#10030 - Undue Influence - Restitution of Unjust Enrichment

UNDUE INFLUENCE

DURESS AND UNDUE INFLUENCE

1. Duress used to have a narrow definition, which meant undue influence used to include threats or pressure HOWEVER

2. Since the acceptance of economic duress it is argued (Birks, Lord Nicholls, Burrows) that in order to avoid overlap between undue influence and duress:

3. Illegitimate threats/pressure = just duress

4. Bigwood - Like duress, undue influence focuses on conduct of both the person exerting influence as well as the effect on C

UNDUE INFLUENCE

1. What is it?

1. It deals with where, as a result of the relationship between them, one party is in a position to exercise undue influence over the other

2. So, where C enters into a particular transaction as a result of the undue influence of the other

2. ‘Undue’

1. Undue = unacceptable ie. influencing party has taken unfair advantage of his position of influence

2. RBS v Etridge (No 2) (Lord Nicholls): ‘The objective is to ensure that the influence of one person over another is not abused’ ALTHOUGH

3. Doesn’t mean D acted in bad faith dishonestly knowing they were taking advantage, AS DEMONSTRATED BY

4. Cheese v Thomas (CA) – expressly recognised that D had not acted in a morally reprehensible way

3. Third Party

1. Undue Influence can be invoked against a third party who did not itself exert the influence

4. Result

1. makes transaction voidable at the instance of influenced party

ACTUAL AND PRESUMED UNDUE INFLUENCE

1. Allcard v Skinner

– this case identified the two categories

2. RBS v Etridge (No 2) HL

• clarified that undue influence is a single concept.

• The presumption of undue influence is an evidential (not a legal presumption) SO

• The two categories refer to two different ways of proving undue influence

3. What’s the difference

1. Actual undue influence = person alleging undue influence relies on direct proof and does not raise an evidential presumption

2. Presumed undue influence = person alleging undue influence relies on an evidential presumption

4. Burden of Proof

1. Since RBS v Etridge (No 2), C is required to prove that a transaction was entered into as a result of undue influence and that in certain situations C is assisted by a rebuttable evidential presumption of undue influence which shifts the evidential burden of proof to the other party

CAUSATION

1. UBC Corporate – the ‘a reason’ test was applied to a claim for undue influence

2. So less stringent test than economic duress (which relies on at least a ‘but for’ remember)

3. Burrows – suggests that the test should be the same for presumed undue influence

REMEDY

1. Rescission

1. Usual restitutionary remedy for undue influence

2. Usual 4 bars apply

2. Restitutio in integrum

1. Best viewed as recognizing that D could successfully counterclaim for failure of consideration if restitution allowed

CONTRACTS

1. Far from clear whether undue influence differs whether benefit rendered under a contract or not

THREE PARTY CASES

1. Most Common Example

1. under her husband’s (X’s) under influence, a wife (C) guarantees to bank (D), secured by charge over the matrimonial home, the debts to the bank of her husband or her husband’s company

2. Barclays Bank v O’Brien (HL)

1. This case concerned misrepresentation by a third party, but is illuminating on this undue influence.

2. Basically, this deals with what happens when it was a 3^rd party who did the undue influence, rather than an actual party to the contract

3. Lord B-W said that in these three party cases C can rescind in two situations:

1. where X was acting as D’s agent (rare)

2. where D had actual or constructive notice of X’s conduct inducing the contract. Constructive notice in this situation requires 3 elements:

1. D must be aware that C is in a relationship of trust and confidence with X so there is a substantial risk of undue influence

2. The transaction on its face must not be to the financial advantage of C AND

3. D must have failed to take reasonable steps to be satisfied that the transaction was entered into freely by C and with full facts

3. first 2 elements go to putting D on inquiry, 3^rd element goes to what D, who has been put on inquiry, must do to avoid being fixed with constructive notice

3. Restatement in RBS v Etridge (No 2) (HL)

1. There was mass case law after Barclays Bank which meant there was a restatement in RBS of the principles

2. This case confirmed that a bank will be put on inquiry whenever a wife acts as a surety for her husband’s debts

3. Lord Nicholls even seemed to suggest that a bank will be put on inquiry whenever one person acts as a surety for another

ACTUAL UNDUE INFLUENCE

1. Rare example

1. Re Craig

2. Why is it rare?

1. Since the acceptance of economic duress there’s really little point. May as well just show economic duress then try and satisfy the seemingly more difficult burden of showing actual undue influence

PRESUMED UNDUE INFLUENCE

1. 2 conditions needed for this

1. relationship of influence (ie. C is under the other person’s influence)

2. The transaction must be disadvantageous

2. What happens when these are satisfied?

1. Once both elements are satisfied the onus of proof switches to D to rebut the presumption of undue influence, most obviously by showing that C had independent advice

3. Res Ipsa Loquitur

1. RBS v Etridge (No 2) – HL said that presumed undue influence works like res ipsa loquitur in that it’s a rebuttable presumption of undue influence

ESTABLISHING THE PRESUMPTION OF UNDUE INFLUENCE

RELATIONSHIP

1. Easiest way – category of relationship

1. Burrows – easiest way to establish it is by showing that parties were within a well-established category of relationship which includes influence by one over another eg:

1. parent over child

2. spiritual adviser over follower

3. solicitor over client

4. trustee and beneficiary (possibly – Winder this is a person, not a case)

2. Shown on the facts

1. Goldsworthy v Brickell – held that it’s not necessary for D to have ‘dominated’ C

2. RBS v Etridge (No 2) – Lord Nicholls – the question is whether, on the facts, one party has reposed sufficient trust and confidence in the other rather than whether the relationship between the parties belongs to a particular type

DISADVANTAGEOUS TRANSACTION

1. Meaning

1. it’s not readily explicable on ordinary motives

2. Manifest Disadvantage Test

1. Note, this test was discarded in RBS v Etridge

2. National Westminster v Morgan – it came from this case, seemed to suggest ‘victimisation of one party by the other’

3. Better test

1. in both RBS and National Westminster there was approval for Lindley LJ’s suggested approach from Allcard v Skinner, which was:

2. ‘not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act …’

3. Burrows – he suggests this is the right test now

4. Substantive unfairness

1. Burrows – he suggests that one can say that where the procedural unfairness is clear (as with duress or actual undue influence) legal intervention is justified, irrespective of substantive unfairness; but where the procedural unfairness is not so clear, it is the combination of procedural and substantive unfairness that justifies legal intervention

REBUTTING THE PRESUMPTION OF UNDUE INFLUENCE

1. Informed Legal Advice

1. Inche Noriah – Lord Hailsham said that independent legal advice would only count...