Undue Influence

Why do I care?

• If you are unduly influenced (UI) to enter into a contract, you are entitled in equity to have that contract set aside (rescission) when the influencer endeavours to have that contract enforced against you. When the transaction is set aside, it will be treated as having been void since its inception (void ab initio), and the parties are absolved from performing the agreement.

• The level of inducement you have experienced in entering into the contract basically falls short of duress. This is a big deal for banks. Couples use this defence all the time when trying to avoid enforcement litigation and having their homes sold to recoup loans outstanding

• UI is an equitable doctrine which was noted in Allcard v Skinner as preventing vulnerable people being taken advantage of, and where an unfair advantage has been gained: Proctor v Hutton.

Types of UI


Third party rights

• When does this arise:

• Constructive notice:

• How banks protect themselves from this vulnerability (Etridge factors): factors taken into account by cts: RBS v Etridge. This includes broadly; that the lender needs to have policies in place so that this does not become an area of contention in enforcement. There was some reluctance by ct in Etridge to infer a positive duty for a wife to have a private meeting with bank officials, but this of course would strengthen the banks position.

At this private meeting, in the absence of her husband, she should speak with a representative of the bank where her liability is explained to her and where she would be advised to get independent legal advice:

o the bank should communicate directly with the wife, informing her that for its own protection it will require written confirmation from a solicitor, acting for her, to the effect that the solicitor has fully explained to her the nature of the documents and the practical implications they will have for her;

o wife should be told that the purpose of this requirement is that thereafter she should not be able to dispute she is legally bound by the documents once she has signed them;

o wife should be asked to nominate a solicitor whom she is willing to instruct to advise her, separately from her husband, and act for her in giving the necessary confirmation to the bank; and

o wife should be told that, if she wishes the solicitor may be the same solicitor as is acting for her husband in the transaction. If a solicitor is already acting for the husband and the wife, she should be asked whether she would prefer that a different solicitor should act for her regarding the bank’s requirement for confirmation from a solicitor. The bank should not proceed with the transaction until it has received an appropriate response directly from the wife.

• Development of doctrine in Ireland:

• UB v Roche and Buttimer: most recent case on this topic where it was held that to follow from the adoption of the test from Etridge that a bank would be placed on inquiry when faced with a request for guarantees from two business partners who were the principals and shareholders in a business whose debts were to be guaranteed and who were also, to the knowledge of the bank, same sex partners in the relationship sense of that term. There would be no particular reason why either one of them might not be said to be the one who might exercise UI or the other be the one who might be influenced. It follows that it would be necessary to ensure that both had independent legal advice. Ct further endorsed the criticism of UB v Fitzgerald. It was accepted that the general principle which underlies Etridge, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between the parties and the fact that the guarantor (girlfriend of the borrower) had no direct interest in the company (other than being a director) and was in a less secure position than a spouse or a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. Ct was careful to note that it was not endorsing the full rigours of Etridge in Ireland.

• GE Capital: noted that UB v Roche and Buttimer represents a development of the law in this jurisdiction, and distinguished that case on its facts. Here, d represented to the lender that they were jointly seeking to draw down a loan from the lender to be secured on the property, which was jointly owned by them, and there was nothing in the letter of offer for the loan which would have put the bank on inquiry. Following this case, there is still confusion around this area of law.

(1) Actual UI: automatic presumption of UI where p must prove that before or when they entered the transaction, the influence over them was actual (behaviour just falling short of duress) e.g. threats or badgering. There is no precise definition of this. RBS v Etridge: law will investigate the way the intention to enter into the transaction was secured and if this intention was produced by unacceptable means, the law will not permit the transaction to stand. BCCI v Aboody: original test was whether there was a ‘manifest disadvantage’; however, this was subsequently removed in CIBC Mortgages v Pitt. Bank of Scotland v Bennet: husband threatened to break up with the wife if she did not guarantee his debt i.e. a positive unequivocal action which induced the spouse to enter into a transaction. This was also found in UB v Roche and Buttimer where ct accepted the evidence of the d’s psychiatrist who said she was in a dependent and abusive relationship and did not have a shareholding in the relevant company where the loans were guaranteed and was acting under UI when giving the loan. Bank of Scotland v Bennet: wife guaranteed her husband’s business debt by a mortgage on the family home which was registered in her sole name. Husband exerted actual UI on her and threatened to break up the family if she did not sign. She received no legal advice.

(2) Presumed UI: as opposed to actual UI, and there are sub-categories of presumed UI. Presumed UI is proven by: (i) factually, a relationship which gives rise to the presumption; and (ii) a substantial benefit which has been obtained by the d. If these are proven, then the onus shifts to the person seeking that the transaction be upheld must prove that the transaction was as a result of the free will of the donor. Simpson v Simpson: illness or dependency can give rise to the presumption.


Class 2a: presumption arises only if the transaction confers an advantage on d or is manifestly to the disadvantage of p e.g. normally transfer of property between people with special relationship except a woman to her husband- this is Class 2b (Quinn v IBRC). BCCI v Aboody: no requirement to prove actual UI, instead it must be established that there was a relationship which as a matter of law gives rise to a presumption of UI e.g. parent/child, solicitor/client, trustee/beneficiary, doctor/patient.

Class 2b: presumption arises where the transaction is one which cannot be readily explained by the relationship between the parties i.e. it confers a great advantage on the person in a fiduciary position i.e. a relationship of trust and confidence (this used to be ‘manifest disadvantage’ but this didn’t work where the wife had an interest in the husband’s business and after RBS v Etridge, this term was no longer used and also citing Barclays Bank v O’Brien as misleading). Typical examples here include a husband/wife, cohabitees and employer/employee. In Ireland, Barclays was followed in BOI v Smith. UB v Fitzgerald: did not consider the special circumstances of wives.

typically, where a wife successfully establishes UI (Class 2b) it will enable her to set aside the transaction against her husband, however the transaction is usually with the bank who is a third-party. So now she must look at her own relationship with the bank.

looking at the surrounding circumstances to infer that the bank was on notice of the UI and that it failed to take reasonable measures to ensure the wife was openly and freely agreeing to the requested security (e.g. using family home as security for husband’s business loan, even if she had shares in the business, or guaranteeing the husband’s debt).

Natwest v Morgan: banks are not in a fiduciary capacity but are rather on constructive notice i.e. the bank is (i) on inquiry; and (ii) fails to take reasonable steps to ensure the transaction was freely entered into without the exercise of UI.

Inquiry means a consideration of the factors which would put a bank on inquiry (Bank of Scotland v Bennet).

Etridge was approved in Ireland in BOI v Smith.

UB v Fitzgerald: bank manager gave evidence that he explained the nature of the guarantee to the wife and advised her to seek independent legal advice. The wife here had a financial stake in the business and relied on the income. That case qualified O’Brien and Smith saying that they involved family homes, whereas the present case involved a family business.

UB v Roche and Buttimer: criticised the approach to constructive notice in UB v Fitzgerald. UB v Roche and Buttimer: no steps were taken by the lender at all. Etridge was regarded as persuasive. Ct did not specify the precise meaning of being ‘on inquiry’ but ct was satisfied that bank was ‘on inquiry’ owing to its knowledge that the guarantor was in a romantic but not a marital relationship with the borrower. Ct was keen to stress that Etridge was not law in Ireland and moved away slightly from UB v Fitzgerald.

Leonard v Leonard: elderly lady transferred her lands to her son. No evidence of UI, as she had received independent legal advice and was acting of her own free will.

Noonan v O’Connell: inequality of the relationship between an elderly farmer and nephew to whom he transferred half his land rendered for extra care to be taken to protect p by fully informing him and giving him independent legal advice.

Carroll v Carroll: independent legal advice. Transfer by p’s father of pub and residential accommodation to son. Donor was mentally alert but physically was largely dependent on others. SC: relationship raised presumption of UI and no independent legal advice. Solicitor was acting primarily for son and was unaware that this was the sole asset of the donor. Presumption had not been rebutted because of lack of independent legal advice.