CHALLENGE BANK LIMITED v. VASANTHI PANDYA; SUPPULETCHEMY KANAGASABAI;... [1993] SASC 3803 | Case summary

JUDGE1 KING CJ. In this action the plaintiff sues thirteen guarantors for amounts alleged to be due under a Deed of Guarantee and Indemnity. The thirteen guarantors are shown on the summons as the first defendant to the twelfth defendant, the eleventh defendant consisting of two persons being husband and wife. All defendants have raised pleas of misrepresentation, misleading and deceptive conduct, estoppel and unconscionability. 2. The action arises out of a transaction in which Lakshmi-Nivas Pty Ltd, as trustee of the Lakshmi-Nivas Unit Trust, purchased the Cremorne Plaza Shopping Centre. The purchase price of the shopping centre was $3,400,000. The purchaser borrowed $2,800,000 from the plaintiff. The plaintiff's loan was secured by a first mortgage over the purchased property. There was a second mortgage securing $200,000 in favour of the vendor. The defendants were the holders of all issued units in the unit trust at the time of the transaction. They each executed the Deed of Guarantee and Indemnity in favour of the plaintiff. The twelfth defendant was the promoter of the enterprise and he and a financial consultant by the name of Fimeri conducted the negotiations with the plaintiff. Negotiations were conducted on the plaintiff's side by its State Manager, Mr Pinyon, and another officer of the Bank by the name of Noack. The legal work was conducted for the plaintiff by Mr D H Bache of Mollison Litchfield, Solicitors. Mr Bridges of the same firm formed the unit trust and performed the legal work in connection with the purchase of the property for the purchaser. 3. Messrs Pinyon, Noack, Bache and Bridges gave evidence for the plaintiff. All defendants with the exception of the fifth defendant and the tenth defendant, gave evidence. The tenth defendant was unable to give evidence due to ill health. The fifth defendant was absent from the State and it had not been possible to notify him of the time at which it was necessary for him to give evidence. Fimeri was a witness called by counsel for the twelfth defendant. Before proceeding to discuss the facts, I indicate my views as to the various witnesses. 4. Pinyon and Noack did not have notes or diary entries to assist them and were vague about the details of events which occurred more than four years ago. I am satisfied that they both endeavoured to tell me the truth about the matter to the best of their recollection and that on the critical matters they were substantially accurate. Bache and Bridges were truthful and generally accurate witnesses. The first eleven defendants, with the exception of the fifth and tenth defendants who did not give evidence, were honest witnesses. I do not think that any of them had any clear grasp of business matters and certainly no clear grasp of this type of transaction. Moreover their memories of events, having regard to the lapse of time, varied considerably in quality. The twelfth defendant gave the impression of being clear and definite in his answers but I am satisfied both from his demeanour and the content of his evidence that he could not be relied upon to tell the truth when it was contrary to his interests to do so. I think that certain of his actions at the time were devious and that his evidence on certain vital issues was unreliable and self-serving. Fimeri was honest but vague. 5. The twelfth defendant is a radiographer by profession. Since coming from Singapore in 1969 he has had a considerable amount of business experience. He has been engaged in two business enterprises in which he has secured investments in those enterprises from other people. I formed the impression that he possesses a shrewd business mind and was well aware of the business implications of his actions. 6. In the early part of 1988 the twelfth defendant conceived the idea of securing investments from professional people with whom he was acquainted as a result of his professional activities, and of purchasing a shopping centre. He obtained investments from the twelve persons who are the first to eleventh defendants named in the summons. The first defendant is his daughter and is a radiographer. The second defendant is a dentist. The male eleventh defendant is a librarian. Apart from those persons, and the twelfth defendant himself, all defendants are medical practitioners. In May 1988, the twelfth defendant became interested in the Cremorne Plaza Shopping Centre as a suitable project for the trust. He negotiated for the purchase of the shopping centre. He instructed Fimeri's firm of financial consultants to obtain finance on the best available terms. Fimeri entered into negotiations with the plaintiff. At some stage of these negotiations, the twelfth defendant convened a meeting of the investors at the Brahma Lodge Hotel. His evidence was that that meeting took place in the late afternoon of the 2nd June which was a Thursday. There are indications in the evidence of other defendants that the meeting occurred on a weekend. I am inclined to think on the probabilities that the meeting occurred on the weekend of the 21st/22nd May or the weekend of 28th/29th May. The meeting was attended by a number, but not all, of the defendants. The twelfth defendant explained that the project was the purchase of the Cremorne Plaza Shopping Centre and that it would be financed by a bank. He may have mentioned the name of the plaintiff. He made some mention of the need of guarantees. At that stage the twelfth defendant did not have the plaintiff's letter of offer but he must have been aware of the course of discussions between Fimeri and the bank officers as to the need for guarantees in view of the high proportion of the purchase price which was to be borrowed. I think that there must have been demonstrated a general disinclination on the part of the unit holders to risk more than the amount of their respective investments. I think that as a result of the discussion some of the unit holders accepted that it would be necessary to give guarantees to operate until the fund reached an acceptable level, but insisted that their liability cease when the fund reached $1,000,000. A number of participants, however, remained with the impression that each individual would be required to risk only the amount which he subscribed to the unit trust. On 27th May 1988 the contract for the purchase of the Cremorne Plaza Shopping Centre was signed, the twelfth defendant signing for the purchaser company. The contract was expressed to be subject to the condition that the plaintiff would agree on or before the 1st June to grant a loan of not less than $2,800,000. 7. The initial negotiations with the plaintiff were conducted by Mr Fimeri. I think that in the witness box he was genuinely endeavouring to tell the Court what occurred. He appeared to have only the vaguest memory of the matter. I accept his evidence that originally the plaintiff had wanted a standard joint and several guarantee from each of the unit holders, of the amount of the loan. Mr Pandya, the twelfth defendant, informed him that the unit holders would not agree to give such a guarantee, that their guarantee would "need to be limited to their investment or contribution to the trust." 8. He put that to Mr Pinyon but received no response until receipt of the letter of offer to which I shall now refer. 9. On 1st June, the plaintiff's letter of offer, signed by Pinyon, was transmitted to Pandya and Fimeri. It conveyed approval of the requested loan in principle subject to the conditions in the letter. One such condition was expressed as follows: "Guarantor(s): Dr Bachu B Pandya jointly and severally with eleven unit holders in the trust to the extent of their separate contributions to the trust." 10. Pandya was not satisfied with this offer in a number of respects and he sought to renegotiate it. As a result, the repayment instalments were adjusted to match the anticipated rentals. Discussions took place between Pinyon and Pandya as to the terms of the proposed guarantees. I accept Pinyon's evidence that a compromise was arrived at in the terms which he described in his evidence and I reject Pandya's evidence to the contrary. Pinyon described the outcome of the discussions in a passage in his evidence which I now quote: "Q. What was the outcome which you recollect. A. The outcome initially, when there were $570,000 invested in the trust were that those guarantees have a limitation on them proportionate to the value of the investments in those trusts as a ratio to an unlimited liability. Q. You say that, in telling the court that you said 'initially'. Did that subsequently change. A. That changed by agreement wherein once one million dollars in investments was obtained by the trust, and those presumably additional unit holders in the trust were joined in as guarantors to the bank, then the limitation continued to be proportionate relevant to the investment made in the trust, but it had an overall limit on it then of $1 million." 11. It is not possible to be specific about the process by which this compromise was arrived at because Pinyon is unable to remember the details. I think, however, that the broad process can be deduced from the circumstances and the evidence. The letter of offer is not happily expressed as to the guarantee clause, but I am satisfied that it was not intended to be an acceptance of Fimeri's proposal. I am satisfied that the intention was to require a guarantee from each of the unit holders of that proportion of the whole loan which the individual guarantor's investment in the unit trust bore to the total investments in the trust. Pandya realised that as a result of his understanding of the use of the expression "jointly and severally" and, no doubt, his discussions with Pinyon. The offer on that basis did not meet Pandya's wishes and it involved a liability which exceeded that which the unit holders were willing to undertake. I am satisfied that in the discussions which followed the receipt of the letter, Pandya put to Pinyon the counterproposal, based upon his discussions with the unit holders, that the guarantors would be each liable only for an amount equal to the amount of their respective investments in the trust and that upon the investments in the trust reaching the figure of $1,000,000 the guarantees would cease. I do not accept Pandya's evidence that Pinyon viewed that counterproposal favourably. I have no doubt that Pinyon considered that as the plaintiff was lending more than 80 per cent of the purchase price of the property a continuing guarantee was necessary. He considered, however, that when the trust had acquired sufficient financial strength, guarantees limited to the amount of $1,000,000 would be sufficient. I think that the compromise emerged in that way. Pandya wanted the project to proceed and therefore needed the finance. He was confident, as he said in his evidence, that the figure of $1,000,000 would easily be achieved. There was therefore, from his point of view, no risk in exposing himself and the unit holders to a greater liability pending the achievement of the figure of $1,000,000. He was obliged to accept that the plaintiff would not dispense with guarantees upon achievement of the figure of $1,000,000. Pinyon seems to have thought that the arrangement that upon the achievement of the figure of $1,000,000 the guarantors would be liable only for an amount equal to their respective contributions to the trust, implied a limit of $1,000,000 on the total liabilities under the guarantees. He does not seem to have applied his mind to the situation which would arise if contributions exceeded $1,000,000. Even in the witness box, he seemed to think that the guarantee in its final form contained such a limit. 12. The compromise to which I have referred did not take the form of a binding agreement. Pinyon no doubt wanted to see a draft prepared by the plaintiff's solicitors. Pandya had no authority to bind the unit holders to the compromise arrangement. The arrangement was that a draft would be prepared by the plaintiff's solicitors for consideration by the parties. 13. On 3rd June Pinyon wrote a letter of instructions to Mollison Litchfield, the plaintiff's solicitors, for the preparation of a draft guarantee. I admitted this letter into evidence, over objection, on a limited basis. There is a claim for rectification of the Deed of Guarantee and Indemnity by all defendants on the ground that the Deed prepared by the solicitors does not reflect the true agreement between the parties. It would be relevant on that issue to ascertain whether a mistake was made by the solicitors and the nature and circumstances of that mistake. I admitted the letter for that limited purpose. It is not evidence in favour of the plaintiff as to the understanding reached with Pandya and I do not use it for that purpose. Indeed I think as the case developed, it cannot be put to any admissible use. The draft guarantee was prepared by Mr D Bache of Mollison Litchfield and was collected by Pandya, or on his behalf, on that afternoon. Clause 30 of the draft is as follows: "30. Notwithstanding any provisions herein to the contrary the liability of each separate Guarantor to repayment of the Secured Monies shall be limited to only repayment of that amount of the Secured Monies that bears to the whole of the Secured Monies the same proportion as the amount paid by each separate Guarantor for such Guarantor's unit holdings in the said Lakshmi-Nivas Unit Trust bears to the amount paid by all the Guarantors for their unit holdings in the said Lakshmi-Nivas Unit Trust PROVIDED HOWEVER that upon:- (a) the said Lakshmi-Nivas Unit Trust having received funds from unit holders in excess or equal to one million dollars ($1,000,000.00), and (d)(sic) all unit holders having entered into a Deed or Deeds of Guarantee in favour of the Bank upon the same terms and conditions as are contained in this Deed; THEN the liability of each separate Guarantor to repayment of the Securied (sic) Monies shall be limited to an amount equal to the amount paid by such Guarantor for such Guarantor's unit holding in the said Lakshmi-Nivas Unit Trust AND it is agreed for the purposes of this Clause 30 that the expressions 'the Guarantor' and 'the Guarantors' shall include all the Guarantors that are party to this Deed and also all other guarantors who enter into a Deed or Deeds of Guarantee as referred to in paragraph (b) of this Clause 30." 14. There is a covering letter from Mollison Litchfield to Pandya in the following terms: "Dear Mr. Pandya, re: The Lakshmi-Nivals Pty. Ltd. Unit Trust We refer to our recent telephone conversations. Please find enclosed a draft Guarantee, clause 30 of which has been included so as to limit the liability of the guarantors as discussed between yourself and Challenge Bank Limited. We note that Challenge Bank Limited has not had a chance as yet to approve the clause 30 and may require some amendment prior to the final documents being prepared. We believe however that in its present form it does contain the essential elements of the agreed limitation. Should you have any queries please do not hesitate to contact the writer." 15. Clause 30 of the draft made explicit that the trigger for the reduction of the liability under the guarantee is to be not only the achievement of contributions equal to or in excess of $1,000,000 but also the entry by all new unit holders into guarantees. I do not know whether the latter point was discussed in terms between Pinyon and Pandya but it was certainly implicit in the arrangement. It would have been quite clear to Pandya that Pinyon's insistence was on having guarantees to the amount of $1,000,000. 16. I do not accept Pandya's evidence that he did not understand Clause 30. He has an astute business mind and the terms of the guarantee were important to him. Moreover the terms as drafted were in substance what he had agreed with Pinyon. I think that his subsequent behaviour in relation to the Deed confirms that he well understood its terms and that the liability imposed exceeded that which was expected by the unit holders. 17. Pandya's evidence is that he forwarded the pages of the draft containing Clause 30 to all the unit holders. Some of the unit holders deny that they received any part of the draft. The third defendant said that the only document which he received arrived after he had signed the guarantee. The fourth, ninth and eleventh defendants were given a complete copy of the draft. I do not accept Pandya's evidence on this point, but I think that he supplied the draft or the part containing Clause 30 to certain of the unit holders. 18. Copies of the draft supplied to the ninth and eleventh defendants were marked by highlighting pencil. The fourth defendant did not produce his copy of the draft but he gave evidence that it was marked in a similar way. The yellow pencil highlighting marked item 3 of the schedule which refers to the limit on liability provided in Clause 30. It marked Clause 30 as far as the end of paragraph (a) but did not mark paragraph (b). The words following "THEN the liability" down to and including "for the purposes of this Clause 30" were highlighted. Attention was drawn to the word "limited" by circling it in ink in the two places in which it appears in Clause 30. 19. Pandya did not obtain legal advice as to the effect of the Deed. Mr Bridges of Mollison Litchfield acted only in relation to the formation of the trust and the purchase of the property. He expressly indicated to Pandya that he was unable to act in relation to the guarantees as his firm was acting for the plaintiff. That resolved a problem which had occupied Pinyon's mind at one stage. He realised that there was a potential conflict of interest arising out of Mollison Litchfield's position. His evidence was that the conflict of interest issue was resolved. He claimed that he believed that Pandya was receiving legal advice in relation to the guarantees from Bridges. That could not be so. I am satisfied that Pinyon was aware that the conflict of interest issue was resolved by Bridges declining to advise Pandya in relation to the guarantees. I am sure that he realised that at the time, although he may have forgotten it at the time he gave evidence. I am satisfied that Pandya did not feel the need of legal advice as he well understood the effect of Clause 30 and that it was in accord with his arrangement with Pinyon. 20. On 21st June Pandya notified the bank that the guarantors were ready to sign the guarantee. Mr Bache then prepared the Deed in its final form. He made two sets of alterations to the draft. The first was the inclusion of a new Clause 10.2 in the following terms: "If at any time any one or more of the provisions of this Guarantee is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired." 21. The second was a redraft of Clause 30 to provide in each reference to amounts paid by a guarantor to the unit trust that the payments would include any payments made by a trust of which the guarantor was a beneficiary. Pandya's attention would not have been drawn to these changes. The first was in the nature of a legal tidying up of the agreement. The second was clearly intended to cover the possibility that unit holders might make contributions to a private or family trust and was also therefore merely in the nature of a legal tidying up of the agreement. I do not think that either set of alterations called for any express mention to the guarantors. The covering letter to Pandya with the draft mentioned the possibility of the bank requiring alterations and there was an obvious need for a comparison of the final form of the guarantee with the draft. 22. Pandya's arrangement with Pinyon was that he would obtain the signatures of the guarantors. The plaintiff left it entirely to Pandya to secure the signatures of the guarantors. With one exception, there was no contact between the officers of the bank and the guarantors other than Pandya. The one exception was Pandya's daughter who is the first defendant. She was abroad when the others signed and on her return went to the office of the bank, in accordance with her father's instructions, and signed the guarantee in the presence of Noack. There was no conversation between them as to the meaning or effect of the guarantee or even the nature of the document which she was signing. Noack made no attempt to explain its contents to her, but merely witnessed her signature. 23. When the guarantee documents were given to Pandya to obtain the signature of the other guarantors, there was a discussion between him and Pinyon as to forms of certificates which were attached in accordance with the standard practice of the bank. These were certificates of independent advice by a solicitor or accountant. There was discussion as to the difficulty of obtaining signatures from all guarantors by the settlement date the 30th June if they were to obtain independent advice. Pinyon and Pandya decided that it was expedient to remove the certificates and they were removed. Pandya thereupon took the guarantees to each of the unit holders separately. None of them read the guarantee in its final form and merely placed their respective signatures on the page which Pandya indicated to them. Pandya returned the signed copies to the bank. The guarantee was dated the 29th June 1988 and the settlement for the property took place on that day. 24. The total of amounts contributed to the unit trust by the defendants as at 29th June 1988 was $570,000, including a sum of $20,000 which had been pledged but the cash for which was paid a little later. The figure of $1,000,000 in contributions was apparently achieved before very long because the balance sheet as at the 31st January 1989 shows total units issued as $1,450,000. The units were for $1 each. Presumably the new unit holders did not execute guarantees because there was no plea that the proviso to Clause 30 had become operative, and the trial was conducted upon the basis that it had not become operative. Default was made by Lakshmi-Nivas Pty Ltd in payments of principal and interest under the loan agreement with the plaintiff. On 27th August 1991 a notice of demand was given to the principal debtor for payment of the sum of $3,315,422.29 together with accruing interest. On the same day notice of demand was given to the defendants under the guarantee. This action was brought to enforce payment. 25. It is convenient to deal first with the defences raised by the twelfth defendant. He raised defences of breach of duty, unconscionable conduct, misrepresentation and breaches of the Trade Practices Act 1974 and the Misrepresentation Act 1971. The essence of his defence was that there was an agreement between him and Pinyon in terms of the letter of offer but subject to the proviso that upon the total number of issued units in the trust reaching $1,000,000 the guarantors would be released from their obligations under the guarantee. He claimed that Pinyon had assured him that the guarantee would embody terms limiting the guarantee as to amount and duration as agreed. I have already indicated that I reject these claims. I am satisfied that no concluded agreement was arrived at between Pinyon and Pandya before the signing of the guarantee and that the understanding which was arrived at as the basis upon which the documents would be drafted, was substantially in the terms deposed to by Pinyon and subsequently embodied in the Deed. There was no misrepresentation by Pinyon. I am satisfied that Pandya read and understood the Deed. I reject his defences and hold that he is bound by the document which he signed. 26. I now turn to the defences of the first to eleventh defendants. I accept the evidence of the defendants, other than the twelfth defendant, who gave evidence as to what was told them by Pandya and as to their understanding of the transaction. They were professional people occupied with their professional affairs and possessing only the haziest idea of the implications of the transaction into which they were entering. Some of them were unaware that they were signing a guarantee and thought that their only risk was the amount they had contributed to the trust. Others knew that it was a guarantee but in some confused way thought that it did not expose them to any greater risk than the amount which they had contributed. Others realised that the guarantee must expose them to some additional liability but believed that that was limited to an additional amount equal to the amount of their contribution to the trust and that their liability would cease upon contributions to the trust equalling or exceeding $1,000,000. They either did not read the Deed, or if they did read it, did not understand its meaning, being totally influenced by what Pandya told them as to the effect of the transaction. They were educated people but all those who gave evidence impressed me as being quite naive in business matters. 27. When Pandya found himself in the position of having to agree, if the project was to proceed, to a compromise which exposed the unit holders to greater liability than they envisaged, he faced a considerable problem. It was almost certain that the unit holders would not agree to assume additional liability if the position were frankly explained to them. Pandya wanted his project to proceed. I believe that he deliberately set about the concealment of the true extent of the guarantors' liability from his unit holders. His method of highlighting certain portions of the draft Deed was calculated to impress on those unit holders to whom it was supplied, the limited nature of the guarantee and to divert their attention from the additional liability involved. He even provided the ninth defendant with a copy of the unit trust Deed in which he highlighted the clause which provided that the unit holders were under no personal liability. This was done at the time of providing her with the draft guarantee and was calculated to mislead her into thinking that what she was signing did not involve any additional liability. 28. Pandya gave evidence that he told each of the unit holders that their liability was limited to an amount equal to their contributions and that it would cease upon the trust fund reaching $1,000,000. I think that, subject to some qualification, that evidence is accurate. The qualification, in my opinion, is that where Pandya realised that the unit holder was assuming, based upon what he had previously been told by Pandya, that there was no additional liability and that the only amount at risk was the amount contributed to the fund, he did not go into any explanation of the extent of the guarantee and did not disabuse those unit holders of their mistaken impression. Where, however, a unit holder realised that a guarantee involved some additional liability, Pandya gave the explanations which he stated in his evidence. It follows that the two defendants who did not give evidence were either under the mistaken belief that they were not at risk for more than the amount which they had contributed, or, if they realised that the guarantee involved some additional liability, were told, and no doubt believed, that their liability was limited to an additional amount equal only to their contribution and that it would cease upon the fund attaining $1,000,000. 29. I find that all the defendants signed the Deed of Guarantee and Indemnity under a mistaken belief as to its terms. Some believed that it did not create any liability additional to the risk of losing the amount of their contributions to the unit trust. Others believed that it did create an additional liability for an amount equal to their respective contributions to the trust but they believed that that liability would cease upon the total of unit trust contributions reaching $1,000,000. This unilateral mistake on the part of the first to eleventh defendants was not known to the plaintiff. The plaintiff's conduct did not, in my opinion, cause or contribute to it. It was caused by the false representations of the twelfth defendant of which the plaintiff's officers were unaware. In those circumstances the existence of the unilateral mistake does not of itself operate to relieve the deceived defendants of liability under the guarantee. The question in the case is whether the plaintiff is in some way affected by Pandya's actions so as to be precluded in equity from enforcing the guarantee. 30. The relevant principle is stated by Neill LJ in Shephard v Midland Bank PLC [1960] VicRp 42; (1987) 2 FLR 175 at 181 as follows: "The court will not enforce a transaction at the suit of a creditor if it can be shown that the creditor entrusted the task of obtaining the alleged debtor's signature to the relevant document to someone who was, to the knowledge of the creditor, in a position to influence the debtor and who procured the signature of the debtor by means of undue influence or by means of fraudulent misrepresentation." 31. That was not a guarantee case but a case of a mandate for a joint account, but the principle was applied to a guarantee in Barclays Bank PLC v Kennedy (1989) 1 FLR 356, and has been so applied in other cases. 32. The principle was developed in cases in which the creditor had left a husband to procure his wife's signature to a security or guarantee; Cairncross v Paterson [1894] VicLawRp 56; (1894) 20 VLR 258; Turnbull and Co v Duval 1902 AC 429; Chaplin and Co Limited v Brammall 1908 1 KB 233; The Bank of Victoria v Mueller [1925] VicLawRp 74; 1925 VLR 642; Kings North Trust Ltd v Bell 1986 1 WLR 119. The principle with respect to that situation was expressed in Yerkey and Anor v Jones [1939] HCA 3; (1940) 63 CLR 649 by Dixon J at p.683. Although Shephard v Midland Bank PLC supra was a husband and wife case, the formulation of Neill LJ is not confined to the husband and wife situation but extends to any situation in which the person entrusted with the task of obtaining the guarantor's signature is, to the knowledge of the creditor, in a position to influence the guarantor. In expressing the principle in terms which apply outside the husband and wife situation, Neill LJ was applying Avon Finance Co Ltd v Bridger 1985 2 All ER 281 and a passage in the judgment of Dillon LJ in Kings North Ltd v Bell supra at p.124. 33. The essential element which affects the creditor with the wrongdoing of another, is the leaving to that other the task of procuring the guarantor's signature. In Turnbull and Co v Duval supra at p.435, Lord Lindley expressed the ratio of the case as follows: "They left everything to Duval, and must abide the consequences." 34. That test was applied in Chaplin and Co v Brammall supra per Vaughan Williams LJ at p.238 and in Avon Finance Co Ltd v Bridger 1985 2 All ER 281 esp per Brandon LJ at p.288. In Kings North Ltd v Bell supra at p.123, Dillon LJ, speaking of a wife's execution of a second mortgage of the matrimonial home to secure a loan to the husband for business purposes, as a result of the undue influence of the husband, said that if the creditor entrusts to the husband himself the task of obtaining the execution of the relevant document by the wife, then the creditor can be in no better position than the husband himself, and the creditor cannot enforce the guarantee or the security against the wife if it is established that the execution of the document by the wife was procured by undue influence by the husband and the wife had no independent advice. The same principle applies to a guarantor other than a wife, who comes within the scope of the protection of the rule and who has been induced to sign not by undue influence but by misrepresentation. The principle was emphasised by Dillon LJ at p.125 in the following passage: "The moral is that where a creditor (or intending lender) desires the protection of a guarantee or charge on property from a third party other than the debtor and the circumstances are such that the debtor could be expected to have influence over that third party, the creditor ought for his own protection to insist that the third party has independent advice. That is the obvious means of avoiding the risk that the creditor will be held to have left it to the debtor to procure the execution of the relevant guarantee or security document by the third party." 35. In Barclays Bank PLC v Kennedy supra, it was pointed out that, although the person entrusted by the creditor with the task of procuring the guarantor's signature, may be referred to, in a sense, as the creditor's agent, the test for determining whether the creditor is affected by his actions for the purpose of the rule under discussion, differs from the test for determining the existence of agency in the true sense. The latter test is whether there has been a conferral of actual or ostensible authority. Purchas LJ at p.363 distinguished the test of "agency" for present purposes from the test of true agency as follows: "Again, the concentration on actual or ostensible authority being 'given to the husband to act on behalf of the Bank' may not be a reliable way of applying the test now well established by authority, albeit since this judgment was delivered, that the real question is whether the Bank were content to leave it to the husband to obtain the wife's signature upon the charge." 36. A more recent pronouncement concerning the notion of agency for the purpose of this rule, has been made by the English Court of Appeal in Bank of Credit and Commerce v Aboody 1990 1 QB 923 at p.972. "Some confusion may have been caused by the use of the word 'agent.' We are not concerned here with the question as to whether or not the bank is vicariously responsible for the acts of Mr. Aboody. The issue is whether the bank can be in any better position than Mr. Aboody if, when Mr. Aboody was acting on its behalf, Mr Aboody exerted (or, if this had been a class 2 case, was presumed to have exerted) undue influence. As we have made clear in answer to issue (4), the undue influence is required to have brought about the transaction, and it would be inconsistent with the equitable nature of the relief for the bank not to be affected by the undue influence exerted by its agent when the transaction would not exist but for the wrongful acts of its agent. As a matter of principle, the bank in such circumstances should not be entitled to rely on the transaction and this is the view which has been taken by a series of authorities going back to the beginning of this century. The clearest statement of the principle, which we would adopt, is to be found in the judgment of Dillon L.J. in Kings North Trust Ltd. v. Bell (1986) 1 WLR 119, 123: 'if a creditor, or potential creditor, of a husband desires to obtain, by way of security for the husband's indebtedness, a guarantee from his wife or a charge on property of his wife and if the creditor entrusts to the husband himself the task of obtaining the execution of the relevant document by the wife, then the creditor can be in no better position than the husband himself, and the creditor cannot enforce the guarantee or the security against the wife if it is established that the execution of the document by the wife was procured by undue influence by the husband and the wife had no independent advice.' As Dillon L.J. made clear, this approach is in accord with the approach of the general law of principal and agent in relation to fraudulent misrepresentations made by an agent in carrying out the specific instructions of his principal. Examples of liability on the basis of agency in similar circumstances are to be found in Turnbull and Co. v. Duval (1902) AC 429 and Chaplin and Co. Ltd. v. Brammall (1908) 1 KB 233. Whether in any particular case the person who exerts the undue influence is the agent (in this sense) of the principal creditor must be a question of fact. For an example of a recent case where agency was not established, see Coldunell Ltd. v. Gallon (1986) QB 1184. Miss Williamson, for the bank, submitted that agency only was insufficient to found liability; there must also be notice

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