There is undue control where a contract has been entered into as a result of pressure falling short of the sum of coercion, the party subject to the pressure may have a cause for action in equity to have the contract set aside for reasons of undue influence. The undue influence works where a relationship exists between the parties that have been abused to achieve an unfair advantage by one party. Undue influence and alleged undue influence are split into real undue influence. If, as a result of the unfair influence, a contract is found to be entered into, this would make the contract void. This would cause the individual affected to have the agreement set aside against a party who has subjected the other to such control. In addition, the affected party may be entitled to have a contract set aside in such cases against a party who was not the person inflicting the power or pressure.
CLASSES OF UNDUE INFLUENCE
In the case of Bank of Credit & Commerce International v Aboody [1990] 1 QB 9233, three groups of undue influence were identified.
Class 1 - Actual undue influence
Class 2a - Presumed undue influence
Class 2b - Presumed undue influence
CLASS 1- ACTUAL UNDUE INFLUENCE
As the name suggests, actual undue influence includes evidence that the contract was entered into as a consequence of the actual influence exerted. The claimant must plead and show the actions they say amounted to undue influence.
This can include acts such as threats to terminate a relationship, continuing to badger the party where before they finally give in, they have denied consent. The exact concept of undue influence does not exist. In RBS v Etridge, Lord Nicholls described the notion as:
"Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose. The law will investigate the manner in which the intention to enter into the transaction was secured: If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or 'undue' influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to be more precise or definitive. The circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion."
MANIFEST DISADVANTAGE?
It was originally a condition that the claimant seeking compensation by actual undue influence could also show that they had experienced a clear disadvantage.
In CIBC Mortgages v Pitt [1994] 1 AC 200, however, it was held that evident disadvantages were not necessary in cases of actual undue influence.
CLASS 2 A - PRESUMED UNDUE INFLUENCE
Establishing the presumption
There is no provision under Class 2a to show that undue influence was actually exercised. It has to be generated instead:
1. There was a relationship that gave rise to a presumption of undue influence as a matter of law.
2. The transaction is one that can not simply be clarified by the parties' relationship.
1. Relationships capable of giving rise to an automatic presumption of undue influence are those of a fiduciary nature and include:
Parent: child
Solicitor: Client
Religious advisor: disciple
Doctor: Patient
Trustee: beneficiary
2. The transaction is one which can not readily be explained by the relationship of the parties.
Where the deal is clearly not for the good of the weaker party but gives the party in a fiduciary position a great advantage, the law would increase the presumption that the transaction was entered into as a result of some kind of relationship violence. In terms of manifest disadvantage, the requirement used to be expressed. This led to confusion, however, particularly where a wife had an interest in the business of the husband, see:
National Westminster Bank v Morgan [1985] 1 AC 686
Bank of Credit & Commerce International v Aboody [1990] 1 QB 923 (in relation to actual undue influence)
CIBC Mortgages v Pitt [1994] 1 AC 200 (also actual undue influence)
In view of the difficulties with regard to the manifest disadvantage, in Royal Bank of Scotland v Etridge [2001] 3 WLR 1021, the House of Lords held that the phrase could no longer be used and replaced by the requirement that the transaction is one which could not be easily clarified by the parties' relationship. This is intended to exclude insignificant gifts, but to put significant advantages within its realm, even where a gain is also earned by the vulnerable group. The transaction as a whole should be considered by the court.
CLASS 2B- PRESUMED UNDUE INFLUENCE
There is no automatic presumption arising under Class 2b as a matter of law. It must be identified here that there is a relationship of such a nature that one party has actually put its confidence and trust in the other to safeguard its interest. Including husband and wife, cohabitants, employer and employee, any partnership can be equivalent to these examples. The essential difference between Class 2 a and 2b is that it is appropriate to prove the relationship of trust and trust. It is no longer the case in modern times that women normally put all their faith in their husbands to deal with financial matters, although this can be done in some marriages.
Exceptionally, it has been held that a relationship of trust and confidence existed between a bank manager and his client:
Lloyds Bank v Bundy [1975] QB 326
However, it has been held that the normal relationship between banker and client is not one of trust and confidence:
National Westminster Bank v Morgan [1985] 1 AC 686
A relationship of trust and confidence has also been seen in employer and employee relationship:
Credit Lyonnaise Bank Nederland v Burch [1997] 1 All ER 144
There is no need to establish that the party subject to the influence would not have entered into the contract but for the influence. There is also no need to establish a causal link in relation to misrepresentation beyond reliance:
UCB Corporate Services Ltd. v Williams [2002] EWCA Civ 555
REBUTTING THE PRESUMPTION IN CLASS 2A AND 2B
Through showing that the vulnerable party exercised free will in joining the transaction, the party accused of exercising undue influence can rebut the presumption. This is most generally established by showing that before agreeing to the agreement, they were fully aware of the risks involved and had obtained legal advice.
CONSTRUCTIVE NOTICE
The undue influence generally happened between a husband and wife. If a wife has undue influence, she may be entitled to have the transaction set aside against her husband, but the transaction is normally with a bank that has not been a party to the influence. It became apparent after the decision in Natwest v Morgan that banks were not operating in a fiduciary capacity in order to give rise to a presumption of undue influence. Another element had to occur in order to get the contract set aside against a bank. The definition of constructive notice was introduced by Barclays Bank v O'Brien [1993] QB 109.
Constructive notice arises where the bank is
1. Put on enquiry and
2. Fails to take reasonable steps to ensure that the transaction was entered freely without the exercise of undue influence.
Consideration of factors which put the bank on enquiry:
Bank Of Scotland v Bennett & Anor [1998] EWCA Civ 1965
Conoco Ltd v Khan & Anor [1996] EWCA Civ 968
The current factors to be considered were set out in:
Royal Bank of Scotland v Etridge [2001] 3 WLR 1021
Agency
Where a bank instructs solicitors to advise the wife, the solicitor acts solely for the wife and not as an agent for the bank:
Barclays Bank Plc v Thompson [1996] EWCA
This applies even where the bank paid for the advice:
National Westminster Bank Plc v Beaton & Anor [1997] EWCA Civ 1391
For consideration of the position of unjust enrichment of the wife see:
Dunbar Bank Plc v Nadeem & Anor [1998] EWCA Civ 1027
EFFECT
Section 20 of the Contracts Act 1950:
When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court may seem just.
So the contract is voidable.
REMEDIES
Section 20 of the Contracts Act 1950:
When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court may seem just.
The contract can be set aside if the element of undue influence is found.
How to rescind a contract?
1. give notice to the other party – S.67 Contracts Act
2. apply to court – S.34(1)(a) Specific Relief Act
Exception to rescission
1. to a bona fide purchaser for value without notice:
Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff
2. affirmation ie the complainant affirmed the transaction:
Allcard v Skinner
3. laches:
Saad Marwi v Chan Hwa Hua
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