Undue Influence in the House of Lords: Principles and Proof

Published date01 May 2002
Date01 May 2002
that his subsequent difficulties in finding another job are attributable to his having worked
for BCCI is however, extremely speculative. . . . Four of the [unsuccessful] cases tried by
Lightman J appear to have concerned employees who were dismissed by the liquidators
when the bank collapsed in 1991. By contrast, Mr Naeem and the others [were] made
redundant in 1990. . .. The present position is that this vastly expensive litigation, which has
been twice to the House of Lords and given rise to two lengthy trials . . . has produced
benefits for no one except the lawyers involved and has been at the expense, not of the
fraudulent villains but of the public and the unfortunate creditors of BCCI.59
Undue Influence in the House of Lords: Principles
and Proof
Rick Bigwood*
Few areas of law have struggled so unsuccessfully for satisfactory doctrinal
exposition and analysis as the equitable jurisdiction to relieve against undue
influence in the procurement of an inter vivos transaction. Judges and scholars
have observed that ‘the precise bounds of ... undue influence are not easily
extracted from the decided cases’;
that ‘[t]here is no head of equity more difficult
of application’;
and that ‘[s]uch cases do not depend on legal categories
susceptible of clear definition and giving rise to definite issues of fact readily
formulated which, when found, automatically determine the validity of the
That the resolution of undue influence claims depends upon a ‘meticulous
examination of the facts’
does not relieve courts of the responsibility of settling
and describing, in meaningful and consistent language, the nature and conceptual
boundaries of the jurisdiction in the abstract. In order to achieve adequate
conceptual tractability, if not sharp boundaries, it is important that courts erect, and
then operate within, coherent intellectual frameworks for approaching, organising,
and understanding the distinct factual and doctrinal criteria upon which the law of
undue influence rests. They must avoid abandoning the doctrine to ‘an unstructured
wilderness of fact and circumstance’,
or, worse, intermixing undue influence and
other exculpatory categories (especially duress, unconscionable dealing, breach of
confidence, and misrepresentation). Although in practice claims may involve
overlapping elements of pressure, oppression, deception, betrayal, persuasion, and
the like, the theoretical lines of demarcation among the various categories
mentioned remain crystalline at the abstract conceptual level. Were it otherwise, so
59 n 2 above, 985, 986.
* The University of Auckland. I am grateful to an anonymous referee for helpful comments on this note in
1ASB Bank Ltd vHarlick [1996] 1 NZLR 655 (CA) at 658 per Gault J.
2 D. L. McDonnell and J. G. Monroe (eds), Kerr on the Law of Fraud and Mistake (London: Sweet &
Maxwell, 7th ed, 1952) 224.
3Jenyns vPublic Curator (Qld) (1953) 90 CLR 113 (HCA) at 119 per Dixon CJ and McTiernan and
Kitto JJ.
4National Westminster Bank plc vMorgan [1985] AC 686 (HL) at 709 per Lord Scarman.
5 cf D. Tiplady, ‘The Limits of Undue Influence’ (1985) 48 MLR 579 at 580.
May 2002] Royal Bank of Scotland vEtridge (No 2)
ßThe Modern Law Review Limited 2002 435
that undue influence could not rightly claim independent territory within the
universe of doctrines conceived to discipline abuses of interpersonal power in
consensual transactional contexts, then conceptual economy should command its
excision from that universe (and its subsumption into some other appropriate
Enter Royal Bank of Scotland plc vEtridge (No 2),
the House of Lords’ latest
instalment on the subject. Although the case – comprising eight conjoined appeals
from the English Court of Appeal – is primarily concerned with exploring (and
ultimately greatly extending) the operation of the constructive notice doctrine laid
down in Barclays Bank plc vO’Brien,
the House pondered the general nature and
principles of the equitable jurisdiction to relieve against undue influence. It is to
that aspect of the case that this comment is directed.
Although the House’s excursion into ‘first principles’ of undue influence was
mostly unnecessary for the purposes of the various claims under appeal,
such a
foray might well be thought welcome in the light of the House’s earlier signal in
CIBC Mortgages plc vPitt ‘that the exact limits of the decision in [National
Westminster Bank plc v] Morgan[
] may have to be considered in the future’.
The difficulty is to establish the relationship between the law [of undue influence] laid down
in Morgan and the long established principle laid down in the abuse of confidence cases viz.
the law requires those in a fiduciary position who enter into transactions with those to whom
they owe fiduciary duties to establish affirmatively that the transaction is a fair one . . . [This]
principle is founded on considerations of general public policy, viz. that in order to protect
those to whom fiduciaries owe duties as a class from exploitation by fiduciaries as a class,
the law imposes a heavy duty on fiduciaries to show the righteousness of the transactions
6 [2001] 3 WLR 1021; [2001] 4 ALL ER 449 (hereinafter: ‘Etridge’).
8 Doubtless many discussions will be published on the financier liability issues arising out of Etridge,
which issues are of the greatest practical importance to those in the secured loan transaction market.
By focusing here on a tangential part of the reasoning in Etridge only, I hope to make a modest
academic contribution to the law of undue influence as it applies between wrongdoer and complainant
inter se. To be sure, cases under the Etridge/O’Brien fact pattern typically are not ‘undue influence’
claims in this bilateral sense at all. In the absence of any direct dealing between the defendant
(financier) and the party claiming to have been unduly influenced (the plaintiff surety), or an agency
relationship between the defendant and the third-party undue influencer (usually a spouse or an
emancipated child of the plaintiff), there can be no question of the defendant itself being guilty of
‘undue influence’ vis-a
`-vis the plaintiff. As between the defendant and plaintiff in such situations, the
vulnerability of the transaction must depend upon some other exculpatory reason than relational
undue influence (for example, unconscionable dealing, special equity, or the O’Brien constructive
notice doctrine, whichever is the best legal solution to the problem in the tripartite cases).
9 As Lord Scott correctly notes in his speech, undue influence (at least that of the relational kind) is an
unlikely contingency as between a husband and his wife who is offering to charge her interest in the
matrimonial home in favour of a financier as security for the husband’s (or his business entity’s)
indebtedness. As between such husband and wife, the legal or equitable wrongdoing sought
(somehow) to be sheeted home to the financier is more likely to involve coercive pressure (including
‘bullying’ and implied threats), and/or misrepresentation, than relational undue influence. See n 6
above, 1077, para 162. My own view is that the relaxed employment of general undue influence
principles by courts in order to afford protection to wives (or equivalent persons) in the secured loan
transaction market can only lead to hard cases making bad law. In only one of the appeals – Barclays
Bank plc vColeman – was there a real possibility of true undue influence based on the debtor’s and
surety’s special antecedent relationship. The House held that, in Mr and Mrs Coleman’s special
circumstances (they were members of the Hassidic community), there was a presumption of undue
influence, although notice of this fact could not be sheeted home to the chargee bank (it reasonably
appearing to them that Mrs Coleman had been properly advised before executing the impugned
charge documentation in favour of the bank).
10 n 4 above (hereinafter: ‘Morgan’).
11 [1994] 1 AC 200 (HL) at 209 per Lord Browne-Wilkinson.
The Modern Law Review [Vol. 65
436 ßThe Modern Law Review Limited 2002

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