"[T]o protect people from being forced, tricked or misled in any way by others into parting with their property is one of the most legitimate objects of all laws; and the equitable doctrine of undue influence has grown out of and been developed by the necessity of grappling with insidious forms of spiritual tyranny and the infinite varieties of fraud." Allcard v Skinner (1877) LR 36 Ch D 145, per Lindley LJ
Undue influence in English law is a field of contract law and property law whereby a transaction may be set aside if it was procured by the influence exerted by one person on another, such that the transaction "ought not fairly to be as treated the expression of [that] person's free will".
Historically, the doctrine had predominantly been invoked where the person who is exercising undue influence over another person either enters into a contract with the affected person or receives a gift from them. However, much of the recent case law relates to three party cases, where one person (often a husband) exerts undue influence on a second person (the wife) to enter into a transaction (providing a guarantee or security for the husband's debts) with a third party (often a bank). The doctrine originally developed because of perceived limitations in the law relating to duress. Although the modern law is different, previously in order to set aside a contract for duress it was necessary to show a threat of violence to the person (this is now no longer the case), and the doctrine developed in response to more subtle forms of coercion. Accordingly, many earlier cases which refer to undue influence are capable of being reconsidered as actually relating to duress or unconscionable bargains in the modern sense.
The leading authority on undue influence is now the decision of the House of Lords in Royal Bank of Scotland v Etridge (No 2), but much of the earlier case law continues to be relevant. There has been no real statutory intervention in this area of the law. Despite the wide array of cases considering the doctrine, there remains some disagreement as to the precise ambit of the doctrine.
Influence must be "undue"
In order to challenge a transaction as having been entered under undue influence. It is not sufficient to show that the person was influenced by another person; there must also be a degree of impropriety about the exercise of that influence.
Although there have been rare cases where a transaction has been set aside even where the party exercising influence is seeking to act in the best interests of the person being influenced,Cheese v Thomas 1 WLR 173 and that all that is required is that the person's free will has been vitiated, the preponderance of authority notes that undue influence has a "connotation of impropriety" or requires "unconscionable conduct".Dunbar Bank v Nadeem 3 All ER 876 at 883 In Allcard v Skinner (1877) LR 36 Ch D 145 Lindley LJ said:
However other cases have struck a very different tone. In Mummery LJ said:
Chitty on Contracts suggests that the different approaches may be reconciled by taking into account the nature of the transaction. If the transaction is obviously one-sided such as outright gift (particularly to the person exercising influence), and especially if it will have a serious effect on the victim like leaving them with limited resources, where there is a relationship of trust and confidence between the parties, the courts will presume that the influence was undue. But this will not normally be so where the transaction is to the advantage of the person who was influenced; where a wife simply signed what is put in front of her by her husband his influence was held not to be undue where at the time the transaction appeared to be to her advantage.Dunbar Bank plc v Nadeem 3 All ER 876 at 883 However, in either case it seems that it makes no difference whether the person exercising the influence obtains any personal benefit or not.Ellis v Barker (1871) LR 7 Ch App 104; Allcard v Skinner (1877) LR 36 Ch D 145
Undue influence
More recent case law has sought to divide undue influence into two (or three) separate sub-groups: (1) actual undue influence, and (2) presumed undue influence.This was first done in BCCI v Aboody 4 All ER 955 In Lord Browne-Wilkinson tried to further sub-divide presumed undue influence into two further categories: (2A) where the courts would presume, solely based upon the nature of the relationship, that the relationship is one with sufficiently significant influence in the form of trust and confidence or ascendancy and dependence, and (2B) relationships where the courts would not presume such influence. Treitel on the Law of Contracts has criticised the labelling as "potentially misleading". Both academic commentators and the courts have been skeptical as to the value of Class 2B relationships, and whether an evidential presumption is of assistance. In Royal Bank of Scotland v Etridge (No 2) Lord Hobhouse and Lord Hodge appeared to reject the Class 2B category, and Lord Clyde questioned "the wisdom ... of attempting to make classifications of cases of undue influence."
Actual undue influence
Most of the early cases relating to the development of the doctrine of undue influence related to actual pressure which was brought to bear on the victim, but which fell short of the legal requirements for duress. Many of these cases would now be treated as duress. For example, in Williams v Bayley (1886) LR 1 HL 200, Bayley's son forged his father's signature on promissory notes and gave them to Williams. Williams threatened Bayley with criminal prosecution, so Bayley made an equitable mortgage to get back the notes. The court set aside the mortgage, and expressed itself as doing so for reasons of undue influence; today the case would almost certainly have been treated as duress. For undue influence the equitable concept of "pressure" is much wider than for duress. Actual undue influence does not require the making of any threat.CIBC Mortgages plc v Pitt 4 All ER 433
In cases of actual undue influence, the party who claims relief must show that such influence existed and was exercised, and that as a result no independent judgment on the transaction could be formed.Bank of Montreal v Stuart AC 120 However, it is not necessary to show that the transaction was either manifestly disadvantageous, or that it called for explanation.CIBC Mortgages plc v Pitt 4 All ER 433, overruling BCCI v Aboody 4 All ER 955 on that point.
Presumed undue influence
Apart from cases of actual undue influence, equity may also give relief where a party is in relationship which gives rise to a presumption of undue influence. The sub-division of presumed undue influence based upon a relationship into two further sub-categories as discussed above remains controversial, but most academics continue to use the categorisation for discussion purposes.
Class 2A In Lord Browne-Wilkinson's speech in O'Brien, he referred to "Class 2A" as relationships of presumed trust and confidence. In those specific relationships "the law presumes, irrebuttably, that [one person] had influence over [the victim]". Note that it is not an evidential presumption, but an irrebuttable one. Accordingly, irrespective of the true facts, the courts will presume that the one person had influence over the other. However, the presumption that the transaction was procured by that influence may be rebutted.
The categories of relationships which have been recognised as relationships of presumed trust and confidence include: parent and child;Bullock v Lloyds Bank Ch 317 guardian and ward;Hylton v Hylton (1754) 2 Ves Sen 547 religious adviser and disciple; doctor and patient;Re CMG Ch 574 solicitor and client;Wright v Carter 1 Ch 27 trustee and beneficiary;Ellis v Barker (1871) LR 7 Ch App 104 and fiancé and fiancée.Re Lloyds Bank Ltd 1 Ch 289 and Leeder v Stevens EWCA Civ 50, although note below, that unmarried couples do not have the presumption.
Note however that it does not apply to spouses and partners, whether heterosexual or homosexual, and this state of affairs has been criticised as anomalous and arbitrary. Nor does it apply as between employer and employee.Matthew v Bobbins (1980) 256 EG 603
Class 2B
Where a relationship exists which does not fall into Class 2A above, but in which it is established that one person did in fact place trust and confidence in another, then the courts may apply a lesser evidential presumption that the transaction was procured by that influence. This presumption may be rebutted.
Most of the cases arise where one person had entrusted another with the management of their financial affairs. In O'Sullivan v Management Agency & Music Ltd QB 428, the musician and composer Gilbert O'Sullivan successfully set aside agreements he had entered into with his manager when he was a young aspiring musician. In Tate v Williamson (1886) LR 2 Ch App 55 where a young Oxford University student sold his estate to his financial adviser for half its value, the court set aside the sale. In that case, Lord Chelmsford noted that "The courts have always been careful not to fetter this jurisdiction by defining the exact limits of its exercise." As noted above, in much the same vein in Etridge the majority of the House of Lords seem to doubt the efficacy of having a Class 2B at all, and seemed to prefer such cases to be decided on general principles without the benefit of evidential presumptions.
Causation A person seeking to set aside a transaction for undue influence only needs to establish that the undue influence was a factor. They do not need to establish that it was the only, or even principal reason that the transaction was entered into. The Court of Appeal had held in BCCI v Aboody 4 All ER 955 that the person seeking to set aside the transaction would have to satisfy the "but for" test and show that without the influence they would not have entered into the transaction; however that decision was overruled in . Treitel on the Law of Contract notes that whilst this brings the law of undue influence into line with law on duress and fraudulent misrepresentation, it does mean that "the burden is on the stronger party to show that any undue influence played no part at all."
Consequences
A transaction which is shown to have been entered into as a result of undue influence will be voidable, and not automatically void. The victim has the right to rescind the transaction, but if they have received any benefits under the transaction, the right to rescind is conditional upon making restitution of those benefits.Dunbar Bank plc v Nadeem 3 All ER 876 at 884 However, the right to rescind may be lost in four ways: Affirmation. The right of a victim to rescind may be lost by affirmation of the transaction, acquiescence or estoppel.Goldsworthy v Brickell 378 at 410-411 Impossibility of restoring the parties. Normally a party will not be allowed to rescind a contract unless the parties can all be restored to their prior positions. However, in undue influence cases, parties have been allowed to rescind contracts where precise restitution is not possible, but the courts can obtain a result which is "practically just",O'Sullivan v Management Agency Ltd QB 428 usually by payment of a money equivalent. Delay. The victim of undue influence must "seek relief within a reasonable time after the removal of the influence".Allcard v Skinner (1877) LR 36 Ch D 145 Third party rights. Although normally the right to rescind is lost when an innocent third party acquires an interest in the subject matter, this general rule becomes more complicated in relation to cases of undue influence. The courts previously talked about whether the third party had "constructive notice" of the influence, although more recent cases talk about them being "put on enquiry". This is discussed in more detail below.