Undue influence

Question 1

What is undue influence?

Answer 1

If consent to a transaction was produced in a way that consent ought not fairly to be treated as expression of person’s free will, then transaction will not be allowed to stand = Etridge (No 2)

Question 2

What are the two types of undue influence set out in Etridge?

Answer 2

1. Overt acts of improper pressure or coercion - overlaps with duress
2. Relationship of influence/ascendacy…of which unfair advantage is taken

Question 3

Overt acts of pressure or coercion?

Answer 3

• Very rare and cases that fall in this category tend to be decided on basis of duress.
• Causation is same as for duress to the person - necessary only for innocent party to establish undue influence is a factor in inducing C to enter into contract, no need to establish it was a decisive factor

Question 4

What is meant by taking advantage of influence or ascendancy in a relationship?

Answer 4

• Most common
• common situation is between spouses, e.g., husband might want wife to enter into an agreement with effect that wife’s shares in matrimonal home is used as scurity for a loan to husband’s business = here, there is an abscene of specific act of coercion or pressure
• Relationship of influence comes from trust and confidence which one party has in another - also one where one party is very vulnerable or dependent on another with significant influence

Question 5

Which relationships give an irrebuttable presumption of one party having influence over the other?

Answer 5

• Parent and child
• Guardian and ward
• Trustee and beneficiary
• Solicitor and client
• Doctor and patient

Here, courts will not allow any argument that there was no influence in these relationship. This is not enough, need to show that relationship was taken advantage of so to give rise to undue influence.

Parent and adult child does not give rise to this presumption and influence will need to be positively shown

Question 6

How does one prove influence has been taken advantage of?

Answer 6

Party must show:
* there is a relationship of trust and confidence (or irrebutable presumption) and
* a ‘transaction which requires explanation’

This will be enough for court to determine transaction is product of undue influence, unless D can produce evidence that there was no undue influence.

Potential arguement by D was C receieved comprehensive independent adavise about transaction as such could not be subject to undue influence - but court can still see undue influence in this.

Question 7

What is a transaction which requires explaination?

Answer 7

A transaction will require explanation if it does not fit with what would usually be expected in relationship concerned

• a relationship between spouses as been indicated by court as a transaction that does not require explanation as such alleging party must show unfair advantage was taken of.

Question 8

Limits on equitable relief?

Answer 8

Where undue influence is proven, contract may be set aside - though, this is equitable and so discretionary.

Question 9

What needs to be considered whether a spouse has excersied undue influence over the other in circumstances involving spouse consent to security?

Answer 9

1. Relationship of influence needs to be established - placing trust and confidence in their spouse
2. Transaction requires explanation - courts have indictaed in cases involving spouses offering interest in matrimonial home, this transaction is not one the requires explanation as such party offering security must show how their spouse’s influence has been used unduly.

If undue influence is established, issue of notice of the bank will be relevant.

Question 10

Key case: Barclays Bank v O’Brien

Answer 10

Facts: Husband persuaded wife (D) to take second charge loan over their matrimonial home in which he misrepresented true extent of liability. Bank executing mortgage had receieved but ignored instructions to ensure wife was aware of risk and to consult solicitor - when D defaulted, C (bank) sought to enforce mortgage but D argued mortgage was avoided against her due to misrepresentation from her husband.

Held: bank was aware that parties was husband and wife and were put on notice that influence may be exercised but they had failed duty to take reasonable steps to warn wife of risks when entering contract as such D was entilted to have legal charge set aside.

Question 11

In what situation would a creditor be put on notice?

Answer 11

• Transaction in question was not to wife’s financial advantage and
• transaction carried a significant risk of her husband committing a wrong in law or equity

Question 12

What reasonable steps should be taken in ensuring innocent party is full aware of risks?

Answer 12

• creditor can rely on confirmation from solicitor that they have advised wife (unless creditor is aware this has not been done) - no obligation of creditor to see wife itself
• creditor must provide solicitor with sufficient information about transaction
• if creditor is aware, actually or constructively, that wife may have been misled, creditor must tell solicitor of this

Question 13

What is the solicitor position in terms of advise given?

Answer 13

• explanation of documents and practical consequence
• seriousness of risk
• fact that wife has a choice

Necessary information must be obtained from creditor and if solicitor fails in his duty to wife, action in negligence can be raised.