Undue Influence

Undue Influence

Undue influence is an equitable doctrine (available at the court’s discretion) which provides relief from contracts entered into under improper pressure not amounting to duress. The courts will intervene where there is some relationship between the parties which has been exploited and abused to gain an unfair advantage. The precise basis of the courts intervention is a matter of debate.

Undue influence is based on the misuse of a relationship of trust or confidence between the parties. Where found, it renders a contract voidable. The innocent party will need to apply to the court for rescission of the contract.

Put more simply and precisely, Undue influence is an equitable remedy. It covers situations where one party has gained an unfair advantage over the other by applying improper pressure (Which does not amount to duress at common law). The term ‘undue influence’ is inherently imprecise and the courts have not provided a precise definition. However in bank of credit and commerce international v. Aboody (1990) the courts defined two classes of undue influence:

Class 1- Actual undue influence

Class 2 – presumed undue influence

The latter classification was further refined in Barclays Bank plc v. O’brien (1993) such that the second class was subdivided as follows:

Class 2A – presumed undue influence (arising from a special relationship between the parties).

Class 2B – presumed undue influence (no special relationship in the sense of class 2A, but a relationship of trust and confidence).

In light of the decision in Royal Bank of Scotland plc V. etridge, the basic categories of undue influence remain, I.e., there are three distinguishable categories:

• Actual undue influence; and
• two classes of evidential undue influence (protected relationships and other cases established on facts):

(a) where the relationship falls within the recognized category of protected relationships, there is an automatic evidential presumption of influence. It is then only necessary to establish that the influence is ‘undue’, I.e., the existence of a wrong (abuse of trust or unfair advantage was taken, as demonstrated by the fact that the transaction is suspicious or calls for an explanation), before concluding that undue influence was exercised.

Lord Nicholls in Royal Bank of Scotland plc V Etridge indicated that this evidence of the ‘wrong’ was linked to the ‘manifest disadvantage’ requirement in that if the transaction was shown to be manifestly disadvantageous to the claimant that was evidence suggesting that advantage had been taken of the position of influence.

(b) Outside the class of protected relationships, the evidential presumption of influence may arise on the facts where one of the parties can be shown to have placed trust and confidence in the other. However the difference in this instance is that this presumption of influence can be rebutted by the other party establishing that no much influence was in fact exercised. Again, it would be necessary to establish that the transaction was suspicious or called for an explanation in order to raise the presumption of undue influence (I.e. advantage taken of the position).

This is different to the pre-Etridge position but only in the sense that (1) the presumption arising from the relationship between the parties will establish influence (and not that the influence was undue); and (2) the presumption of influence is rebuttable if the relationship falls outside the protected class of relationship but irrebuttable where the relationship is protected; and (3) the ‘manifest disadvantage’ requirement has been clarified and distinguished from the requirement for a third party surety to be put on inquiry (I.e., that the transaction is now on its face to the financial advantage of the party alleging undue influence).

Actual undue influence

Cases of actual undue influence can be equated with the type of pressure required to establish duress. In Etridge Lord Nicholls described this unacceptable conduct as ‘overt acts of improper pressure or coercion such as unlawful threats’ and added that ‘today there is much overlap with the principle of duress as this principle has subsequently developed’.

Contracts where actual undue influence is proved – The burden of the proof lies on the claimant to show that such influence did exist and was exerted.

There is no circumstances in which undue influence may be presumed, so the party alleging undue influence must prove the undue influence: at the time of the contract, they were not able to exercise free will in entering into it:

Key Case Williams V. Bailey (1866) – concerning actual undue influence

A young man forged his father’s signature on some promissory notes and presented them to a bank, which discovered the forgery. At a meeting between the bank the father and the son, the bank threatened to prosecute the son unless some satisfactory arrangement could be reached. As a result, the father entered into an agreement to mortgage his property to pay for the notes.

The agreement was set aside on the grounds of undue influence since the father could not be said to have entered the agreement voluntarily.