Undue Influence

Establishing the Defence

The Requirements

To establish the defence of undue influence, the claimant must establish that:

They were influenced to enter into the contract (or give the gift) by the defendant; and
The influence exercised by the defendant was ‘undue’.

Establishing Influence

The case law shows that there are four ways of proving that the defendant influenced the claimant:

Actual Influence

The claimant could prove the existence of actual influence by providing evidence of real threats or pressure to enter into the contract or give the gift which overrode their will: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

‘Type 2A’ Presumed Influence

If the claimant can show that they had a special relationship with the defendant in which high trust is normally given (such as lawyers and their clients), the courts will presume that the defendant influenced the claimant to enter into the contract or give the gift: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44; Goldsworthy v Brickell [1987] Ch 378.

‘Type 2B’ Presumed Influence

If the claimant can show they were in a relationship with the defendant in which they reposed large amounts of trust and confidence that the defendant would look after their affairs, the courts will presume that the defendant influenced the claimant to enter into the contract or give the gift: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

The fourth way, established recently by the High Court in Malik (Deceased) v Shiekh [2018] EWHC 973 (Ch), is to show that the claimant was vulnerable to or dependent on the defendant because of some other reason. Other reasons might include mental illness, ill health or age. There is no need for a prior relationship between the claimant and dependant to raise this presumption of influence: Moursi v Doherty [2019] EWHC 830 (Ch).

It is not clear whether the defendant can rebut the presumption of influence once it is raised. The judges of the House of Lords in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44 were split on the matter.

If the claimant is attempting to establish that a dead person’s will is invalid for undue influence, none of the presumptions apply: Parfitt v Lawless (1872) LR 2 P&D 462. The claimant will need to show actual influence, which can be very difficult: Nutt v Nutt [2018] EWHC 851 (Ch).

Demonstrating that the Influence is ‘Undue’

‘Undue’ influence is an ill-defined term. It is often described as involving some element of ‘unfair’ or ‘improper’ behaviour. However, it has been established even where the defendant did not act immorally: Allcard v Skinner (1877) 36 ChD 145. There is no need to show that the transaction was disadvantageous: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

What the claimant must do to prove that the influence was ‘undue’ depends on the kind of influence they proved. If they relied on actual influence, they will need to actively prove that the influence was undue. Examples of behaviour which might be held to be undue include:

Lying to the claimant or withholding relevant information: First Plus Financial Group v Hewett [2010] EWCA Civ 312.

Failing to ensure that the claimant got proper legal advice and understood the transaction: Hammond v Osborn [2002] EWCA 885.

Disadvantage is strong evidence of undue influence, though it is not always enough: McMullon v Secure the Bridge [2015] EWCA Civ 884.

If the claimant relied on one of the presumptions, by contrast, they only need to prove that the transaction ‘calls for explanation’. A transaction calls for explanation if it is not obviously an act of independent judgement or a normal incident of the parties’ relationship: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44. If they show this, the burden shifts to the defendant to show that the influence was not undue.

Whether a transaction calls for explanation depends on the facts of the case and the parties’ relationship. For example, the courts have stated that it is not automatically suspicious if a spouse acts as a surety for the other spouse’s debts. Generosity is normal for people in loving relationships: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44. Additional factors, such as deceit or vulnerability might need to be shown.

To show that the influence was not undue, the defendant must show that the claimant was able to make an independent, fully-informed and voluntary decision: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44. It is not enough to show that the claimant would have consented to the contract or gift even if they were free from influence: UCB Corporate Services Ltd v Williams [2002] EWCA Civ 555.

In practice, the defendant will need to show that there were external factors which essentially freed the claimant from the influence, or counteracted it: Pesticcio v Niersmans [2004] EWCA Civ 372. The most common way is by showing that the claimant had independent, fully-informed and non-negligent legal advice: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

The Effect of Undue Influence

If the claimant establishes undue influence, the contract becomes voidable at their election.

A contract which is voidable is not treated as never existing. Rather, it is treated as existing until the innocent party communicates that they are terminating the contract or take reasonable steps to do so. Reasonable steps include reporting the goods stolen if the defendant has vanished.

Asserting the Defence Against Third-Parties

The Relevance of Third Parties

The ability to establish undue influence against some one other than the person doing the influence is very important. This is because often the other party to the contract or gift will be someone other than the influencer. For example, a very common fact pattern involves wives who act as sureties for their husband’s loans. There is a separate need to show that undue influence should release the claimant from their contract with the third party.

When Will Undue Influence Affect a Third-Party Contract?

The claimant may only rely on undue influence against a third party if they can show that the third party had actual or constructive knowledge of the undue influence: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

A third party has constructive knowledge of the undue influence if they are aware of circumstances from which a reasonable person would suspect there might be undue influence. This is known as being ‘put on notice’. Once a third party is fixed with constructive knowledge, undue influence can be used against them. To get rid of constructive knowledge, the third-party must show that they took reasonable steps to satisfy themselves that the claimant was making a free, independent and informed choice: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

Banks and Constructive Knowledge

Most of the case-law providing guidance on when constructive notice arises concerns third-party bankers. A bank is on notice if they are aware that the surety and the debtor have a non-commercial relationship, unless the money is being advanced to both of them: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

If the loan is made to a company which is jointly owned by the surety and the debtor, the bank is still put on notice – they are not entitled to assume that the surety has any real role in the business: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44.

Banks and ‘Reasonable Steps’

The courts have set out clear guidelines for banks seeking to dispel constructive knowledge: Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44. In particular, the bank must ensure that the surety has been advised by a competent lawyer who is not connected to the debtor. The advice must pertain to the nature of the transaction, its consequences and its serious nature.

To fulfil this duty, the bank must ask the surety who their legal adviser is. They must then provide the legal adviser with sufficient information about the transaction to enable them to give competent advice. They may not proceed with the transaction until they have received a written confirmation from that adviser stating that the surety has been advised and understood the advice. However, if the bank is aware of circumstances which indicate that the adviser has been negligent or has a conflict of interest, they remain on notice: National Westminster Bank Plc v Breeds [2001] Lloyd’s Rep Bank 98; National Westminster Bank Plc v Amin [2002] UKHL 9.

Contract Defences Quiz

Test yourself on the principles governing when a party to a contract has a defence.

1 / 52

What two conditions must be met before a transaction is void for unilateral mistake?

The other party subjectively knew of the mistake

The innocent party is mistaken as to a vital term

It would be unconscionable for the contract to stand

The innocent party is mistaken as to any term

The other party knew, or ought reasonably to have known, of the mistake

2 / 52

When establishing the defence of undue influence, how does the claimant demonstrate 'Type 2B' presumed influence?

By showing they were in a relationship with the defendant in which they reposed large amounts of trust and confidence

By showing that the claimant was vulnerable to or dependent on the defendant because of some other reason, such as mental illness, ill health or age

By providing evidence of real threats or pressure to enter into the contract

By showing that they had a special relationship with the defendant in which high trust normally exists

3 / 52

When are damages in deceit available for a misrepresentation?

Where the representation is fraudulent or innocent

Where the representation is negligent

Where the representation is negligent or innocent

Where the representation is fraudulent

Where the representation is fraudulent or negligent

4 / 52

Joanie has established that a neighbour of hers, Richard, pressured her into selling her house to him. To establish undue influence, what does she need to do to show that the influence was undue?

That the transaction calls for an explanation as not obviously normal or an act of independent judgement

That Richard acted unfairly or improperly when influencing her

Nothing, the burden of proof has shifted to Richard

5 / 52

Complete this sentence: The defence of misrepresentation renders the contract...

Voidable

Terminated

Void ab initio

6 / 52

Complete this sentence: The defence of mistake renders the contract...

Terminated

Voidable

Void ab initio

7 / 52

David induces Mary to enter into a contract to buy a car by promising that he will service the car before he gives it to her. He has no intention of doing so. Is this an actionable misrepresentation?

8 / 52

Marcus has shown that he reposed a large amount of trust in his partner, Adrian, when it comes to financial affairs. He also shows that his decision to transfer his inheritance to Adrian is a transaction which calls for explanation. To avoid the transfer being affected by the defence of undue influence, what must Adrian do to show that the influence was not undue?

That Marcus was able to make an independent, fully-informed and voluntary decision to enter into the transfer

That Marcus would have consented to the transfer even if he had been free from influence

That Adrian did not act improperly or unfairly in influencing Marcus

9 / 52

When determining if the defence of misrepresentation applies, the courts will presume, in the absence of contrary evidence, that the claimant relied on the statement if a reasonable person would have relied on it. True or false?

10 / 52

Can the innocent party prove that a misrepresentation caused them to enter the contract if they had the opportunity to verify the statement, but did not?

11 / 52

For the purposes of unilateral mistake, when is a term 'vital' to the contract?

If it relates to something one party subjectively sees as central or important

If it relates to an objectively central part of the contract

If it relates to something both parties subjectively see as central or important

If it relates to price or payment

12 / 52

When establishing the defence of undue influence, how does the claimant demonstrate actual influence?

By showing they were in a relationship with the defendant in which they reposed large amounts of trust and confidence

By showing that the claimant was vulnerable to or dependent on the defendant because of some other reason, such as mental illness, ill health or age

By providing evidence of real threats or pressure to enter into the contract

By showing that they had a special relationship with the defendant in which high trust normally exists

13 / 52

What three elements must an innocent party show to establish the defence of economic duress?

The innocent party had no practical choice but to submit

But for the other party's actions, the innocent party would not have entered into the contract

The other party's actions were the sole cause of the innocent party entering into the contract

The innocent party had no legal choice but to submit

The other party subjected him to illegitimate pressure

The innocent party's will was completely overborne by the other party's actions

14 / 52

Can silence be an actionable misrepresentation?

Yes, in all cases

No, unless the contract is one of utmost faith

15 / 52

David offers to sell Mary a house, representing that it has a conservatory. Mary relies on this representation when deciding to buy the house. Prior to the sale, there is a fire, and the conservatory burns down. David does not tell Mary. Can Mary rely on the defence of misrepresentation?

16 / 52

For the purposes of the defence of unilateral mistake, when can a term as to the quality of the goods be considered 'vital'?

When a reasonable person would think that quality was important to the contract

When the parties subjectively see that quality as vital to the contract

Never

Always

17 / 52

Celestine is an elderly woman whose eye-sight is failing. Her niece, Laura, persuades her to sign a document claiming that it will authorise Laura to remove £50 for Celestine's bank account to enable her to pay Celestine's bills. In reality, it is a contract transferring Celestine's house to Laura. Celestine did not bother to read it as she trusts Laura (who has helped her out with bills before) and her eyesight makes reading very difficult. Can Celestine rely on the defence of non es factum?

18 / 52

Hannah is applying for a loan for the family business. Her girlfriend Celestine tells the bank that she will act as surety for the loan. The money is to be advanced to a company which Hannah and Celestine hold joint shares in. The bank is aware that Celestine is Hannah's girlfriend and that she has shares in the company, but they are not aware that Hannah has unduly influenced Celestine. They grant the loan. Can Celestine rely on the defence of undue influence against the bank?

Yes, because they should have investigated further the relationship between the two women

No, because joint shareholders are liable for company debts

Yes, because they are not entitled to assume Celestine has a role in the business

No, because the money is being advanced for Celestine's interests as well as Hannah's

No, because the bank has no actual knowledge of the undue influence

19 / 52

When are damages available for innocent misrepresentation?

Never

Where the innocent party suffers property damage

In lieu of rescission

In all cases

20 / 52

Can undue influence be demonstrated in cases where the parties had no relationship prior to the transaction?

Yes, in all cases

Yes, but only if the claimant was vulnerable to or dependent on the defendant

Yes, but only if the claimant reposed a large amount of trust in the defendant

21 / 52

When dealing with the defence of undue influence in a case where a presumption of influence has been raised, can the defendant rebut the presumption?

22 / 52

Xavier is a busy taxi driver who purchases a new car from Dodgy Dealers Inc. He signs their standard term car-purchase contract without reading it, not realising that it contains an onerous clause requiring him to pay a penalty fee if he gets the car serviced by anyone else within the first year. Can Xavier rely on the defence of non es factum to get out of the contract?

The law is not clear

Yes

23 / 52

For the purposes of the defence of economic duress, can a lawful threat be illegitimate?

24 / 52

Does the claimant need to establish that but for the threat, they would not have entered into the contract if they are trying to prove duress to the person?

25 / 52

What must a third-party bank do to rid themselves of constructive notice of undue influence?

Refuse to participate in the transaction

Properly advise the surety on the nature and consequences of the transaction

Advise the surety to seek advise from a competent lawyer unconnected to the debtor

Confirm in writing that the surety is advised by a competent lawyer unconnected to the debtor

26 / 52

Complete this sentence: The defence of illegality renders the contract...

Terminated

Void ab initio

Voidable

27 / 52

Can a person rely on any of the three categories of presumed influence when trying to establish undue influence to challenge the will of a deceased person?

28 / 52

Does a defence of duress to property exist?

29 / 52

When will the defence of illegality bar a claim?

When the overall fairness of the case requires this, on an assessment of the trio of considerations

When the claimant is acting illegally in bringing the claim

When the claimant acquired the evidence to prove their claim illegally

When the claimant must rely on evidence of their illegal act to establish the claim

30 / 52

In which of the three following circumstances would the defence of common mistake apply?

One party has misrepresented their identity to the other party

The subject matter of the contract is worth considerably less than the parties believe

The parties believe the subject matter of the contract to have a particular important quality which it does not

A difference in the quality of the goods makes the subject matter of the contract an essentially different kind of thing than was intended

One party has made a reasonable mistake as to the identity of the other party, and the other party knew this

The parties are unaware that the contract is impossible to perform at the time they enter into the contract

The parties are unaware that the buyer of goods already has the relevant property interest they are trying to buy

31 / 52

If a contract is void ab initio, can either party rely on its terms?

Both parties can rely on it prior to the date the innocent party voided it

Both parties can rely on the contract, but only if the innocent party affirms it

Yes, but only the innocent party

32 / 52

For the purposes of the defence of duress, what factors are relevant to whether the innocent party has a practical choice? (Three answers)

Anything the other party knew or foresaw would hamper the innocent party's ability to perceive or pursue an alternative

Any other motivations the claimant has for agreeing to the contract

Whether the defendant was acting in good or bad faith

The reasonableness of any alternatives available

The harm any alternatives would cause

33 / 52

When establishing the defence of undue influence, how does the claimant demonstrate 'Type 2A' presumed influence?

By showing they were in a relationship with the defendant in which they reposed large amounts of trust and confidence

By showing that they had a special relationship with the defendant in which high trust normally exists

By providing evidence of real threats or pressure to enter into the contract

By showing that the claimant was vulnerable to or dependent on the defendant because of some other reason, such as mental illness, ill health or age

34 / 52

Maisy enters into a contract over the phone with a man falsely claiming to be her estranged cousin, John. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not John. Is the man's identity a vital term of the contract?

No, because the parties contracted at a distance

Yes, because Maisy intended to contract with a real, identified person who the man impersonated

Yes, because the man lied about his identity

No, because the man's identity was only relevant to his creditworthiness

35 / 52

Katie and Andrew enter into a contract which states that Andrew will deliver Thompson apples to Katie. The parties are not aware that there are actually two kinds of Thompson apples - Virginia Thompson apples and Alabama Thompson apples. The two types of apple taste very different and have very different uses. Andrew intends to ship Virginia Thompson apples, while Katie is expecting to receive Alabama Thompson apples. Is the contract void for mutual mistake?

No, because the parties agreed on the core of contract - the delivery of apples

Yes, because the parties have not reached a subjective meeting of minds

Only if it would not be objectively apparent to a reasonable person that the contract referred to a particular type of apple (or permitted either)

36 / 52

In what two scenarios are the courts likely to refuse to rescind a contract which has been rendered voidable by misrepresentation?

Where the innocent party has only suffered pure economic loss

Where the misrepresentation was negligent

Where innocent party's real motivation is escaping a bad bargain unrelated to the misrepresentation

Where the misrepresentation has not caused the innocent party any loss

Where the misrepresentation is innocent

37 / 52

In which two scenarios can a person rely on the defence of undue influence against a third-party?

Where the third-party did not take reasonable steps to investigate whether there might be undue influence

Where the third-party is a lending bank

Where the third-party knew of circumstances from which a reasonable person would suspect undue influence

Where the third-party has actual knowledge of the undue influence

Where the third-party is also acting for the undue influencer in the transactions

38 / 52

Can the innocent party prove that a misrepresentation caused them to enter the contract if they used their own resources to verify whether the statement was true?

39 / 52

Complete this sentence: The defence of economic duress renders the contract...

Void ab initio

Voidable

Terminated

40 / 52

ABC Bank is advancing money to a debtor. An individual tells the bank that they wish to act as a guarantor or surety for that debt. The debtor has unduly influenced this individual. When is the bank taken to have constructive notice of the presence of undue influence in the transaction?

Where they are actually aware of the undue influence by the debtor

They must investigate in all cases and have constructive notice if they fail to do so

Where the surety has not received legal advice

Where they are aware that the surety and the debtor have a non-commercial relationship

41 / 52

Complete this sentence: The defence of duress to the person renders the contract...

Void ab initio

Terminated

Voidable

42 / 52

Maisy enters into a contract with a man falsely claiming to be her long-lost cousin, John, while they are catching up at a restaurant. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not John. Is the man's identity a vital term of the contract?

Yes, because the man lied about his identity

No, because the parties contracted face-to-face

Only if Maisy can prove she would only have contracted with her real cousin and no-one else

No, because the man's identity was only relevant to his creditworthiness

43 / 52

Richard offers to sell Michael a book. Richard knows that Michael believes that the book is signed by the author. Richard did nothing to make him believe this, but nor does he correct Michael. Michael relies on his belief that the book is signed when deciding to buy it. Can Michael rely on the defence of misrepresentation?

44 / 52

When establishing that the defendant's influence was undue for the purposes of the defence of undue influence, the claimant must show that the transaction was manifestly to their disadvantage. True or false?

45 / 52

Maisy enters into a contract with a man falsely claiming to be her long-lost cousin, John, while they are catching up at a restaurant. The contract is in writing and signed, and the man signed his name as 'John'. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not John. Can Maisy rely on the defence of mistake in relation to the man's identity?

Yes, because the man cannot adduce evidence evidence that the other party to the contract is not John

No, because the man's identity was only relevant to his creditworthiness

Yes, because the man lied about his identity

No, because the parties contracted face-to-face

46 / 52

Maisy enters into a contract over the phone with a man falsely claiming to be her long-lost cousin, John. In reality, Maisy does not have a long-lost cousin named John. Maisy later seeks to argue that she should not be bound by the contract, because she would not have entered into the contract had she known the man was not her cousin. Is the man's identity a vital term of the contract?

Yes, because the parties contracted at a distance

No, because the man's identity was only relevant to his attributes

No, because the parties contracted at a distance

Yes, because the man lied about his identity

47 / 52

When establishing the defence of undue influence, how does the claimant demonstrate the category of presumed influence established in Malik (Deceased) v Shiekh?

By providing evidence of real threats or pressure to enter into the contract

By showing they were in a relationship with the defendant in which they reposed large amounts of trust and confidence

By showing that the claimant was vulnerable to or dependent on the defendant because of, for example, mental illness, ill health or age

By showing that they had a special relationship with the defendant in which high trust normally exists

48 / 52

Joanie has established a presumption that her lawyer, Richard, influenced her when she sold her house to him. To establish undue influence, what does she need to do to show that the influence was undue?

That Richard acted unfairly or improperly when influencing her

Nothing, the burden of proof has shifted to Richard

That the transaction calls for an explanation as not obviously normal or an act of independent judgement

49 / 52

What are the two requirements of the defence of misrepresentation?

The other party made a false statement of fact

The claimant made his own checks to determine if the statement was true

The other party made a false statement of fact, opinion or law

But for the statement, the innocent party would not have entered into the contract

The other party made a false statement of fact or law

50 / 52

If a contract is voidable, can either party rely on its terms?

Yes, but only the innocent party

Both parties can rely on the contract, but only if the innocent party affirms it

Both parties can only rely on any obligations which became due prior to the date the innocent party voided it

51 / 52

Complete this sentence: The defence of undue influence renders the contract...

Terminated

Voidable

Void ab initio

52 / 52

Julie is applying for an overdraft on a joint account controlled by herself and her husband Johan at ABC Bank. Her husband Johan offers to act as surety. The bank is unaware of the fact that Johan has been unduly influenced by Julie, but knows that the two are married. The overdraft is granted. Does the bank have constructive notice of the undue influence?

Your score is

Contract: Undue Influence

Undue Influence

Establishing the Defence

The Requirements

Establishing Influence

Actual Influence

‘Type 2A’ Presumed Influence

‘Type 2B’ Presumed Influence

Demonstrating that the Influence is ‘Undue’

The Effect of Undue Influence

Asserting the Defence Against Third-Parties

The Relevance of Third Parties

When Will Undue Influence Affect a Third-Party Contract?

Banks and Constructive Knowledge

Banks and ‘Reasonable Steps’

Like this:

Undue Influence

Establishing the Defence

The Requirements

Establishing Influence

Actual Influence

‘Type 2A’ Presumed Influence

‘Type 2B’ Presumed Influence

Demonstrating that the Influence is ‘Undue’

The Effect of Undue Influence

Asserting the Defence Against Third-Parties

The Relevance of Third Parties

When Will Undue Influence Affect a Third-Party Contract?

Banks and Constructive Knowledge

Banks and ‘Reasonable Steps’

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