Under Influence Week 20 PDF

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Under Influence Week 20: Undue influence renders a contract voidable. Requires a relationship where A has influence over B to the degree that B will agree to A’s proposal. 1) Identify if there is undue influence (if you sue someone, regardless of the different classifications of UI, there is only one UI – just a different way of proving UI) Actual UI (simple but difficult to prove): - Claimant must ‘prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned’ Barclays Bank plc v O'Brien [1994] 1 AC 180 (Lord Browne-Wilkinson). -

Defining ‘undue’ is difficult but we know undue involves 2 elements: 1. ‘excessive’ influence exerted onto C 2. The defendant has used influence in an improper manner Royal Bank of Scotland v Etridge (no.2) [2001] UKHL 44 Hewett v First Plus Financial Group Plc [2010] EWCA Civ 312

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CIBC Mortgages Plc v Pitt [1994] 1 AC 200 – Husband pressurised wife to jointly re-mortgage family home Held: wife could set aside agreement against husband for actual undue influence (but not against bank who had no knowledge of undue influence)

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Williams v Bayley (1866) LR 1 HL 200 – son forged father’s signature for bank. Son facing prosecution. Bank pressures father to increase mortgage in order to repay debt. Court held that father had not acted “with that freedom and power of deliberation that must be considered as necessary to validate a contract”

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BCCI v Aboody [1990] 1 QB 923 – similar to CIBC. Wife was substantially younger and knew nothing of businesses. Husband shouts at wife/solicitor to sign the contract. Evidence here of actual undue influence.

Presumed – recognised relationships and other relationships: (presumed overcomes the difficulty to prove actual UI because very often there is little or no concrete evidence) - Requires both (relationship and suspicious transaction): 1) A relationship of trust and confidence between the parties (proved influence but not undue) TWO types of relationships: (i) Recognised relationships ensure there is an irrebuttable presumption of influence (‘undue is not established at this point, but influence is) - these relationships referred to as CLASS 2A “types of relationships in which one party acquires influence over another who is vulnerable and dependent…. The C 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.” – Lord Nicholls in Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705 Examples of such relationships where there is an irrebuttable presumption of influence: Solicitor over client Religious adviser over client Parent over minor child (Bainbridge v Browne) Guardian over ward (Hylton v Hylton) Doctor over patient (Mitchell v Homfray) Trustee over beneficiary ( Beningfield v Baxter) Does not include husband over wife, employer over employee and parent over adult child Allcard v Skinner (1887) 36 Ch D 145 – Woman joined a convent as a nun. She had pledged herself to poverty and seclusion. She transferred lots of money to the Mother Superior who used it for the nunnery, she had no bad intentions. Court still classed this as a recognised relationship and so there was undue influence. (other) Relationships of trust and confidence come with a rebuttable presumption of influence (‘undue is not established at this point, but influence is) – these relationships are referred to as CLASS 2B “Class 2B. Even if there is no relationship falling within class 2A, 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….”- Barclays Bank plc v O'Brien [1994] 1 AC 180 (Lord Browne-Wilkinson) (ii)

Hammond v Osborn [2002] EWCA Civ 885 – elderly man gave four cheques to his carer which totalled the price of most of his assets. Family sought to recover the money upon his death. Court of Appeal held that the elderly man hadn’t received legal advice and wasn’t fully aware of how much he was giving away and so the presumption of innocence was not rebutted. Lloyd’s Bank v Bundy [1975] QB 326 – son of elderly farmer sought loan from bank but dank refused. Father was told by assistant manager (of whom he knew well) to give up the house so the bank could help the son. Presumption wasn’t rebutted. O'Sullivan v Management Agency and Music Limited [1985] 1 QB – O’Sullivan trusted his manager and signed contracts for him. As a result, O’Sullivan gave away lots of his income over a period of time. Presumption wasn’t rebutted. Glanville v Glanville [2002] EWHC 1271 (Ch) – elderly man remarried and passed house onto his second wife. Children of first wife lost out on inheretence when he died and so took him to court. Court found there was no dominance over the deceased man on the part of the wife and so there was no undue influence.

2) A suspicious transaction (helps to establish the presumption of ‘undue’. There cannot be undue influence without a suspicious transaction) Courts look for “alarm bells” when determining a suspicious transaction. Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705 – looking for something in a transaction that calls for an explanation and “the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption will be regarded as rebutted.” Things that can be taken into account when establishing whether a transaction calls for an explanation: Impact on victim’s future autonomy – e.g. O’Sullivan Consistency with the nature of the parties’ relationship – e.g. two people who don’t like eachother and one of them suddenly give a large gift Consistency with the victim’s relationship with others – e.g. mother giving away children’s inheritence to someone Where improvidence is explicable

Credit Lyonnais v Burch [1997] 1 All ER 144 – employer and employee had good relationship outside of work. Employer asked employee to put their house up for mortgage as security for a loan taken out my employer’s company. “[T]he mere fact that a transaction is improvident or manifestly disadvantageous to one party is not sufficient by itself to give rise to a presumption that it has been obtained by UI; but where it is obtained by a party between whom and the complainant which is easily capable of developing into a relationship of trust and confidence, the nature of the transaction may be sufficient to justify the inference that such a development has taken place; and where the transaction is so extravagantly improvident that it is virtually inexplicable” Leeder v Stevens [2005] EWCA Civ 50 – wife gave away half share in a house for considerably less to her husband. There was no undue influence but the transaction called for an explanation. Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705 - CoA held that ‘manifest disadvantage’ is a powerful evidential factor’, but not a requirement. (so it helps but is not essential?) More disadvantage to claimant, more likely to be suspicious.

3) Rebutting the presumption of undue influence: Undue influence is proven with (1- relationships) and (2 suspicion) UNLESS this is rebutted by evidence that the alleged victim entered the transaction on the basis of informed consent (this was the case in Hammond v Osborne [2002] EWCA Civ 885 and Stevens v Leeder [2005] EWCA Civ 50) Inche Noriah v Omar [1929] AC 127 – Held that presumption of undue influence may be rebutted by showing that the transaction was entered into “after the nature and effect of the transaction had been fully explained to the donor by some independent qualified person.” Legal advice should be independent, given with knowledge of the claimant’s vulnerability and effectively communicated.

Goodchild v Bradbury [2006] EWCA Civ 1868 - Elderly donor spent only a few minutes with a solicitor, and this was not enough to rebut the presumption of undue influence in a suspicious transaction. In some cases, independent legal advice may not be necessary at all if their donor is in a dominant position or clearly gave matters much thought.

Attorney-General v R [2003] UKPC 22 – soldier understood the terms when signing non-disclosure agreement. No need for legal advice. Presumption was rebutted.

If the presumption of influence is not rebutted when dealing with ‘other relationships’ then no need to establish a suspicious transaction. Whereas, in the case of recognised relationships there is an irrebuttable presumption of influence and so a suspicious transaction MUST be established. Regardless of the nature of the relationships, a suspicious transaction which requires an explanation can always be rebutted by the defendant (in the case of ‘other’ relationships’ this can only be done if the presumption is not rebutted in the first step and so a suspicious transaction is needed to prove undue influence.)

Some cases only two parties are involved (e.g. husband and wife) - Identify UI between A and B - Identify the effect on the agreement between A and B

If the case includes a third party (e.g. bank) - Identify UI between A and B - Determine effect on C (third party)

Scenario: woman wants to cancel the guarantee agreement because the loan hasn’t been payed, business has gone bust, bank wants to take the house. Can the UI from the man to the woman cancel out the guarantee between woman and bank? Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705 – Raises the importance of a wife (or anyone in a like position) to not put her house at risk in exchange for her husband (or anyone similar) to secure a loan if she does not fully understand the implications and consequences of such an agreement. Yet also raises the importance of a banks right to allow such transactions and not prohibit them on the basis of their relationship, should there be no other reason to deny them the money. Barclay’s Bank v O’Brien [1994] 1 AC 180 - husband persuaded wife to sign a guarantee, telling her the security was £60,000 when it was actually £130,000. Husbands business went under and so bank came for the house. Wife claimed she was unduely influenced and to cancel agreement. Court found that there was no IU because woman was intelligent and independent woman with her own money. Her decision to not look at the documents when presented by the bank was her fault.

In Barclay’s Bank, the Court came up with a 3-stage test in the event of 3 party cases:

Stage 1 Is UI established between A and B? The first question is approached exactly the same way as in the 2 party cases already discussed, without any consideration of the role of 3rd party C. Stage 2 Does 3rd party C have actual or constructive notice of the of UI? – CN is a legal fiction used in the law to signify that a person or entity is legally presumed to have knowledge of something, even if they have no actual knowledge of it. The focus is on how the transaction appeared to the creditor, they look to whether the transaction is, on the face of it, to the advantage or disadvantage of the surety wife. If it appears at first glance disadvantageous to the wife, then the bank will have constructive notice of it. Two ways of establishing constructive notice: (1) was the transaction on the face of it disadvantageous to the wife e.g. woman gives up house for husband’s business (2) is there a risk in transaction of this kind that the husband could commit a legal or equitable wrong?

It was felt that Barclay’s should have been aware of the risk that the husband would deceive his wife. Because the bank failed to ensure that Mrs O’B had been protected by receiving independent legal advice, Mrs O B was entitled to rescind her agreement with the bank.

CIBC Mortgages v Pitt (1993) 1 AC 200 – No constructive notice

If yes, then stage 3: Third party C will be bound by the undue influence unless it has taken reasonable steps to avoid it Royal Bank of Scotland Plc v Etridge (No 2) [1998] 4 All ER 705 Court suggested 4 reasonable steps to be taken by banks when put on inquiry.  Guarantor should be seen separately and the risks of the transaction should be explained  Guarantor should be encouraged to obtain legal advice  Bank should inform solicitor if it believes the guarantor is not acting freely  Bank should seek written confirmation from the guarantor’s solicitor that the implications of the transaction and the nature of the documents have been properly explained

Rescission: Contract voidable, Remedy of rescission - Unless bars to rescission apply This is similar to law of misrepresentation and duress Review rescission and bars to rescession in misrepresentation lecture But this is different to mistake Where contracts are automatically void (not voidable)...