Undue influence in English law

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.

[4] 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),[2] but much of the earlier case law continues to be relevant.

... On the other hand, to 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.However other cases have struck a very different tone.

In Pesticcio v Huet [2004] EWCA Civ 372 Mummery LJ said: Although undue influence is sometimes described as an "equitable wrong" or even as a species of equitable fraud, the basis of the court's intervention is not the commission of a dishonest or wrongful act by the defendant, but that, as a matter of public policy, the presumed influence arising from the relationship of trust and confidence should not operate to the disadvantage of the victim if the transaction is not satisfactorily explained by ordinary motives.Chitty on Contracts[8] suggests that the different approaches may be reconciled by taking into account the nature of the transaction.

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.

[27] 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.

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.

[30] However, the right to rescind may be lost in four ways:[29] Although parties cannot claim damages for undue influence, the courts have held that where rescission is not possible, victims may be entitled to "equitable compensation", which in practice will amount to much the same thing.

Before Royal Bank of Scotland v Etridge (No 2),[2] the position in relation to undue influence was more orthodox - it would be necessary to establish that the third party had "constructive notice" of the circumstances that vitiated the consent of the affected person.

In recent case law the courts have spent considerable time trying to juggle how far to extend that duty of the third party to protect the person they are dealing with, with the countervailing policy consideration that family homes are an important source of collateral for people who wish to start their own business or otherwise raise finance.

[2] The approach of the courts has been to try to push the responsibility for protecting spouses and other vulnerable parties onto solicitors, but in a way which is not unduly onerous and permits the use of the family home as a source of capital.

The solicitor must explain the transaction, but he has no power to veto it if the wife insists she has blind faith in her husband and wishes to press ahead.

The solicitor does not discharge his duty by satisfying himself simply that the [vulnerable person] understands and wishes to carry out the particular transaction.

It simply means that the advice shall be removed entirely from the suspected atmosphere; and that from the clear language of an independent mind, they should not precisely what they are doing.The House of Lords in Etridge stated that if it is "glaringly obvious that the wife is being grievously wronged" the solicitor should decline to act.