Identification of Circumstances Under Equity

“Presumed undue influence should not be a ground of restitution. There is no logic in the fashion in which the courts deal with this presumption. Discuss.”

Introduction

The common law has always presumed that the parties to contract have equal negotiating authority, but equity identifies that if the relationship between the parties is contaminated by disparity, iniquity or breach of trust, then the parties can set aside the transaction.

The two key rules for the identification of circumstances under equity are as follows:

1. The doctrine against unconscionable conduct; and

2. The doctrine of undue influence.

Unconscionable conduct is a situation where one party, which is obtaining a deal, deliberately manipulates the advantage of the other party. Undue influence focuses upon the relationship between the parties, which damages the quality of the consent given. This is where one party holds real supremacy over the other in a way that dominates the will of the other party. Furthermore, this position is used to gain benefit over the other. [1] Patel v. Thakore, the East African Court Of Appeal adopted the definition of the then Indian Contract Act in Tanzania that undue influence subsists where one party is in a position to dominate the other and gain unfair advantage and uses that position to do so. [2]

Undue influence claim cases have caused a substantial amount of challenges for the court in recent years. These challenges are related with the scope, its relationship with duress, and cases in which the court stepped into accessible and misapplied principles. One of the key questions under debate is whether the spotlight of undue influence should be on the conduct of the defendant or on the state of mind of the claimant or both. This debate stays unsolved. [3]

In the recent case R. v. Attorney – General for England and Wales [4] and National Commercial Bank (Jamaica) Ltd v. Hew [5] special significance was given to some types of wrongdoing by the defendant. On other hand in Pesticcio v. Huet [6] , the court expressed that for determining undue influence any wrongdoing on the part of the defendant is not required.

There are two categories that draw the principles of undue influence. The unique trait between the two categories is presence and absence of a unique relationship between the parties. When there is no special relationship between the parties, this is known as actual or express undue influence. Whereas in cases where a special relationship subsists between the parties, this is known as presumed undue influence. In the widest manner, the distinction between the two classes can be that actual undue influence twists the mind of a donor; whereas presumed undue influence is where there is an absence of independent advice available to the donor. [7]

Actual Undue Influence

In Allcard v Skinner, Cotton LJ pointed out that a case of actual undue influence could be corroborated if ‘there has been some unfair and improper conduct; coercion; overreaching; cheating; and generally, although not always, some personal advantage by a donee in some close and con”dential relation to the donor’. Once actual undue influence has been established, the burden lays on the defendant to deny the belief that the transaction made by the other party was a result of the influence. In this case the court of appeal held that, even though the gifts were voidable because of undue influence, which she received during her training, she was deprived from the recovery because of her conduct and the delay.

Allcard is a remarkable case because for several reasons. Firstly, the judges classified actual and presumed undue influence. Secondly, it was difficult for the court of appeal to establish this case as a case of presumed undue influence. However, the judges gave concise thought on the scope of actual undue influence. Accordingly, Lindly LJ stated that actual undue influence sketches cases of ‘overreaching’ and ‘cheating’. Furthermore, he proposes that ‘victimization’ is the ground for deciding undue influence. Hence, this suggests that wrongdoing on the part of the defendant should be sought. But this rationalisation is difficult to reconcile with his conclusion that there was nothing to suggest that any gift made by the plaintiff was the result of the actual exercise of influence by the mother superior.

Cases of actual undue influence are rare as they are difficult to prove. Hence, in Frederick v State of South Australia [8] , a South Australian magistrate resigned from his office during a meeting with the Chief Magistrate. The magistrate was convicted for two criminal offences. However, the convictions were later set aside. The magistrate argued that the resignation was unproductive on the basis that it was attained by the action of actual undue influence by the Chief Magistrate. The Supreme Court discarded the claim on the basis that the magistrate was not in a position of being the victim of actual undue influence.

In the case of Bank of Credit and Commerce International SA v Aboody [9] , the wife had been unduly influenced by her husband when executing guarantees and charges on the matrimonial home, relating to loans by the bank to the husband’s business. She had a habit of signing wherever her husband asked her to sign in relation to his company. Mrs. Aboody stated that she trusted her husband to be acting for the good of the family business. The Court held that Mr. Aboody had intentionally exploited her trust because he used his influence to ensure that she signed the documents without any discussion or consideration of the risks. Although the judge found that such influence had been established, he refused to set aside the charges, as it had not been proved that they were manifestly disadvantageous to the wife (overruled by the House of Lords in CIBC Mortgages v Pitt [1993]).

Presumed Undue influence

Cases of presumed undue influence are even more complicated. Before the case of the Royal Bank of Scotland v. Etridge, the court separated the cases into two classes:

Class 1 cases are where the relationship between the parties is of a kind in which one party is in a position to influence or dominate the will of other, which includes parent and child, guardian and ward, doctor and patient, lawyer and client, trust and beneficiary, religious advisor and disciple. Class 2 cases are where the claimant has to prove existence of the relationship of trust and confidence.

In general there are 3 elements to the cases of presumed undue influence:

Relationship of Trust and Confidence

Manifest Disadvantage

Rebutting the presumption of undue influence

In National Westminster Bank Plc. v. Morgan [10] Lord Scarman said that there must be manifest disadvantage and victimisation of one person by another. In Australia, this view was accepted in Farmer’s Co-operative Executors & Trustees Ltd v Perks [11] , but rejected in Baburin v Baburin [12] . Later, the House of Lords decisions in CIBC Mortgages Plc v Pitt [13] and Royal Bank of Scotland v Etridge [14] , have successfully overruled the decision in National Westminster Bank v Morgan.

Relationship of Trust and Confidence

The courts have always distinguished the class of relationship in which the stronger party has exercised its influence on the weaker one. Generally, that includes parent and child; guardian and ward; solicitor and client; doctor and patient; and religious leader and follower.

In Royal Bank of Scotland v Etridge [15] -presumption is ‘irrebuttable’ if it is arising by high merit of an identified category of relationship and same was discarded in Australia Janson v Janson. [16] It is tricky to rebut such a presumption, and even being able to explain the relationship in some other way, will not guarantee success: Bar-Mordecai v Hillston.

The significant trait for taking this ground is that in order to draw the equitable presumption, the advantage must move from the ‘weaker’ party to the ‘stronger party’. In the above mentioned relationships it is justified to presume that they have a strong influence over the weaker party, and the gifts and transactions made in such relationship can be a result of undue influence.

There have been constant arguments about presumed relational influence: whether they are to be established on the conduct of plaintiff or defendant. Birks and Chin have argued that these cases are verified by the conduct on the side of the plaintiff because relief granted is not based on the actual proved wrongdoing of the defendant. [17] In the cases of presumed relational influence, whether the defendant is guilty of any wrongdoing or not, the presumption can still be drawn. However, the main issue will be that the plaintiff has lack of self-management because of over dependence on the other party. [18] Contrary to the rebuttable presumption will be the independent advice, free and voluntary transaction, and well-informed act of the plaintiff. In Commercial Bank of Australia Ltd v Amadio, [19]  Deane J pointed out:

Undue influence and unconscionable dealings are two completely distinct doctrines similar to common law duress. Undue influence focuses on the weaker party and looks at quality of consent and assent or agreement by the weaker party, whereas unconscionable dealings will focus on the conduct of the stronger party and will look to the attempts made by the stronger party in order to enforce the agreement or retain its benefit. [20]

The High Court in Bridgewater v Leahy [21] later approved the approach where emphasis was given to the disparity between undue influence and unconscionable conduct to protect the separate process and centre of the doctrines. [22]  On the other hand, as Birks and Chin recognise, not all current case law sustains the plaintiff-conduct approach. [23]   In England, sometimes the courts have taken the contrary path, in shaping relational undue influence in respect of the wrongdoing of the defendant. [24]

According to Bigwood, relational undue influence is based on the defendant’s conduct. [25]  The centre of relational undue influence remains the ‘conscience’ and unfair conduct of the stronger party which can be direct or indirect. Furthermore, he says that domination, dishonesty or bullying (as absence of evidence), can even happen when the plaintiff willingly has entered into the transaction, as steps have not been taken to guarantee that the plaintiff has acted independently. To rebut the presumption of wrongdoing by the defendant and to confirm that the plaintiff acted freely and had knowledge of the effect of transaction can only be proved by proving the element of independent advice. [26]

One more doubtful relationship is that of ‘man and “ancée’. There are numerous old establishments, which have identified influence of a man over a woman who is engaged to him, such as in re Lloyd’s Bank; Bomze v Momze [27] . Zamet v Hyman [28] ; Louth v Diprose [29] . These cases have established that the relationship of a man and his “ancée is no longer a Class 2A relationship. However, in the recent English decision of Leeder v Stevens [30] , the Court of Appeal presumed that it was still a Class 2A relationship.

The court further enlarges its similarity with the relationship of a married man and a woman. Enonchong argued that the decision was “not sure of the legal and academic authority” and is not grounded in principle and should be tested with great caution. [31]

Manifestly Disadvantageous

In National Westminster Bank plc v Morgan [32] , Lord Scarman said that the party alleged to be influenced must have an adequate disadvantage. He also suggested protecting the victimisation of the weaker party. The transaction in the case was not unjust to the wife.

The party claiming a relief on the basis of undue influence under an agreement, when transaction is a gift, manifest disadvantage is assumed. [33] Consideration, which is inadequate, is believed to be evidence of manifest disadvantage. Inadequate consideration has been believed evidence of manifest disadvantage. [34]

The Supreme Court in Baburin v Baburin [35] , Kelly SPJ held that, contrary to English authority, a transaction could be set-aside without the need for manifest disadvantage. Furthermore, he says that the ‘improvidence’ of a transaction is significant, the burden of proof lies with the defendant that the transaction was not improvident.

Rebutting the Presumption of Undue Influence

These two elements are sufficient to trigger the assumption of undue influence. Furthermore, the court should see whether these presumptions have been rebutted. This is the third element for presumed undue influence. Presumption of undue influence is rebutted if the defendant shows that the plaintiff exercised free and independent will and this independent will should constitute the knowledge of all relevant facts of the transaction. This is a usually requirement for case where the gift made is large and influence made is really strong. [36]

It is not essential that the advisor should be a lawyer but he or she must be independent and must have knowledge and competent. In Hammond v. Osborn [2002] the court of appeal disagrees and held that presumption was not rebutted.

Conclusion