Undue influence when guarantee signed without providing relevant information

A lender had not complied with the guidelines laid down by the House of Lords in Royal Bank of Scotland v Etridge (No 2) ([2002] 2 AC 773) where a guarantor had not been provided with adequate information as to the financial standing of the principal debtor nor with adequate time and opportunity to take advice and make up her mind as to whether or not to give the guarantee.

In The Royal Bank of Scotland plc v Chandra ([2010] EWHC 105 (Ch)) the Bank had provided finance for a company set up by Mr and Mrs Chandra to develop and run a hotel in Manchester. The Chandras each guaranteed the company’s debt and later each gave a further guarantee. One of the issues was whether Mrs Chandra was liable under the second guarantee. She alleged that she had signed as the result of her husband’s undue influence and that the Bank was on notice. The Court agreed. She was only told of the need to sign a further guarantee as she and her husband were driving to a meeting at which it was to be signed. She was given neither adequate financial information nor the real ability to take independent legal advice. The further guarantee was set aside as against her.

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