The doctrine of undue influence

Undue influence: the concept

The equitable doctrine of undue influence operates to release parties from contracts that they have entered into, not as a result of improper threats, but as a result of being ‘influenced’ by the other party, whether intentionally or not. The precise concept may be due for reconsideration, however at the present there are authorities which are treated as being concerned with undue influence.

In Williams v Bayley, for example, the claimant had agreed to give a mortgage over his colliery as security for debts incurred by his son, who had forged his father’s signature on promissory notes. The creditors had threatened that the son would be prosecuted if the mortgage was not given. The agreement was set aside as being obtained by undue influence. This case involved ‘pressure’ being placed on a party in much the same way as occurs with duress. It is possible that the expansion in the type of threats which are now treated as potentially giving rise to duress would mean that they would now be put in that category.

One of the main difficulties with undue influence, as with duress, is to find the limits of legitimate persuasion. If it were impermissible to seek to persuade, cajole or otherwise encourage people to enter into agreements, then sale representatives would all be out of a job. ‘Influence’ in itself is perfectly acceptable: it is only when it becomes ‘undue’ that the law will intervene. Clarity in deciding when that has occurred is not assisted by the fact that the word ‘undue’ has two potential meanings. It can be used to indicate some impropriety on the part of the influencer. The influence is ‘undue’ because an imbalance of power between the parties has been used illegitimately by the influencer. Alternatively the word can be used simply to indicate that the level of influence is at such a level that the influenced party has lost autonomy in deciding whether to enter into a contract. This does not imply any necessary impropriety on the part of the influencer.

There is an issue in whether the concept is ‘claimant-focused’ or ‘defendant-focused.’ If it is claimant-focused, then what matters is whether the claimant acted autonomously in entering into the contract; if it is defendant-focused, then what matters is whether the defendant has deliberately taken advantage of the claimant’s weaker position. How do the courts decide when influence has overstepped the limits of acceptability and become ‘undue’? The basic test in English law is that it is only where there is some relationship between the parties which leads to an inequality between them that the law will intervene. The starting point for the law’s analysis is therefore not the substance of the transaction, but the process by which it came about.

Actual undue influence

In relation to actual, the claimant must prove, on the balance of probabilities, that in relation to a particular transaction, the defendant used undue influence. There is no need here for there to be a previous history of such influence. It can operate for the first time in connection with the transaction which is disputed. An example of this type of influence is to be found in BCCI v Aboody.  Mrs Aboody was 20 years younger than her husband. She had married him when she was 17. For many years, she signed documents relating to her husband’s business, of which she was nominally a director, without reading them or questioning her husband about them. On the occasion which gave rise to litigation, she had signed a number of guarantees and charges relating to the matrimonial home, in order to support loans by the bank to the business.  She had taken no independent advice, though the bank’s solicitor had at one meeting attempted to encourage her to take legal advice. During that meeting, Mr Aboody, in a state of some agitation, came into the room, and through arguing with the solicitor, managed to reduce his wife to tears. It was held that although Mr Aboody had not acted with any improper motive, he had unduly influenced his wife. He had concealed relevant matters from her, and his bullying manner had led her to sign without giving proper detached consideration to her own interests, simply because she wanted the peace.

The Court of Appeal in this case held that Mrs Aboody’s claim to set aside the transaction nevertheless failed, because it was not to her ‘manifest disadvantage.’ The loans which she was guaranteeing had, in fact, given the company a reasonably good chance of surviving, in which case the potential benefits to Mrs Aboody would have been substantial. The risks involved did not, therefore, clearly outweigh the benefits. The House of Lords, in CIBC Mortgages plc v Pitt, subsequently indicated, however, that ‘manifest disadvantage’ is not a requirement in cases of actual, as opposed to presumed, undue influence. If similar facts were to recur, therefore, a person in the position of Mrs Aboody would be likely to succeed in having the transactions set aside.

Where actual undue influence is proved it is not necessary for the claimant to prove that the transaction would not have been entered into but for the improper influence. This was the view of the Court of Appeal in UCB Corporate Services Ltd v Williams. The position is analogous to that applying to misrepresentation or duress: as long as the influence was a factor in making the decision to enter into the transaction, that is sufficient.