Nature Resorts Ltd v First Citizens Bank Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Briggs,Lord Burrows,Lord Kitchin,Lady Rose,Lady Arden |
| Judgment Date | 04 April 2022 |
| Neutral Citation | [2022] UKPC 10 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No 0011 of 2020 |
[2022] UKPC 10
Lord Briggs
Lady Arden
Lord Kitchin
Lord Burrows
Lady Ros
Privy Council Appeal No 0011 of 2020
Hilary Term
From the Court of Appeal of the Republic of Trinidad and Tobago
Appellant/Cross-Respondent Martin Westgate QC Anand Singh (Instructed by Banks Kelly Solicitors)
Respondent/Cross-Appellant Frederick Gilkes (Instructed by Simons Muirhead Burton LLP)
Lord Briggs and (with whom Lord Kitchin and Lady Rose agree)
This case is primarily about the doctrine of undue influence. It is accepted that the law on undue influence in Trinidad and Tobago is the same as that in English law. This case therefore requires the Board to examine and apply the law on undue influence that was so rigorously and helpfully analysed by the House of Lords in the leading modern case of Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; [2002] 2 AC 773 (“ Etridge”).
The central facts are not in dispute. The Culloden Estate (“the Estate”) is an idyllic area of some 148 acres in Tobago. The Estate is owned by Nature Resorts Ltd (“NRL”), which is the claimant and appellant. The sole shareholder of NRL was Patrick Dankou who had incorporated NRL in 2000 for the purpose of buying the Estate and developing it as an eco-resort. It is common ground that, except where Mr Dankou was clearly acting in his personal capacity, Mr Dankou and NRL can be treated as one and the same for the purposes of this case: that is, at all material times, Mr Dankou was the directing mind and will of his company. The Estate was purchased by NRL for US$2,200,000 in 2001 and outline approval for the building of a resort was obtained in 2003. At that time the Estate was valued at US$6m to US$6.5m. However, Mr Dankou struggled to find the investment needed for the development and those who had invested (who were referred to as the “silent investors”) became restive. In 2005 and 2007, agreements to sell the Estate fell through.
In or around 2007, Mr Dankou entered into discussions with Simon Paler and Christopher James. On 8 January 2008, they signed a share purchase agreement under which they agreed to purchase 75% (150) of the 200 NRL shares held by Mr Dankou for a sum of US$2,750,000. A payment of US$275,000 was made on the signing of the agreement and the balance of US$2,475,000 was to be paid on or before 14 March 2008.
Messrs Paler and James applied to the First Citizens Bank Ltd (“the Bank”), which is the defendant and respondent, for a loan to facilitate their purchase of the shares. They applied for a loan of US$2,340,000. But the Bank was only willing to lend them US$1,925,000 and only on the security of a mortgage over the Estate and a charge over the 150 shares to be acquired by them. Messrs Paler and James agreed to those terms with the Bank.
Richard Wheeler, a lawyer and partner in the firm Lex Caribbean, was instructed by the Bank to prepare the security documents (ie the mortgage and the charge over the shares). He also received instructions from Messrs Dankou, Paler and James to draw up two share transfers each transferring 75 shares in NRL from Mr Dankou to Mr Paler and Mr James respectively. Mr Wheeler also prepared a promissory note by which Messrs Paler and James promised to pay Mr Dankou US$975,000. This was because, from the money being lent to them by the Bank, it was agreed with Mr Dankou that only US$1,500,000 should be paid immediately for the purchase of the shares.
Arrangements were made for Messrs Dankou, Paler and James to attend at the offices of Lex Caribbean on 28 March 2008 to execute and sign the documents. Mr Dankou was informed that the secretary of NRL, Tanya Mohammed, was also required to be present and that the seal of NRL was needed. All parties attended Mr Wheeler's office on 28 March 2008. The deed of mortgage was duly executed, being signed by Mr Dankou in his capacity as director of NRL, and the other documents prepared by Mr Wheeler (the two share transfers, the charge over the shares, and the promissory note) were also signed by Mr Dankou (in his personal capacity) and by Messrs Paler and James.
Messrs Paler and James did not repay any of the US$1,925,000 loaned to them by the Bank. The Bank therefore decided to exercise its power of sale under the mortgage and on 8 July 2011 it entered into an agreement with the highest bidder for the sale of the Estate. That sale has not been completed because of the proceedings in this case.
NRL submits that the deed of mortgage with the Bank was voidable (and has been avoided by NRL) because of undue influence exercised over Mr Dankou (and therefore NRL) by Mr Wheeler. That submission failed in the High Court of Justice of Trinidad and Tobago and NRL's appeal to the Court of Appeal of Trinidad and Tobago was dismissed. An additional allegation that the deed of mortgage was voidable for misrepresentation by Mr Wheeler to Mr Dankou was also dismissed at first instance and there was no appeal against that decision. NRL now appeals to the Board on the issue of undue influence; and there is a cross-appeal by the Bank as to whether the Court of Appeal was correct to decide that there was here a presumption of undue influence that the Bank needed to rebut.
The Board also indicated, at the permission to appeal stage, that it would like to hear argument as to whether the deed of mortgage contravened sections 56–57 of the Trinidad and Tobago Companies Act which limit the circumstances in which a company may give financial assistance in connection with the purchase of its own shares.
Putting to one side illegitimate threats (which are nowadays better viewed as falling within the doctrine of duress: see Times Travel (UK) Ltd v Pakistan International Airline Corpn [2021] UKSC 40; [2021] 3 WLR 727, paras 8–9 and 89–90) undue influence is concerned with a situation where, by reason of the relationship between them, one party (B) has such influence over the other (A) that A does not exercise a free judgment, independent of B, in relation to the making of a transaction between A and B (or, in a three-party situation, between A and a third party, C).
Ever since Allcard v Skinner (1887) 36 Ch D 145, it has been commonplace to divide undue influence into two categories: actual and presumed. But in Etridge the House of Lords made clear that undue influence is a single concept. It does not have two different forms. The correct analysis of the two categories is that they refer to different ways of proving undue influence. Presumed undue influence refers to where the person alleging undue influence relies on an evidential presumption. Actual undue influence refers to where the person alleging undue influence relies on direct proof (of A's conduct, within a relationship with B, which led to B not exercising a free and independent judgment).
As Etridge also made clear, there are two requirements for establishing the (rebuttable) presumption of undue influence. First, there must be a relationship of influence. This may be established on the facts. But in respect of some relationships there is what is commonly referred to as an irrebuttable legal presumption (but is more appropriately referred to as a legal rule) that the relationship is one of influence (but note not undue influence). Examples of such relationships are doctor and patient ( Mitchell v Homfray (1881) 8 QBD 587), spiritual adviser and follower ( Allcard v Skinner), parent and young child ( Lancashire Loans Ltd v Black [1934] 1 KB 380) and, of direct relevance to the facts of this case, solicitor and client ( Wright v Carter [1903] 1 Ch 27). The second requirement is that the transaction must not be readily explicable on ordinary motives. The House of Lords preferred this test, which uses the words of Lindley LJ in Allcard v Skinner, to a test of whether the transaction was manifestly disadvantageous which had been put forward by Lord Scarman in National Westminster Bank plc v Morgan [1985] AC 686, 703–707. The underlying idea behind the test is that the nature and/or contents of the transaction must make one conclude, in the context of the relationship of influence, that, absent evidence to the contrary, undue influence has been exercised. A contract between A and B which is substantively very unfair to A stands on one side of the line: a Christmas present by A to B stands on the other side of the line.
If those two requirements are satisfied, so that there is a presumption of undue influence, the burden of proof shifts and it is for the party seeking to uphold the transaction to rebut the presumption by showing that A was not acting under undue influence (ie that A exercised free and independent judgment) when entering into the transaction. Although neither necessary nor conclusive, the main method of rebuttal is to show that A obtained the fully informed and competent independent advice of a qualified person, most obviously a lawyer: see Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 and Etridge.
In a three-party situation, where there is undue influence by B over A such that A enters into a transaction with C, the transaction will be voidable by A provided that C had notice of the undue influence or that B was acting as C's agent in procuring the transaction. The concept of notice, and how it applies in this context, was explained in detail in Etridge. That the law of agency has a role to play in the context of undue influence was accepted in cases such as Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, 972 and Barclays Bank plc v O'Brien [1994] 1 AC 180, 191, 195; see also Chitty on Contracts, 34th ed (2021), para 10–139.
Finally, it should be pointed...
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