#16757 - Undue Influence Pq Notes - Contract Law

In the past, actual and presumed undue influence used to be treated separately.

However, as was recently clarified, they are one and the same. The difference is simply evidential – if there is no actual evidence of undue influence, it can be presumed on the facts.

• Royal Bank of Scotland v Etridge (No 2) at 93: “English law has identified certain relationships where the conclusion can prima facie be drawn so easily as to establish a presumption of undue influence. But this is simply a matter of evidence and proof.”

In this rare category of cases, there is actual evidence of influence (usually in the form of bullying or pressurising), invariably in the context of a relationship, but there is no need to show that the transaction was suspicious.

The tactical advantage of showing actual undue influence is that the victim is entitled to rescission ‘as of right’ because there is no further need to show that the gift or transaction ‘calls for explanation’.

CIBC Mortgages v Pitt (1993): where there is evidence of actual undue influence, there is no need to show that the transaction was suspicious.

Drew v Daniel: “[I]n the case of actual undue influence something has to be done to twist the mind of a [contracting party] whereas in cases of presumed undue influence [where a relationship has been abused] is more a case of what has not been done, namely ensuring that independent advice is available to the donor.” Facts: D bullied his elderly aunt, C, into retiring as a trustee of the family trust and letting him take over, by taking advantage of her fragile and naïve personality. Later, C sued to get the contract rescinded. Verdict: Successful. There was actual evidence of D’s impropriety.

In the absence of actual undue influence, the complainant must overcome three hurdles.

1. Existence of a relationship of trust and confidence

2. That the transaction calls for explanation

3. However, this presumption can be rebutted.

1. Relationship of trust and confidence

   1. Certain stereotypical relationships automatically give rise to presumption of influence

Royal Bank of Scotland v Etridge (No 2): “Examples of relationships within this special class are parent and child, guardian and ward, trustee and beneficiary, solicitor and client, and medical adviser and patient. In these cases the law presumes, irrebuttably, that one party had influence over the other. The complainant need not prove he actually reposed trust and confidence in the other party. It is sufficient for him to prove the existence of the type of relationship.”

Solicitor and client: Wright v Carter. In Markham v Karsten, the presumption of influence arose even between a solicitor and client who had entered into a relationship. There was no reason to confine the presumption of influence to their legal relationship, it extended to their domestic relationship as well.

Doctor and patient: Mitchell v Homfray

Spiritual adviser and novice? Allcard v Skinner: mother superior and novice nun, who bound herself to obey the rules of the order. Presumption of influence arose. Roche v Sherrington: P was a member of the ‘Opus Dei’, a Roman Catholic Institution. He transferred money to fellow members, C and D. Presumption between C and D, and P, arose.

NB. Marital relationships and ‘banker and customer’ relationships not in class of automatic presumptions

2. Even if not stereotypical relationship, can show that their particular relationship was one of trust and confidence, on the facts

Barclays Bank plc v O’Brien: “Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence.”

Apply the cases below analogously:

• Re Craig [1970] 2 All ER 390 (elderly widower and housekeeper)

Facts: 84-year-old widower, who was gentle and kind and sheltered, employed M, a housekeeper, as a companion. She made gifts to M representing 75% of her husband’s estate. The husband’s family challenged these gifts.

Verdict: undue influence presumed, given the evidence.

• O’Sullivan v Management Agency & Music [1985] QB 428 (young pop singer/songwriter and manager)

Facts: O, a young and unknown composer and performer of popular music wholly inexperienced in business matters, became closely acquainted and entered into an exclusive management agreement with a company. He did not have any legal advice before doing so.

Verdict: undue influence presumed.

• Leeder v Stevens [2005] EWCA Civ 50 (divorced lady and her new gentleman-friend)

Facts: In the context of a long-term relationship with the respondent (S), L had agreed to put the property into their joint names in return for S discharging the mortgage outstanding on the property. S paid off the remaining mortgage to the value of GBP 5,000 (a small proportion of the value of the property) and had a deed of consent drawn up by his legal advisers. The deed of consent was sent to L with a letter advising her to obtain independent legal advice before signing the deed. The deed was in fact prejudicial to L's interests, in that inter alia it empowered S to force a sale, and she signed it without obtaining advice. S then sought to enforce the deed by selling the property and taking half of the profits thus depriving L of her property rights and home.

Verdict: L was in a position where she was putting her trust and confidence in S, Royal Bank of Scotland Plc v Etridge (No.2) [2001] UKHL 44, [2002] 2 A.C. 773, [2001] 10 WLUK 346 applied. The transaction was manifestly to the disadvantage of L and to the advantage of S. Theirs was a long-term relationship and L had allowed S to provide legal advice. There was no doubt that this was the sort of case where on the facts a situation of possible undue influence arose. The test was not whether L knew what she was doing but rather why she was doing it and, on that basis, a presumption of undue influence arose that could not be rebutted. The

• Abbey National Bank plc v Stringer [2006] EWCA Civ 338 (non-English speaking widow and her son)

Verdict, per Lloyd LJ: undue influence presumed. “Mrs Stringer was unable to read at all and her understanding of English was limited. She depended and relied on her son to assist her with any kind of correspondence or documentation or financial matter and placed trust and confidence in him. The property was her home and her principal asset. She was herself still responsible for the payments under the mortgage to the Halifax Building Society and for the outgoings towards which the first defendant made in effect no contribution. The transaction involved putting her home at risk … in relation to a new business of which she knew nothing and from which she would obtain no benefit … She believed that it had something to do with his business but she had no idea that by signing it she was putting her property up as security. If she had known that that was the document did she would not have agreed to sign it”.

An expansion in the case law?

• Malik v Shiekh [2018] EWHC 973 (Ch)

Verdict: undue influence presumed, based on vulnerability and dependence of victim on her sons. “The facts of Mrs Malik's advancing age, physical infirmity and immobility, impending mental degeneration, and inability to read or understand English well did, in my judgment, put her in a vulnerable position, as compared with the position of the Maliks, and liable to be taken advantage of. That this was so is shown by the circumstances in which Mrs Malik signed the charges and the TR1s, as found by the judge. Her understanding of what was happening depended on what the Maliks said to her in Punjabi, without anyone independent explaining to her what she was signing. The judge understandably held that these circumstances could not rebut any presumption of undue influence. The Maliks were directors of the Company and healthy and active businessmen, whose livelihoods depended on the Company. Mrs Malik's vulnerability is particularly accentuated where any dealing in relation to or for the benefit of the Company is concerned, because she had ceased to be involved and had no direct interest in the Company. She depended on her sons for information about the Company's position and requirements. She lived with her sons and their families in the Home, but her daughters did not live there.”

What about a commercial relationship? Exceptionally, yes. Apply facts analogously.

• Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144

Facts: D, aged 19, worked for P, ten years her superior, in a relatively junior position. She was neither a director nor shareholder. Over the years, she developed a close relationship with him and his family. P asked D to put her property as collateral security to help his business. She agreed to do so without independent legal advice.

Held: “In the present case the (1) excessively onerous nature of the transaction into which she was persuaded to enter, (2) coupled with the fact that she did so at the request of and after discussion with Mr Pelosi, is in my judgment quite enough to justify the inference, which is really irresistible, that the relationship of employer and employee had ripened into something more and that there had come into existence between them a relationship of trust and confidence which he improperly exploited for his own benefit”. However, “… the mere fact that a transaction is improvident or...