#14995 - Undue Influence And Unconscionability - Contract Law

Undue influence, like misrepresentation and economic duress, renders a contract voidable: so one party can seek to rescind the contract (either as claimant or by way of a defence) if it was executed as a result of the other party’s undue influence.

Undue influence is broader than duress – since undue influence includes overt acts of persuasion – Lord Nicholls in Etridge

The essence is abuse of an existing relationship which the defendant exploits for his own advantage. The relationship predates the contract or gift between them.

Undue influence cases reveal the difficulty of striking the right balance between protecting the vulnerable from exploitation, without unduly restricting their freedom to be generous.

A related concern is the need for security in receipts – the more willing the courts are to undo transactions, the less secure recipients can be that they will be entitled to keep what they have received.

Just as with duress:

• sometimes undue influence is a vitiating factor allowing contracts made as a result of undue influence to be rescinded;

• alternatively it can be a ground of restitution allowing payments made as a result of undue influence to be recovered

Contractual cases of undue influence can be two-party or three-party:

• A might unduly influence B into contracting with A; or

• A might unduly influence B into contracting with C – in addition to establishing undue influence between A and B in the normal way, B will also have to establish that C has notice (actual or constructive) of the undue influence.

They used to be seen as two distinctly different vitiating factors, but HL in RBS v Etridge (No 2) [2001] held that there is just one vitiating factor – ‘undue influence’. The difference between actual and presumed undue influence is simply evidential – if there is no actual evidence of undue influence, it might nonetheless be inferred.

• Adducing ‘actual’ evidence of undue influence and relying on the presumption are just two different routes to establishing undue influence

• Ie they are just evidential routes to establish undue influence

Cases where there is actual evidence of influence (usually bullying or pressurising) – invariably in the context of a relationship.

• No good definition of it Lord Clyde in Etridge (2002) undue influence “is something which can be more easily recognised when found than exclusively analysed in the abstract”

Requires (i) actual undue influence – that’s it!

Actual evidence of the exploitation of influence by one party is rare (why go to the trouble of adducing actual evidence when you could rely on the presumption?). An example in which there was compelling evidence of actual undue influence was BCCI v Aboody [1990]. A, who was entirely subservient to her husband, executed an all monies charge to secure her husband’s business. She had been receiving advice from an independent solicitor about the implications of signing the charge when her husband burst into the room, interrupting the solicitor and shouting at his wife to sign (this is what makes it an actual influence case)

• But court got it wrong that needed to have a “suspicious” or “disadvantages” for the transaction

• This in modern law is wrong – no need a “suspicious” or “disadvantageous” transaction – just actual undue influence is enough

• Clarified in CIBC Mortgages plc v Pitt [1993] 4 All ER 433 (pushing wife to sign – judge held to be undue influence) that for actual undue influence, no need to prove a “suspicious” or “disadvantages” for the transaction since it is a species of fraud – therefore just need the actual undue influence

• Drew v Daniel [2005] EWCA Civ 507 (Nephew did not actually bully elderly aunt – instead used forcefully personality to persuade her – since she disliked confrontation –redness around eyes, D very upset) -> actual undue influence not confined to sexual relationship – relationship of nephew and elderly aunt

Undue influence presumed in cases of:

It does not require bad behaviour or wrongdoing

• Mummery LJ in Pesticcio v Huet [2004] CA explicitly rejected view that undue influence depends on wrongdoing

• Auld LJ in Macklin v Dowsett [2004] CA stressed that bad conduct is not a necessary feature of undue influence

(a) relationship + (b) suspicious transaction that ‘calls for an explanation’, unless (c) presumption rebutted

Certain stereotypical relationships automatically count, whatever the circumstances (Class 2A)

This is a closed list that will ALWAYS be held to be relationships of trust and confidence. It includes solicitor-client and doctor-patient relationships.

Solicitor and client:

• Wright v Carter [1903] 1 Ch 27 (P executed deed drafted by solicitor, where solicitor held on trust for 2 children and solicitor in equal share)

• Markham v Karsten [2007] EWHC 1509 (Middle age solicitor, man financial difficulties – she lent him over 1 mil, relationship broke down, she got him to sign a security over London property – man claimed undue influence for security – but judge held that because woman was a solicitor, that is enough to clear the first hurdle)

• Shows that no need to act as C’s solicitor, just happens to be a solicitor would clear this hurdle

Doctor and patient:

• Mitchell v Homfray (1881) 8 QBD 587 (Woman made large gift to docr, held relationship automatically sufficient)

Spiritual adviser and novice:

• Allcard v Skinner (1887) 36 ChD 145 (Wealthy woman joined convent – bound herself to observe the rules of the order which seem designed for undue influence, poverty, seclusion and obedience – transferred large amounts then left to another order -> held that this was a relationship of undue influence) (Transaction cleared the second hurdle in this case and not rebutted)

• Roche v Sherrington [1982] 2 All ER 426 -> C member of extreme Catholic sect, gave all money to the sect, that the organisation is sufficient to clear the first hurdle

Husband-wife relationships are NOT in this category

Where on the particular facts it is shown that one party reposed trust and confidence in the other (Class 2B)

Any other kind of relationship can suffice if on the facts it is one of trust and confidence, or vulnerability and dependence.

Eg Re Craig [1970] 2 All ER 390 (elderly widower and housekeeper middle aged woman – made gift totally 30k about 75% to net estate – judge held this was the kind of relationship that cleared the first hurdle)

• Judge held that widower was at housekeepers mercy

Eg O’Sullivan v Management Agency & Music [1985] QB 428 (pop singer/songwriter and manager – powerful music mogul, deal entered was disadvantageous to him)

• Judge held this would clear the first hurdle

Eg Leeder v Stevens [2005] EWCA Civ 50 (divorced lady and her new gentleman-friend – man paid off mortgage, she gave him house in return – she left financial matters to him)

• Court held this clears the first hurdle

Eg Abbey National Bank plc v Stringer [2006] EWCA Civ 338 (non-English speaking widow and her son – son got mother to sign mortgage to fund business)

• Court held this clears the first hurdle – vulnerable towards the son as son KNEW mother understanding of English was limited

Can a commercial relationship ever fall into Class 2B?

• Yes, if the facts are exceptional enough to suggest that one party reposed trust and confidence in the other:

• Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 -> secretary of man, babysitting, visiting family – man asked secretary to unlimited charge over her flat, she agreed. Pleaded undue influence

• CA held that presumption of undue influence arouse her – relationship one in which imposed trust

• Shows the extreme nature needed

• cf Evans v Lloyd [2013] EWHC 1725 (Ch) – tried to plead undue influence in commercial relationship but failed

HL in RBS v Etridge (No 2) held that a transaction would “call for an explanation” (Lord Nicholls) if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary men act. The burden would be on the donee to support the gift.

• Test from Allcard v Skinner “The mere existence of such influence is not enough in such a case … but if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary men act, the burden is on the donee to support the gift” – affirmed in RBS v Etridge (No 2) “not readily explicable on ordinary motives”

• Applied in:

• Eg Abbey National plc v Stringer [2006] EWCA Civ 338 (Italian widow no English, charged only assert for the son’s business – different from husband and wife since widow would not benefit in this case)

  • Tried to argue that this transaction is normal for mother’s generosity to her son – won’t render herself homeless (if feisty mother, wouldn’t clear first hurdle)

• Eg Smith v Cooper [2010] EWCA Civ 722 (relationship with new male friend and mortgaged her house)

• Cf Turkey v Awadh [2005] EWCA Civ 382 (young woman and husband, father helped them out by paying off mortgage for an interest in the house)

  • CA decided that his transaction was explicable on the ordinary motives that people act – not undue influence

• Cf Evans v Lloyd [2013] EWHC 1725 (Ch) donor living with non-relatives made gift of farmland as acts of gratitude and friendship –> held to be explicable, second...