Undue Influence

Question 1

What should contractual obligations be?

Answer 1

• Both freely and independently assumed.
• If the consent to a transaction was produced in a way such that the consent ought not fairly to be treated as the expression of a person’s free will, then the transaction will not be allowed to stand.

Question 2

The concepts of undue influence overlap with duress. Although, ideally, the doctrines would have distinct, clear targets, why dont they?

Answer 2

The doctrine of duress is a common law doctrine, whereas undue influence was developed by the courts of equity.

Question 3

What should you do, if a contract appears to be the result of pressure/coercion?

Answer 3

You should consider each doctrine in turn.

On a practical note, where there is doubt as to whether any particular act of coercion is duress or undue influence, the claimant should bring their action on both grounds.

Question 4

What is the objective of the doctrine of undue influence?

Answer 4

To ensure that the influence of one person over another is not abused.

Question 5

What is the leading case on undue influence?

Answer 5

RBS v Etridge (No 2) [2002]

Question 6

What was stated by the court in RBS v Etridge (No 2) [2002]?

Answer 6

• Court stated that undue influence exists where a person’s consent to a transaction was produced in a way that the consent ought not fairly to be treated as the expression of free will.
• The court stated that it is ‘impossible to be more precise or definitive’ than the definition above. This suggests that the court wants to keep its options open to find undue influence in any situation which falls within this test.

Question 7

What are the two types of undue influence listed in Etridge?

Answer 7

1. Firstly, there are instances of overt acts of improper pressure or coercion such as unlawful threats. This type has much overlap with the idea of duress.
2. Secondly, there are situations where one party has influence or ascendancy over the other, and the first party takes advantage of that influence / ascendancy. In these cases there may be no specific or overt act of pressure or coercion, but the underlying relationship is sufficient for the undue influence to be exercised. The lack of an act of pressure or coercion makes this quite distinct from duress.

Question 8

How rare are the cases of overt acts of improper pressure or coercion?

Answer 8

• These cases are necessarily rare.
• Many cases which fall into this category would today probably be decided on the basis of duress.

Question 9

What is the causation test for undue influence?

Answer 9

In so far as the behaviour constituting undue influence is of a deceitful / fraudulent nature, the causation test is the same as for duress to the person.

Question 10

What is necessary for the innocent party to do in a claim of undue influence?

Answer 10

It is necessary only for the innocent party to establish that the undue influence is a factor in inducing the claimant to enter into the contract. The innocent party does not need to establish that the undue influence was a decisive factor.

Question 11

If the behaviour is not deceitful/fraudulent, then what is the case?

Answer 11

If the behaviour is not deceitful / fraudulent, then the situation is less clear, and it may be that the ‘but for’ test applies: but for the behaviour constituting undue influence, would the innocent party have entered into the contract?

Question 12

How common are cases of taking advantage of influence or ascendancy in a relationship?

Answer 12

This type is more common and the majority of recent authorities are concerned with this type.

Question 13

What is a common situation with taking advantage of influence or ascendancy in a relationship?

Answer 13

A common situation is where a husband or wife (the ‘business owner’) wants their spouse to enter into an agreement with the effect that the spouse’s share in the matrimonial home is used as security for a loan to the business owner’s business.

Question 14

What is the effect of this common type of situation?

Answer 14

The effect is that the spouse might lose their interest in the home. If the spouse has placed trust and confidence in the business owner and the business owner abuses this trust in seeking the spouse’s consent to the transaction (for example, by misrepresenting the nature of the transaction), then this can amount to undue influence.

Note the absence of a specific act of coercion or pressure.

Question 15

Although there is no definitive list of relationships of influence or ascendancy, there are a number of relationships in which there is an irrebuttable presumption that one party has influence over the other, what will the court not allow in these cases?

Answer 15

In these cases, the court will not allow any argument that, in fact, there was no influence in that relationship.

Question 16

What types of relationships is there an irrebuttable presumption that one party has influence over the other?

Answer 16

1. Parent and child
2. Guardian and ward
3. trustee and beneficiary
4. solicitor and client
5. doctor and patient

Question 17

What two types of relationship (crucially) don’t have the presumption?

Answer 17

1. Parent and adult child
2. Husband and wife

The influence will therefore need to be positively shown.

Question 18

Definition of ‘relationship of influence/ascendancy…’

Answer 18

Often where trust and confidence is placed by one party in another, but there are other examples e.g. a relationship with a vulnerable or dependent person.

Question 19

‘Irrebuttably presumed’?

Answer 19

In cases of parent / child, guardian / ward, trustee / beneficiary, solicitor / client and doctor / patient.

Question 20

Proof of taking advantage of influence or ascendancy in a relationship?

Answer 20

If a party wishes to allege it has been the victim of undue influence, it must prove this.

The court has established some basic principles as to how this might be proved.

Question 21

What must a party show to a court?

Answer 21

If a party can show that there is a relationship of trust and confidence (or presumably one of the categories of irrebuttable presumption) and also a ‘transaction which requires explanation’, then this will be enough for the court to determine that the transaction is the product of undue influence, unless the alleged wrongdoer can produce evidence to convince the court that there was no such undue influence.

In other words, if the claimant can show that there is a sufficient relationship, the burden then shift to the defendant to produce evidence to show there was no undue influence.

Question 22

What has the court indicated in terms of transactions between husbands and wives where one is offering their interest in the matrimonial home?

Answer 22

Note that the court has indicated that, in the majority of cases, a husband / wife offering their interest in the matrimonial home as security for a loan to their spouse’s business is not a transaction which requires explanation, so the party alleging undue influence would need to prove that unfair advantage had been taken of the relationship.

Question 23

Where a party has shown a relationship of trust and confidence and a transaction which requires explanation, then what might the wrongdoer argue?

Answer 23

(for example) that the innocent party received comprehensive independent advice about the transaction, and therefore that they could not have been subjected to undue influence. Whether such an argument would succeed will depend on all the facts.

The court has made clear that even when someone fully understands a transaction having received independent legal advice, it is possible that their consent to it is still being given only as a result of undue influence.

Question 24

What is a possible equation for establishing undue influence?

Answer 24

Relationship of trust and confidence + Transaction which requires explanation =

Undue influence established, unless the accused party can establish to the contrary.

Question 25

Limits on equitable relief

Answer 25

Where undue influence is proven, a contract (or gift by deed) may be set aside. However, this relief is equitable and, therefore, discretionary: * The court may not allow this relief where the innocent party has delayed making its claim because **'delay defeats equity'**. * Also, it may be disallowed where the claimant's conduct has been underhand because **'he who comes to equity must come with clean hands’**.