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Undue Influence (Effect: Voidable, no damages)The legal issue is to determine if ____ may be relieved from ____ (the transaction) under the argument of undue influence. Undue influence, as defined by Lord Hoffmann in R v AG for England and Wales (2003), is the “unfair exploitation of one party of a...

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Undue Influence (Effect: Voidable, no damages) The legal issue is to determine if ____ may be relieved from ____ (the transaction) under the argument of undue influence.  

Undue influence, as defined by Lord Hoffmann in R v AG for England and Wales (2003), is the “unfair exploitation of one party of a relationship which gives him ascendancy or influence over the other”. By the doctrine of undue influence, a party may be relieved from a transaction if that transaction was entered into upon the undue influence of the other party. This doctrine is concerned with the prevention of victimization or abuse, not to save persons from their folly.

There are 2 classes of undue influence. They are Class 1, actual undue influence, and Class 2, presumed undue influence.

Use undue influence only if the situation uses Class 2, as Class 1 can be sued with duress instead, which is more advantageous to the plaintiff since the burden of proof is on the defendant.

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Under Class 1, there is no need for a special relationship to exist between the parties, as noted in the case of Allcard v Skinner (1887), where actual undue influence is described as some unfair and improper conduct, and some form of cheating. Party alleging undue influence bears the burden of proving that the defendant had exercised undue influence over him. Once proven, the claimant is entitled to relief. As seen in the case of Williams v Bayley (1866), the father is entitled to set aside the mortgage as it had been extorted by the son from the father by undue influence. It must be noted that the undue influence just need to be ‘a’ factor, and not the significant factor. Under Class 2, the claimant (alleging undue influence) has to prove: (1) That a relationship of trust and confidence existed between the parties (2) The resulting transaction is manifestly disadvantageous to the claimant. If the claimant is able to prove that something about the transaction “calls for an explanation”, then the burden of proof shifts to the defendant to produce evidence to prove that the claimant had exercised a truly independent will.

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Furthermore, Class 2 can be further sub-categorised as Class 2(A) and Class 2(B). Class 2(A) covers relationships where a presumption of influence arises by force of law Doctor-patient [Mitchell v Homfray (1881)] , Lawyer-client, Parent-child [Wright v Vanderplank (1855)], Guardianward, Trustee-beneficiary, Religious adviser-disciple (Law deems that these relationships deem to be one of trust and confidence) Claimant need only prove the existence of the relationship, not that he has placed trust and confidence in the defendant Class 2(B) deals with relationships that do not fall within the above-mentioned classes in Class 2(A). No presumption based on relationship, but court may presume one based on facts. E.g. Employer-employee, Husband-wife, Principal-agent, Siblings Victim must show trust and confidence was in fact present (e.g Employer-employee [Mathew v Bobbins (1980)], husband-wife [Bank v Shepherd (1988)])

Step 1: Choose the approach (Include this statement if applicable) The Class 1 approach is a harder approach to prove, as _ may have been a one-off transaction.

OR In this case, there is no actual undue influence exercised by the defendant (__) on the plaintiff (__). Hence, we have to determine if the defendant did exercise presumed undue influence (Class 2) on the plaintiff to ____ (e.g. ask him to become a guarantor). Based on the case, the relationship between the defendant and the plaintiff is ___. Thus it falls under Class 2(B), which deals with relationships that do not fall under Class 2(A). Next, we have to determine that trust and confidence was in fact present and it was manifestly disadvantage for (e.g. john to become a guarantor).

Step 2: Establish that a relationship of trust and confidence existed In this case, the plaintiff says that he trusted the defendant totally, or it can be inferred that ______ shares a relationship of trust and confidence because _____ (ie, they are a married couple). We can then prove that trust and confidence was in fact present.

Step 3: Claimant (alleging UF) must prove that the transaction is manifestly (CLEARLY) disadvantageous to him/her Based on the facts of the case, it is manifestly disadvantageous for ____ to ____ (ie, be a guarantor to the loan) as ___ (ie, Sylvia had only $123k worth of assets and she could possibly lose everything if John defaulted on the loan). This is similar to the case of Oversea-Chinese Banking Corp Ltd v Tan Teck Khong (2005), where a mother mortgaged her property, the main asset she had, to secure loans granted to her son. It was clearly beneficial to her son and not to her. Hence, the defendant (____) did exercise presumed undue influence on the plaintiff under Class 2B. The burden of proof is now transferred to ___ (defendant) to prove that ___ (claimant) had exercised a truly independent will.

Step 4: Is it subject to rebuttal? – Refer to page 439 (if applicable) 1. Based on the case, the presumption may be rebutted because ___ had received independent legal advice; hence it reflected that ____ (claimant) had acted freely and independently in entering into the contract. The independent legal advice did not necessarily need to be taken in order for the presumption to be rebutted. 2. The respective age and positions in life of the parents and child can also be an exception to the application of the presumption. As seen in the case of Rajabali Jumabhoy and others v Ammerali R Jumabhoy and others (1997): the court held that it does not make sense for a 90-year-old father to have exercised undue influence over his sons who are all over 60 years old. Thus, the argument for undue influence will not succeed.

Step 5: Has the transaction been infected? The next legal issue is if ___ (Creditor: Bank) rights/guarantee against ____ (innocent party who stood as surety) been “infected” by the wrongdoing of ____ (debtor). [3 parties – e.g. bank, wife, husband] Infection can happen either by way of agency, where ___ (guilty party) is the agent of the bank, or through the doctrine of constructive notice, where the ___ (creditor) had actual or constructive notice of the wrongdoing by ___(guilty party). In this case, ___ is not the agent of ___ bank, but we also have to determine if ___ (creditor: bank) had any notice of ____ undue influence. We can see that ____ bank may have had a constructive notice of the undue influence. To flee from constructive notice, the bank must be (1) put on inquiry and (2) did not fail to take reasonable steps to minimise risk of undue influence.

According to the case of Royal Bank of Scotland plc v Etridge (No 2) (2002), the creditor is put on inquiry whenever a wife/husband offers to stand surety for the debts of his/her spouse, or where the relationship between the surety and the debtor is non-commercial (ie, parent-child, relatives, in-laws, employee-employer, unmarried couples).  Unless the loan advanced to the spouse is for their joint purposes Therefore, ___ bank is put on inquiry since the relationship between __ and ___ is non-commercial (pg390 eg unmarried couples, parent n child)/are spouses and the loan was not for their joint purposes. Next, we have to ensure that the bank has taken reasonable steps to minimise risk of undue influence. The bank has to ensure that ____ (surety) obtains his/her own legal advice and explain the rationale is that it is for his/her own protection. It is not necessary for the bank to meet with the wife directly as it suffices for the bank to satisfy itself that _____ has been advised by his/her own solicitor (for example, through a written confirmation from the legal advisers that ____ had been properly advised). (FOR EXAMPLE!!) On the bank’s insistence, Alfred saw Jaya, a solicitor, who stressed the disadvantageous nature of the guarantee. Therefore, Alfred is known to have sought legal advice even though he was dozing off during the meeting with Jaya. We have assumed that ACDC bank did not know Alfred was dozing off during the meeting and he fully understands the consequences of being a guarantor. Assuming that undue influence was caused and it was infected In conclusion, ___ did exercise presumed undue influence on ___, and ____ bank was affected by ____ undue influence, since it has failed to take reasonable steps to minimise the risk of undue influence. Therefore, the ___ (bank’s) is unable to claim for payment from ___ (Surety). In addition, the contract is voidable due to undue influence. [2 parties – e.g. wife n husband] Since the defendant did exercise presumed undue influence on the plaintiff, the defendant could actually prove that there isn’t undue influence by rebutting the presumption that the plaintiff acted freely and independently in entering into the transaction. Explain and see if plaintiff acted/did not act independently. In conclusion, although the defendant did exercise presumed undue influence on the plaintiff, she will not be liable since the plaintiff acted independently… (Liable if plaintiff did not act independently)...