#2230 - Undue Influence - Contract Law

Undue Influence

Requirements for Undue Influence

Failure to protect from overt pressure (Actual undue influence)

• Where C can prove that D’s positive application of pressure induced his consent to the contract

  • Essentially it involves Relational Pressure

    • E.g. Langton v Langton - Threats to abandon if contract not signed

    • OR Morley v Loughlan - where X exerts exclusive control, secrecy and exclusion of others who might dilute X’s influence on C (cults)

    • OR Drew v Daniel - where X bullies, confronts or harasses C per.

      • Proof of this sort of overt pressure is sufficient to prove undue influence

  • Per CIBC Mortgages Plc v Pitt [1994]: There is no need to prove a relationship of influence or any manifest disadvantage

Presumed undue influence

• Royal Bank of Scotland v Etridge [2001]:

  • Lord Nicholls: C must prove two things

    • 1. That C put trust and confidence in the other party in relation to the management of financial affairs

    • 2. And a transaction that calls for explanation

      • This will lead to a rebuttable presumption of fact of undue influence

        • and shift the burden of proof to the party relying on the contract to prove that this inference should not be drawn

  • Chen Wishart: Is important to note that the court is not saying that D has exercised undue influence

    • Merely that he has preferred his own interests and failed to safeguard the claimants

• 1. A relationships of trust and influence

  • Automatic Presumptions (legal irrebuttable presumptions)

    • Royal Bank of Scotland v Etridge [2001]:

      • Lord Nicholls:

        • Which relationships will be recognised is undefined

          • However, if you fall into some of the most common ones then this will be enough to show trust and confidence on its own

    • Chen Wishart: Fairly obvious what these might be:

      • E.g. Doctor and patient

      • Solicitor and client

      • BUT NOT husband and wife

        • Royal Bank of Scotland v Etridge [2001]:

          • Lord Nicholls: Husband and wife does not fall into this category, however,

            • as nothing unusual in a wife, with motives of affection, conferring financial benefits on her husband.

              • therefore must be proved that there was sufficient trust and confidence in the normal way.

    • Chen Wishart: before Etridge, there was a misconception that these designated relationships raised a presumption of undue influence

      • In fact, the designated relationships merely show a relationship of trust and influence

        • You also need to show a questionable transaction to get a presumption of undue influence.

  • Relationships that have to be proved first

    • Must be expectation from C’s side that D will give conscientious advice

    • D must know of the relationship of trust and have participated in it

    • Past dealings between C and D must show trust and confidence in D

      • But there need not be blind, unquestioning trust by C or a dominating influence by D

        • Cheese v Thomas [1994]:

          • Nichols VC:

            • Case is one of joint venture agreed by the parties, not an aggressive one.

        • Burrows: also tells us that while the conduct of D is irrelevant to whether there is undue influence

          • It may have an effect on the remedy given

      • Could also arise even in a one off dealing:

        • Tufton v Speroni: T, person with no business experience, wished to set up a Muslim culture centre. S (person with business experience) sold his house to T for double the price and with a number of onerous reservations to himself.

          • Evershed MR: if a number of persons join together for the furthering of some objective,

            • Not unreasonable to conclude that in matters related to the objective, each person reposes confidence in the others

              • and therefore has influence which grows naturally out of confidence

    • Unfairness of the transaction may provide evidence of a relationship of influence

      • Credit Lyonnais v Burch [1997]: A young employee gave a personal guarantee on her flat to secure her employer’s existing debt. There was no real evidence of a relationship of influence.

        • Millet LJ: mere fact that transaction is manifestly disadvantageous to one party is insufficient alone to give rise to undue influence.

          • But, where obtained in a relationship easily capable of developing into one of trust and confidence (e.g. young employee and employer)

            • nature of the transaction may suggest that such a development has taken place.

      • But not necessarily if there is an explanation for this

        • Re Brocklehurst’s Estate [1978]: old aristocrat w/o independent advice, gave a garage proprietor a 99 year lease of shooting rights over estate, vastly decreasing its value.

          • Held no relationship of trust and influence between the parties

            • And gift made for reason that donor wished to decrease value of estate before it was inherited by detested nephew.

• 2. A transaction calling for explanation

  • Chen Wishart: Far from every transaction conducted through a relationship of trust and influence will need to be set aside for undue influence

    • It is the improvidence of the transaction which will enable the party to set aside the transaction

  • Royal Bank of Scotland v Etridge [2001]:

    • Lord Nicholls:

      • While it is not necessary for the purposes of undue influence for a person to suffer detriment

        • Questions of undue influence will not usually arise where the transaction is innocuous.

      • It will normally only be considered where the transaction was disadvantageous either from the outset or as matters turned out.

  • When does a transaction call for explanation? A combination of factors:

    • When it impacts on C’s future autonomy

      • Chen Wishart: In Allcard v Skinner (1887), shown that giving all of property to Y meant that X had no money herself afterwards to live on.

    • When the transaction is inconsistent with the nature of the parties’ relationship:

      • Royal Bank of Scotland v Etridge [2001]:

        • Lord Nicholls:

          • The transaction must not be readily explicable from the relationship of the party

            • This second element being necessary to keep the law from being too broad

              • Cos clearly absurd if every transaction between child to parent could be explained as undue influence

          • Something more is needed than just a relationship – some sort of disadvantage.

            • Thus, the greater the disadvantage to the vulnerable person,

              • the more cogent the explanation must be before the presumption is rebutted.

      • Credit Lyonnais v Burch [1997]:

        • Swinton Thomas LJ:

          • When an employee offers to secure her house against her employers’ debts when she has no financial interest in the company

            • This is enough to cause the eyebrows of a reasonable bank manger to be raised.

    • When the transaction undermines C’s relationships with others who depend on him or have some claim

    • The inexplicability (or explicability) of any apparent improvidence

      • Transactions which appear odd on first notice could have underlying reasons behind them which will show that they aren’t improvident at all

      • R v AG of England and Wales [2003]:

        • Lord Hoffmann:

          • Being in the SAS gives rise to a relationship where a commanding officer can exercise influence over another

            • But since anyone who wished to remain in the SAS could reasonably have been required to sign this fact is fatal to a conclusion of undue influence

              • Equally, it was for the reasonable purpose of protecting operational interests and the safety of personnel.

        • Chen Wishart: Army’s authority over R gave it considerable influence.

          • But the reasonableness of R’s agreement not to divulge his activities as a member of the SAS

            • gave rise to no inference that it was obtained by an unfair exploitation of that relationship.

• Rebutting the presumption

  • D must show that the consent of C was full, free and informed

    • Independent legal advice assists but is not conclusive

      • Royal Bank of Scotland v Ettirdge [2001]:

        • Lord Nicholls: Independent advice will normally bring home the consequences of an action to C

          • But this is not conclusive – a person may fully understand the implications of a transaction while still being under undue influence

            • Whether independent advice rebuts undue influence

              • is a fact to be considered in all the circumstances of the case.

        • Moi: but generally this is what’s going to work and get 3Ps, such as banks, off the hook.

      • R v AG for England and Wales [2003]:

        • Lord Hoffmann: The absence of independent legal advice may or may not be a relevant matter

          • It is not necessarily unfair for one party to get another into a transaction w/o such legal advice

    • However, the degree of unfairness may lead the court to infer that

      • C’s refusal to get/follow legal advice indicates the continuing impact of undue influence

      • Any advice received by C was inadequate

        • Credit Lyonnais v Burch [1997]:

          • Nourse LJ:

            • Since transaction was so manifestly disadvantageous,

              • the bank could not be said to have taken reasonable steps to avoid being fixed with constructive notice

            • When neither the transaction had been explained to her

              • Nor independent legal advice given to her

      • Chen Wishart: the stronger party’ failed to protect C’s interests

        • R v AG for England and Wales [2003]:

          • Lord Hoffmann: The absence of independent legal advice may or may not be a relevant matter

            • It is not necessarily unfair for one party to get another into a transaction w/o such legal advice

        • Chen Wishart: The emphasis on the substantive unfairness over the procedural is telling.

          • Conclusion may be that the law is merely relieving a party of his foolish actions b/c D’s failure to protect him as their relationship requires?

Effect of showing undue influence

• Subject to the normal bars of rescission

  • The...