Lecture 16-Undue Influence Flashcards
Undue Influence Definition
It is an equitable principle.
The equitable concept of pressure can be exercised without making illegitimate threats or indeed any threats at all “where influence is acquired and abused, and where confidence is reposed and betrayed”
Wrongful Conduct?
Some cases have emphasised the need for some ‘wrongful’ conduct on the part of the defendant
R v A-G for England and Wales [2003]
Some cases have not emphasised the need for ‘wrongful conduct’
Pesticcio v Huet [2004]
Modern Approach
The modern approach focuses very much on the relationship between the parties
Did the stronger party abuse or exploit her position in the relationship to gain some kind of advantage?
Classes of Undue Influence
Actual undue influence-Class 1
Presumed undue influence- Class 2
Remedies
Undue influence renders a contract voidable not void
Complainant can either affirm the contract or rescind
Rescission can be lost through affirmation or lapse of time etc.
Like duress, damages are not available.
Actual Undue Influence
Actual undue influence is about the situation where one party enters into a transaction, or makes a gift, because of the influence of another
Actual influence was in fact exercised to take advantage of the other party.
Unfair and improper conduct is at the heart of actual undue influence
Extension?
Actual undue influence cases extend beyond pressure or threats
It can cover cases where the defendant has, in fact, taken advantage of or abused a relationship of trust that existed between the parties
Arvind’s Four Ingredients
The dominant party must have the ability to influence the other party
The dominant party must have exercised that influence
The exercise of that influence must be ‘undue’
The exercise of influence must have induced the other party to enter into the contract
Burden of Proof?
Burden of proof in actual undue influence cases is with the ‘victim’ to show, on the balance of probabilities, the existence of that undue influence
Case of Actual
One advantage of actual undue influence is that it is unnecessary to establish that the relationship between the parties was one of trust and confidence. All that needs to be established is that one party had the ability to influence the other, and exercised it.
Morley v Loughnan [1893]
A man who had given money to a religious sect was found to have done so because of actual undue influence exerted by the sect leader
Manifest Disadvantage
BCCI v Aboody [1990]
A transaction in which actual undue influence is shown to have existed will not be set aside unless the party can also show manifest disadvantage.
In 1994, the requirement for evidence of manifest disadvantage was overruled.
Presumed Undue Influence (2)
If actual undue influence is too difficult to establish…
Presumed undue influence looks at two elements of the transaction
The nature of the relationship between the parties
The nature of the transaction
Two Ingredients Case (Nuns)
Allcard v Skinner (1887)
The Court of Appeal held that the transaction was affected by undue influence. There were two classes of cases that could be set aside in undue influence. The first was where the court was satisfied that the transaction was the result of influence expressly used by the other party for the purpose. The second was where the relations between the parties shortly before the execution of the transaction were such as to raise a presumption that one party had influence over the other.
Categories of Presumed
In some cases, the relationship between the parties gives rise to a presumption of influence – ‘protected relationships’ (Class 2A)
In other cases, it must be proved that the relationship was one of trust and confidence – depends on the facts of the case (Class 2B)
Distinguishing Case
Barclays Bank v O’Brien distinguished between Class 2A and Class 2B relationships
But treat this with caution
In neither case is there a presumption of UNDUE influence
Relationships where influence is automatically presumed
solicitor/client, doctor/patient, parent/child, religious advisor/disciple, trustee/beneficiary
Presumption of influence is automatic and irrebuttable, but you still have to establish that the influence was undue
Husband/wife relationship is not one to which this presumption applies, and the list is NOT exhaustive
O’Sullivan v Management Agency and Music Ltd [1985]
Other Relationships
Here, the party claiming to have been influenced will have to prove the existence of a relationship of trust and confidence
There is no ‘presumption’ of influence
Institutions?
Strong hierarchies, coupled with institutional identification are important
Allcard v Skinner (1887) influenced by the church hierarchy to come to her decision.
R v AG for England and Wales
“ … The Privy Council was swayed by the combination of the military hierarchy, the culture of regimental pride, and R’s admiration for his ‘commanding officer’.” (Arvind)
Reliance on the other
No hierachys or institutional identification?
If these factors are not present, the courts will look at the extent to which one party relies on another party when conducting their affairs e.g. relationship between a bank and a customer
It depends very much on the facts of the case
Reliance Bank Case
Lloyds Bank Ltd v Bundy [1975]
The courts tend to look at the extent to which one party relies on another in the conduct of their affairs.
Husbands and Wives
It is not an inherent relationship of influence/it is likely that both spouses will be seeking to support each other.
There is no automatic presumption of influence but, on the facts, one may exist
Cases
Barclays Bank v O’Brien- presumed undue influence?
RBS v Etridge- reiterated a more restrained approach
Presumed undue influence has also been applied to other ‘emotional relationships’ including cohabitees, whether heterosexual or homosexual
Nature of the Transaction
2nd step- The influence must be undue
There must be something about the transaction in question that raises a presumption of undue influence
This element of undue influence used to be referred to as ‘manifest disadvantage’
Manifest Disadvantage Case
RBS v Etridge - this has been rejected by the courts as it does not accurately describe this component of undue influence (replaced with explicable by ordinary motives or relationship)
Rebutting the Presumption
The burden shifts to the dominant party to show that he or she did not abuse the position of dominance.
The dominant party will have to demonstrate that the complainant entered into the agreement of their own free will, and were fully aware of the risks
Was independent legal advice taken?
Turkey v Ahwad [2005]
Undue Influence and Third Party Rights
- Husband exerts undue influence over his wife
- Wife guarantees the debts of her husband (with the lender)
- Lender (the contract is between the wife and the lender eg a bank)
Privity of Contract
Can the lender enforce the guarantee against the wife?
The rule of privity of contract states that only a party to the contract can enforce rights, or have duties enforced against her, under that contract
Applying this rule, the actions of the wrongdoer (e.g. the husband) should have no impact on the transaction between e.g. the wife and the bank
Exception? (2)
Barclays Bank plc v O’Brien [1991]
A guarantee (for a loan) can be set aside in one of two circumstances:
- Where the husband acted as the bank’s agent in obtaining the guarantee (the wife would have not entered into the transaction without the husband’s influence);
- Where the bank had actual or constructive notice of the facts leading to the wife guaranteeing the loan (knowledge over the circumstances of the transaction)
Actual Notice
Did the bank have factual information which should have caused it to inquire whether undue influence had been exerted on the wife?
If yes, it had actual notice
If the bank failed to make such an inquiry, then the guarantee may be set aside for undue influence
Constructive Notice
If the bank had “any reason to suspect” undue influence or if the bank “knows facts which put him on inquiry as to the possible existence of undue influence”
Put on Inquiry?
- The transaction is on its fact not to the financial advantage of the wife; and
- There is a substantial risk in a transaction of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction (if there is evidence that the husband had influenced her agreement, the bank should be put on inquiry)
Case
Royal Bank of Scotland v Etridge (No.2) [2001]
HL critical of the language of ‘constructive notice,’ sought to provide a test that was “simple, clear, and easy to apply in a wide range of circumstances”
Was there something about the transaction that ought to put the bank on inquiry as to the presence of undue influence?
If so, the bank (and solicitor advising the wife) should take certain steps to discharge their obligations
