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Contract Law: Undue Influence (Presumed undue influence (category 2)…
Contract Law: Undue Influence
General
Duress (common law)
Undue influence (equity)
prevention of victimisation, not folly (
Allcard v Skinner
)
acts through influencing will, still acts intentionally, not overbearing will, to think that it is a reasonable thing to do (
Bigwood
, approve in
Rajabali Jumabhoy v Ameerali R Jumabhoy
(SG))
is it about stronger party and their improper conduct or the weaker party and their being led astray? (see two different frameworks: actual/presumed undue influence)
The general features are:
(1) A exercises influence over B
(2) the influence is undue
(3) B’s will is deflected or impaired, so that B’s decision cannot be regarded as independent, informed and voluntary.
Actual undue influence (category 1)
What is undue influence?
YES
Blatant preference of A's self-interest over B's interests
obviously partisan behaviour when A out to be impartial (
Pek Nam Kee
)
A (son) directing events on B's behalf (mother) who suffered some degree of mental impairment; B makes wills and decisions in favour of A (
Tan Teck Khong v Tan Pian Meng
; cf
OCBC v Tan Teck Khong
)
Emotional manipulation
threats to abandon elderly person (
Langton v Langton
)
exploiting personal weaknesses: threats to take legal action (even if lawful) against an older, vulnerable person known to be averse to confrontation (
Daniel v Drew
)
Bullying, domineering behaviour
(
Aboody
, verbal abuse)
No longer any requirement for "manifest disadvantage"
Deliberate concealment or misstatement
(can overlap with misrepresentation but broader*)
of factual or legal position (
Pek Nam Kee
(extended family inheriting, one of the children was in charge of administrating the estate, calculated amounts wrongly but just showed end figures, threatened two promised another regarding business proposals, refusal to tolerate disagreement;
Daniel v Drew
)
silence (
Hewett v First Plus Financial Group
, did not tell wife about affair while insisting that wife provide security to save family home)
NO
Merely expressing one's wishes or a degree of disappointment
bossy parent: wealthy extended family controlled by influential patriach who desired transaction where his favourite grandson would get an option to buy some shares in family business;
people who could make it happen were grandson's uncles (
Rajabali Jumabhoy
)
intending to shame her a bit, but was not undue influence (
Mody Sonal M
)
informational inequality and misrepresentation about inheritance
a contest of smartness not undue influence: attempting to trick a less-informed but determined and strong-willed sibling (favourite son and not favourite daughter; father had changed will for daughter; son knew and went to make agreement with her to split house 50/50) (
Lim Geok Hian
)
Causation
"But for" test?
(
Aboody
)
BUT
not in UK,
sufficient that influence is a reason (
UCB Corporate Services v Williams
, also
Pek Nam Kee
which adopts a similar view, did not mention but for test and weighed factors e.g. D's domineering conduct, proposal of business benefits, etc)
Presumed undue influence (category 2)
Key elements
(1) look at antecedent
nature of relationship
: did A occupy a position of ascendancy/dominance and is B relatively dependent/reliant/subordinate
(2) a transaction that
"calls for explanation"
: not readily explained by ordinary motives of parties to that kind of relationship
->
evidentiary presumption
that transaction was procured by undue influence
Relationship element
Category 2A
irrebutable presumption that relationship had requisite quality of trust and confidence
YES
parent and child where the child is not yet emancipated
religious advisor and disciple
solicitor and client
doctor and patient
trustee and beneficiary, and some analogous fiduciary relationships
fiance and fiancee (controversial)
NO
spouses
child and parent
siblings
mother-in-law and son-in-law
dentist and patient
employer and employee
relatives
Category 2B
pre-existing relationship where as a matter of fact there is a dynamic of ascendancy and dependancy
(applies in SG (
Mody Sonal M
;
OCBC v Tan Teck Khong
; in UK doubts expressed in
Etridge
)
relationship of trust and confidence
imbalance in relationship necessary, "a measure of influence or ascendency of which he then took unfair advantage" necessary (
Susilawati
lost $17m case)
Examples
junior employee providing security for loan to employer (ascendancy present even without emotional/sexual relationship) (
Credit Lyonnais v Burch
)
elderly mother relying on son (
OCBC v Tan Teck Khong
); friendly neighbour (
Hammond v Osborn
); housekeeper-companion (
Re Craig
)
bank obtaining security from long-term customer who trusted his bank manager (
Llyods Bank v Bundy
)
Non-examples
mother-in-law not under influence of son-in-law (
Susilawati
)
wife not influence by husband (
Mody Sonal M
)
Rebutting the presumption
Legal advice
not always necessary or sufficient; emphasis on independence of decision and not merely comprehension
deliberate refusal to seek legal advice (even though bank guaranteed), then the presumption will not be rebutted (
Credit Lyonnais v Burch; Bank of Montreal v Stuart
)
deficient of biased legal advice, then the presumption will not be rebutted even though A is not really at fault, bcs focus on is on B (
Inche Noriah
(PC from SG) donor giving away property to close nephew, nephew got her to get indpt legal advice, but advice was defective bcs (1) did not ask about proportion of total wealth (2) inform of other alternatives; no bad faith, small oversight, but sufficient); (
OCBC v Tan Teck Khong; Pesticcio
) conflict of interest, correspondence with dominant party only
The presumption can be rebutted in other ways
clear contemporaneous evidence about B’s motivations or intentions (Re Brocklehurst [1978] granted permission for friend to shoot in his property for 99 years because he hated his family who was going to inherit)
the arrangements are simple and easily evaluated by B given his/her experience, or satisfactorily explained by a qualified non-legal person (cf R v A-G for England and Wales at [27]; Susilawati at [47]-[48]).
Did B have free exercise of independent will?
(
Iche Noriah v Shaik Allie Bin Omar
,
Allcard v Skinner
)
exercise of free judgement based on full information (
Rajabali Jumabhoy
)
Transaction calls for explanation
(/manifest disadvantage)
in the context of that relationship, is it an unexceptionable transactions or is there something is amiss (
Etridge
, Lord Nicholls)
Magnitude or proportionality of risk/disadvantage to B
junior employee providing security for whole debt of employer (
Credit Lyonnais v Burch
)
giving away large proportion of total assets (
Lloyds Bank v Bundy; Re Craig
)
Whether the transaction was improvident to B (in terms of future planning)
B lacking liquid assets to continue to pay for his own care and meet tax liabilities (Hammond v Osborn)
B investing virtually his whole wealth into a property owned by A, effectively “buying” a right to live for there remainder of his lifetime; B locked-in to that property and unable to withdraw; also dependent upon A continuing to meet loan repayments (Cheese v Thomas [1994])
Whether the transaction deprives others of benefits they might have hoped for or expected
mother giving substantial benefits only to favourite son when she usually did not neglect other sons (
OCBC v Tan Teck Khong; Tan Teck Khong v Tan Pian Meng
)
son giving away a house which was used as a home for his mother (
Niersmans v Pesticcio
)
B’s motivation for agreeing to the transaction, compared to what might reasonably be expected of a person in B’s position
not extraordinary because can be explained by family ties of love and affection (
Susilawati
)
confidentiality agreement for remaining in elite army squad (
R v A-G for England and Wales
)
long-held intention to give property to mistress (
Wong Meng Cheong
)
wife giving guarantee for debt of husband; sensitivity to family agreements; fortunes will be tied together, like parties in a joint venture (
Gan Cheng Chan v Gan Meng Hui
;
Mody Sonal M
;
Etridge
); the further away the family relationship, the more questions
The difference is the way the plaintiff proves the case.
Category 1/Actual -> P proves
actual influence
; what did the D do wrong?
Category 2/Presumed -> P relies on
presumptions
which shift evidentiary burden to D; how affected has the P been affected in making his decision?
Third party situations
Second layer on cake, in addition to preliminary question about whether there is undue influence
(1) When should the company
reasonably know or suspect
? (the trigger)
(2) What must the company
do
? (the procedure)
-> if yes, rendered immune from the undue influence problem; if no, transaction is tainted
When is C "put on inquiry"? (two factors)
(1) the
relationship
between A and B presents a
real risk
of undue influence or some other wrong (
Barclays Bank v O'Brien
)
(2) the transaction is
one-sided
or, on its face,
disadvantageous
to B
seems similar to Category 2B but easier to trigger (
Etridge
), wife giving guarantee for husband's debt triggers "put on inquiry" but not Category 2B
prompt banks to implement standard procedures to check
Etridge procedure
Bank needs to interact with V in a certain way, i.e. ask V to appoint lawyer
V needs to interact with lawyer in certain way, i.e. meet alone, explain transaction, explain choice
Lawyer provides certificate to bank that the procedure has been explained to V
Bank will be immunised
When things go wrong
:
Between bank and V? or between V and solicitor?
Rough distinction between poor advice (V and solicitor’s problem) and no advice e.g. false cert (bank can be sued by V, then bank sues solicitor)