Proving Undue Influence in Court

First and foremost, any discussion on the law of undue influence must begin with Allcard v Skinner [1] where Cotton LJ clearly stated that undue influence could be proved by establishing that “the gift was the result of influence expressly used by the donee for the purpose”, [2] or, “where the relationship between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the done had influence over the donor.” [3] Subsequently, the Court of Appeal in BCCI v Aboody [4] identified the two forms as actual undue influence and presumed undue influence. The classification of the types of undue influence in Aboody has been adopted in the decision of Barclays Bank Plc v O’Brien, but it has been subject to criticism by decision of Royal Bank of Scotland v Etridge (No.2). [5]

The difference between the two classes is that in the case of actual undue influence is where the victim to the transaction proved that undue influence had actually been used by the wrongdoer, in the word of Ward LJ, [6] something has to be done to twist the mind of a victim, [7] whereas in cases of presumed undue influence, the influence derives from the “relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage.” [1]

2.2 Actual Undue Influence

Actual undue influence, as the name suggests, requires proof that the transaction was entered into as a result of actual influence exerted. Basically actual undue influence arises from the existence of some unfair or improper conduct such as unlawful threats on the part of the party said to have unduly influenced the other, and not the relationship between them. [2]

To succeed in pleading actual undue influence, the victim must prove (a) that the wrongdoer had the capacity to influence the victim; (b) that the influence was exercised; (c) that its exercise was undue. The burden of proof is on the claimant to show that undue influence was exerted by the stronger party over the weaker party, and that the latter could not exercise ‘free’ choice when entering the agreement. [3] This is why the Court of Appeal in UCB Corporate Services Ltd v Williams [4] overruled the condition set out in BBCI v Aboody [5] that the victim must prove that the undue influence brought about the transaction. The decision in UCB v Williams [6] was reaffirmed by UCB Group Ltd v Hedworth. [7] It is submitted that the correct approach is that undue influence should be a cause of the reason to enter into the transaction, and that it is unnecessary to prove that the party subject to the influence would not have entered into the transaction but for the influence.

Besides, the court in BCCI v Aboody [1] has suggested that in order to establish actual undue influence, it is necessary to show that the transaction in question is to the manifest disadvantage of the ‘innocent’ party. However, this test was overruled by the House of Lords in CIBC Mortgages plc v Pitt [2] where it was held that it is unnecessary for the victim to prove that the transaction was manifest disadvantages in a case of actual undue influence. According to Lord Browne-Wilkinson, [3] a person who has practiced fraud cannot argue that it should be ignores because their victim benefited as a result of it.

As far as the doctrine of actual undue influence is concerned, the nature of actual undue influence was described by Lord Hobhouse in Etridge [4] as straight-forward. However, it is not easy to determine the types of pressure, and the level of pressure required to prove actual undue influence. One must make the difference between acceptable influence which one encounters in everyday commercial and family life, and unacceptable influence which warrants the intervention of equity. Due to the limit of word, this issue will not be discussed here.

2.3 Presumed Undue Influence

There has been a lack of clarity as to exactly what is being presumed when presumed undue influence is in question. In these cases the claimant has to prove that there was a relationship of trust and confidence between the claimant and the wrongdoer of such a nature that it is just to presume that the wrongdoer abused that relationship in procuring the claimant to enter the impugned transaction. Once the presumption has been raised, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely. Therefore, there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction impugned. Presumed undue influence, as contended by the Court of Appeal in BBCI v Aboody, [1] can be divided into class 2(a) and 2(b). In order to raise the presumption of undue influence, the claimant must satisfy two conditions:

(i) Relationships

For class 2(a), the claimant must show that there is special relationship that give rise to a presumption of undue influence and which include parent and child, medical adviser and patient, solicitor and client, and religious advisor and disciple. The presumption did not apply, however, as between husband and wife. [2] If one party in a cohabiting relationship is a solicitor, however, the presumption is likely to arise even if they would not regard themselves as having been in a solicitor/client relationship. [1] In class 2(a) relationships, there is no need to prove the existence of trust and confidence as the law irrevocably presumes them to exist.

On the other hand, there is no automatic presumption arising as a matter of law under class 2(b). It is concerned with all other types of relationships where the claimant establishes that there was a sufficient degree of trust and confidence was reposed in the wrongdoer in relation to financial matters.

(ii) A Transaction That Calls For Explanation

The second element that needs to be satisfied before the presumption of undue influence can be raised is a transaction that calls for explanation. It is a situation where the transaction was one which could not be explained by ordinary motives of friendship or generosity. If a sufficient explanation is given, the evidential presumption does not arise.

This requirement was originally derived from the decision of Allcard v Skinner, [2] according to Lindley LJ, a questionable transaction was one that “cannot be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary men act”. However, the requirement was restated in terms of ‘manifest disadvantages’ in National Westminster Bank plc v Morgan. [3] (1985). Lord Scarman in Morgan did not define the term of manifest disadvantage but described it as a transaction which is sufficiently disadvantageous to the person claiming undue influence. [4] This decision has been criticised for extending the requirement for unfair advantage into manifest disadvantage. [1] It has lead to confusion particularly where a wife had an interest in the husband’s business. [2] Lord Browne Wilkinson in Pitt also signalled that the concept of manifest disadvantage would have to be reconsidered in the future especially in relation to class 2 undue influence. [3]

Subsequently, the ‘manifest disadvantage’ concept was rejected by the House of Lords in Etridge [4] . According to Lord Nicholls, the requirement of manifest disadvantage makes good sense; otherwise Christmas gifts given by children to their parents could be called into question. Agreements between clients and their solicitors or patients and their doctors to be paid reasonable fees may also be questioned. [5] Nevertheless, something more was needed to trigger the presumption, but he recognized that the ‘manifest disadvantage’ label has proved problematic. As a consequence, the label ‘manifest disadvantage’ was discarded and instead the test of “a transaction that calls for explanation” was adopted. According to Patten J in Clarke v Marlborough Fine Art (London) Limited, [6] the decision of Etridge had succeeded in restoring the position to that stated in Allcard v Skinner. [7]

It is undeniable that someone seeking to set aside a transaction will be assisted if it can be shown that it was manifestly disadvantageous to them. However, those seeking to uphold transactions should note that disproving “manifest disadvantage” is not sufficient if for other reasons the transaction calls for an explanation. In the words of Lord Nicholls, [1] “the greater the disadvantage, the more cogent must be the explanation” before the presumption will be regarded as rebutted. Needless to say, the new test is wider than the “manifest disadvantage” test as it is not be limited to financially disadvantageous transactions, those non-financial factors may be taken into account.

2.3.1 Rebutting the presumption

The effect of successfully establishing the presumption is that it shifts the onus from the influenced party to the dominant party to rebut the presumption. The party accused of exercising undue influence may rebut the presumption by demonstrating that the vulnerable party exercised free will in entering the transaction. This is most commonly established by demonstrating that they were fully aware of the risks involved and had received legal advice before agreeing to the transaction. This will be discussed in the next chapter.

Conclusion

The House of Lords in Etridge [2] in an attempt to provide better guidance has replaced the concept of “manifest disadvantage” to the wider test of “transactions that call for explanation”.