The recent decision of Barrett J in AIB v Rostaff Property Development Ltd (High Court, 7 September, 2017) once again highlights the difficult area of undue influence in the context of guarantees given by an individual who is a spouse or "romantic partner" of the debtor. The issue can also arise where the debtor is a company owned or controlled by the guarantor's spouse or "romantic partner". The doctrine of undue influence provides a defence to a guarantor who is in an obvious vulnerable position and on whom unfair pressure was exerted to sign the guarantee. In practice such pressure can range from emotional blackmail to physical violence.

In Rostaff the bank lent money to a company. The principal director's (then) romantic partner guaranteed repayment of the debt. The company defaulted. The bank obtained judgment against the company and the principal director, and then sued his former romantic partner on her guarantee. She disputed liability claiming (amongst other things) that she had been pressurised by her former partner into signing the guarantee. Barrett J refused to give summary judgment to the bank and sent the case for plenary hearing. Whilst there appeared to be little beyond the mere invocation of the undue influence/duress defence by the guarantor, equally there appeared to be little substantive engagement by the bank with her complaints. The guarantor had cleared the (famously) low hurdle for defending an application for summary judgment.

The Court of Appeal has on a couple of occasions in 2016 ruled on the legal and evidential basis for a guarantor claiming the defence of undue influence: (De Kretser, Curran). It is an evolving and flexible test but the approach appears to be relatively settled. You can get more detail on the tests applied by the courts in an article I wrote with Elizabeth Corcoran BL (2017 CLP, vol 24 (2), pp 19-26). The topic will also be addressed in the forthcoming edition of Banking Law which we are writing with a view to publication in 2018. In brief, a bank will be treated as being on notice of potential undue influence where a guarantee or other security is being provided to it in a non-commercial context – e.g. by a spouse, family member or romantic partner. There are also regulatory steps to be taken by the bank in terms of documentary compliance. The best practice approach continues to be for the bank to make sure that the guarantor gets independent legal advice before providing the guarantee/security.