Establishing the Defence
To establish the defence of undue influence, the claimant must establish that:
- They were influenced to enter into the contract by the defendant; and
- The influence exercised by the defendant was ‘undue’.
The case law shows that there are four ways of proving that the defendant influenced the claimant:
The claimant could prove the existence of actual influence by providing evidence of real threats or pressure to enter into the contract which overrode their will: Royal Bank of Scotland plc v Etridge (No 2)  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: Royal Bank of Scotland plc v Etridge (No 2)  UKHL 44; Goldsworthy v Brickell  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: Royal Bank of Scotland plc v Etridge (No 2)  UKHL 44.
The fourth way, established recently by the High Court in Malik (Deceased) v Shiekh  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  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)  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  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)  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  EWCA Civ 312.
Failing to ensure that the claimant got proper legal advice and understood the transaction: Hammond v Osborn  EWCA 885.
Disadvantage is strong evidence of undue influence, though it is not always enough: McMullon v Secure the Bridge  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)  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)  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)  UKHL 44. It is not enough to show that the claimant would have consented to the contract even if they were free from influence: UCB Corporate Services Ltd v Williams  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  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)  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 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)  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)  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)  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)  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)  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  Lloyd’s Rep Bank 98; National Westminster Bank Plc v Amin  UKHL 9.