under the two guarantees and the legal charge was resisted on a number of grounds which included the effect of the receivership on the contractual relationship between the Company and Costain; the alleged negligence of RBS or the receivers in reaching a settlement of Costain’s claims against the Company; and the alleged sale of the completed development at an undervalue.  But in July 2008 Mrs Chandra served a separate defence to the effect that both guarantees which she signed had been procured by the undue influence of her husband of which the bank had notice.  The Vice-Chancellor found for Mrs Chandra on this point in relation to the second guarantee executed on 20th May 2003 but rejected it in respect of the first guarantee signed on 30th October 2001.  She now appeals against the decision in respect of the first guarantee. 
The case on undue influence
13.	I have taken my summary of the background facts from the judgment below because they are not in dispute on this appeal.  In relation to the first guarantee, the judge went on to find that it had not been procured by any undue influence or misrepresentation on the part of Mr Chandra and that, even if it had been, RBS was not on notice of this given the steps which had been taken using solicitors to explain to Mrs Chandra what the guarantee involved.  The grounds of appeal challenge the judge’s findings that Mr Chandra had not made any material misrepresentations to his wife about the sum needed to complete the development project in reliance on which she executed the guarantee.  It is contended that Mr Chandra misled his wife about the costs involved by representing to her that the extra loan of £700,000 sought from RBS would be enough to complete the hotel when it could not in fact be said with confidence that there would be no further cost overruns.  This, it is said, was both a material misrepresentation and an abuse of trust and confidence even if made in good faith.  The judge rejected that claim on the basis of his finding that Mr Chandra was confident and therefore believed that £700,000 would be enough to complete the project.  Although that finding of fact is not under appeal, it is said to be insufficient to support his conclusion that there was therefore no misrepresentation.  There are also challenges to the way in which the judge characterised Mrs Chandra’s case and to his alleged failure properly to analyse the objective risks of future cost overruns which, it is said, were considerable.  I shall come to this in more detail when looking at the findings which the judge made.
14.	The second main ground of appeal concerns the issue of constructive notice.  The most recent authoritative guidance on what steps need to be taken by a bank or other lender in order to avoid being fixed with constructive notice of any undue influence or misrepresentation by a husband in respect of the giving of a guarantee or charge by a wife in respect of his debts is to be found in the decision of the House of Lords in Royal Bank of Scotland v Etridge (No. 2) [2002] AC 773 and, in particular, the speech of Lord Nicholls.  The speeches in that case were handed down on 11th October 2001, some 19 days before the execution of the first guarantee and the legal charge.
15.	Lord Nicholls recognised in his speech that the new guidance should apply only to future transactions.  It was common ground before the Vice-Chancellor that RBS had not complied with the new guidelines in this case.  He held that although it would have been possible for the bank to have implemented new procedures before 30th October 2001, it was not reasonably practicable for it to have done so.  By applying pre-Etridge practice based on Barclays Bank v O’Brien [1994] 1 AC 180, it had therefore done enough to avoid being put on inquiry about the transaction.  Mrs Chandra challenges this conclusion on two bases.  She contends that the new guidelines were intended to be applied to all future transactions and that the risk was on the bank if it failed to comply with them.  Secondly, she says that the new guidelines have to be taken to be the minimum requirements which a bank should always have to comply with and that there was no evidence before the judge that it was not reasonably practicable to have adopted them in this case.
The judge’s findings
16.	The issues for the judge in relation to the allegations of undue influence fell within a relatively narrow compass.  Mr Knox QC for Mrs Chandra accepted at the trial that the burden lay on his client to prove that the first guarantee had been procured by the undue influence of her husband.  The giving of a guarantee by a wife in respect of the debts of a company which she owns jointly with her husband is not of itself a transaction which calls for explanation in the sense that it is presumed by its very nature to have been procured by undue influence in the absence of evidence to the contrary.  Transactions of the latter kind were referred to by Lord Scarman in National Westminster Bank plc v Morgan [1983] AC 686 as being manifestly disadvantageous to the affected party.  At paragraphs 27-30 of his speech in Etridge Lord Nicholls summarised the position in this way:
“27. The problem has arisen in the context of wives guaranteeing payment of their husband's business debts. In recent years judge after judge has grappled with the baffling question whether a wife's guarantee of her husband's bank overdraft, together with a charge on her share of the matrimonial home, was a transaction manifestly to her disadvantage. 
28. In a narrow sense, such a transaction plainly ('manifestly') is disadvantageous to the wife. She undertakes a serious financial obligation, and in return she personally receives nothing. But that would be to take an unrealistically blinkered view of such a transaction. Unlike the relationship of solicitor and client or medical adviser and patient, in the case of husband and wife there are inherent reasons why such a transaction may well be for her benefit. Ordinarily, the fortunes of husband and wife are bound up together. If the husband's business is the source of the family income, the wife has a lively interest in doing what she can to support the business. A wife's affection and self-interest run hand-in-hand in inclining her to join with her husband in charging the matrimonial home, usually a jointly-owned asset, to obtain the financial facilities needed by the business. The finance may be needed to start a new business, or expand a promising business, or rescue an ailing business. 
29. Which, then, is the correct approach to adopt in deciding whether a transaction is disadvantageous to the wife: the narrow approach, or the wider approach? The answer is neither. The answer lies in discarding a label which gives rise to this sort of ambiguity. The better approach is to adhere more directly to the test outlined by Lindley LJ in Allcard v Skinner, 36 Ch D 145, and adopted by Lord Scarman in National Westminster Bank Plc v Morgan [1985] AC 686, in the passages I have cited. 
30. I return to husband and wife cases. I do not think that, in the ordinary course, a guarantee of the character I have mentioned is to be regarded as a transaction which, failing proof to the contrary, is explicable only on the basis that it has been procured by the exercise of undue influence by the husband. Wives frequently enter into such transactions. There are good and sufficient reasons why they are willing to do so, despite the risks involved for them and their families. They may be enthusiastic. They may not. They may be less optimistic than their husbands about the prospects of the husbands' businesses. They may be anxious, perhaps exceedingly so. But this is a far cry from saying that such transactions as a class are to be regarded as prima facie evidence of the exercise of undue influence by husbands.”
17.	The Vice-Chancellor had therefore to consider all of the relevant evidence in deciding whether Mrs Chandra had established her case on undue influence.  This would ordinarily involve an examination of the nature of the alleged undue influence, the relationship between the parties and the scale and nature of the transaction: see Etridge at paragraph 13.  But, in this case, the allegation was framed in relatively narrow terms.  Her pleaded defence was that, at all material times, she placed trust and confidence in her husband in relation to business matters.  Although a co-director and shareholder in BPC Enterprises Limited, she had no involvement in the hotel development and visited it only once which was after the receivership had commenced.  Mr Chandra had sole charge of all aspects of the Company’s business including its finance.  She therefore relied and depended upon him for accurate information about the development project.
18.	She alleged that in October 2001 her husband told her that the Company needed to borrow a further £700,000 from RBS which would have to be secured by a personal guarantee and a charge on the matrimonial home.  He said that the extra £700,000 would be enough to complete the hotel so there was no risk in giving the guarantee.  Conversely if the guarantees were not given and the finance was not obtained the hotel could not be completed and sold and the bank would pursue them for its losses.  Mrs Chandra is alleged to have agreed to execute the first guarantee and the legal charge in reliance on these representations.
19.	In her first witness statement she confirms her pleaded case including that her husband told her that the £700,000 would be enough to complete the hotel.  Her evidence was that she still had faith and trust in Mr Chandra’s business decisions but that she would not have executed the guarantee had she not believed his assurance that the extra loan would be sufficient to finish the development.
20.	The Vice-Chancellor held that there was a relationship of trust and confidence between Mr and Mrs Chandra which subsisted throughout the relevant period.  At paragraph 145 of his judgment he said that:-
“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.”
21.	He then went on to consider the evidence relating to the giving of the first guarantee.  I can summarise his material findings as follows:
(1)	the costs overrun which led to the request for a further loan was identified by the bank’s own monitoring surveyors.  The minutes of the credit committee indicate that the surveyors thought that £700,000 would be sufficient to complete the development including a sum for contingencies;
(2)	Mr Chandra asked RBS for an increase in the facility of £950,000 which included a further contingency of £250,000 over one of £200,000 already contained in the £700,000 figure.  But the credit committee agreed to approve a loan of £700,000.  One member of the committee is recorded as having expressed concern that the further £250,000 might be used by Mr Chandra to make changes in the design specification;
(3)	Jeremy Bell of RBS, basing himself on information derived from the Company’s quantity surveyor, noted as late as October 2001 that:
“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”;
(4)	as part of its then standard procedures RBS asked the Chandras to nominate a firm of solicitors to advise them in relation to the proposed guarantees.  They nominated Messrs Brooke North in Leeds and the bank wrote to the firm on 10th October 2001 enclosing copies of the guarantees.  The letter stated:
“In accordance with our obligations under the Banking Code we encourage all potential guarantors to take Independent Legal Advice to make sure that they understand their commitment and the potential consequences of their decision.
In this regard your Clients have requested that the Guarantee be forwarded to you to enable it to be fully explained to them prior to execution.  We have asked your Clients to contact you to arrange a convenient appointment.  For the avoidance of doubt we should stress that you are not being asked to act for the Bank in relation to the Guarantee and your Clients will be responsible for your fees.
Accordingly we now enclose the relevant Guarantee together with a copy for each of your Clients.  Assuming that your Clients are happy to proceed, please arrange for the Guarantee to be executed and witnessed, preferably by a partner or a qualified solicitor.  Please also sign the panels on the Guarantee confirming that you have explained the documents to your Clients.”;
(5)	Mr Stephen Lopeman, a partner in Brooke North, who had previously advised and acted for Mr and Mrs Chandra and the Company, visited the Chandras at home to discuss the guarantees.  He did not give evidence but Mrs Chandra’s evidence was that he saw her alone.  She explained that she was a little worried about giving the guarantee and the charge on the house.  Mr Lopeman warned her that by signing the documents she would put the house at risk.  But he added that Mr Chandra “has never let you down so far”;
(6)	Mrs Chandra agreed to execute the guarantee and Mr Lopeman witnessed her signature.  The printed guarantee contained an endorsement which Mr Lopeman signed stating that:
“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.”
22.	The Vice-Chancellor’s findings and conclusions on the issues of undue influence and misrepresentation are set out in paragraphs 153-164 of his judgment.  Mrs Chandra’s case rested on three alleged misrepresentations which she said were made by her husband and which caused her to execute the first guarantee and a more general allegation that Mr Chandra had failed to give her a full explanation of all material facts other than the additional loan of £700,000.  Mr Knox also relied at the trial on evidence given by Mr Chandra that he had pressurised his wife into signing the guarantee but the judge rejected this.
23.	The Vice-Chancellor held that only one of the alleged misrepresentations had been made and that this did not amount in law to a misrepresentation or, as a consequence, to undue influence on the part of Mr Chandra.  The case based on a failure to explain material facts was abandoned by Mr Knox in closing his client’s case.  There is no appeal against the judge’s findings of fact in relation to the second and third alleged misrepresentations.  His reasons for rejecting the allegation of undue influence based on the first alleged misrepresentation are set out quite shortly in paragraphs 154-156 of his judgment as follows:-
“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.”
The appeal
24.	A relationship of trust and confidence between two parties is recognised in equity as being fiduciary in nature.  It will therefore be the source of various fiduciary duties including an obligation to act in good faith and an obligation to avoid conflicts of interest and duty.  But it is also important to keep firmly in mind that not every failure by the fiduciary party will amount to a breach of these core obligations.  The defining characteristic of a fiduciary relationship is loyalty.  A fiduciary who acts negligently but in good faith is not unfaithful and commits no equitable wrong: see Bristol and West Building Society v Mothew [1998] Ch 1 at page 18F.
25.	On the judge’s findings of fact there was therefore no abuse of confidence as such in what Mr Chandra said to his wife prior to the execution of the first guarantee and the only form of unacceptable conduct which can be relied on to vitiate the transaction is the alleged misrepresentation contained in Mr Chandra’s admitted statement that the additional £700,000 would be sufficient to complete the development.  Some reliance is placed by Mr Knox on Mr Chandra’s evidence that he realised that £700,000 might not be enough and that he had earlier asked the bank for a total of £950,000.  But the additional £250,000 was for contingencies over and above the £200,000 already included in the £700,000 and the judge was entitled on the evidence to conclude that although he could not guarantee that £700,000 would be sufficient to complete the development, Mr Chandra was confident that it would be enough.  On the basis that this statement was made honestly, it therefore represented (as the judge has found) an estimate or prediction as to the limits of any future expenditure.  And it was understood as such.  There are therefore two questions to be answered: (1) did this amount to a misrepresentation at all (even if only an innocent one); and (2) if it did, was it sufficient to create an equity in Mrs Chandra’s favour entitling her to set aside the first guarantee?
26.	It is convenient to deal with the second question first.  As Lord Nicholls explained in Etridge at paragraphs 6-12, it is impossible adequately to classify every type of situation in which improper or undue influence can be said to have been used to persuade a person to enter into the transaction under review. But for a person’s conduct to fall into this category it must, on established principles, make it unconscionable for that person and any who have notice of his conduct to seek to rely on the effect of what has been done.  Conscious deception obviously satisfies this test as does an abuse of confidence in the form of a breach of loyalty or good faith of the kind described above.  The trusted adviser who chooses to prefer his own interests over those of the person who confides in him is a classic example of this.
27.	The language of the decided cases summarised by Lord Nicholls in the passage I have referred to is replete with references to abuse of trust, exploitation and domination of the injured party.  All of these characterise some conscious act of wrong-doing on the fiduciary’s part.  But it is much more difficult to apply these notions to cases of innocent misrepresentation where the highest it can be put is that more care should have been taken in giving the information or advice which was relied on.  To elevate such a failure into a breach of fiduciary duty or abuse of confidence is to fall into the very trap exposed by Millett LJ in his judgment in Mothew which I have already referred to.  
28.	Mr Knox has drawn our attention to various passages in earlier judgments and in Lord Nicholls’ speech in Etridge which he says support a wider test of the type of conduct which can amount to undue influence.  So in Barclays Bank v O’Brien Lord Browne-Wilkinson at page 196A-D in the context of a discussion about the effect of notice says that:
“Therefore where a wife has agreed to stand surety for her husband's debts as a result of undue influence or misrepresentation, the creditor will take subject to the wife's equity to set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety.
It is at this stage that, in my view, the "invalidating tendency" or the law's "tender treatment" of married women, becomes relevant. As I have said above in dealing with undue influence, this tenderness of the law towards married women is due to the fact that, even today, many wives repose confidence and trust in their husbands in relation to their financial affairs. This tenderness of the law is reflected by the fact that voluntary dispositions by the wife in favour of her husband are more likely to be set aside than other dispositions by her: a wife is more likely to establish presumed undue influence of Class 2(B) by her husband than by others because, in practice, many wives do repose in their husbands trust and confidence in relation to their financial affairs. Moreover the informality of business dealings between spouses raises a substantial risk that the husband has not accurately stated to the wife the nature of the liability she is undertaking, i.e., he has misrepresented the position, albeit negligently.”
29.	In the same context Lord Nicholls in Etridge (at paragraphs 34-36) says this about the balance to be struck between the need to ensure that banks can successfully lend on the security of jointly owned matrimonial assets and the need to prevent wives from being taken advantage of by their husbands:
“34. The problem considered in O'Brien's case and raised by the present appeals is of comparatively recent origin. It arises out of the substantial growth in home ownership over the last 30 or 40 years and, as part of that development, the great increase in the number of homes owned jointly by husbands and wives. More than two-thirds of householders in the United Kingdom now own their own homes. For most home-owning couples, their homes are their most valuable asset. They must surely be free, if they so wish, to use this asset as a means of raising money, whether for the purpose of the husband's business or for any other purpose. Their home is their property. The law should not restrict them in the use they may make of it. Bank finance is in fact by far the most important source of external capital for small businesses with fewer than ten employees. These businesses comprise about 95% of all businesses in the country, responsible for nearly one-third of all employment. Finance raised by second mortgages on the principal's home is a significant source of capital for the start-up of small businesses.
35. If the freedom of home-owners to make economic use of their homes is not to be frustrated, a bank must be able to have confidence that a wife's signature of the necessary guarantee and charge will be as binding upon her as is the signature of anyone else on documents which he or she may sign. Otherwise banks will not be willing to lend money on the security of a jointly owned house or flat.
36. 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.”
30.	These statements involve an acceptance that, in the context of the relationship of trust and confidence which commonly subsists between a married couple (or their equivalent), a wife may be vulnerable to being misled by what amount to no more than innocent misrepresentations.  Equity (unlike the common law) had a long-established jurisdiction to allow even the victim of an innocent misrepresentation to rescind a contract which was induced by the statement made.  Although this remedy is usually exercisable only where the other party to the transaction has made the misrepresentation relied upon, the House of Lords confirmed in O’Brien that a misrepresentation or act of undue influence used by a husband to procure the giving of a guarantee would give rise to an equity which the wife could enforce against a bank which sought to rely on the guarantee with notice of the misrepresentation or undue influence: see per Lord Browne-Wilkinson at page 191 C-E.
31.	The need to protect a wife against possible misrepresentations by her husband was confirmed by Lord Nicholls in Etridge.  Again in the context of a discussion about constructive notice, he said this:
“41. There is a further respect in which O'Brien departed from conventional concepts. Traditionally, a person is deemed to have notice (that is, he has 'constructive' notice) of a prior right when he does not actually know of it but would have learned of it had he made the requisite inquiries. A purchaser will be treated as having constructive notice of all that a reasonably prudent purchaser would have discovered. In the present type of case, the steps a bank is required to take, lest it have constructive notice that the wife's concurrence was procured improperly by her husband, do not consist of making inquiries. Rather, O'Brien envisages that the steps taken by the bank will reduce, or even eliminate, the risk of the wife entering into the transaction under any misapprehension or as a result of undue influence by her husband. The steps are not concerned to discover whether the wife has been wronged by her husband in this way. The steps are concerned to minimise the risk that such a wrong may be committed. 
42. These novelties do not point to the conclusion that the decision of this House in O'Brien is leading the law astray. Lord Browne-Wilkinson acknowledged he might be extending the law: see [1994] 1 AC 180, 197. Some development was sorely needed. The law had to find a way of giving wives a reasonable measure of protection, without adding unreasonably to the expense involved in entering into guarantee transactions of the type under consideration. The protection had to extend also to any misrepresentations made by a husband to his wife. In a situation where there is a substantial risk the husband may exercise his influence improperly regarding the provision of security for his business debts, there is an increased risk that explanations of the transaction given by him to his wife may be misleadingly incomplete or even inaccurate.”
32.	I therefore accept that equity will intervene in respect of guarantees which have been procured by misrepresentation (including innocent misrepresentations) in the same way that it will set aside guarantees procured by an exercise of undue influence.  The two are not the same, although in certain cases they may overlap.  Undue influence is concerned with the abuse of a relationship of trust and confidence by the husband exercising control over the will of the wife in order to procure her consent to the guarantee.  In a case of misrepresentation that consent has been procured not by the exercise of some form of pressure or domination but by the making of a false statement which the wife in the relationship of trust has relied upon.  The only part of Mrs Chandra’s case on the first guarantee which the judge accepted on the evidence was that Mr Chandra said words to the effect that the further £700,000 would be enough to complete the project.  The allegation of undue pressure was rejected and is not relied on in this appeal.  Mrs Chandra must therefore establish that what Mr Chandra said amounted to the making of a material misrepresentation which induced her to sign the guarantee. 
33.	Where then does this take Mrs Chandra in the present case?  The Vice-Chancellor in paragraphs 154-156 of his judgment (quoted above) has found: (1) that Mr Chandra did have confidence that £700,000 would be sufficient to complete the development; (2) that this was a matter of judgment and was a view shared by the bank’s surveyors; (3) that the statement was in the nature of a forecast and could not therefore reasonably be treated as anything more than the expression of a view; and (4) that Mrs Chandra understood that what she was being told was the expression of her husband’s view and could not be treated as a guarantee (“complete certainty”) that no more money would be required.
34.	The first ground of appeal challenges the judge’s finding that there was no misrepresentation on the basis that he asked himself the wrong question.  What is said is that there were insufficient grounds at the relevant time to justify Mr Chandra saying with any confidence that £700,000 would be enough to complete the development.  The project was high risk; it was a building-only contract; the design was not sufficiently developed; Mr Chandra lacked any experience in dealing with a large development project of this kind; and he had already asked for a further contingency fund of £250,000 which the bank had rejected. 
35.	The judge (in paragraph 156) posed a different question, namely whether it could be said with certainty that £700,000 was enough.  The answer to that question was no but, because Mrs Chandra knew that her husband’s forecast was not being presented to her as a complete certainty, he concluded that there was no misrepresentation.  What, it is said, he should have asked himself was whether Mrs Chandra was misled into believing that the facts were such as to justify a confident forecast.  To say that he believed that the £700,000 would be enough to complete the development carried with it an implied representation or assurance that, on the facts then known, he could confidently state that £700,000 would be enough.  In fact the contrary was the case. 
36.	It seems to me that this is an attempt to turn a failure to speak into a case of misrepresentation.  The judge’s finding that Mr Chandra’s statement about the £700,000 was made and more importantly understood as a forecast or best estimate of future expenditure means that it had to be treated by Mrs Chandra as subject to an obvious reservation about its accuracy.  Mr Chandra was confident that £700,000 would be enough and his view was shared by others.  But he could be and in the event was wrong.
37.	It therefore makes no difference whether one treats the representation as a forecast of future costs or as a statement by Mr Chandra of what his own belief was in respect of the likely future costs.  Mrs Chandra did not ask her husband for a breakdown of all the relevant pros and cons used in his calculations and did not get one.  She did not ask him in terms whether it could be said with confidence that future finance would not be necessary and he did not say to her that his forecast was or was believed to be one which could be made with complete confidence.  She asked for and was given his conclusions: i.e. his own view of whether £700,000 would be enough.  Even if it can be said that his view was negligent, it does not amount to a misrepresentation.
38.	Of relevance in this context is what Lord Nicholls said at paragraphs 32-33 of his speech in Etridge: 
“32. I add a cautionary note, prompted by some of the first instance judgments in the cases currently being considered by the House. It concerns the general approach to be adopted by a court when considering whether a wife's guarantee of her husband's bank overdraft was procured by her husband's undue influence. Undue influence has a connotation of impropriety. In the eye of the law, undue influence means that influence has been misused. Statements or conduct by a husband which do not pass beyond the bounds of what may be expected of a reasonable husband in the circumstances should not, without more, be castigated as undue influence. Similarly, when a husband is forecasting the future of his business, and expressing his hopes or fears, a degree of hyperbole may be only natural. Courts should not too readily treat such exaggerations as misstatements.
33. Inaccurate explanations of a proposed transaction are a different matter.”
39.	Mr Chandra did not give his wife an inaccurate explanation of the transaction.  The most he can be accused of is an over-optimistic assessment of the chances of a future overspend.  This might be said to give rise to a claim for a breach of a duty of care but that is not relied upon in this case and does not (for the reasons given earlier) amount to undue influence.  Mr Chandra was not representing (either expressly or by implication) that there were no arguments to the contrary.  He was simply expressing his own view.  As the Vice-Chancellor said in paragraph 131 of his judgment:
“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.”
40.	I think that the Vice-Chancellor was therefore right to reject the claim based on misrepresentation and undue influence.  I would therefore dismiss the appeal.  The second ground of appeal about notice does not therefore arise.
Lady Justice Black :
41.	I agree.
Lord Justice Ward :
42.	I also agree.