Undue Influence

WHAT IS IT?

Undue influence is a broad equitable doctrine which seeks to relieve a person from:

(1) The consequences of oppression or domination (actual undue influence); or

(2) The abuse of trust or confidence (presumed undue influence). There are two categories:

(a) A recognised relationship giving rise to a presumption of undue influence (eg. parent and child, solicitor and client); and

(b) A relationship which on its particular facts gives rise to a presumption of undue influence (where one person reposes trust and confidence in the other)

The categories were identified in BCCI v Aboody [1990] 1 QB 923 at 953 per Slade LJ and were followed by the House of Lords in Barclays Bank plc v O’Brien [1994] 1 AC 180. In Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773 the House of Lords moved away from rigid adherence to the distinct categories of undue influence and recognised that undue influence of whatever type was ultimately a matter of proof on the particular facts of each case, and that the presumptions were merely an evidential tool.

HOW DOES IT WORK?

In a typical husband/wife situation the starting point is always to establish impropriety between husband and wife. Since husband/wife is not a recognised relationship giving rise to a Class 2(a) presumption, this means that the wife has to establish either actual undue influence (Class 1) or a presumption of undue influence on the particular facts (Class 2(b)).

IN RELATION TO WHAT KIND OF TRANSACTION?

The transaction has to be such as to put the lender on inquiry that it may have been procured by undue influence. The law distinguishes between two main situations:

(1) Where the lender IS put on inquiry: Where the wife is asked to provide security for her husband’s business borrowings (Barclays Bank plc v O’Brien) and

(2) Where the lender IS NOT put on inquiry: Where the wife enters into a joint loan (ostensibly) for their joint benefit (CIBC Mortgages plc v Pitt [1994] 1 AC 200)

If the wife establishes undue influence and that the transaction was such as to put the lender on inquiry the lender will take with constructive notice of the undue influence unless it takes steps to protect itself.

WHAT STEPS SHOULD THE LENDER TAKE TO PROTECT ITSELF?

The steps have been identified in two House of Lords cases (Barclays Bank plc v O’Brien and Royal Bank of Scotland plc v Etridge (No 2) [2002] AC 773, and have been developed and applied in a series of other cases:

The lender should communicate directly with the wife. She should nominate a solicitor to act for her. The lender will require a written certificate from the solicitor to the effect that he has explained the nature of the documents; the practical effect they will have; and the risks she runs.

The lender must provide the wife’s solicitor with the information required to properly advise her – typically information about the purpose of the loan and the amount of the current indebtedness, together with copies of any relevant documents.

Remember – each case turns on its own facts.

CASE NOTES

ETRIDGE CERTIFICATES - JUST HOW BULLET-PROOF ARE THEY?

National Westminster Bank plc v Amin [2002] UKHL 9 [2002] 1 FLR 735

To be effective, an Etridge certificate should be confirmed in the borrower's own language.

UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555 (2003) 1 P & CR 168

A Charge will still be set aside because of inadequate advice even though the wife might have proceeded in any event.

Lloyds TSB Bank plc v Holdgate [2002] EWCA Civ 1543 (2002) 43 EG 203 (CS)

The mere involvement of a solicitor is not necessarily mean that advice has been given. A solilicitor may be invilved in an 'execution-only' role.

Bank of Scotland v Hill [2002] EWCA Civ 1081 (2002) 29 EG 152 (CS)

Provided that a standard certificate is given, it is not necessary for the lender to have given specific instructions to the solicitor to ensure that the wife received independent advice.

UNDUE INFLUENCE AND OTHER REMEDIES

First National Bank plc v Achampong [2003] EWCA Civ 487

The effect of undue influence by a husband in respect of jointly owned property may be to sever the beneficial joint tenancy and leave the lender with an effective charge obver the husband's beneficial interest, together with a right to apply for sale in order to realise it under s 14 Trusts of Land and Appointment of Trustees Act 1996.

Abbey National Bank plc v Stringer [2006] EWCA Civ 338

In pursuing the wrongdoer's beneficial interest, the court will be astute to identify and declare the extent of the interest. It will not always be 50/50.

UNDUE INFLUENCE AND AFFIRMATION

Habib Bank Ltd v Tufail [2006] EWCA Civ 374

Notwithstanding that a mortgage may have been procured by undue influence, it is possible to affirm the validity of the mortgage by subsequent conduct, but such conduct must effectively amount to an estoppel, requiring material acts in reliance to the lender's detriment.

UNDUE INFLUENCE IN RESPECT OF PREVIOUS TRANSACTIONS

Yorkshire Bank plc v Tinsley [2004] EWCA Civ 816 [2004] 3 All ER 463

This case raised a new point whether a lender was necessarily bound by the constructive notice of undue influence in respect of mortgages A and B when it obtained, ostensibly properly, a replacement mortgage C.

UNDUE INFLUENCE AND AGENCY OF THE BROKER

Burbank Securities Ltd v Wong [2008] EWHC 552 (Ch)

The court rejected a plea of non est factum but allowed a plea of undue influence based on information acquired by the mortgage broker who, the judge found, had acted in a dual capacity. The court would also permit a claim based on subrogation.

THE PRESUMPTION OF UNDUE INFLUENCE

Roberts v Pascal (unrep) 9th Feb 09

Parents reposed trust and confidence in their adult daughter. Manifestly disadvantageous transaction coupled with lack of independent legal advice.

Curtis v Pulbrook [2009] EWHC 782 (Ch)

Although not involving mortgages, this is a useful example of the principles of presumed undue influence and the application of the Etridge guidelines.