FACULTY OF LAWS LAW OF CONTRACT 2013-2014

UNDUE INFLUENCE
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Introduction Another way to set contract aside Looking for contract that you get no benefit from. Being ifluenced Influence ok but needs to be undue! Unacceptable Effect on victim someone took advantage of you in order to get your consent to enter the contract. If influence over someone fine but dont take advantage of that.

M Chen-Wishart, Contract Law (2nd edn OUP, Oxford 2008) 342 Undue influence is concerned with the exploitation of a relationship of influence to obtain an undue advantage. Looking for exploitation to find influence undue Also abuse influence (see below) Looking for fault? Not sure. Focus on what did undue influencer do? What position did they leave the influence in? What are the elements? Duress and undue influence similar. Compare the two

Tate v Williamson (1866-67) LR 2 Ch App 55 (Ch) 61 Wherever two persons stand in such a relation that, while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is possessed by the other, and this confidence is abused, or the influence is exerted to obtain an advantage at the expense of the confiding party, the person so availing himself of his position will not be permitted to retain the advantage, although the transaction could not have been impeached if no such confidential relation has existed. National Commercial Bank of Jamaica v Hew [2003] UKPC 51 at [33] Lord Millett However great the influence which one person may be able to wield over another equity does not intervene unless that influence has been abused. Equity does not save people from the consequence of their own folly; it acts to save them from being victimised by other people

Proving Undue Influence

Allcard v Skinner (1887) LR 36 Ch D 145 (Ch) 171 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 (QB) 953 Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773 (HL) [93], [210]-[228] Turning point. New and old law in undue Influence.

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3 Actual Undue Influence (Old Class 1) Overlap with Duress. Threatening behaviour. No physical harm. No duress to person. Development from duress to person to reach more areas. After broadening of Duress...overlap If threaten sb...enough to prove undue influence 3.1 Influence Williams v Bayley (1866) LR 1 HL 200 Man and son. Son forged Mans signature and promised money to bang. Father had to pay back debts according to bank. Took mortgage with bank to pay it off. Sleeked to set aside mortgage contract because Bank undue influenced him Court: Yes, true because bank undue preassure Bank of Montreal v Stuart [1911] AC 120 Threats have to show that there is no means of forming an independent judgement because of the influence = Undue part of Undue influence

3.2 Causation Aboody Case Wife tried to sign business loans he came in and screamed at her and threatened her. Court: Yes undue influence...but no causation. Wife totally devoted to husband would have gone into contract even without influence. Need a but for causation test. Later: Once established undue part---no need for but for test. But what is the causation test in undue influence then? Looks al lot like A cause test in duress. Low causation test. Again because want to set rules of behaviour. Dont want people to shout and threaten people to go into contract. Low test.

UCB Corporate Services v Williams [2002] EWCA Civ 555 (a factor)

Presumed Undue Influence (Old Class 2) 4.1 Requirements

Allcard and Skinner(1887) 36 Ch D 145 Key case for two party undue influence! Basic analysis of three elements Member of religious order. Devoted all her possession to sisterhood. Later when more involved agreed to obey their rules including obey lady superiou. Implication to give all her property to sisterhood. Later left sisterhood. Wanted stuff back Court: Yes, undue influence (didnt get stuff back but for other reason). Classic case of someone who could not exersice own will. Put all her trust into the lady superior.
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Second: Massive transaction. No friendship or charity as reason. No chance for independent advice if this was a good idea. No free will NEEDED FOR UNDUE INFLUENCE Relationship of Trust and confidence Transaction that seems suspicious Chance to get independent advice; Rebottle of transaction Fault element: Lady superiou did not do anything wrong but no advice thus not right

Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773 (HL) [14] Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainants financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the Court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn. Relationship of trust and confidence New language: Transaction that calls for explanation (second element) Quite wide. = Pressuption of Influence Thrid element 4.2 Relationship of Influence 4.2.1 Automatic Presumption (Class 2A)

Arises in the following cases: Certain relationships that show trust and confidence automatically. Label alone fine. No need to look into the details of relationship. Note: Husband and wife: NOT in this category. Parent and child; Guardian and ward; Trustee and beneficiary; Solicitor and client; Doctor and patient.

Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773 (HL) [14] law has adopted a sternly protective attitude towards certain types of relationship in which one party acquires influence over another who is vulnerable and dependant and where, moreover, substantial gifts by the influenced or vulnerable person are not normally to be expected.

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NOT wife and husband, because there is nothing unusual or strange in a wife, from motives of affection or for other reasons, conferring substantial financial benefits on her husband. 4.2.2 Proved Relationship of Influence (Class 2B) Relationship of actual confidence. Proove it Wife and husband (Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 (QB)); Great uncle and nephew (Cheese v Thomas [1994] 1 WLR 1021 (CA)); A junior employee and her employer (Credit Lyonnais v Burch [1997] 1 All ER 144 (CA)).

Relevance of substantive unfairness: Credit Lyonnais v Burch [1997] 1 All ER 144 (CA) 154-155 (Millet LJ) Junior Employee mortgaged flat for company she was working with. Trusted employer completely. Transaction benefited her in no way. Clear evidence of abuse of that trust. Pre etredge. [T]he mere fact that a transaction is improvident or manifestly disadvantageous to one party is not sufficient by itself to give rise to a presumption that it has been obtained by the exercise of undue influence; but where it is obtained by a party between whom and the complainant there is a relationship like that of employer and junior employee which is easily capable of developing into a relationship of trust and confidence, the nature of the transaction may be sufficient to justify the inference that such a development has taken place; and where the transaction is so extravagantly improvident that it is virtually inexplicable on any other basis, the inference will be readily drawn. Post Etridge: Situation wife husband makes her get loan form sb. Cases in which it is in the interest of both influencer and influence to set contract aside. Etridge: Not use word presumed anymore. No different categories of undue influence but only undue influence. Either show through threats or through relationship + transaction. To show relationships nature, needs evidence. Only changes language though. Does not like presumption. Shouldnt use it. Big change in language of Transaction Calling for Explanation

4.3 A Transaction Calling for Explanation Used to be the manifest disadvantage requirement: National Westminster Bank plc v Morgan [1985] AC 686 (HL) 704 (Lord Scarman) Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773 (HL) [28]-[29], replaced manifest disadvantage with requirement that transaction must be one that calls for an explanation, or is not readily explicable by the parties relationship. 4.4 The Defendants Rebuttal Etridge said: Where you have fully informed independent LEGAL advice given to claimant directly against undue influence, even if relationship of trust and questionable transaction. Other cases: Not only legal advice
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LLB Law of Contract

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Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773 (HL) [20] In the normal course, advice from a solicitor or other outside adviser can be expected to bring home to a claimant a proper understanding of what he or she is about to do. But a person may understand fully the implications of a proposed transaction and yet still be acting under the undue influence of another. Proof of outside advice does not, of itself, necessarily show that the subsequent completion of the transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue influence, is a question of fact to be decided having regard to all the evidence in the case. Bank of Montreal v Stuart [1911] AC 120 (PC) 137 She says she acted of her own free will and that she would have scorned to consult anyone Her declarations shew how deeprooted and how lasting the influence of her husband was. Hammond v Osborn [2002] EWCA Civ 885 Sick husband, liquidated possessions and gave all to wife. Had to pay a lot of taxes. Upon death children say undue influence through wife Court: Relationship + Large transaction BUT did not know of extent of transaction. Wife had not informed him of the extent undue influence. If she had at least questioned it briefly would have been enough. Even if no bad intentions...Did not inform him of extent. 5. Bars to rescission Cannot set aside contract but in principle undue influence contract voidable. Impossibility of restitution Affirmation and estoppel Delay 3rd Party situations note the responsibility on the 3rd party Royal Bank of Scotland Plc v Etridge (No. 2) [2002] 2 AC 773 (HL) How can bank protect itself in Etridge cases - If wife wants mortgage set aside Bank looses - Bank has to act reasonably. Has to take steps to reduce risk of undue influence. - Bank needs to put enquiry. Has to show that influence received independent legal advice. Face to face.

Monica Bhandari