1.5 Case Notes On Undue Influence (2023)

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1.5 Case Notes on Undue Influence
mohaimin.ayus@mmu.edu.my
UNDUE INFLUENCE
Undue Influence under English Law I (1993 - 2001)

(Court of Appeal in Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, and House
of Lords in Barclays Bank plc v O’Brien & Anor [1993] 4 All ER 417)
Undue Influence
Class 1: Class 2:
Actual Presumed
Undue Influence Undue Influence
❑ It is necessary for the claimant ❑ The complainant only has to show, in the first instance, that there was a
to prove affirmatively that the relationship of trust and confidence between the complainant and the
wrongdoer exerted undue wrongdoer of such a nature that it is fair to presume that the wrongdoer
influence on the complainant to abused that relationship in procuring the complainant to enter into the
enter into the particular impugned transaction.
transaction which is impugned. ❑ There is no need to produce evidence that actual undue influence was
exerted in relation to the particular transaction impugned: once a
confidential relationship has been proved, the burden then shifts to the
wrongdoer to prove that the complainant entered into the impugned
transaction freely, for example by showing that the complainant had
independent advice.
Class 2A: Class 2B:

❑ Certain relationships (for example solicitor and ❑ If the complainant proves the de facto existence of a
client, medical advisor and patient) as a matter of relationship under which the complainant generally
law raise the presumption that undue influence reposed trust and confidence in the wrongdoer, the
has been exercised. existence of such relationship raises the presumption of
undue influence.
OR
Undue Influence made out

Burden shift: The complainant will succeed in setting aside the impugned transaction merely by proof that the
complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted
actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction
impugned.
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Undue Influence under English Law II (2001 – today)

(House of Lords in Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773)
Undue Influence
Actual Presumed
Undue Influence Undue Influence
Actual undue influence is an equitable Presumed undue influence necessarily involves some legally
wrong committed by the dominant party recognised relationship between the two parties. As a result of
against the other which makes it that relationship one party is treated as owing a special duty to
unconscionable for the dominant party to deal fairly with the other.
enforce his legal rights against the other. There are two prerequisites to the evidential shift in the burden
of proof from the complainant to the other party.
It is typically some express conduct
overbearing the other party's will. Actual
undue influence does not depend upon
some pre-existing relationship between
the two parties though it is most
First— Second—
commonly associated with and derives
from such a relationship. He who alleges that the complainant that the transaction
actual undue influence must prove it. reposed trust and is not readily
confidence in the AND explicable by the
other party, or the relationship of the
other party acquired parties.
ascendancy over the
complainant.
Presumption of undue influence made out.

Burden shifts.
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AND
Note:
Etridge (No.2) [2002] 2 AC 773 (HL)
i. The House of Lords questioned the wisdom of
the classification given to undue influence in
Aboody, i.e. no longer necessary to classify Presumed undue influence:
undue influence into Class 1 and Class 2, and Special class of relationship
Classes 2A & 2B. This led to confusion. The evidential presumption discussed
(Para 92 of the judgment) above is to be distinguished sharply from
a different form of presumption which
ii. The label “manifest disadvantage” in Morgan arises in some cases. The law has adopted
has caused difficulty. The label is discarded. a sternly protective attitude towards
But agreed with Lord Scarman’s dicta in certain types of relationship in which one
Morgan: "the Court of Appeal erred in law in party acquires influence over another who
holding that the presumption of undue is vulnerable and dependent and where,
influence can arise from the evidence of the moreover, substantial gifts by the
relationship of the parties without also influenced or vulnerable person are not
evidence that the transaction itself was normally to be expected. Examples of
wrongful in that it constituted an advantage relationships within this special class are
taken of the person subjected to the influence parent and child, guardian and ward,
which, failing proof to the contrary, was trustee and beneficiary, solicitor and
explicable only on the basis that undue client, and medical adviser and patient.
influence had been exercised to procure it." In these cases, the law presumes,
(Paras 26 & 29) irrebuttably, that one party had influence
over the other. The complainant need not
iii. Returned to Allcard v Skinner: two classes— prove he actually reposed trust and
“actual undue influence” and “presumed confidence in the other party. It is
undue influence”. Lord Nicholls observed that sufficient for him to prove the existence
the better approach is to adhere more directly of the type of relationship.
to the test outlined by Lindley LJ in Allcard v
Skinner 36 Ch D 145, and adopted by Lord
Scarman in Morgan in the above passage.
(Para 31)
iv. “Actual undue influence” does not depend
upon some pre-existing relationship between
the two parties though it is most commonly
associated with and derives from such a
relationship. He who alleges actual undue Presumption of undue influence made out.
influence must prove it. (Para 103) The law presumes irrebutably
v. “Presumed undue influence” requires two
prerequisites: (1) that the complainant reposed
trust and confidence in the other party, or the
other party acquired ascendancy over the
complainant; and (2) that the transaction is not
readily explicable by the relationship of the
parties.” (Paras 14 & 21-26)
vi. In special class of relationship, a different
form of presumption applies. The
complainant need not prove he actually
reposed trust and confidence in the other
party. It is sufficient for him to prove the
existence of the type of relationship. (Para
18)
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Undue Influence under Section 16 of the Contracts Act 1950, Malaysia
Undue Influence
1st element 2nd element

❑ The relations subsisting between the parties AND ❑ (The party who is in the position to dominate the
are such that one of the parties is in a will of the other)
position to dominate the will of the other. uses that position to obtain an unfair advantage
(section 16(1) of the Contracts Act) over the other.
(section 16(1) of the Contracts Act)
Who is the person in a position to dominate the How to show or prove that he uses his position to
will of the other? obtain an unfair advantage over the other?
Where he holds a real or

He enters into a contract with the other
apparent authority over the
party
other.
(Section 16(2)(a)-1st limb)
AND
Where he stands in a
fiduciary relation to the
OR other. on the face of it, the on the evidence
(Section 16(2)(a)-2nd limb) transaction appears to adduced, the
OR
be unconscionable transaction appears, to
(Section 16(3)) be unconscionable
(Section 16(3))
Where he makes a
contract with a person
whose mental capacity is
temporarily or OR
permanently affected by
reason of age, illness, or
mental or bodily distress.
(Section 16(2)(b))
Undue Influence is proved:
Burden Shift: The burden of proving that the contract was not
induced by undue influence shall lie upon the person in a
position to dominate the will of the other
(Section 16(3))
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Undue Influence under English law: an overview

In CIBC Mortgages Plc v Pitt (1993) 66 P & CR 179, Neill LJ (Court of Appeal) suggested that “on some
future occasion it will be necessary to look more closely at the requirement … [of] manifest disadvantage”; and
Lord Browne-Wilkinson (House of Lords), not satisfied with the application of the requirement of ‘manifest
disadvantage, to presumed undue influence, stated that “the exact limits of the decision in Morgan may have to
be reconsidered in the future”.
Before Etridge (No. 2), in Barclays Bank plc v Coleman [2001] QB 20, the Court of Appeal had advocated that
such requirement needs to be discarded. In Etridge (No. 2), however, the five law Lords of the House of Lords
sought to refine the law on the issue. Lord Nicholls felt that in certain situations, the exact nature of the
transaction is necessary to look at in order to raise the presumption but at the same time recommended that the
label “manifest disadvantage” be discarded and insisted the test—“[I]f the gift is so large as not to be
reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which
ordinary men act, the burden is upon donee to support the gift”—as laid down by Lindley LJ in Allcard v
Skinner and adopted by Lord Scarman in Morgan’s case should be the guiding principle.
Professor J. Beatson in Anson’s Law of Contract, 28th ed., at p. 287ff, commented on the decision in Etridge
(No 2), that only special relationship type of cases (within the earlier Class 2A) “that there is true presumption
of undue influence [—where ‘the law presumes, irrebuttably, that one party had influence over the other’—],
arising from the law’s ‘sternly protective attitude towards certain types of relationship’. The claimant ‘need not
prove he actually reposed trusts and confidence in the other party. It is sufficient for him to prove the existence
of the reationship’.”
In the earlier Class 2B presumed undue influence cases, “there is no true presumption but only a shift of the
evidential onus on a question of fact. The burden of proving undue influence rests on the claimant, but will
normally be discharged by proof that he or she placed trust and confidence in the other party and that the
transaction between the parties is one which calls for explanation.”
Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 (HL)

▪ In Etridge (No 2), the Queen’s Bench Division of the High Court granted the claim of the plaintiff bank
for possession of the defendants’ property at Hampshire, under a legal charge made by them.
▪ The first defendant’s appeal to the Court of Appeal was dismissed.
▪ The matter then came on further appeal before the House of Lords.
▪ The first defendant appellant, Susan R. Etridge, and the second defendant, Anthony T. Etridge, are
husband and wife.
▪ The appellant agreed to charge her property in favour of the respondent bank in order to provide security
for the payment of her husband’s debts, or her husband company’s debts.
▪ The bank commenced proceedings for possession of the mortgaged property with a view to its sale.
▪ The appellant defended the claim by alleging—
(1) that her agreement to grant the charge to the bank was brought about by undue influence on the part of
her husband, and,
(2) that the bank, in the circumstances, ought not to be allowed to enforce the charge against her.
The question was whether the bank should be treated as having had notice of the undue influence of the
husband.
▪ The bank, however, had reason to believe that a solicitor had acted for the appellant in the transaction. The
question, then, was the extent of the solicitor’s participation had absolved the bank of the need to make
further inquiries about the circumstances in which the appellant was persuaded by her husband to agree to
grant the charge, or to take any further steps to satisfy itself that her consent to do so was a true and
informed consent.
▪ The House of Lords dismissed the appeal. Allcard v Skinner (1887) 36 Ch D 145, and National
Westminster Bank plc v Morgan [1985] AC 686, were considered, and Barclays Bank plc v O’Brien
[1994] 1 AC 180 were followed. The decision of the Court of Appeal in Barclays Bank plc v Coleman
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[2001] QB 20 was affirmed. The House of Lords observed that the confusion could be cured by
“discarding a label which gives rise to this sort of ambiguity. The better approach is to adhere more
directly to the test outlined by Lindley LJ in Allcard v Skinner 36 Ch D 145, and adopted by Lord Scarman
in National Westminster Bank plc v Morgan [1985] AC 686. The House held that—
(a) as a general rule, the burden of proving undue influence rests upon the person who claims to have
been wronged (the complainant). The complainant has to prove—
(1) that he/she placed trust and confidence in the other party in relation to the management of his/her
financial affairs, and
(2) the transaction calls for explanation.
This will normally be sufficient to discharge the burden of proof. On proof of these two matters the
court will infer that, in the absence of a satisfactory explanation, the transaction can only have been
procured by undue influence. In other words, proof of these two facts is prima facie evidence that the
defendant abused the influence he acquired in the parties’ relationship.
(b) On presumed undue influence, Lord Nicholls said that the word ‘“presumption” is descriptive of a
shift in the evidential onus on a question of fact. When a plaintiff succeeds by this route he does so
because he has succeeded in establishing a case of undue influence.”
(i) here a plaintiff claimed that the defendant abused the influence he acquired in a relationship of
trust and confidence the plaintiff would succeeded by recourse to presumption (rebuttable
evidential presumption). But this need not be so. Such a plaintiff may succeed even where this
presumption is not available to him; for instance, where the impugned transaction was not one
which called for an explanation.”
(ii) “The law has adopted a sternly protective attitude towards certain types of relationship in
which one party acquires influence over another who is vulnerable and dependent and where,
moreover, substantial gifts by the influenced or vulnerable person are not normally to be
expected. Examples of relationships within this special class are parent and child, guardian
and ward, trustee and beneficiary, solicitor and client, and medical adviser and patient. In
these cases the law presumes, irrebuttably, that one party had influence over the other. The
complainant need not prove he actually reposed trust and confidence in the other party. It is
sufficient for him to prove the existence of the type of relationship.”
This decision, at once, shown that the classification in Aboody and O’Brien is not appreciated. It was not
analysed by Lord Nicholls. Etridge (No 2) seemed to avoid the classification of undue influence,
commonly known as Class 1 (actual undue influence), and Class 2 (presumed undue influence) which is
further subdivided into Classes 2A and 2B. Lord Clyde, in his part of the judgment in Etridge (No 2), was
not satisfied with the classifications in Aboody and reformulated in O’Brien.
The Malaysian law on Undue Influence

Section 16 of the Contracts Act 1950
Section 16. "Undue influence".
(1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are
such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an
unfair advantage over the other.
(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a
position to dominate the will of another —
(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to
the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected
by reason of age, illness, or mental or bodily distress.
(3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the
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transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving
that the contract was not induced by undue influence shall lie upon the person in a position to dominate the will
of the other.
ILLUSTRATIONS
(a) A having advanced money to his son, B, during his minority, upon B's coming of age, obtains,
by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the
advance. A employs undue influence.
(b) A, a man enfeebled by disease or age, is induced, by B's influence over him as his medical
attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue
influence.
(c) A, being in debt to B, the moneylender of his village, contracts a fresh loan on terms which
appear to be unconscionable. It lies on B to prove that the contract was not induced by undue
influence.
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The
banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on
these terms. This is a transaction in the ordinary course of business, and the contract is not induced by
undue influence.
The views of the Privy Council on section 16 of the Contracts Act 1950
The application of section 16 of the Contracts Act

Poosathurai v Kannappa Chettiar AIR 1920 PC 65
No case of undue influence is made out if the plaintiff has merely established that the other party (wrongdoer)
was in a position to dominate his will.
The plaintiff, in this case, had not proved as a fact that the bargain of sale in question was unconscionable in
itself or constituted an advantage unfair to him. He had not established as a matter of fact that the sale was for
undervalue.
▪ The plaintiff appellant executed a deed of sale on 17 March 1906 in favour of Kannapa Chettiar (the third
defendant).
▪ The appellant brought an action against the respondents for the cancellation of the deed of sale on the
ground of fraud and undue influence brought about by the first and second respondents (his maternal
uncles).
▪ The subordinate judge made a finding that the appellant was induced by the influence of the first
respondent, who stood in fiduciary relation to him, and also undue pressure exercised upon him by the
third respondent.
▪ The judge also found that the transaction was unconscionable and unfair. The learned judge ordered for the
cancellation of the deed of sale conditionally upon the appellant paying Rs. 6,725 and interest to the
respondent.
▪ On appeal to the High Court, the decision of the subordinate judge was reversed.
▪ The High Court held that the plaintiff appellant had failed to show that the first defendant, in concert with
the third defendant, had induced the plaintiff to his detriment. The plaintiff further appealed to the Privy
Council.
▪ The Judicial Committee of the Privy Council dismissed the appeal
▪ The Privy Council held that it is not sufficient to set aside a transaction on the ground of undue influence
under section 16 where the plaintiff has merely established that the other party was in a position to
dominate his will. Thus far, “influence” alone has been made out. The plaintiff has to prove more than
mere influence to render influence ‘undue’. He has to also establish that the person in a position of
domination has used that position to obtain unfair advantage for himself, or the transaction is in itself
unconscionable.
▪ Lord Shaw of Dunfermline, delivering the judgment of their Lordships, said:
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“It is a mistake … to treat undue influence as having been established by a proof of the relations of the
parties having been such that the one naturally relied upon the other for advice, and that the other was in
a position to dominate the will of the first in giving it. Up to that point ‘influence’ alone has been made
out. Such influence may be used wisely, judiciously and helpfully. But, whether by the Law of India or
the Law of England, more than mere influence must be proved so as to render influence, in the language
of the law, ‘undue’. It must be established that the person in a position of dominated has used that
position to obtain unfair advantage for himself, and so to cause injury to the person relying upon his
authority or aid.
And where the relation of influence, as above set forth, has been established, and the second thing is also
made clear, namely, that the bargain is with the “influencer,” and in itself unconscionable, then the
person in a position to use his dominating power has the burden thrown upon him, and it is a heavy
burden, of establishing affirmatively that no domination was practised so as to bring about the
transaction, but that the grantor of the deed was scrupulously kept separately advised in the
independence of a free agent. These general propositions are mentioned because, if laid alongside of the
facts of the present case, then it appears that one vital element—perhaps not sufficiently relied on in the
Court below, and yet essential to the plaintiff’s case—is wanting. It is not proved as a fact in the present
case that the bargain of sale come to was unconscionable in itself or constituted an advantage unfair to
the plaintiff; it is, in short, not established as a matter of fact that the sale was for undervalue.
The subject of the sale … was … the property in the villages burdened with usufructuary mortgages
which did not expire for eighteen years. These mortgages amounted to Rs. 51,000. The crucial enquiry
on the point of sufficiency of consideration accordingly was, what on the date of the sale was the de
presenta value of the plaintiff’s right of property in these villages? Beyond a loose reference to a lakh of
rupees, without any specification as to whether this referred to the present value, or to deferred value, or
to value of the property the evidence is entirely silent.
Nothing has been brought in argument before the Board to satisfy their Lordships’ minds that the price
of Rs. 6,000, even coupled with the demand for the wiping off of a debt of about Rs. 3,000 incurred for
litigation and for the honouring by the plaintiff of a promissory note executed by him for another Rs.
3,000, was not a fair consideration for the transaction.
Their Lordships think it unnecessary to enter into the further grounds stated by the learned Judges of the
High Court for their decision, although they express no disagreement with these grounds in themselves.
The true contradicter in the issue was the party to the transaction, the vendee. But the plaintiff
endeavoured to strengthen the case for cancellation by convening also as defendants his two uncles, now
also his two fathers-in-law.
Their Lordships do not doubt that in the category of cases of undue influence might be covered cases
where the party to a transaction exercised that influence in conspiracy with or through the agency of
others. But they think it right to say that no proof has been given of any such conspiracy or agency in
the present case.”
Note:
• The 1st and 2nd defendant respondents were the plaintiff appellant’s two uncles, now also his two fathers-in-
law.
• The question is: Were they “in a position to dominate the will of” the plaintiff?
• The answer is found under section 16(2)(a) of the Indian Contract Act 1872.
• How to connect the 1st and 2nd respondents to this case? Were they agents of the 3rd respondent (vendee), so
that the undue influence exerted by the 1st and 2nd respondents bound the 3rd?
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Section 16(3) of the Act.

Raghunath Prasad v Sarju Prasad (1923) 51 IA 101 (PC)
No case of undue influence is made out if the plaintiff has merely established that the transaction was
unconscionable, without firstly establishing that the defendant was in a position to dominate his will.
“[Even though the bargain had been unconscionable … a remedy under the … Act does not come into view
until the initial fact of a position to dominate the will has been established. Once that fact is established, then
the unconscionable nature of the bargain and the burden of proof on the issue of undue influence come into
operation.”
▪ The defendant appellant is a member of a joint undivided family owning a property including 186 villages,
assessed to revenue for about Rs. 17,000 per annum. He was owner of one half of a valuable joint family
property. The owner of the other half was his father.
▪ Father and son (the appellant) had quarrelled. Serious allegations are made by the son against the father
that the father had instituted criminal proceedings against the son.
▪ Before the date of the mortgage the appellant had borrowed Rs. 1,000 from the plaintiffs to enable him to
defend himself in these criminal proceedings. It was alleged that they caused him great mental distress,
and that he required more money to conduct his litigation.
▪ He executed a mortgage on May 27, 1910, for the sum of Rs. 9,999 borrowed from the plaintiffs, at 2%
per mensem rate of interest (to be calculated on the principle of compound interest).
▪ There can be no question that these terms were high: if payment was not made the sum due on the
mortgage would speedily mount up.
▪ The respondents brought an action to recover the principal with interest.
▪ The trial judge allowed the recovery of simple interest at the rate of 2% per mensem.
▪ On appeal, the High Court allowed compound interest under the mortgage be paid. By the decree of the
High court pronounced on November 9, 1920, the original debt of Rs. 10,000 had reached, with interest
and costs Rs. 112, 885.
▪ On appeal to the Privy Council, it was argued by the counsels for the defendant appellants the
circumstances in which the loan was made, the appellant was helpless, and that the respondents were in a
dominating position within section 16 of the Indian Contract Act 1872. They further argued that the rate of
interest was usurious that the transaction was unconscionable within sub-section (3) of the same section.
The burden of proving that the transaction was not induced by undue influence would then lie upon the
respondents.
▪ The Privy Council observed that the defendant did not give evidence at all. His part of the story—to
establish a case either of mental distress or of undue influence under the Indian Contract Act—had not
been proved. The only case he had was derived from the contents of the mortgage itself. The appellant was
a sui juris borrower who had the full power of bargaining and of burdening his estate.
▪ He had not proved his helplessness in order to put the respondents in a position to dominate his will. The
bare fact was that being a wealthy man who owned one-half of certain joint family property wished to
obtain, and did obtain, certain monies on loan.
▪ The only relation between the appellant and the respondent was that of lender and borrower.
▪ In these circumstances, even though the bargain had been unconscionable (and it has the appearance of
being so) a remedy under the Indian Contract Act does not come into view until the initial fact of a
position to dominate the will has been established.
▪ Lord Shaw of Dunfermline said:
“It is in the view of the Board by that section [section 16 of the Indian Contract Act] that the question
arising between these parties falls to be settled, and not by reference to the legislation of other countries
… The statute to be here construed is the Indian Contract Act as amended. …
There can be no question that these terms were high: if payment was not made the sum due on the
mortgage would speedily mount up. By the decree of the High court which was pronounced on
November 9, 1920, it is seen that the original debt of Rs. 10,000 had reached, with interest and costs
calculated, up to May 8, 1921, more than a lac of rupees—namely Rs.112, 885. In eleven years the
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stipulation for interest at 24 per cent. compound had magnified the sum covered by the mortgage more
than eleven folds. It is upon these facts, coupled with one other about to be mentioned, that the
appellant takes his stand. …
Evidence was taken in the case. It is sufficient to say that the defendant gave no evidence at all. It is
quite plain that no Court can accept a story thus unproved by its author as establishing a case either of
mental distress or of undue influence under the Indian Contract Act. The only case which the appellant
has is the case derived from the contents of the mortgage itself.
It is argued with force that these are unconscionable, and that it is the duty of the Court in India to step
in either to rescind the contract or to rectify the bargain. It was the latter course which was argued for in
the present case. In support of this argument much reliance was placed upon the judgment pronounced
by Lord Davey in Dhanipal Das v. Raja Maneshar Bakhsh Singh (1906) 28 All. 570.
Before, however, addressing themselves to the authorities cited their Lordships think it desirable to make
clear their views upon, in particular, s. 16, sub-s. 3 of the contract Act as amended. By this sub-section
three matters are dealt with. In the first place the relations between the parties to each other must be
such that one is in a position to dominate the will of the other. Once that position is substantiated the
second stage has been reached, viz., the issue whether the contract has been induced by undue influence.
Upon the determination of this issue a third point emerges, which is that of the onus probandi. The
burden of proving that the contract was not induced by undue influence is to lie upon the person who
was in a position to dominate the will of the other.
Error is almost sure to arise if the order of these propositions be changed. The unconscionableness of
the bargain is not the first thing to be considered. The first thing to be considered is the relations of
these parties. Were they such as to put one in a position to dominate the will of the other? Having this
distinction and order in view the authorities appear to their Lordships to be easily properly interpreted.
…
It is sufficient to say that the borrower in the present case … had the full power of bargaining and of
burdening his estate … With regard to his helplessness nothing whatsoever is proved in the case except
the bare fact that he being a man of wealth as owner of one-half of certain joint family property wished
to obtain, and did obtain, certain monies on loan. The only relation between the parties that was proved
was simply that they were lender and borrower.
It is an entire mistake to represent the decisions of this Board as being wanting in light upon the last
mentioned case. For in Sundar Koer v Sham Krishan LR 34 IA 9, 16, the exact point was referred to by
Lord Davey in the course of the judgment read by him.
There is no evidence of any actual exercise of undue influence by the mortgagees or of any special
circumstances from which an inference of undue influence could be legitimately drawn, except that
the mortgagor was in urgent need of money. …
… It has not been proved—it might be said that it has not even been attempted to be proved—that the
lender was in a position to dominate the will of the borrower.
In these circumstances, even though the bargain had been unconscionable (and it has the appearance of
being so) a remedy under the Indian Contract Act does not come into view until the initial fact of a
position to dominate the will has been established. Once that fact is established, then the
unconscionable nature of the bargain and the burden of proof on the issue of undue influence come
into operation. In the present case, for the reasons stated these stages are not reached.”
Note:
Consider the following Illustrations to section 16 of the Act:
“(c) A, being in debt to B, the moneylender of his village, contracts a fresh loan on terms which appear to be
unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker
declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms.
This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.”
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Question:
1. How to reconcile Raghunath Prasad v Sarju Prasad and Illustration (c), above?
2. It seems that Illustration (d) would aptly fit into Raghunath Prasad case, but the case involved
borrowing of money from a moneylender, not a banker. How to rationalise this?
English Position on Undue Influence

19th century position
Allcard v Skinner (1887) 36 Ch D 145

Lindley LJ, at pp. 182-183, explained the principle on undue influence as follows:
“The principle must be examined. What then is the principle? Is it that it is right and expedient to save
persons from the consequences of their own folly? or is it that it is right and expedient to save them from
being victimised by other people? In my opinion the doctrine of undue influence is founded upon the second
of these two principles. Courts of Equity have never set aside gifts on the ground of the folly, imprudence, or
want of foresight on the part of donors. The Courts have always repudiated any such jurisdiction. Huguenin v
Baseley 14 Ves 273 is itself a clear authority to this effect. It would obviously be to encourage folly,
recklessness, extravagance and vice if persons could get back property which they foolishly made away with,
whether by giving it to charitable institutions or by bestowing it on less worthy objects. 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 with the
infinite varieties of fraud.”
At p. 185, Lindley LJ further said:

“Where a gift is made to a person standing in a confidential relation to the donor, the Court will not set aside
the gift if of a small amount simply on the ground that the donor had no independent advice. In such a case,
some proof of the exercise of the influence of the donee must be given. The mere existence of such influence
is not enough in such a case; see the observations of Lord Justice Turner in Rhodes v Bate [FN54]. But if the
gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or
other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift. So, in a
case like this, a distinction might well be made between gifts of capital and gifts of income, and between gifts
of moderate amount and gifts of large sums, which a person unfettered by vows and oppressive rules would
not be likely to wish to make. In this case the Plaintiff gave away practically all she could, although, having a
life interest in other property, she did not reduce herself to a state of poverty.”
Cotton LJ, at p. 171, observed:

“The question is—Does the case fall within the principles laid down by the decisions of the Court of
Chancery in setting aside voluntary gifts executed by parties who at the time were under such influence as, in
the opinion of the Court, enabled the donor afterwards to set the gift aside? These decisions may be divided
into two classes—First, where the Court has been satisfied that the gift was the result of influence expressly
used by the donee for the purpose; second, where the relations between the donor and donee have at or
shortly before the execution of the gift been such as to raise a presumption that the donee had influence over
the donor. In such a case the Court sets aside the voluntary gift, unless it is proved that in fact the gift was the
spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will
and which justifies the Court in holding that the gift was the result of a free exercise of the donor's will. The
first class of cases may be considered as depending on the principle that no one shall be allowed to retain any
benefit arising from his own fraud or wrongful act. In the second class of cases the Court interferes, not on
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the ground that any wrongful act has in fact been committed by the donee, but on the ground of public
policy, and to prevent the relations which existed between the parties and the influence arising therefrom
being abused.”
20th century approach
Modern classification of undue influence

Barclays Bank plc v O’Brien & Anor [1993] 4 All ER 417 (HL)
▪ Lord Browne-Wilkinson said:
Class 1: Actual undue influence
In these cases it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue
influence on the complainant to enter into the particular transaction which is impugned.
Class 2: Presumed undue influence
In these cases the complainant only has to show, in the first instance, that there was a relationship of trust
and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that
the wrongdoer abused that relationship in procuring the complainant to enter into the impugned
transaction. In Class 2 cases therefore there is no need to produce evidence that actual undue influence
was exerted in relation to the particular transaction impugned: once a confidential relationship has been
proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the impugned
transaction freely, for example by showing that the complainant had independent advice. Such a
confidential relationship can be established in two ways, viz.,
Class 2(A)
Certain relationships (for example solicitor and client, medical advisor and patient) as a matter of law raise
the presumption that undue influence has been exercised.
Class 2(B)
Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence
of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer,
the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case
therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting
aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the
wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise
abused such trust and confidence in relation to the particular transaction impugned.
21st century development

▪ House of Lords’ case, Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773, seemed to avoid the
classification of undue influence, commonly known as Class 1 and Class 2 undue influence (which is further
subdivided into Classes 2A and 2B).
▪ Class 2A, for instance, was questioned by Lord Nicholls. His Lordship observed that there are two
prerequisites to the evidential shift in the burden of proof from the complainant to the other party: (1) that
the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over
the complainant, and (2) that the transaction is not readily explicable by the relationship of the parties.
Although the second prerequisite does not require strict proof (as to establish “unconscionable bargain” or
“manifest disadvantage”, it has to be there before the burden could be shifted; in other words, before
presumption could arise. The second prerequisite had been summarised by Lindley LJ in the leading
authority of Allcard v Skinner 36 Ch D 145. According to Lord Nicholls, Lindley LJ pointed out that where
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a gift of a small amount is made to a person standing in a confidential relationship to the donor, some proof
of the exercise of the influence of the donee must be given. The mere existence of the influence is not
enough. However, “if the gift is so large as not to be reasonably accounted for on the ground of friendship,
relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to
support the gift.” The words “not to be reasonably accounted for” was described by Lord Macnaghten in
Bank of Montreal v Stuart [1911] AC 120, 137 as “immoderate and irrational”. Lord Nicholls accepted that
the second prerequisite “is good sense”. It sets the limitation upon the width of the first prerequisite. In his
Lordship’s words: “It would be absurd for the law to presume that every gift by a child to a parent, or every
transaction between a client and his solicitor or between a patient and his doctor, was brought about by
undue influence unless the contrary is affirmatively proved. Such a presumption would be too far-reaching.
The law would be out of touch with everyday life if the presumption were to apply to every Christmas or
birthday gift by a child to a parent, or to an agreement whereby a client or patient agrees to be responsible
for the reasonable fees of his legal or medical adviser. The law would be rightly open to ridicule, for
transactions such as these are unexceptionable. They do not suggest that something may be amiss. So
something more is needed before the law reverses the burden of proof, something which calls for an
explanation. When that something more is present, the greater the disadvantage to the vulnerable person, the
more cogent must be the explanation before the presumption will be regarded as rebutted.”
▪ The House of Lords observed that the confusion could be cured by “discarding a label [i.e. the classification
in O’Brien case above] which gives rise to this sort of ambiguity. The better approach is to adhere more
in National Westminster Bank plc v Morgan [1985] AC 686.
▪ On actual undue influence, the House held that Actual undue influence is an equitable wrong committed
by the dominant party against the other which makes it unconscionable for the dominant party to enforce his
legal rights against the other. It is typically some express conduct overbearing the other party's will. Actual
undue influence does not depend upon some pre-existing relationship between the two parties though it is
most commonly associated with and derives from such a relationship. He who alleges actual undue
influence must prove it.
▪ On presumed undue influence, the House of Lords held that—
(c) as a general rule, the burden of proving undue influence rests upon the person who claims to have been
wronged (the complainant). The complainant has to prove—
This will normally be sufficient to discharge the burden of proof. On proof of these two matters the court
will infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by
undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused
the influence he acquired in the parties’ relationship.
Lord Nicholls said that the word ‘“presumption” is descriptive of a shift in the evidential onus on a question
of fact. When a plaintiff succeeds by this route he does so because he has succeeded in establishing a case
of undue influence. Here a plaintiff claimed that the defendant abused the influence he acquired in a
relationship of trust and confidence the plaintiff would succeeded by recourse to presumption (rebuttable
evidential presumption). But this need not be so. Such a plaintiff may succeed even where this presumption
is not available to him; for instance, where the impugned transaction was not one which called for an
explanation.”
▪ On presumed undue influence involving special class of relationship, the House of Lords held:
“The law has adopted a sternly protective attitude towards certain types of relationship in which one party
acquires influence over another who is vulnerable and dependent and where, moreover, substantial gifts by
the influenced or vulnerable person are not normally to be expected. Examples of relationships within this
special class are parent and child, guardian and ward, trustee and beneficiary, solicitor and client, and
medical adviser and patient. In these cases the law presumes, irrebuttably, that one party had influence over
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the other. The complainant need not prove he actually reposed trust and confidence in the other party. It is
The evidential onus on a question of fact then shifts to the wrongdoer.
See also—A. Mohaimin Ayus, “Proof of Undue Influence: An Overview of Trends and Issues in its
Development”, [2004] 4 MLJ lii— on the issue of whether the elements of “domination” and “manifest
disadvantage” are required under English law.
▪ Actual Undue Influence (known in the 20th century as Class 1 undue influence)
▪ “In these cases it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue
influence on the complainant to enter into the particular transaction which is impugned.”
Actual undue influence

Morley v Loughnan [1893] 1 Ch 736
▪ A claim was brought by the Morleys, plaintiff executors of the will of their brother, Henry Morley, to
recover about £140,000, given by the testator (the person who made the will) in his lifetime to the
defendant, Loughnan.
▪ The plaintiffs claimed that the money had been obtained by the defendant from the testator by undue
influence.
▪ The facts showed that the deceased was born prematurely and was subject to epileptic fits and was never
physically or mentally strong. He had not been capable of managing his own affairs.
▪ His father sent him into the country to learn farming.
▪ When his father died, he inherited a fortune amounting to £170,000.
▪ The deceased testator joined the Plymouth Brotherhood. This religious sect was divided into two orders:
(1) open Brethren and (2) close or exclusive Brethren.
▪ The defendant belonged to the close order. It was customary that members of the close or exclusive
Brethren to isolate themselves from general society. They professed to give up the world and to devote
their lives to religion.
▪ The deceased testator had made several gifts amounting to more than £140,000 to the defendant, while he
was under the defendant’s religious influence.
▪ The deceased had lived in the defendant’s house in seclusion for the last seven years of his life.
▪ The plaintiffs succeeded in their claim. The court found that the money was obtained by the exercise and
abuse of personal influence and ascendancy. It was unnecessary to decide whether or not any special
relationship existed between the deceased and the defendant, because the defendant had taken possession,
so to speak, of the whole life of the deceased. The gifts were not the result of the deceased’s own free will,
but the effect of that influence and domination.
▪ In giving judgment for the plaintiffs, Wright J said:
“[W]here large voluntary gifts are made and accepted inter vivos, the recipient may be called upon to shew
that the donor had capacity and knowledge of what he was doing. In this case that capacity and knowledge
are not disputed. Proof may then be given against the recipient to shew that the donor’s intention to give
was produced by undue influence, and then the Courts of course set it aside, unless the transaction as a
whole was a benefit to the donor.
Or the donor may shew that confidential relationship existed between the donor and the recipient, and
then the law on grounds of public policy presumes that the gift, even though in fact freely made, was the
effect of the influence induced by those relations, and the burthen lies on the recipient to shew that the
donor had independent advice, or adopted the transaction after the influence was removed, or some
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equivalent circumstances. …
What I have to decide is, is there proof of undue influence which produced the gift? and if not, was the
relation of that confidential kind which comes within the rule? …
During the continuance of that relation as between the father and Mr. Loughnan, Mr. Morley, the
deceased, invited himself to stay with Mr. Loughnan in September, 1883, and Mr. Loughnan informed his
father that so long as Mr. Morley made Mr. Loughnan’s home his home, Mr. Morley’s health and
happiness would be carefully looked to. Shortly afterwards Mr. Morley wrote a sort of farewell letter to the
world to his uncle and aunt, and from that time until his death in February, 1891, he was one of the family
group of the Loughnans, seldom away, or only for a few weeks at a time at most, and practically confined
to a very narrow circle, both socially and in matters of religion. There is no trace in all that time of his
mixing in general society, and his seclusion was, in fact, such that he did not attend either his father’s or his
mother’s funeral. … [T]hose things are only material to shew what the seclusion was. As to what took
place during those six or seven years there is little direct evidence, but we know certain things. We know
that Mr. Morley almost immediately began to give large sums to Mr. Loughnan—£2500 the first year,
£2700 the next, over £6000 the next, nearly £25,000 in the fourth year, nearly £10,000 in the fifth, £18,500
in the next year, and £65,000 in the last thirteen months, neither receiving nor demanding any account of
these sums; and at the same time he was, till the close of the period, making a series of wills progressively
in the Defendant’s favour. …
There is abundant evidence that the deceased man when with the Defendant held the highest views of the
Defendant’s saintly character, and of the debt of gratitude he owed the Defendant, and, till near the end,
placed unbounded confidence in the Defendant’s religion and integrity, and trusted him to apply the wealth
lavished upon him by the deceased to unselfish ends. There is evidence that when absent the fascination
seemed to be partially removed, and, towards the end, was once or twice entirely gone, but it returned with
his return to the Defendant’s care, and I agree with the Attorney-General that that is a strong indication of
personal ascendancy when in the presence of the Defendant. …
There are other circumstances also which throw grave suspicion on the conduct and motive of the
Defendant and his evidence. First, the absence of records relating to the pecuniary transactions. Hardly
anything is produced. … Then there is the extraordinary transaction in September, 1890, when large sums
are being paid into the banks. Mr. Loughnan made a request to the manager of one of the banks to take
care that no marks or stamps should be placed on cheques paid into his account, by which the transaction
might be traced, because it might prove inconvenient for some purpose which he did not explain, and, as
the bank manager observed, that was a most unusual request.
Then I find, as a matter of fact, that the Defendant made attempts to prevent Miss Dalby and Miss
Waterman from giving evidence. He refused information as to transactions with his banks to the executors,
until it was pointed out to him that the information could be obtained without his consent. …
Under the circumstances, the Defendant cannot complain if the most unfavourable inferences are drawn,
and I think I ought to draw them. I believe that the money which the executors seek to recover was
obtained by the exercise and abuse of personal influence and ascendancy established and maintained for
that very purpose, under a cover of religion and religious brotherhood. I believe the Defendant took
possession, so to speak, of the whole life of the deceased, and the gifts were not the result of the
deceased’s own free will, but the effect of that influence and domination. It is, therefore, unnecessary to
decide whether the relationship between Mr. Morley and Mr. Loughnan was of that confidential fiduciary
character which brings it within Lord Justice Bowen’s view in Allcard v Skinner 36 Ch D 145 as a fetter on
his conscience which requires a gift, even though freely made in fact, to be set aside on the ground of
public policy, though I should have no doubt that the rule is wide enough to comprehend this case, and
does comprehend it.
Then there is another ground on which the Plaintiffs are entitled to succeed, as to the £50,000. We have a
record of the views with which the deceased drew out this sum in the letter of the 8th of January, 1891. …
Besides that, there is proof in the evidence … to the effect that the money was given … in substance for
the furtherance of religious objects and religious works, and if the money was given in that way I think that
Mr. Loughnan cannot repudiate the purpose for which it was given, and claim to take the benefit of it for
his own private and selfish ends.”
▪ The Court of Appeal case of Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 is
another example where actual undue influence transaction was the issue. However, the ruling that a claim to
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set aside a transaction actual undue influence cannot succeed unless, like the case of presumed undue
influence, the claimant proves that the impugned transaction was manifestly disadvantageous to him, was
later overruled by the House of Lords in CIBC Mortgages Plc v Pitt and Anor [1994] 1 AC 200.
▪ Nevertheless, the elements required to prove actual undue influence by an innocent party still remain within
the observation made by Slade LJ in Aboody, that the “person relying on a plea of actual undue influence
must show that—
• the other party to the transaction (or someone who induced the transaction for his own benefit) had the
capacity to influence the complainant;
• the influence was exercised;
• its exercise was undue;
• its exercise brought about the transaction.”
▪ Similar view was later echoed by the Court of Appeal in CIBC Mortgages Plc v Pitt (1993) 66 P & CR 179
where Neill LJ laid down the elements to be proved in order to establish actual undue influence. The Lord
Justice said “it was necessary for Mrs. Pitt to prove actual undue influence. Such proof required her to
establish the following ingredients:
(a) that her husband had the capacity to influence her;
(b) that influence was exercised over her by her husband;
(c) that the exercise of influence was undue;
(d) that the exercise of influence brought about the transaction.”
▪ Presumed undue influence (under the previous Class 2 classification)

▪ “The complainant only has to show, in the first instance, that there was a relationship of trust and
confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the
wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction. In
Class 2 cases therefore there is no need to produce evidence that actual undue influence was exerted in
relation to the particular transaction impugned: once a confidential relationship has been proved, the burden
then shifts to the wrongdoer to prove that the complainant entered into the impugned transaction freely, for
example by showing that the complainant had independent advice. Such a confidential relationship can be
established in two ways …” (See Class 2A and Class 2B below.)
▪ Presumed undue influence (known previously as Class 2A undue influence)

▪ “Certain relationships (for example solicitor and client, medical advisor and patient) as a matter of law raise
the presumption that undue influence has been exercised.”
▪ The courts would regard a limited class of relationship which would suggest undue influence being exerted
by one over the other. Under this limited class the following are included: between parents and child (or
person in loco parentis), solicitor and client, medical doctor and patient, spiritual advisor and follower or
devotee, trustee and cestui que trust (beneficiaries), and in certain circumstances, fiancé and fiancee.
▪ The relationship between a husband and wife, under the English law, is not one to which the presumption
applies.
▪ Any other relationship may come under the presumption—Class 2B—depending on the circumstances of
the case, which has to be considered in order to determine whether such a relationship exists.
Presumed undue influence—special relationship (e.g. of Class 2A case)

In this case, undue influence had been presumed out of a relationship where a person is bound to make absolute
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submission to the other. The Court of Appeal observed that the court would interfere, not on the ground of any
wrongful act, as in Class 1 cases, but on the ground of public policy, to prevent the abuse of the relations and
the influence which arise there from.
▪ Miss Allcard (plaintiff) was an unmarried woman of 35 years of age.
▪ In 1868, she desired to devote herself to good works, and was introduced by her spiritual director to the
defendant, Miss Skinner, the lady superior of a Protestant institution known as “The Sisters of the Poor”.
▪ The plaintiff, later, became a professed member of the community and bound herself to observe the rules of
poverty, chastity and obedience.
▪ The rules of poverty bound her to relinquish all earthly possessions.
▪ The rules of obedience disallowed her from seeking advice of anyone outside the community without
permission.
▪ In 1870 the plaintiff became entitled to considerable property under her father’s will, where, in March of
the same year, she made a will leaving all her property to the defendant. Over the period of about four
years, the plaintiff had made several transfers of railway stocks to the defendant.
▪ In May, 1879, the plaintiff left the sisterhood and immediately revoked her will.
▪ The plaintiff brought an action against the defendant for a declaration, inter alia, that she was induced to
make over the property to the defendant by the undue influence of the defendant. The plaintiff alleged that
she was so induced whilst acting under the direction and paramount influence of the defendant, and without
any independent advice. She further claimed repayment of the moneys and re-transfers of the stocks to her.
▪ She also applied for an injunction to restrain the defendant from transferring or dealing with the railway
stock, and to restrain the railway companies from registering transfers of the same.
▪ The Court of Appeal held that the gifts were voidable by reason of undue influence. The presumption of
undue influence applied in this situation whereby the plaintiff was bound to make absolute submission to
the defendant. Furthermore, she had no power to seek independent advice. She was in a position where she
could not exercise freely her own will.
▪ The court would prefer that once the special relationship has been shown to exist, no benefit could be
obtained for the donee unless the transaction is shown to be truly for the benefit of the person influenced
(donor).
▪ At the Court of Appeal, Cotton LJ said:
“… First, where the Court has been satisfied that the gift was the result of influence expressly used by
the donee for the purpose; second, where the relations between the donor and donee have at or shortly
before the execution of the gift been such as to raise a presumption that the donee had influence over
the donor. In such a case the Court sets aside the voluntary gift, unless it is proved that in fact the gift
was the spontaneous act of the donor acting under circumstances which enabled him to exercise an
independent will and which justifies the Court in holding that the gift was the result of a free exercise of
the donor’s will. The first class of cases may be considered as depending on the principle that no one
shall be allowed to retain any benefit arising from his own fraud or wrongful act. In the second class of
cases the Court interferes, not on the ground that any wrongful act has in fact been committed by the
donee, but on the ground of public policy, and to prevent the relations which existed between the parties
and the influence arising therefrom being abused.
Both the Defendant and Mr. Nihill have stated that they used no influence to induce the Plaintiff to
make the gift in question, and there is no suggestion that the Defendant acted from any selfish motive,
and it cannot be contended that this case comes under the first class of decisions to which I have
referred. The question is whether the case comes within the principle of the second class, and I am of
opinion that it does. At the time of the gift the Plaintiff was a professed sister, and, as such, bound to
render absolute submission to the Defendant as superior of the sisterhood. She had no power to obtain
independent advice, she was in such a position that she could not freely exercise her own will as to the
disposal of her property, and she must be considered as being (to use the words of Lord Justice Knight
Bruce in Wright v Vanderplank 8 DM & G 137) “not, in the largest and amplest sense of the term—not, in
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mind as well as person—an entirely free agent.” …

But it is contended, and Mr. Justice Kekewich decided against the Plaintiff on this ground, that she had
competent advice, that of her brother, before she joined the sisterhood, and that she then formed the
resolution (as Mr. Nihill stated in his evidence) to give everything to the sisterhood, and that this
prevents the subsequent transfer being set aside. In my opinion, even if there were evidence that she had,
before she joined the sisterhood, advice on the question of how she should deal with her property, that
would not be sufficient. The question is, I think, whether at the time when she executed the transfer she
was under such influences as to prevent the gift being considered as that of one free to determine what
should be done with her property. … In my opinion, when the Plaintiff left the sisterhood in 1879, she
was entitled to set aside the transfer, and to have re-transferred to her the fund still held by the
Defendant.”
▪ Presumed undue influence (under previous Class 2B classification)

▪ Any other relationship may come under the presumption—Class 2B—depending on the circumstances of
the case, which has to be considered in order to determine whether such a relationship exists.
▪ “[I]f the complainant proves the de facto existence of a relationship under which the complainant generally
reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of
undue influence. In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the
complainant will succeed in setting aside the impugned transaction merely by proof that the complainant
reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual
undue influence or otherwise abused such trust and confidence in relation to the particular transaction
impugned.”
Presumed undue influence (Class 2B)

Where some relation exists which is recognised as imposing on the more influential party some special duty
towards the other. If such relation exists, the more influential or trusted party must give the other all due
protection, and disclose all that he has learnt through the confidential relation.
(Note: this case may be used to explain what kind of relationship which may be classified under “fiduciary
relation” as stated in s 16(2)(a) of our Contracts Act.)
Tate v Williamson (1866) LR 2 Ch App 55
▪ Tate, aged 23, was an extravagant Oxford undergraduate. He had some property independently of his
father.
▪ In 1859, he had been pressed to pay his college debts amounting to £1000. This had caused him
considerable embarrassment.
▪ As he was unable to consult his father, because of a quarrel, he had to turn to his great uncle for advice
as to how to settle the debts.
▪ The great-uncle was very ill then, but deputed his nephew, the defendant, to advise Tate.
▪ Tate had expressed to the defendant his desire to sell part of his property to raise the money.
▪ The defendant, instead of recommending a mortgage etc., offered to buy the property for £7000. The
actual value of the property as surveyed by a surveyor appointed by the defendant was £20,000.
▪ The defendant did not disclose this fact to Tate, but proceeded with the purchase.
▪ Tate died a year later, at the age of 24, over excessive drinking.
▪ The heir to Tate’s estate succeeded to have the sale set aside by the court.
▪ The heir to Tate’s estate succeeded to have the sale set aside by the court. It was held that the defendant
had wrongfully exploited to his own advantage the fiduciary relation in which he stood. Such position
made it his duty to disclose to Tate all material information he obtained which affected the value of the
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property. The defendant, therefore, having been asked to give advice, stood in a confidential
relationship to Tate, and this relationship prevented him from becoming a purchaser unless he
communicated all material information which he had obtained as to the value of the property to Tate.
▪ Lord Chelmsford said:
“[I]t is quite clear to my mind that the confidential relationship between the parties had not terminated
when the negotiation for the purchase of the property by the Defendant commenced, and that he did not
then, or at any time afterwards, stand in the situation of an ordinary purchaser.
That being so, the Defendant, pending the agreement, was bound to communicate all the information he
acquired, which it was material for the intestate to know in order to enable him to judge of the value of the
property. …
I am satisfied that the Defendant had placed himself in such a relation of confidence, by his undertaking
the office of arranging the intestate’s debts by means of a mortgage of his property, as prevented him from
becoming a purchaser of that property without the fullest communication of all material information which
he had obtained to its value; that this openness and fair dealing were the more necessary when he was
negotiating with an extravagant and necessitous young man, deprived at the same time of all other advice,
eager to raise money, and apparently careless in what manner it was obtained; and the Defendant having,
by concealment of a valuation which he had privately obtained, procured a considerable advantage in the
price which the seller was induced to take, and which the Defendant’s witnesses prove to be grossly
inadequate, he cannot be permitted so to turn the confidence reposed in him to his own profit, and the sale
ought to be set aside.”
Malaysian Case Law on Undue Influence
“Fiduciary relationship” and undue influence (e.g. to explain ‘fiduciary relation” in s 16(2)(a).
Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin Shah Mohd [1996] 2 MLJ 265
▪ In 1978, the Ayala Group of Companies in the Philippines (‘Ayala’) and its Malaysian partners (‘the first
appellant’ (Tengku Abdullah) and ‘second appellants’ (General Yusoff)) identified a piece of land in
Kuala Lumpur, which belonged to Raintree Development Sdn Bhd (‘RDB’), whose shareholders and
directors were Peter Yeoh, Tan Chin Yong and the third appellant.
▪ In 1979, the first appellant, the second appellant, and Ayala nominess (Ramon Madrid and Jose Reyes)
acquired all the shares in RDB on a joint venture basis.
▪ The board of RDB comprised the first, the second and the fourth appellants, as well as Reyes and Madrid.
▪ In May 1980, Allied was incorporated for the purpose of building the club’s premises. The shareholders of
Allied were the first appellant, the second appellant, and Ayala (through its nominees). The first, second
and fourth appellants were also appointed as the directors of Allied.
▪ On 31 January 1981, the share capital of RDB was increased. The nominees of Ayala held 40% of the
shares in RDB, while the first and second appellants held the remaining 60%. It was obvious that the
shares in both RDB and Allied were then held by the first and second appellants who, together with the
fourth appellant, controlled the board of the two companies.
▪ It was against these two appellants that charges of misconduct were primarily levelled.
▪ For clarity, the parties in the first suit were as follows:
▪ Tengku Abdullah and General Yusoff were the first and second defendants (the first and second
appellants), respectively. They were the controlling shareholders and directors of Allied Capital Sdn Bhd
(‘Allied’), Raintree Development Sdn Bhd (‘RDB’) and a company known as Cosmopleks.
▪ Low Nyap Heng, the third defendant, was the consultant responsible for setting up the club. He was in
Cosmopleks, a shareholder of Allied, and a member of the protem committee. He signed the agreement as
secretary of Allied.
▪ Yeoh Chong Swee, the fourth defendant, was a director of Allied, RDB and Cosmopleks. He was also a
consultant of Allied. In the protem committee he advised members on the sale and purchase agreement and
how the purchase price of RM47 million was arrived at. He signed the agreement on behalf of Allied.
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▪ Leonard Tham, the fifth defendant, and Clifford Tan, the eighth defendant, respectively, were employees
of Allied. Both of them were members of the protem committee.
▪ Tengku Azlan, the sixth defendant, was a director of Raintree Development. He was also a member of the
protem committee.
▪ Abdul Kadir Kassim, the seventh defendant, was one of the shareholders of Cosmopleks. He was
acquainted with Mr Reyes of the Ayala Group and he was brought in to help out with the project. He is the
legal adviser of the Ayala Group and he drafted the memorandum of understanding. He was involved with
the club project right from the beginning. He was also a member of the protem committee.
▪ Lt Col Zarazillah, the ninth defendant, was appointed to the protem committee by Tengku Abdullah and
General Yusoff. He is an employee of Apera Sdn Bhd, a company owned by Tengku Abdullah and
General Yusoff.
▪ The plaintiffs (respondents) in the first suit were suing on behalf of themselves and all other members of
the club except the defendants (appellants), arising from the agreement entered into between Allied and
Tengku Abdullah and General Yusoff, both acting for and on behalf of the club, for the sale to the club
shares in RDBfor the sum of RM47 million.
▪ The plaintiffs claimed damages for breach of fiduciary duty against the first to the fourth defendants,
including Tengku Abdullah and General Yusoff, while the claim against all nine defendants was for
damages for their breach of duty to exercise due care, skill and diligence, being promoters of the club.
▪ The defendants contended that the plaintiffs were incompetent to bring a representative action, as the
plaintiffs were not at the material time members of the club. It was also argued that the plaintiffs were not
and never had been the public officers of the club within the meaning of the Societies Act 1966. They (the
defendants), therefore, as promoters of the club, had no fiduciary relationship with the members of the
club they sought to promote.
▪ The third suit was brought by Allied against the secretary of the club, as its registered officer. According
to the allegation, by a written agreement dated 24 August 1982 (‘the agreement’) entered into between
Allied and Tengku Abdullah and General Yusoff, both acting for and on behalf of the club, it was agreed
that Allied, the plaintiff, would sell to the club shares in RDB for the sum of RM47 million.
▪ Allied alleged that the club had failed to pay the remaining sum of RM8,408,997.
▪ The defendants, however, contended that the club had been induced into the agreement under the undue
influence of Allied.
▪ The defendants averred that Tengku Abdullah and General Yusoff were the major shareholders of Allied
and RDB; and counterclaimed and contended that the true value of the shares was only RM24,597,162 and
that the defendant was entitled to counterclaim the sum of RM16,571,734 being the difference between the
amount paid and the actual value of the shares.
▪ The issues in this case were, inter alia:
▪ whether the defendants in the first suit were promoters of the club and owed a fiduciary duty to the club;
▪ whether there was a breach of the fiduciary duty, if any, owed by the defendants to the club; and
▪ whether the club was induced to enter into the agreement under the undue influence of Allied Capital.
▪ The High Court allowed the plaintiffs’ claim in the first suit, but dismissed Allied’s claim and allowed the
defendant’s counterclaim in the third suit. It was held that the club did not have a public officer at the
material time, nevertheless, a person may commence a legal action in the capacity of his individual right as
a member of a society. The plaintiffs in the first suit, therefore, were competent to bring the suit in a
representative capacity.
▪ The High Court further held that a fiduciary relationship exists not only in relation to a company but also
between two persons, such as when one person entrusted to another the negotiation of a contract on his
behalf or for his benefit and relied on the other to procure for him the best terms available. There was, in
the circumstance, a fiduciary relationship between the promoters of the club and the club, as well as the
members of the club. The nine defendants in the first suit were the promoters of the club, as they were the
protem committee members appointed to take the necessary steps to obtain the registration of the
club. Since there had been a breach of the fiduciary relationship between the defendants and the club, the
rights of the members of the club were affected. All the members were liable to pay the purchase price of
the shares. The plaintiffs were, therefore, entitled to bring the representative action. The defendants, in the
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first suit, as promoters of the club, were held to have failed to exercise due care, skill and diligence in the
exercise of their duty in promoting the club. They had failed to obtain independent advice on the value of
the shares and were only concerned in promoting their own interest.
▪ On the issue of undue influence, the High Court held that a contract is said to be induced by undue
influence where the relations subsisting between the parties were such that one of the parties was in a
position to dominate the will of the other, and used that position to obtain an unfair advantage over the
other. Where one party stood in a fiduciary relation to the other, that party was deemed to be in a position
to dominate the will of the other. In this case, the plaintiff (Allied) in the third suit was deemed to have
exercised undue influence over the Club in the execution of the agreement. The value of the shares at the
material time was RM25,718,000. Since the club had paid RM41,168,876, judgment should be entered on
the defendant’s counterclaim for the difference of RM15,450,876 to be refunded.
▪ On appeal, the Court of Appeal held that the action was instituted against the appellants who were
purporting to act as office bearers and members of the protem committee of the club. The members of the
club were the ultimate victims of any their wrongdoing of the appellants. The procedural device of a
representative action was, therefore, appropriately applied. The Court of Appeal upheld the finding of the
trial judge that the appellants were
promoters of the club, and that the fiduciary doctrine was applicable to promoters of proprietary clubs.
Whether a particular set of circumstances ought to attract a fiduciary
duty, in the learned observation of the Court of Appeal, is a question of judicial policy. This depends upon
the standard of commercial morality that the courts of a particular jurisdiction may choose to impose upon
the parties, having regard to the cultural background and circumstances of the society in which they
function. The court also held the view that, where a fiduciary duty is owed to an identifiable class of
persons, it is the class to whom the law directs its attention, i.e., all those persons who had applied for and
were awaiting admission to membership of the club.
▪ The Court of Appeal agreed with the trial judge’s conclusion that the appellants had acted
in breach of the duty owed by them; and that the interests of the respondents were in conflict with the
financial interests of the appellants. It was in the respondents’ interests that the purchase price should be
kept as low as possible, but the appellants, who had interests in Allied or RDB, were there to protect the
interests of Allied and for Allied to reap the highest possible profit. The appellants’ opinion that the
purchase price of RM47 million was fair and reasonable was not supported by any independent valuation.
▪ In dealing with undue influence allegation, the Court of Appeal underscored that the Malaysian courts
must ultimately have regard to the words of section 16 of the Contracts Act 1950, although similar
decisions of courts of other jurisdictions may be referred to. The Court of Appeal suggested that, subject to
policy considerations, the categories in which the equitable doctrine of undue influence may operate are
not closed. The doctrine, as housed in section 16 of the 1950 Act, should be applied to varying fact
patterns in a flexible manner. In the absence of any intention on the part of Parliament to alter the doctrine,
section 16, being a remedial provision, should be interpreted in a broad and liberal fashion. Even in cases
which are not stricto sensu contractual in nature, the section may be resorted to by analogy.
▪ The learned judge of the Court of Appeal also observed that the proof of dominance of the will of a party
to a transaction by the other party to the transaction is not a sine qua non of the doctrine of undue
influence. The doctrine applies with equal force where, from the proved or admitted facts, there is shown a
relationship of confidence and an abuse of that confidence by the person in whom it was reposed. Thus,
the finding that the first and second appellants had abused the confidence reposed in them as fiduciaries
was to be equated to an abuse of confidence by Allied. The relationship between the first and second
appellants and Allied was such that their knowledge may be said to be that of Allied. In other words,
where a transaction is tainted by undue influence, it is not only invalid as between the parties thereto and
their privies, but also as against any other person who seeks to enforce the transaction with knowledge or
notice, actual or constructive, that it was procured by undue influence or any other vitiating element. A
third party may safely take under such a transaction and enforce it only if he is a bona fide purchaser for
value without notice of the invalidating circumstances.
▪ Gopal Sri Ram JCA, in delivering the judgment of the Court of Appeal, said:
“(a) Are the appellants fiduciaries?
As we said a moment ago, the learned judge found a fiduciary relationship to exist on the basis that the
appellants were promoters of the club. His judgment contains a useful analysis of the relevant authorities
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22
upon the subject and no useful purpose will be served by a regurgitation of these. Suffice that we
produce the following paragraphs from the judgment of the learned judge which deal with the point that
was raised before him:
From the authorities cited by Raja Aziz, it can be concluded that a fiduciary relationship does not
exist only in relation to a company. Such relationship also exists between two persons, such as when
A entrusts to B the negotiation of a contract on A’s behalf or for A’s benefit and relies on B to
procure for A the best terms available. Fiduciary relationships also exist between solicitor and client
and between bank and customer, and in Roche v Sherrington [1982] 2 All ER 426, between the plaintiff
and an uncorporated association. In the circumstances, I am satisfied that there is a fiduciary
relationship between the promoters of the club and the club and/or the members of the club. In my
opinion, Erlanger [Erlanger v The New Sombrero Phosphate Co (1878) AC 1218] applies to the present
case.
…
Returning to the instant appeal, we find that the judge carried out an admirable analysis of the facts and
evidence before arriving at his conclusion in the following passage in his judgment (at p 23):
In my opinion the members of the protem committee … were the promoters of the club. The tasks
of the committee were: (1) to obtain registration of the club under the (Societies) Act; and (2) to
seek the approval of the Registrar of Societies to operate the club pending its registration. All the
nine defendants were in the protem committee and they were therefore the promoters of the club. I
think this point is not in dispute. Both Raja Aziz and Mr Cecil Abraham have submitted that the defendants
who sat in the protem committee were the promoters of the club. Since all the defendants were the promoters
of the club, they are therefore in a fiduciary relationship with the club. (Emphasis added.) …
Having examined the evidence in the record provided and the careful reasoning of the judge, we are
satisfied that he was correct in holding that the appellants were promoters of the club. Indeed, we accept
that finding to accord with the totality of the circumstances that were presented to him.”
▪ The learned judge of the Court of Appeal analyzed in great detail authorities from various common law
jurisdictions to enlighten the law relating to “fiduciary”. The learned judge continued:
“In Frame v Smith (1987) 42 DLR (4th) 81, Wilson J identified, by way of guidelines only, some of the
primary characteristics of a fiduciary relationship. Her Ladyship there said (at p 99):
Yet there are common features discernible in the contexts in which fiduciary duties have been found
to exist and these common features do provide a rough and ready guide to whether or not the
imposition of a fiduciary obligation on a new relationship would be appropriate and consistent.
Relationships in which a fiduciary obligation have been imposed seem to possess three general
characteristics:
(1) the fiduciary has scope for the exercise of some discretion or power.
(2) the fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s
legal or practical interests.
(3) the beneficiary is peculiarly vulnerable to, or at the mercy of, the fiduciary holding the discretion
or power.
…
The third characteristic of relationships in which a fiduciary duty has been imposed is the element of
vulnerability. This vulnerability arises from the inability of the beneficiary (despite his or her best efforts)
to prevent the injurious exercise of the power or discretion combined with the grave inadequacy or
absence of other legal or practical remedies to redress the wrongful exercise of the discretion or power.
Because of the requirement of vulnerability of the beneficiary at the hands of the fiduciary, fiduciary
obligations are seldom present in dealings of experienced businessmen of similar bargaining strength
acting at arm’s length: …
(b) To whom was the duty owed?

… We are, as we have said, entirely in agreement with the learned judge’s finding of fact that the
appellants were promoters and that in the circumstances of this case they were fiduciaries. We are also,
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for the reasons earlier given, of the view that the duty imposed upon the appellants by law was owed by
them to the class of persons including the respondents. Accordingly, we uphold the finding of the
learned judge upon the second issue and resolve it against the appellants
The third issue: breach of duty

Having found that the appellants were fiduciaries and that they owed a duty to the respondents, the
learned judge correctly went on to consider whether there had been a breach of the duty. After an
examination of the evidence before him, he came to the conclusion that the appellants had acted in
breach of the duty owed by them. …
In my opinion, each of the defendants has an interest either as shareholder, director or employee of the companies owned
by Tengku Abdullah and General Yusoff, or the Ayala Group. When the protem committee passed the resolution on
3 June 1982 to purchase the shares in Raintree Development for RM47m, all the defendants were not in a position to
act impartially. There was no independent and intelligent judgment on the transaction to purchase the
said shares. As promoters of the club they were in a situation of confidence. I find that they were not in
a position to give disinterested protection to the club. Indeed nothing was done for the purpose of protecting the
interests of the club. The promoters failed to conduct an independent enquiry on the price of the shares. I find that there
was bias on the part of the promoters and in the circumstances, no protection was afforded to the club. (Emphasis
added.) …
▪ Gopal Sri Ram JCA, in agreement with the finding of the learned High Court judge, found that
there was fiduciary duty existing, in the given set of circumstances, between the appellants and
the respondents, and that such duty had been breached. The “appellants have none other than
themselves to blame”.
▪ In the Contracts Act 1950, the evidence of “fiduciary relation” is one of the ways to prove the
first element of undue influence, i.e., that the wrongdoer is a person who is in a position to
dominate the will of the victim. Section 16(2)(a) provides, inter alia, that “where he stands in a
fiduciary relation to the other”, he is “deemed to be in a position to dominate the will of” the
latter.
▪ Gopal Sri Ram JCA, in the instant case, went on to deal with the issue of undue influence. The
learned judge of the Court of Appeal said:
The sixth issue: Undue influence
Before entering upon a discussion of this issue, it may be appropriate to remind ourselves of the context
in which it arose.
To recall, Allied brought a separate action against the club to recover what it said was due to it under the
share acquisition agreement. The respondents resisted that action on the ground that the agreement had
been procured by undue influence. By their counterclaim, the respondents asked for a refund from Allied
of the difference between RM47m and the sum which they claimed as being the fair value of the shares.
Faced with this, Allied delivered its counterclaim asking for rescission of the share acquisition agreement.
This was done on the footing that, if the transaction had been vitiated by undue influence, there ought to
be restitutio in integrum so that the parties could return to the status quo ante. That would mean that the
members would have no club but would receive a full refund of the money paid by each of them.
The respondents resisted Allied’s counterclaim on the basis that rescission was not the appropriate
remedy in the circumstances of the present case. They argued that adjustment of the price was the
proper remedy as the object sought to be achieved was the disgorgement by Allied of money which it
was not entitled to keep. …
For present purposes we may, we think, safely confine our discussion to the doctrine of undue influence
as it operates in this country. Although much of the jurisprudence upon the subject is common
throughout the Commonwealth, it is best that we hearken to the relevant statutory provision through
which the doctrine finds expression. That provision is s 16 of the Contracts Act 1950 which (the
illustrations apart) is in the following terms:
(16)(1) A contract is said to be induced by ‘undue influence’ where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and
uses that position to obtain an unfair advantage over the other.
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(2) In particular and without prejudice to the generality of the foregoing principle, a person is
deemed to be in a position to dominate the will of another—
(a) where he holds a real or apparent authority over the other, or where he stands in a
fiduciary relation to the other; or
(b) where he makes a contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness, or mental or bodily distress.
(3)(a) Where a person who is in a position to dominate the will of another, enters into a contract
with him, and the transaction appears, on the face of it or on the evidence adduced, to be
unconscionable, the burden of proving that the contract was not induced by undue
influence shall lie upon the person in a position to dominate the will of the other.
(b) Nothing in this subsection shall affect section 111 of theEvidence Act, 1950.
It has been recognized that the section does not differ from the English law upon the subject of undue
influence. See Poosathurai v Kannappa Chettiar (1919) Times, 19 November. Decisions of English courts are
therefore a useful guide to the approach that our courts ought to adopt to the interpretation of s 16.
Much the same may be said of the decisions of the courts of those jurisdictions where the law upon the
subject of undue influence is the same as English law.
That said, we are of the view that our courts, when faced with a case of undue influence in the sphere of
the law of contract, must primarily hearken to the words which Parliament has used to introduce the
doctrine into our jurisprudence. While we may refer to the decisions of courts of those jurisdictions
where the law is akin to our own, we must therefore ultimately have regard to the words of our own
statute.
In our judgment, it would be quite wrong, and indeed wholly out of place, to decide a Malaysian case
solely by reference to English or other Commonwealth decisions. Indeed, the more recent decisions of
the English courts demonstrate that their concept of the doctrine and the relationships to which it may
be extended do not accord to the standards of our society.
Thus, in Barclays Bank plc v O’Brien & Anor [1993] 4 All ER 417 at p 431, the House of Lords expressed
its readiness to apply the doctrine to non-marital cohabitees. Lord Browne-Wilkinson, with whose
speech the other members of the House concurred, said:
I have hitherto dealt only with the position where a wife stands surety for her husband’s debts.
But in my judgment the same principles are applicable to all other cases where there is an
emotional relationship between cohabitees. The ‘tenderness’ shown by the law to married women
is not based on the marriage ceremony but reflects the underlying risk of one cohabitee exploiting
the emotional involvement and trust of the other. Now that unmarried cohabitation, whether
heterosexual or homosexual, is widespread in our society, the law should recognize this. Legal
wives are not the only group which are now exposed to the emotional pressure of cohabitation.
Therefore if, but only if, the creditor is aware that the surety is cohabiting with the principal
debtor, in my judgment the same principles should apply to them as apply to husband and wife.
The views expressed in O’Brien’s case merely reflect the law’s attempt to keep in tandem with the moral
standards of the society in which an English court functions. Our society, on the other hand, has an
entirely different set of moral standards. It would therefore be quite wrong to blindly follow all foreign
decisions if the result would facilitate moral decadence within our social structure.
Accordingly, on grounds of public policy, this court will not extend the doctrine to those non-marital
relationships alluded to by Lord Browne-Wilkinson in the passage quoted above. Our refusal to act in
such cases is based upon the policy consideration that refusing to accede to such an extension may deter
a fall in the moral standards of our society.
The right to modify principles of the common law and doctrines of equity that have their historical
origins in England to suit domestic needs of another jurisdiction has been very recently recognized by
the judicial committee of the Privy Council in Invercargill City Council v Hamlin, Privy Council Appeal No
36 of 1995, yet unreported. It is an appeal from New Zealand. Speaking in quite a different context, Lord
Lloyd of Berwick, when delivering the advice of the board, said:
But in the present case the judges in the New Zealand Court of Appeal were consciously departing
from English case law on the ground that conditions in New Zealand are different. Were they entitled
to do so? The answer must surely be ‘yes’. The ability of the common law to adapt itself to the
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differing circumstances of the countries in which it has taken root, is not a weakness, but one of its
great strengths. Were it not so, the common law would not have flourished as it has, with all the
common law countries learning from each other.
Undue influence, like all other equitable doctrines, is an extremely flexible concept. Subject to policy
considerations, the categories in which it may operate are therefore not closed. For this reason, it is
important to apply the doctrine, as housed in s 16 of the Contracts Act 1950, to varying fact patterns in a
flexible manner. This is to be done by interpreting s 16 in a broad and liberal fashion. Being a remedial
provision— in the sense that it is designed to relieve obligations—it should, in our judgment, be given a
liberal interpretation. Even in cases which are not stricto sensu contractual in nature, the section may be
resorted to by analogy. Another reason for adopting this approach to interpretation lies in the absence of
any intention on the part of Parliament to alter the doctrine or to deprive it of the flexibility it has
acquired through historical development. …
To reiterate, the proof of dominance of the will of a party to a transaction—be it a gift, a sale or
purchase or a charge upon property—by the other party to the transaction is not a sine qua non of the
doctrine of undue influence. The doctrine applies with equal force where, from the proved or admitted
facts, there is shown a relationship of confidence and an abuse of that confidence by the person in
whom it was reposed.
While we are upon the subject, we may refer to another principle that is a necessary adjunct to the
doctrine and which is often overlooked when the doctrine comes to be applied. Where a transaction is
tainted by undue influence, then it is invalid as between the parties thereto and their privies. It is also
invalid as against any other person who seeks to enforce the transaction with knowledge or notice, actual
or constructive, that it was procured by undue influence or any other vitiating element. A third party may
safely take under such a transaction and enforce it if, and only if, he is a bona fide purchaser (as opposed
to a volunteer) for value without notice (actual or constructive) of the invalidating circumstances. We may
mention in passing that the doctrine of the bona fide purchaser for value without notice finds
expression, in the context of the specific enforcement of contracts, in s 26(b) of the Specific Relief Act
1950.
In Barclays Bank plc v O’Brien & Anor [1993] 4 All ER 417, Lord Browne-Wilkinson explained the
applicable principle. The first passage in his speech appears at pp 424-425 of the report and reads as
follows:
Up to this point I have been considering the right of a claimant wife to set aside a transaction as
against the wrongdoing husband when the transaction has been procured by his undue influence.
But in surety cases the decisive question is whether the claimant wife can set aside the transaction,
not against the wrongdoing husband, but against the creditor bank. Of course, if the wrongdoing
husband is acting as agent for the creditor bank in obtaining the surety from the wife, the creditor
will be fixed with the wrongdoing of its own agent and the surety contract can be set aside as against
the creditor. Apart from this, if the creditor bank has notice, actual or constructive, of the undue
influence exercised by the husband (and consequentially of the wife’s equity to set aside the
transaction) the creditor will take subject to that equity and the wife can set aside the transaction
against the creditor (albeit a purchaser for value) as well as against the husband: see Bainbrigge v
Browne (1881) 18 Ch D 188 and Bank of Credit and Commerce International SA v Aboody [1992] 4 All ER
955 at p 980). Similarly, in cases such as the present where the wife has been induced to enter into
the transaction by the husband’s misrepresentation, her equity to set aside the transaction will be
enforceable against the creditor if either the husband was acting as the creditor’s agent or the
creditor had actual or constructive notice.
The second passage appears at pp 428-429 of the report. There, his Lordship said:
A wife who has been induced to stand as a surety for her husband’s debts by his undue influence,
misrepresentation or some other legal wrong has an equity as against him to set aside that
transaction. Under the ordinary principles of equity, her right to set aside that transaction will be
enforceable against third parties (eg against a creditor) if either the husband was acting as the third
party’s agent or the third party had actual or constructive notice of the facts giving rise to her equity.
Although there may be cases where, without artificiality, it can properly be held that the husband
was acting as the agent of the creditor in procuring the wife to stand as surety, such cases will be of
very rare occurrence. The key to the problem is to identify the circumstances in which the creditor
will be taken to have had notice of the wife’s equity to set aside the transaction.
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The doctrine of notice lies at the heart of equity. Given, that there are two innocent parties, each
enjoying rights, the earlier right prevails against the later right if the acquirer of the later right knows
of the earlier right (actual notice) or would have discovered it had he taken proper steps
(constructive notice). In particular, if the party asserting that he takes free of the earlier rights of
another knows of certain facts which put him on inquiry as to the possible existence of the rights of
that other and he fails to make such inquiry or take such other steps as are reasonable to verify
whether such earlier right does or does not exist, he will have constructive notice of the earlier right
and take subject to it. Therefore where a wife has agreed to stand surety for her husband’s debts as a
result of undue influence or misrepresentation, the creditor will take subject to the wife’s equity to
set aside the transaction if the circumstances are such as to put the creditor on inquiry as to the
circumstances in which she agreed to stand surety.
We would add that although the remarks of the learned Law Lord were made in the context of a security
transaction, they apply with equal force to all transactions which are sought to be impeached on the
ground of undue influence.
Returning to the present case, the learned judge found there existed a fiduciary relationship in the
circumstances earlier adumbrated and we have accepted his conclusions upon this issue. Mr Anantham,
however, argues that that finding was made against the appellants in the first appeal and not against
Allied. The latter is a separate corporate personality. He says that the existence of the fiduciary
relationship as declared by the learned judge to exist did not, therefore, extend to Allied.
The response by counsel necessitates a recall of what the learned judge said in this context. Although we
have quoted him in extenso, it is best that we reproduce the relevant passages to remind ourselves of
what he said (at p 24):
Tengku Abdullah and General Yusoff who are the first and second defendants in the first suit,
respectively, are the principal figures in this case. They are the controlling shareholders and directors of Allied
Capital, Raintree Development and Cosmopleks. …
In my opinion each of the defendants has an interest either as shareholder, director or employee of
the companies owned by Tengku Abdullah and General Yusoff, or the Ayala Group. When the protem
committee passed the resolution on 3 June 1982 to purchase the shares in Raintree Development
for RM47m, all the defendants were not in a position to act impartially. There was no independent and
intelligent judgment on the transaction to purchase the said shares. (Emphasis added.)
It is implicit from the foregoing passages that the learned judge found the first and second appellants to
be the de facto controllers of Allied. In reality, they were the puppet-masters. Allied was the puppet. The
evidence led at the trial certainly warrants the conclusion formed by the judge and, no doubt for that
reason, it has not been attacked in any earnest before us. Any such attack will, of course, be repulsed by
the undisputed facts and by the inference to be drawn from the conspicuous absence of these two
gentlemen from the witness box.
Now the findings against Allied may be justified upon two legal bases. The first is that the relationship
between the first and second appellants and Allied was such that their knowledge may be safely said to
be that of Allied. The second is that they are to be regarded as Allied’s alter ego so that the corporate
facade, upon which counsel has relied in argument, may be pierced to reveal the true picture. Either basis
is reasonably supported by the facts and the justice of the case. …
In our judgment, the conclusion that Allied had obtained an advantage through undue influence, in the
sense we have earlier discussed, may be founded upon the general rules of attribution. This is not one of
those exceptional cases adverted to by Lord Hoffmann in his speech.
To elaborate, there is a specific finding by the learned judge (which we have upheld) that the first and
second appellants (among others) were fiduciaries and that they abused the confidence placed in them
because they did not seek independent advice in respect of a transaction under which they stood to reap
huge profits. Additionally, there is the fact that Allied was involved in the whole transaction through
these two appellants as its de facto controllers. Their abuse of the confidence reposed in them, in the
circumstances of this case, is to be equated to an abuse of confidence by Allied. The learned judge’s
conclusions against Allied are therefore sufficiently borne out by the law as applied to the emerging fact
pattern.
Upon the second basis, there is, as we have observed, a sufficient factual foundation which, in justice,
warrants the piercing of Allied’s corporate veil. Although he did not say it in so many words, this is
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27
precisely what the learned judge did. And we find ample justification upon principle and authority for
this. …
Mr Anantham complains that the judge did not state the legal basis for holding Allied to have exerted
undue influence. While that may well be so, it does not provide any justification for this court to interfere
with the conclusions arrived at by the learned judge. We have, in the course of this judgment,
demonstrated that there is ample legal basis in support of the learned judge’s conclusions. This is not a
case where there was absent any legal basis for the conclusions arrived at by the learned judge. Rather, it
is a case where there exists such a basis, without the learned judge having to discuss it at any great length.
For these reasons, we are entirely in agreement with the conclusions of the learned judge—legal and
factual—upon the issue of undue influence. With that, we now turn to the fourth, fifth and seventh
issues which may be conveniently dealt with together.”
Public Finance Bhd v Lee Bee Rubber Factory Sdn Bhd & Ors [1994] 1 MLJ 495 (HC)
▪ The plaintiff company is and was a licensed finance company carrying on the business of financing leasing
transactions. The first defendant is and was an incorporated company at Bedong, Kedah (‘the defendant
company’). The second and the third defendants are husband and wife and were directors of the defendant
company. The plaintiff company and the defendant company entered into a lease agreement dated 17
August 1982, whereby the plaintiff company had agreed to lease to the defendant company five units of
equipment. The agreement provided, inter alia, for the payment of a deposit of RM56,840 and payment of
the balance sum by 36 monthly rent instalments of RM8,779 each.
▪ In consideration of the plaintiff company agreeing to lease the equipment to the defendant company and
entering into the lease agreement, the second and the third defendants had by a guarantee agreement in
writing dated 17 August 1982 (‘the guarantee’) agreed to undertake and guarantee the payment by the
defendant company under the terms and conditions of the lease agreement and the due performance and
observance by the defendant company of the stipulations and conditions contained therein.
▪ The defendant company had breached the lease agreement when it defaulted paying the rent instalments
after payment of 14 instalments; and had had not kept the equipment at the address as stipulated and
agreed in the agreement. The plaintiff company had given due notice to the defendant company and made
repeated demands for the return of the equipment or for payment of the outstanding balance sum of
RM249,964.40. The defendant company, however, had failed to comply with the same.
▪ The plaintiff company contended that by reason of the breaches, the defendant company had repudiated
the lease agreement. By a letter dated 30 November 1983, the plaintiff company had accepted the
defendant company’s alleged repudiation and terminated the lease agreement with immediate effect.
▪ The plaintiff company brought an action against the defendant company, the second and third defendants,
jointly and severally to claim the balance sum of RM249,964.40 together with interest at the rate of 2%
per month and costs.
▪ Judgment in default had been entered by the plaintiff company against the defendants. The second and
third defendants made an application to set aside the default judgment. The High Court dismissed the
objection that the default judgment in this case was not regularly obtained.
▪ The second and third defendants had alleged that, at the material time, they were unaware that the
document dated 17 August 1982 was a guarantee and that the nature of the document was not fully
explained to them. They had alleged that they were mistaken in thinking that what they had signed was the
lease agreement. In the alternative, they had also alleged that the plaintiff company, by its silence in not
drawing their attention to the fact that the document concerned was a guarantee, had innocently
misrepresented its nature.
▪ On the issue of undue influence, the third defendant, alleged in addition that her husband, the second
defendant, had exerted undue influence over her and that she had signed the guarantee merely in
compliance with his wishes.
▪ The High Court held that there is nothing unusual in a wife showing her affection for her husband in a
tangible way by guaranteeing repayment of his debts. The affection and confidence inherent in the marital
state does not, ipso facto, amount to undue influence in the eyes of the law. The presumption of undue
influence, therefore, did not arise.
▪ Edgar Joseph Jr SCJ dismissed the application and said:
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“Other considerations relevant to this part of the case are these. The guarantee and the lease agreement
were comprised in separate documents with materially different clauses. The second and third defendants
were, at all material times, directors of the defendant company. Indeed, the result of search of the
records kept at the Registry of Companies as to directors’ shareholdings, exhibited to the said affidavit,
shows that at all material times, of the total number of shares of 800,002 in the defendant company
which had been taken up, the second defendant was a majority shareholder with 524,001 shares to his
name, whilst the third defendant held 64,000 shares.
It can therefore be reasonably inferred from these facts that the second and third defendants, who had a
real stake in the defendant company, were persons possessing business acumen and must therefore have
understood the nature and effect of the guarantee. (See, eg Bank of China v Chia Sook Lan, Maria [1976] 1
MLJ 41, at p 45.)
In other words, as directors and shareholders of the defendant company, it was their duty to know the
nature and effect of the documents they were signing and thus it is impossible to give the slightest
credence to their allegation that they were mistaken about the contents of the guarantee or that there had
been any misrepresentation, albeit innocent, on the part of the plaintiff company. …
Certain considerations relevant to the third defendant’s plea of undue influence may now be dealt with
shortly.
There is ample authority to show that certain classes of relationship by themselves and nothing more do
give rise to a presumption of undue influence; examples are: parent and child (see Phillips v Hutchinson
[1946] VLR 270), a person in loco parentis and his charge (see Bank of New South Wales v Rogers (1941) 65
CLR 42), guardian and ward (see Taylor v Johnson (1882) 19 Ch D 603), doctor and patient (see Radcliffe v
Price (1902) 18 TLR 446), solicitor and client (see Westmelton (Vic) Pty Ltd v Archer [1982] VR 305),
spiritual adviser and a member of his congregation (see Allcard v Skinner (1887) 36 Ch D 145), a man and
his fiancee (see Yerkey v Jones (1939) 63 CLR 649 at p 675) and perhaps trustee and beneficiary (see
Wheeler v Sargeant (1893) 69 LT 181).
Most people would think that a conspicuous omission from the list aforesaid is that of husband and wife.
However, the case of Yerkey v Jones (1939) 63 CLR 649, per Dixon J at p 675, shows that the approach of
the courts is that there is nothing unusual in a wife showing her affection for her husband in a tangible
way, as for example, by guaranteeing repayment of his debts. And, so, it is said, that the affection and
confidence inherent in the marital state does not, ipso facto, amount to undue influence in the eyes of
the law. (See Colonial Bank of A/asia v Kerr (1889) 15 VLR 74.)
I could not therefore hold, having regard to the authorities cited above, that simply by reason of the
relationship of husband and wife existing between the second and third defendants, a presumption of
undue influence arose.
There were other aspects to the plea of undue influence which I had also considered in deciding this
application.
It was nowhere even alleged in the affidavits filed in support of this application or by way of reply to the
affidavits in opposition, that the plaintiff company had exerted undue influence on the third defendant
or that the plaintiff company was aware of any undue influence allegedly exerted by the second
defendant over his wife, the third defendant, or that the plaintiff company had entrusted a third party, eg
the second defendant, to procure the execution of the guarantee.
In the case of Shephard v Midland Bank Plc [1987] 2 FLR 175, Neill LJ enunciated the relevant principles as
follows:
The court will not enforce a transaction at the suit of a creditor if it can be shown that the
creditor entrusted the task of obtaining the alleged [guarantor’s] signature to the relevant
document to someone who was, to the knowledge of the creditor, in a position to
influence the [guarantor] and who procured the signature of the [guarantor] by means of
undue influence or by means of fraudulent misrepresentation.
I was therefore completely convinced that at all material times, the second and third defendants knew
and approved of the contents of the guarantee and that upon the affidavit evidence, the plea of undue
influence was not available to the third defendant. …
In all the circumstances, I reversed the order I had earlier made in chambers, dismissed the application to
set aside the judgment in default of defence, and affirmed the judgment in default of defence entered
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against all the defendants. The second and third defendants were also ordered to pay the costs of this
application.”
▪
Note:
1. Section 16 of the Contracts Act 1950 was not referred to by the court to see (a) whether the second
defendant (the husband) was “in a position to dominate the will” of the third defendant (the wife) and
“uses that position to obtain an unfair advantage over” her.
2. There was nothing to show that the third defendant had argued the case along that line.
3. The court relied totally on the common law presumed undue influence, and found that the relation
between husband and wife does not come under the special relationship cases which as a matter of
law could invoke the presumption, classified as Class 2A presumed undue influence.
4. Ignoring the requirements of our law may render a judgment per incuriam.
Rosli bin Darus v Mansor bin Hj Saad & Anor [2001] 4 MLJ 206
▪ The plaintiff was the registered proprietor of a land. He transferred the said land to the defendants, his
uncles, in equal share. He claimed that the transfer was without any consideration and was induced by the
undue influence of the defendants.
▪ The plaintiff pleaded that after the death of his mother who was the defendants’ elder sister, the defendants
had induced him to believe that they would hold the land as trustees for him and that it would be in his
interest to do so.
▪ The plaintiff further pleaded that he was in a state of mental anguish by reason of his mother’s death and
the defendants took advantage of his youth and ignorance to execute, without legal counsel and without
being told by the defendants of the purport and effect of his act, a transfer of the land. After the transfer of
the land, the defendants threatened to evict the plaintiff from the land.
▪ The plaintiff brought an action for a declaration that the transfer by the plaintiff to the defendants of his
1/3 undivided share of land in Pulau Pinang was null and void.
▪ The defendants contended that the plaintiff was the adopted child of their elder sister. They are the
plaintiff’s uncles. They, their elder sister and husband lived in one house. The plaintiff was adopted by
their elder sister and husband when he was two days old. Since then, they accepted the plaintiff as a
member of the family.
▪ The first defendant and his wife organized the marriage of the plaintiff. The plaintiff wanted to transfer the
land to the defendants. The plaintiff did not raise any complaint or objection when he executed and after
he executed the transfer. He was 24 years old when he executed the transfer, and he, therefore, knew the
purport and effect of his act. The defendant pleaded that the plaintiff’s notice demanding a re-transfer of
the land was defective and invalid.
▪ The High Court found that the first defendant stood in loco parentis relation to the plaintiff, since the latter
lost his father when he was 11 and his mother when he was 22. The first defendant would presumably, had
considerable clout and authority over the plaintiff, as the first defendant himself admitted that the plaintiff
had always obeyed him. At the time of the transfer, the plaintiff was unemployed and without parents and
was totally dependent on the first defendant for his daily subsistence. Given the condition of the parties, it
would appear only that the first defendant could dominate the will of the plaintiff, if he wanted to. It is fair
to presume that there was a relationship in which the first defendant was in position to exert undue
influence or ‘dominion’ over the plaintiff, a relationship in which confidence was necessarily reposed by
the plaintiff and influence which naturally grew out of that confidence was possessed by the first
defendant.
That being the case, the onus was on the defendants to prove the absence of undue influence, to show that
the transfer was perfectly fair and reasonable, and that they had not taken advantage of the first
defendant’s position, and to rebut the presumption that the transfer was procured by the exertion of undue
influence.
The Court further observed that the impugned transfer was wholly disadvantageous to the plaintiff, but
“[s]till, the defendants would be permitted to retain the advantage obtained from the plaintiff, if they could
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prove good faith.”

▪ Jeffrey Tan J said:
“Indeed, where a complainant shows, ‘in the first instance, that there was a relationship of trust and
confidence between complainant and wrongdoer of such nature that it is fair to presume that the wrongdoer
abused that relationship in procuring the complainant to enter into the impugned transaction’, the
complainant need not ‘produce evidence that actual undue influence was exerted in relation to the particular
transaction … once a confidential relationship has been proved, the burden then shifts to the wrongdoer to
prove that the complainant entered into the impugned transaction freely …’ (Bank of Credit and Commerce
International SA v Aboody [1990] QB 923 and cited with approval in Barclays Bank plc v O’Brien [1994] 1 AC
180; see also Southern Bank Bhd v Abdul Raof Rakinan & Anor [2001] 1 CLJ 94). ‘Where on account of such
relationship one of them is in a position to exert undue influence or ‘dominion’ over the other and takes any
benefit from him, the burden of proving good faith of the transaction is thrown upon the dominant party, ie
the party who is in a position of active confidence … . When the party complaining show such relation, the
law presumes everything against the transaction and the onus is cast upon the person holding the position of
confidence or trust to show that the transaction is perfectly fair and reasonable, that no advantage has been
taken of his position and that no information which should have been communicated has been withheld’
(Sarkar on Evidence (14th Ed) at p 1463).
The principle on which the court acts in relieving against transactions on the ground of inequality of
footing between the parties is not confined to cases where a fiduciary relation can be shown to exist, but
extends to all the varieties of relations in which dominion may be exercised by one man over another,
and applies to every case where influence is acquired and abused, or where confidence is reposed and
betrayed (see Huguenin v Baseley 14 Ves 273, 286; Kerr 182). If it is established that the defendant was in a
position to dominate his will and that the transaction was unconscionable the burden of proof of
absence of undue influence rests upon the defendant (see Ballo v Parasam AIR 1972 HP 33, Sarkar at p
1464).
As for the ramification, ‘when consent to an agreement is caused by undue influence, the agreement is a
contract voidable at the option of the party whose consent was so caused. Any such contract may be set
aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder,
upon such terms and conditions as to the court may seem just’ (s 20 of the Act). …
It all comes to this. In order to succeed, the plaintiff must show actual undue influence, that is if he
cannot show in the first instance that there was a relationship of such nature that it is fair to presume
that the defendants abused that relationship in procuring the plaintiff to transfer the land.
Now for whatever reason, the plaintiff devoted the greater part of his testimony to the actual undue
influence that was [allegedly] exerted by the first defendant. The plaintiff said very little on his
relationship with the defendants—he only testified that the defendants are his uncles, that for about
three to four years after his mother passed away, the first defendant provided him food, and, that the
first defendant borne the expenses of his marriage. The plaintiff only gave an inkling of the influence of
the first defendant—the plaintiff testified that if anyone else other than the first defendant, had asked
him, he would not have executed the transfer.
Surprisingly, it was the first defendant who rendered an eloquent account of the relationship between the
plaintiff and first defendant. There was no dispute that the plaintiff was 11 years old when his father died
in 1975. Against that backdrop, the first defendant gave the following account of his relationship with
the plaintiff. After the death of the plaintiff’s father, he shouldered the expenses of the plaintiff and his
mother until the plaintiff was an adult. All in all, he supported the plaintiff for 18 years. After the death
of the plaintiff’s father, he provided food, clothing and expenses to the plaintiff. After the death of the
plaintiff’s mother and until 1990, he continued his role as guardian of the plaintiff. He played the role as
the plaintiff’s father. The plaintiff always obeyed his instructions. He would reprimand the plaintiff, if he
(plaintiff) misbehaved. The first defendant further testified, that the plaintiff, since the death of his
parents, always listened to his advice and instructions.
There should be no doubt therefore that it is the first defendant’s case, that in relation to the plaintiff—a
young man who lost his father when he was 11 and his mother when he was 22—he was in loco parentis
or had put himself in loco parentis. Then presumably, the first defendant would have had considerable
clout and authority over the plaintiff—the first defendant himself said that the plaintiff always obeyed
him. Indeed, it would appear that the first defendant would have had more than just mere moral
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authority, for at the material time of the transfer in 1987, the plaintiff was unemployed and without
parents and was totally dependent on the first defendant for his daily subsistence. Given the condition of
the parties from the facts of the case, it would appear only that the first defendant could dominate the
will of the plaintiff, if he wanted to. Indeed from the facts of the case, it is fair to presume that there was
a relationship in which the first defendant was in position to exert undue influence or ‘dominion’ over
the plaintiff, a relationship in which confidence was necessarily reposed by the plaintiff and influence
which naturally grew out of that confidence was possessed by the first defendant, a relationship in which
the law presumes everything against the benefit taken by the defendants from the plaintiff. That being
the case, the onus was on the defendants to prove the absence of undue influence, to show that the
transfer was perfectly fair and reasonable, and that they had not taken advantage of the first defendant’s
position, and to rebut the presumption that the transfer was procured by the exertion of undue influence
and was not given with due freedom and deliberation.
That the impugned transfer was wholly disadvantageous to the plaintiff could not be denied. Still, the
defendants would be permitted to retain the advantage obtained from the plaintiff, if they could prove
good faith. The all important question is whether the defendants had proved good faith and or rebutted
the presumption of undue influence. The plaintiff testified that the first defendant told him, when he
asked the first defendant why the land office asked him (plaintiff) if he (plaintiff) was agreeable to give
the land to the defendants, that he (plaintiff) could not ‘take’ the land as the land was the property of the
estate of Tok Wan Abu Bakar. Pertinently, the consideration stated in the memorandum of transfer
(AB1-AB4) for the transfer—‘memberi balik 1/3 bahagian ini kepada penerima-penerima sah ...’ —is not
at all inconsistent with the plaintiff’s version that he transferred the land as the first defendant had said to
him that he could not inherit the property of Tok Wan Abu Bakar. Indeed, it would well be difficult to
argue, if it could be argued at all, that the plaintiff’s version is not reflected in the consideration stated in
the memorandum of transfer. …
… Definitely the defendants had not shown that the transfer was fair and reasonable, nor rebutted the
presumption that the transfer was procured by the exertion of undue influence.
Note:
(1) The Court observed that the first defendant was in loco parentis to the plaintiff. Therefore, the first
defendant was in a position to dominate the will of the plaintiff. The first element is, therefore proved. The
question is: under which limb of section 16(b) should in loco parentis be placed—“apparent or real
authority” or “fiduciary relation”?
(2) The Court, in this case, did not insist on the second element to be established—“the transaction
appears, on the face of it or on the evidence adduced, to be unconscionable”— before passing the onus on
to the defendants to prove otherwise. It seems that, when the domination element has been established (by
in loco parentis relation), following English law, presumed undue influence of Class 2A was made out.
Section 16(3), however, requires “unconscionable bargain” to be shown along with the domination of the
will. In this case, nevertheless, the “disadvantageous” factor was mentioned in passing, subsequently, after
the onus was shifted to the defendants.
(a) Does this come with the requirements of section 16?
(b) Does section 16 provide for “presumed undue influence” approach as developed under the English
law?
(3) The Court said that “[s]till, the defendants would be permitted to retain the advantage obtained from
the plaintiff, if they could prove good faith.”
This only happened where the defendants contended that the transfer was done on good faith. Section
16(3)(b) states “Nothing in this subsection shall affect s 111 of the Evidence Act 1950.”
Jeffrey Tan J said:
“Section 111 of the Evidence Act 1950 (‘the EA’) which is to be read with s 16 of the Act 1950 (see Saad
bin Marwi v Chan Hwan Hua & Anor [2001] 2 AMR 2010 at p 2019) provides:
“where there is a question as to the good faith of a transaction between parties, one of whom
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stands to the other in a position of active confidence, the burden of proving the good faith of the
transaction is on the party who is in a position of active confidence.”
… the burden of proving the good faith of the transaction is on the party within the meaning of s 16(2)(a)
or (b) of the Act.”
Is it “s 16(2)(a) or (b)”, or “s 16(3)(a) or (b)”?
Cases where the Malaysian Courts have classified the ‘special relationship’ between a solicitor and client as
fiduciary (section 16(2) of the Contracts Act 1950).
Ong Ban Chai & Ors v Seah Siang Mong[1998] 3 MLJ 346 (CA)
(See also Seah Siang Mong v Ong Ban Chai & Anor[1998] 1 CLJ Supp 295 (HC))
▪ An agreement of sale in respect of a land in Johor Bahru and an irrevocable power of attorney (‘the 1980
agreement’) was signed between the first appellant, Ong Ban Chai, and the respondent, Seah Siang Mong,
before a solicitor, Mr Chew Whye Jee. The respondent and his brother, Seah Swee Mong, inherited three
lots of land upon the death of their mother, each of them holding one half undivided share.
▪ The respondent sold his half share to the first appellant at a selling price of RM409,735. No money was
paid upon the execution of the agreement as the respondent was then indebted to the first appellant in the
sum of RM61,000. Seah Swee Mong sold his undivided half share of those lots to the fourth appellant free
from encumbrances.
▪ The first appellant averred that he had given to the respondent a total sum of RM682,000 as friendly loans.
▪ The respondent contended that the first appellant had never demanded for repayment because he was
interested in the proposed 25-storey condominium project to be developed on the land, through a joint
venture company, Yang-Zhou Sdn Bhd.
▪ According to the first appellant the proposed condominium project failed because of the poor market
conditions in 1984; and that since the respondent was unable to pay his debt, he and the respondent agreed
orally to treat the friendly loans given to the respondent as a set-off against the selling price for the
respondent’s undivided half share in the said land.
▪ The respondent maintained that he had never agreed to that.
▪ On May 7, 1986, armed with the irrevocable power of attorney given by the respondent to him, the first
appellant transferred the respondent’s half share to himself and later sold the land, and also Seah Swee
Mong’s land through a power of attorney given by him to the first appellant, to the second and third
appellants free from all encumbrances at the total price of RM2,950,101.
▪ Seah Swee Mong received his full share of the purchase price in the sum of RM1,225,050.50.
▪ On 13 April 1990, the respondent’s solicitors sent a letter to the solicitors for the second and third
appellants, giving notice of intended proceedings to be taken; and on 5 May 1990, the respondent entered a
private caveat against the said land. On 25 November 1991, the second and third appellants paid the
balance of the purchase price to the first appellant.
▪ The issues before the court, inter alia, were on principally fraud, and also undue influence.
▪ On undue influence, the respondent accused the first appellant of exerting undue influence on him.
▪ The Court of Appeal observed that there was sufficient evidence to support the trial judge’s findings of
undue influence and breach of trust committed by the first appellant against the respondent. The Court of
Appeal found no reason to interfere with those findings.
▪ The High Court, earlier, held that the 1980 agreement was procured by undue influence of Ong Ban Chai
(‘OBC’ or ‘the first appellant’). The solicitor-client relationship that existed between the plaintiff and OBC
makes their relationship a fiduciary relationship and pursuant to s. 16(3)(a) of the Contracts Act 1950, the
burden of proving that the 1980 agreement/PA was not induced by undue influence was on OBC. OBC
had not discharged that burden.
▪ At the High Court, Mohd Ghazali J in Seah Siang Mong v Ong Ban Chai & Anor [1998] 1 CLJ Supp 295,
said:
“Was the 1980 agreement/PA procured by undue influence under the above circumstances? I would think
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so. Section 16(1) of the Contracts Act reads:

(1) A contract is said to be induced by “undue influence” where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and uses that
position to obtain an unfair advantage over the other.
Section 16(2)(a) provides, inter alia, a person is deemed to be in a position to dominate the will of another
where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the
other, and s 16(3)(a) reads:
Where a person who is in a position to dominate the will of another, enters into a contract with him,
and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the
burden of proving that the contract was not induced by undue influence shall lie upon the person in a
position to dominate the will of the other.
In Tara Rajaratnam v Datuk Jagindar Singh & Ors [1983] 2 MLJ 127 at p. 136 Abdul Razak J said:
A contract is said to be induced by undue influence where the relation between the parties is such that
one of the parties is in a position to dominate the will of the other and to use that position to obtain an
unfair advantage over the other (section 16(1) Contracts Act). One is deemed to be in a position to
dominate the will of another where he holds a real or apparent authority over the other or where he
stands in a fiduciary relation to the other. The relationship of solicitor and client is regarded in equity as
a fiduciary relationship, and the rule of equity that a transaction inter vivos is presumed to have been
procured by undue influence until the contrary is shown applies to transactions between a solicitor and
his client and accordingly the question in each case is not merely whether the client understood but
rather how his intention was procured. (Halsbury’s 3rd edn. vol. 26, para. 118). Section 16(3)(a) of the
Contracts Act says that where a person in a position to dominate the will of another, enters into a
contract with him and the transaction appears on the face of it or on the evidence adduced to be
unconscionable the burden of proving that the contract was not induced by undue influence shall lie
upon the person in a position to dominate the will of the other.
I would think that the solicitor-client relationship that existed between the plaintiff and OBC makes their
relationship a fiduciary relationship and pursuant to s. 16(3)(a) of the Contracts Act , the burden of proving
that the 1980 agreement/PA was not induced by undue influence was on OBC. I find that OBC had not
discharged that burden and his admission that he failed to advise the plaintiff to obtain independent legal
advice is an admission of his failure to discharge the burden. The evidence had also shown that a confidential
relationship existed between the plaintiff and OBC. Their relationship went beyond the normal solicitor-
client relationship, e.g., gambling was one of their hobbies and they shared their winnings and losses—OBC
was even willing to lend money to the plaintiff for the latter to settle the monthly instalments towards his
housing loan. The plaintiff also habitually borrowed money from OBC and acknowledged these “friendly
loans” by signing debt notes. There is however no evidence to show that OBC demanded their repayments
notwithstanding that out of approximately 83 debt notes which were introduced at the trial, 66 were
endorsed with the words “payable on demand”.
According to Chesire, Fifoot and Furmston’s Law of Contract Singapore and Malaysian Edition, at p. 469, where a
confidential relationship exist between the parties “... the equitable view is that undue influence must be
presumed, for the fact that confidence is reposed in one party either endows him with exceptional authority
over the other or imposes upon him the duty to give disinterested advice. The possibility that he may put his
own interest uppermost is so obvious that he comes under a duty to prove that he has not abused his
position. Whether a confidential relationship exists or not, the question is always the same—was undue
influence used to procure the contract or gift? But the burden of proof is different. If B seeks to avoid a
contract with A, then in the absence of any confidential relationship, the entire onus is on B to prove undue
influence, but if he proves the existence of such a relationship, the onus is on A to prove that undue
influence was not used. A must rebut the presumption of undue pressure.” This equitable view seems to be
in line with s 16 of the Contracts Act discussed earlier. I am of the view that a special relationship that can
raise a presumption in favour of undue influence include that of solicitor and client.
In the instant case, OBC was a party to the 1980 agreement/PA and yet did not advise the plaintiff to obtain
independent legal advice. The said Chew Whye Jee (DW2) merely attested their signatures and
notwithstanding he certified therein that he explained the contents of the document to the plaintiff, that
cannot at all amount to independent advice—DW2 himself gave evidence that he was not acting for the
plaintiff for that matter. Furthermore the evidence showed that the plaintiff, with respect, is not a highly
educated person—he left secondary school after completing only form four. He has not even been gainfully
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employed for quite a number of years. It is clear that he was not represented by an advocate and solicitor and
did not have the benefit of independent advice when he executed the 1980 agreement/PA whereas the
opposite party was himself an advocate and solicitor which to me, appear to be unconscionable under the
circumstances. Where there is a conflict of interest situation wherein one of the parties is unrepresented,
which was the position in the instant case, the advocate and solicitor acting for the other party should advise
the unrepresented party to be separately represented. In Letchemy Arumugan v N Annamalay [1982] 2 MLJ 198
the plaintiff, as the landowner and who did not have the benefit of an advocate and solicitor to represent her
when she entered into a sale and purchase agreement with the defendant, had sought to prove that the
defendant with the aid of his advocate and solicitor had taken unfair advantage of her ignorance. The
defendant had fraudulently misrepresented to her that she had to sign some documents for the loan she took
from him and the discharge of the charge. She executed these documents not knowing she was in fact
signing a sale agreement relating to her land and three other agreements for the purchase of 3 sub-lots in her
own land. The defendant, however, contended that the documents in question were properly witnessed by
his solicitor who had explained them to the plaintiff. In allowing the claim the learned Judicial Commissioner
said (at p. 201):
Where a party, especially an ignorant or illiterate one, is unrepresented by an advocate and solicitor in a
transaction and the opposite party is represented by one, it is the duty of the advocate and solicitor to
explain the terms and conditions of the contract and the legal consequences thereof fully and frankly to
the unrepresented party and ensure that this unrepresented party understands the terms and conditions
and legal consequences fully, so that neither of the contracting parties has any unfair advantage over the
other. Where there is a conflict of interest, as in this case, the advocate and solicitor should advise the
plaintiff to be separately represented. The advocate and solicitor must at all times maintain his
professional ethics, honesty, integrity and independence. He should never abuse his special position and
the confidence reposed in him if he is not maintain (sic) the public respect for and confidence in the
legal profession.
Although the facts were slightly different in that case, the situation in the instant case is even worse. What
has been said above by the learned Judicial Commissioner is equally applicable here and even more so when
the opposite party himself is an advocate and solicitor. OBC was without doubt a very interested party in the
transaction and was representing himself whilst DW2 never claimed to be representing the plaintiff. For the
above reasons and by virtue that there is ample evidence to show that a confidential and special relationship
existed between the plaintiff and OBC, I would agree with the contention forwarded by the plaintiff’s
counsel that undue influence was exercised on the plaintiff by OBC.”
▪ On appeal to the Court Appeal, Mokhtar Sidin JCA, said:
“There are no express provisions in the 1980 agreement to authorize the first appellant to deduct the
purchase price from or set it off against the debt owing by the respondent to the first appellant. Without
any proper document to set off the purchase price against the friendly loans to the respondent, the first
appellant was not entitled to use the power of attorney to transfer the respondent’s undivided half share
into his own name. Further, there is no evidence to show that both the first appellant and the respondent
had subsequently rectified the overt act. The two letters of 20 March 1990, in which the first appellant
and the respondent agreed to the retransfer for valuable consideration of the said share, in our opinion,
cannot be construed as documents of rectification. They do not absolve the first appellant from his
wrongful act as nothing came out of these two letters. The first appellant is a practising advocate and
solicitor who should know his duties and obligations. By his act, he had abused the trust and confidence
reposed in him as an advocate and solicitor by the respondent.
We respectfully are unable to accept the rather persuasive arguments of Mr Wong Kim Fatt, learned
counsel for the first appellant, advanced by him in his oral and written submissions on behalf of the first
appellant because we could not find anything in the submissions to justify the wrongful act of the first
appellant. Though Mr Chew (the solicitor) gave evidence that he had explained the terms and conditions
of the 1980 agreement to the respondent before he signed it, the fact remains that at the material time he
had no independent solicitor to advise and act for him in the transaction. It is common ground that Mr
Chew never acted as the respondent’s solicitor. As the first appellant was an interested party and there
was a conflict of interest, he should have advised the respondent and insisted that the latter be
represented by his own solicitor, so that any fraudulent act or improper conduct could be avoided in the
best interest of both the contracting parties.
The learned trial judge was, on the evidence, right in law in finding fraud against the first appellant. We
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35
agree with the observations of the learned judicial commissioner cited by the learned judge on the
professional conduct of advocates and solicitors in Letchemy Arumugan v N Annamalay [1982] 2 MLJ 198
at p 201: … [The learned Judge of the Court of Appeal quoted the same passage as cited by the learned
High Court judge above and continued:]
There is sufficient evidence to support the learned judge’s findings of undue influence and breach of
trust committed by the first appellant against the respondent. We see no reason to interfere with those
findings.”
Cases where the Malaysian Courts have classified them under ‘Class 2B’ presumed undue influence
Southern Bank Bhd v Abdul Raof bin Rakinan & Anor [2000] 4 MLJ 719 (HC)
▪ The plaintiff had granted an overdraft facility to the first defendant. The second defendant (wife of the first
defendant) executed with the plaintiff a guarantee to indemnify and make repayments on all advances
made to the first defendant by the plaintiff including all interest, commission and banking charges, in
consideration of the facility granted to her husband.
▪ The plaintiff sued the first defendant for RM32,722.33 owed under the facility together with interests and
costs.
▪ The second defendant was sued as a guarantor.
▪ On November 3, 1997, the plaintiff obtained judgment in default of appearance against the first defendant.
▪ The second defendant had put in a defence that she had signed it under the ‘undue influence’ of her
husband, the first defendant.
▪ The plaintiff then filed an application for summary judgment against the second defendant, inter alia,
claiming that the judgment in default against her husband appear to be binding and conclusive against her
as to the outstanding sum owed by her to the plaintiff. The Sessions Court judge dismissed the application.
The plaintiff appealed.
▪ The High Court dismissed the appeal there were triable issues in this case. It was held that there is no
presumption of undue influence between husband and wife; however, where a wife stood surety for her
husband’s debt by his undue influence, she has an equity as against him to set aside the transaction. The
right of a wife to set aside the transaction will be enforceable against a third party creditor in the case
where the husband was acting as the third party’s agent or the third party had actual or constructive notice
of the facts giving rise to her equity. There were triable issues as to whether the bank was put on inquiry
and would have constructive notice of the wife’s rights and whether the bank took reasonable steps to
ensure that the contract to stand surety had been properly obtained.
▪ KC Vohrah J, in his decision, said:
“The second defendant’s defence is that she had signed the guarantee under the undue influence of the
first defendant who was her husband. She sets out the particulars of undue influence in paras 4 to 7 of
her defence and raises them in paras 6 to 12 of her affidavit in reply opposing the O 26A application.
Section 16 of the Contracts Act 1950 is the provision dealing with undue influence. And the cases are
clear that there is no presumption of undue influence between husband and wife. As was observed in
Public Finance Bhd v Lee Bee Rubber Factory Sdn Bhd & Ors[1994] 1 MLJ 495 by Edgar Joseph Jr SCJ (sitting
as a High Court judge) at p 505:
‘Certain considerations relevant to the third defendant’s plea of undue influence may now be dealt
with shortly.
There is ample authority to show that certain classes of relationship by themselves and nothing
more do give rise to a presumption of undue influence; examples are: parent and child (see Phillips
v Hutchinson[1946] VLR 270), a person in loco parentis and his charge (see Bank of New South Wales
v Rogers [1941] 65 CLR 42), guardian and ward (see Taylor v Johnson (1882) 19 Ch D 603), doctor
and patient (see Radcliffe v Price (1902) 18 TLR 446), solicitor and client (see Westmelton (Vic) Pty Ltd
v Archer [1982] VR 305), spiritual adviser and a member of his congregation (see Allcard v
Skinner(1887) 36 Ch D 145), a man and his fiancee (see Yerkey v Jones [1939] 63 CLR 649 at p 675)
and perhaps trustee and beneficiary (see Wheeler v Sargeant (1893) 69 LT 181).
Most people would think that a conspicuous omission from the list aforesaid is that of husband
and wife. However, the case of Yerkey v Jones, per Dixon J at p 675, shows that the approach of the
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courts is that there is nothing unusual in a wife showing her affection for her husband in a
tangible way, as for example, by guaranteeing repayment of his debts. And, so, it is said, that the
affection and confidence inherent in the marital state does not, ipso facto, amount to undue
influence in the eyes of the law. (See Colonial Bank of Alasia v Kerr (1889) 15 VLR 74).
I could not therefore hold, having regard to the authorities cited above, that simply by reason of
the relationship of husband and wife existing between the second and third defendants, a
presumption of undue influence arose.’
However, where a wife has been induced to stand surety for her husband’s debt by his undue influence,
she has an equity as against him to set aside the transaction: Barclays Bank plc v O’Brien [1994] 1 AC 180.
But first there is need to set out the analysis of Lord Browne-Wilkinson on the law of undue influence, at
p 190:
Undue influence
A person who has been induced to enter into a transaction by the undue influence of another (‘the
wrongdoer’) is entitled to set that transaction aside as against the wrongdoer. Such undue influence is
either actual or presumed. In Bank of Credit and Commerce International S A v Aboody [1990] 1 QB 923,
953, the Court of Appeal helpfully adopted the following classification.
In these cases the complainant only has to show, in the first instance, that there was a relationship of
trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to
presume that the wrongdoer abused that relationship in procuring the complainant to enter into the
impugned transaction. In Class 2 cases therefore there is no need to produce evidence that actual
undue influence was exerted in relation to the particular transaction impugned once a confidential
relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant
entered into the impugned transaction freely, for example by showing that the complainant had
independent advice. Such a confidential relationship can be established in two ways, viz:
Class 2(A)
Certain relationships (for example solicitor and client, medical advisor and patient) as a matter of law
raise the presumption that undue influence has been exercised.
Class 2(B)
Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto
existence of a relationship under which the complainant generally reposed trust and confidence in the
wrongdoer, the existence of such relationship raises the presumption of undue influence. In a Class
2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will
succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust
and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue
influence or otherwise abused such trust and confidence in relation to the particular transaction
impugned.
Turning to the relationship of husband and wife with regard to dispositions of property his Lordship
continued:
As to dispositions by a wife in favour of her husband, the law for long remained in an unsettled state.
In the 19th century some judges took the view that the relationship was such that it fell into Class 2(A)
ie as a matter of law undue influence by the husband over the wife was presumed. It was not until the
decisions in Howes v Bishop (1909) 2 KB 390 and Bank of Montreal v Stuart (1911) AC 120 that it
was finally determined that the relationship of husband and wife did not as a matter of law raise a
presumption on undue influence within Class 2(A) … .
His Lordship then examined the situation where a wife may be able to demonstrate de facto that she did
leave decisions on financial matters to her husband (at p 191):
Although there is no Class 2(A) presumption of undue influence as between husband and wife, it
should be emphasized that in any particular case a wife may well be able to demonstrate that de facto
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she did leave decisions on financial affairs to her husband thereby bringing herself within Class 2(B) ie
that the relationship between husband and wife in the particular case was such that the wife reposed
confidence and trust in her husband in relation to their financial affairs and therefore undue influence
is to be presumed. Thus, in those cases which still occur where the wife relies in all financial matters
on her husband and simply does what he suggests, a presumption of undue influence within Class 2(B)
can be established solely from the proof of such trust and confidence without proof of actual undue
influence … .
His Lordship examined several cases where although there was no ‘Class 2(A)’ presumption of undue
influence the courts were more ready to find that a husband had exercised undue influence over his wife
in other cases, where the law treated married women ‘more tenderly than others’. His Lordship
continued:
‘In my judgment, this special tenderness of treatment afforded to wives by the courts is properly
attributable to two factors. First, many cases may well fall into the Class 2(B) category of undue
influence because the wife demonstrates that she placed trust and confidence in her husband in
relation to her financial affairs and therefore raises a presumption of undue influence. Second, the
sexual and emotional ties between the parties provide a ready weapon for undue influence: a
wife’s true wishes can easily be overborne because of her fear of destroying or damaging the wider
relationship between her and her husband if she opposes his wishes.
We now come to the crucial matter in our case, the right of the claimant wife against not only her
wrongdoing husband in respect of a transaction in surety case which was procured by his undue
influence but also against the creditor bank. Lord Browne-Wilkinson had this to say:
‘Up to this point I have been considering the right of a claimant wife to set aside a transaction as
against the wrongdoing when the transaction has been procured by his undue influence. But in
surety cases the decisive question is whether the claimant wife can set aside the transaction, not
against the wrongdoing husband, but against the creditor bank. Of course, if the wrongdoing
husband is acting as agent for the credit bank in obtaining the surety from the wife, the creditor
will be fixed with the wrongdoing of its own agent and the surety contract can be set aside as
against the creditor. Apart from this, if the creditor bank has notice, actual or constructive, of the
undue influence exercised by the husband (and consequentially of the wife’s equity to set aside the
transaction) the creditor will take subject to that equity and the wife can set aside the transaction
against the creditor (albeit a purchaser for value) as well as against the husband; see Bainbrigge v
Browne(1881) 18 Ch D 188 and Bank of Credit and Commerce International SA v Aboody [1990] 1 QB
923 at p 973.’
Similarly, in cases such as the present where the wife has been induced to enter into the transaction by
the husband’s misrepresentation, her equity to set aside the transaction will be enforceable against the
creditor if either the husband was acting as the creditor’s agent or the creditor had actual or
constructive notice.
… A wife who has been induced to stand as a surety for her husband’s debts by his undue influence,
misrepresentation or some other legal wrong has an equity as against him to set aside that transaction.
Under the ordinary principles of equity, her right to set aside the transaction will be enforceable
against third parties (eg against a creditor) if either the husband was acting as the third party’s agent or
the third party had actual or constructive notice of the facts giving rise to her equity. Although there
may be cases where, without artificiality, it can properly be held that the husband was acting as the
agent of the creditor in procuring the wife to stand as surety, such cases will be of very rare
occurrence. The key to the problem is to identify the circumstances in which the creditor will be taken
to have had notice of the wife’s equity to set aside the transaction.
The doctrine of notice lies at the heart of equity … Therefore where a wife has agreed to stand surety
for her husband’s debts as a result of undue influence or misrepresentation the creditor will take
subject to the wife’s equity to set aside the transaction if the circumstances are such as to put the
creditor on inquiry as to the circumstances inwhich she agreed to stand surety.
On the basis of the House of Lords case of Barclays Bank Plc and Banco Exterior Internacional v Mann & Ors
[1995] 1 All ER 936 and TSB Bank Plc v Camfield & Anor [1995] 1 All ER 951 that there are several triable
issues which arise apart from the need to demonstrate by the second defendant of a de facto existence of
a relationship under Class 2(B) mentioned in the Barclays Bank Plc’s case which gives rise to a
presumption of undue influence. The first triable issue is this—was the plaintiff, the bank, put on inquiry
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when the wife offered to stand surety for her husband’s debt which was not to her financial advantage
and which carried a substantial risk of the husband committing a legal or equitable wrong entitling the
wife to set aside the transaction? Flowing from this, that the bank should have been put on inquiry and
would have constructive notice of the wife’s rights unless the bank took reasonable steps to ensure that
the contract to stand surety had been properly obtained, the second triable issue thus is this—did the
bank take such reasonable steps?
The third triable issue relates to the contention of the second defendant that the plaintiff had entrusted
the first defendant with the duty to obtain the consent of the second defendant to execute the guarantee.
From the nature of the allegations of undue influence pleaded by the second defendant in her defence
and raised in her affidavit it appears that in gist she says that because of her pregnancy and her desire to
have matrimonial harmony—there were continuous quarrels and also scoldings and assaults by the first
defendant on her—she was vulnerable and succumbed to her husband’s undue influence on her to sign
the guarantee prepared by the bank. Implicit in these allegations is that the bank did not make any
inquiry as to whether the contract to stand surety had been properly obtained since her standing surety
for her husband was not to her financial advantage. Implicit also is that she was not explained the nature
of the guarantee. The fact that she is an accountant is not by itself relevant to show it was properly
obtained. There are matters for the court to decide after a trial.
The allegation that the bank had instructed the first defendant to obtain the second defendant’s consent
to sign the guarantee is tantamount to saying that the bank as principal had authorized the second
defendant to act on behalf of the bank to bring the second defendant into a contract with the bank.
Whether that is so or not is a matter of evidence.
I believe there are triable issues and the sessions court judge was right in dismissing the application for
summary judgment. The appeal is dismissed with costs.”
Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127

▪ On 7 October 1984, Polygram entered into a written agreement (‘the first contract’) with a rock group
called The Search, for a period of two years, with an option for two further periods of one year each,
exercisable at the discretion of Polygram, and not the group.
▪ They were signed on by Eric Yeoh (‘Eric’), the artistes manager of Polygram.
▪ In June 1985, a new contract (‘the second contract’) was entered into between the parties. It contained
many provisions which were identical to those in the first contract but there was a major modification
which the group claimed was not brought to their attention, namely that the option period was extended to
two additional periods of 24 months each.
▪ Disputes arose and Polygram sued the group for breach of contract.
▪ The group counterclaimed, inter alia, for a declaration that both the contracts were voidable on the
grounds of undue influence.
▪ The High Court held that by virtue of section 20 of the Act, agreements entered into under undue influence
are voidable. There was evidence to show that a close relationship existed between the group and Eric
which was a relationship of trust and confidence, and he was in a position to procure them to enter into the
second contract. Because of this a presumption of undue influence arose. However, before the group could
set aside the contract on the ground of undue influence, they must prove that the contract was
‘unconscionable’ or one of manifest disadvantage to them. This they failed to do because the contract was
not manifestly disadvantageous to them.
▪ Visu Sinnadurai J said:
“The defendants’ contention that the second contract is voidable on the grounds of undue influence
merits more consideration than it did when a similar challenge was made of the first contract.
To substantiate their claim of undue influence, the defendants rely on the following facts: The
defendants were all unfamiliar with business matters; that the special relationship already existing
between Eric and the defendants at the time when the second contract was entered into was such that
the presumption of undue influence arose in this case; the lack of independent legal advice; and the total
reliance by the defendants on Eric when they executed the second contract.
The defendants contend that from the evidence of Eric, it is clear that the execution of the second
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contract took less than an hour, and that he was aware that all the defendants were not well versed in the
English language. The defendants had also trusted Eric to act in their best interest. It was further argued
that no evidence was adduced by the plaintiffs to establish that the defendants had acted independently
of any influence exerted by Eric.
Based on these facts alone, the defendants contend that as a fiduciary relationship was created between
Eric and the defendants, and by the further fact that no independent advice had been relied upon by the
defendants, the contract was void for undue influence.
The relevant provisions of the law relating to undue influence are embodied in s 16 of the Act. Section
16 provides as follows [the learned judge quoted the statutory provision]. …
By virtue of s 20 of the Act, agreements entered into under undue influence are voidable, and not void,
at the option of the party whose consent was obtained through undue influence. Such a contract is also
voidable under English law: see O’Sullivan v Management Agency and Music Co Ltd [1985] QB 428; [1985] 3
All ER 351; [1984] 3 WLR 488.
The doctrine of undue influence as embodied in s 16 of the Act is in substance based on the English
position; see the Privy Council decisions in Poosathurai v Kannappa Chettiar (1919) 47 IA 1 and Raghunath
Prasad v Sarju Prasad AIR (1924) PC 60 (Privy Council, India) on the interpretation of the relevant
provision of the Indian Contract Act which is in pari materia to s 16 of the Malaysian Contracts Act.
Undue influence may either be actual or presumed. In the recent House of Lords decision in Barclays
Bank plc v O’Brien & Anor [1993] 4 All ER 417, Lord Browne-Wilkinson approved of the following
classification and effect of actual and presumed undue influence (at p 423) [the judge quoted the
classification of undue influence: Class 1, Class 2 and Classes 2 A & B] …
Following this classification, quite obviously as there was no special relationship existing between Eric
and the group, the defendants in the present case must be relying on presumed undue influence. Again,
using the classification stated above, the relationship between the defendants and Eric must, if at all, fall
within class 2B. It is, therefore necessary for the defendants to establish by evidence that the defendants
reposed trust and confidence in Eric. This, of course, is a question of fact to be ascertained by this court.
It is therefore necessary, for me to re-examine the facts of the present case to determine whether the
defendants did repose such trust and confidence in Eric so as to raise the presumption of undue
influence.
Soon after the first contract was signed, Gary, who had acted as the so-called adviser of the group, faded
away when the group began recording with Polygram. Eric himself admitted in evidence that after the
first contract was signed, he did not see Gary anymore with the group. From the evidence, it would
appear that Polygram, and more precisely, Eric, in fact acted as the manager, at least for the purposes of
recordings. Suheimi, in his evidence said:
‘We did not have a manager—Eric always said he would take care of it—he said he will take care of
our welfare, promotion, etc. So we thought he was our manager.’
During this period too, the group became close to Billy Tan. Further, when questioned as to why the
group signed the second contract, without reading or discussing the terms contained therein, Eric
answered: ‘Because they trusted me …’. When asked: ‘They trusted you because they thought you acted
in their interest as well’, Eric replied ‘Yes’.
It should perhaps be pointed out too that under cl 9(iv) of the second contract, the group was prohibited
from employing a manager, not only for purposes of recording but for purposes of public performance
as well. …
Therefore, without a manager being employed by them, the group relied on Eric and regarded him for all
intents and purposes as their manager.
It is therefore clear that there did exist a close relationship between the group and Eric: see also the
position of the manager in the cases of Clifford Davis [1975] 1 All ER 237; [1975] 1 WLR 61; Elton John
[1991] FSR 397; and O’Sullivan [1985] QB 428; [1985] 3 All ER 351; [1984] 3 WLR 488. The relationship
between Eric and the group was a relationship which, though not falling within the class 2A category,
was one of trust and confidence, such that Eric was in a position to procure them to enter into the
second contract. For these reasons, I am satisfied from the evidence that the relationship between the
group and Eric was such that, the presumption of undue influence arises.
In this regard, I may also add that once the presumption of undue influence arises against Eric, as the
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employee of the plaintiffs, a similar presumption also arises against the plaintiffs themselves: see Waller
LJ in O’Sullivan’s case ([1985] QB 428; [1985] 3 All ER 351 at p ; [1984] 3 WLR 488.
The defendants, having succeeded in so establishing that they reposed trust and confidence in Eric, need
not go any further to prove that Eric did exert actual undue influence, or show that he abused such trust
and confidence in relation to the second contract. Such being the case, the burden moves to the plaintiffs
to disprove the existence of any undue influence: see s 16(3) of the Act.
In the present case, the plaintiffs have failed to adduce any evidence to disprove the existence of any
undue influence. It was clearly established that the group had no independent advice given to them as to
the terms of the second contract, albeit, the terms were similar to the first contract. …
Manifest disadvantage
However, before the defendants may set aside the contract on the grounds of undue influence, it is
necessary for the defendants to establish another element.
It was pointed out by the Privy Council in Poosathurai v Kannappa Chettiar (1919) LR 47 IA 1, that a party
claiming to set aside a contract on the grounds of undue influence, under s 16 of the Indian Contract
Act, which is in pari materia to s 16 of the Malaysian Contracts Act, cannot succeed in setting aside the
contract unless, the party, besides establishing evidence of undue influence, also proves that the contract
was ‘unconscionable’.
The position under English law was also similar, though different terms were employed to describe the
particular transaction. For example, Lord Scarman in the House of Lords decision in National Westminster
Bank plc v Morgan [1985] AC 686; [1985] 1 All ER 821; [1985] 2 WLR 588, in also referring to the decision
of the Privy Council in Poosathurai above, observed ([1985] AC 686 at p 704; [1985] 1 All ER 821 at p
827; [1985] 2 WLR 588 at p 597):
… I know of no reported authority where the transaction set aside was not to the manifest
disadvantage of the person influenced. It would not always be a gift: it can be a ‘hard and inequitable’
agreement (see Ormes v Beadel (1860) 2 Giff 166 at p 174; 66 ER 70 at p 74); or a transaction
‘immoderate and irrational’ (see Bank of Montreal v Stuart [1911] AC 120 at p 137) or ‘unconscionable’
in that it was a sale at an undervalue (see Poosathurai v Kannappa Chettiar (1919) LR 47 Ind App 1 at pp
3–4).
His Lordship further added:
Whatever the legal character of the transaction, the authorities show that it must constitute a
disadvantage sufficiently serious to require evidence to rebut the presumption that in the
circumstances of the relationship between the parties it was procured by the exercise of undue
influence. In my judgment, therefore, the Court of Appeal erred in law in holding that the
presumption of undue influence can arise from the evidence of the relationship of the parties
without also evidence that the transaction itself was wrongful in that it constituted an advantage
taken of the person subjected to the influence which, failing proof to the contrary, was explicable
only on the basis that undue influence had been exercised to procure it.
It has long been generally accepted both by judges and textbook writers, that in every case where undue
influence was being alleged, the party seeking to set aside the transaction must also establish some
manifest disadvantage to the contracting party: see for example the decision of the Court of Appeal in
Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923; [1992] 4 All ER 955; [1989] 2 WLR
759.
However, this requirement of manifest disadvantage has now been reviewed and re-examined by the
House of Lords more recently in CIBC Mortgages plc v Pitt & Anor [1993] 4 All ER 433 (see also the more
recent Court of Appeal decision in Cheese v Thomas [1994] 1 All ER 35). Lord Browne-Wilkinson, in
overruling Aboody’s case, explained that the requirement of establishing manifest disadvantage was not
applicable to cases of actual undue influence, but applied (if at all), only to cases of presumed undue
influence. …
As the present case is one dealing with presumed undue influence, falling under the class 2B category,
and not one of actual undue influence, I need to consider, following the Privy Council decision in
Poosathurai, but bearing in mind the reservations expressed by Lord Browne-Wilkinson in Pitt ‘s case,
whether the defendants have also succeeded in establishing that the contract entered into by the
defendants was ‘unconscionable’ or one of manifest disadvantage to them. …
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However, on the analysis of the evidence before me, the defendants had a difficult task in establishing
that the second contract was in fact unconscionable, or that it was manifestly disadvantageous to them. It
must be emphasized that, in all respects, the second contract, except for the duration of the contract, was
similar to the first contract. Both contracts were recording contracts, whereby the defendants’ desire to
become recording artistes was being achieved. True, some of the terms appear to be onerous, or may
even, perhaps, be labelled as unconscionable. But at the same time, these terms were not new terms, but
merely those which were already known to the defendants, by virtue of the first contract. Gary Chew had
explained to them the salient features of the terms of the first contract. The defendants had accepted it
and had acted upon it under the first contract for eight months. The defendants cannot now, therefore,
be heard to say that they were not aware of the terms of the second contract or that it was an
unconscionable bargain. Further, it must be borne in mind, that the second contract made no radical
changes to the nature of the recording contract itself. …
I therefore hold, that as the defendants had failed to establish that the second contract as a whole, and
not some of the terms contained therein, was ‘manifestly disadvantageous’ to them or that it was
unconscionable, the defendants’ attempt to set aside the second contract on the ground of undue
influence fails.”
Mental incapacity & Independent legal advice

Two matters can be gathered from this case:
1. Mental incapacity situation as similarly provided under section 16(2)(b) of the Contracts Act; and
2. The questions (a) whether the presumption of undue influence can be rebutted in any other way than by
proof of independent legal advice, and (b) what constituted sufficient independent legal advice for this
purpose?
Inche Noriah v Shaik Allie bin Omar [1929] AC 127 (PC)
▪ The appellant was a wholly illiterate Malay woman of great age. Her husband died leaving her a
considerable amount of landed property. She conveyed the whole of this estate to her daughter, Seetee
Mariam.
▪ The respondent was the appellant’s nephew. When he arrived in Singapore, the appellant started him in
business. and lived in one of Seetee Mariam’s houses which was adjoined to the house where the appellant
lived. In the meantime, the respondent was collecting rents of the properties for Seetee Mariam.
▪ Seetee Mariam later died. The appellant became entitled to the properties and appointed the respondent as
her attorney for the purpose of obtaining letters of administration (LA) of the deceased’s estate for the
appellant’s benefit.
▪ In March 1922, the LA was granted and the respondent conveyed the whole property to the appellant, but
he continued to collect the rents.
▪ In April 1922, the appellant executed a deed of gift giving the respondent absolutely the whole of the
properties. At that time, she was living alone next to the respondent’s house. She was so old and infirm
and was unable to ever leave the house. She seldom saw her relatives or friends.
▪ The respondent was managing the whole affair of the appellant, including her domestic affairs. He also
bought her food and clothing.
▪ The appellant then brought an action against the respondent claiming that the deed she had executed
should be set aside on the ground that the relationship between her and the respondent at that time when
the deed was executed was such as to raise a presumption of undue influence against the respondent, and
that that presumption had not been rebutted.
▪ Lord Hailsham LC said:
“[I]t was not disputed between the parties that the principles of English law must be applied. The
question to be decided is stated in the judgment of Cotton L.J. in the well known case of Allcard v
Skinner…
In their Lordships’ view the relations between the appellant and respondent are correctly summarized in
the judgment of the trial judge, and they are amply sufficient to raise the presumption of the influence of
the respondent over the appellant and to render it incumbent upon him to prove that the gift was the
spontaneous act of the appellant, acting under circumstances which enabled her to exercise an
independent will, and which justified the Court in holding that the gift was the result of the free exercise
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of her will.
At the hearing before this Board there was much discussion upon the question whether the presumption
can be rebutted in any other way than by proof of independent legal advice, and also as to what
constituted sufficient independent legal advice for this purpose. A number of cases were cited
containing expressions of opinion by various learned judges, some of which are not easy to reconcile
unless they are treated as governed by the particular facts of the case then under discussion. Their
Lordships are satisfied that in the present case there were no circumstances except the giving of
independent legal advice, if that was given, to rebut the presumption; but since the cases have never been
reviewed in any ultimate Court of Appeal, their Lordships think it right to state the conclusion which
they have reached.
For the appellant reliance was placed on the case of Rhodes v Bate (1865) LR 1 Ch 252, at p. 257, and the
passage in the judgment of Turner LJ: “I take it to be a well-established principle of this Court that
persons standing in a confidential relation towards others cannot entitle themselves to hold benefits
which those others may have conferred upon them, unless they can show to the satisfaction of the court
that the persons by whom the benefits have been conferred had competent and independent advice in
conferring them.” Also upon the language used by Farwell Jin Powell v Powell [1900] 1 Ch 243, at pp. 245-
246: “It has been for many years well settled that no one standing in a fiduciary relation to another can
retain a gift within a reasonable time, unless the donee can prove that the donor had independent advice,
or that the fiduciary relation had ceased for so long that the donor was under no control or influence
whatever. The donee must show (and the onus is on him) that the donor either was emancipated”; and
on the further statement of the learned judge: “Further, it is not sufficient that the donor should have an
independent adviser unless he acts on his advice. If this were not so, the same influence that produced
the desire to make the settlement would produce disregard of the advice to refrain from executing it, and
so defeat the rule; but the stronger the influence the greater the need of protection. The real meaning of
the rule is that the youth, being in the eye of the Court unfit to deal irrevocably with his parent or
guardian in the matter of a gift of this kind, must appoint some independent adviser to act for him. It is
the action resulting from the advice, not action against the advice, that binds the donor.”
On the other hand, the respondent relied on a number of statements of the law which indicate that
independent advice is only one of the methods by which the presumption can be rebutted. As an
instance, the judgment of Wright J in Morley v Loughman [1893] 1 Ch 736, at p. 752, where the learned
judge says: “The burthen lies on the recipient to show that the donor had independent advice, or
adopted the transaction after the influence was removed, or some equivalent circumstances”; also the
judgment of the Court of Appeal in the case of In re Coomber [1911] 1 Ch 723.
The decision in each of these cases seems to their Lordships to be entirely consistent with the principle
of law as laid down in Allcard v Skinner 36 ChD 145, at p. 171. But their Lordships are not prepared to
accept the view that independent legal advice is the only way in which the presumption can be rebutted;
nor are they prepared to affirm that independent legal advice, when given, does not rebut the
presumption, unless it be shown that the advice was taken. It is necessary for the donee to prove that
the gift was the result of the free exercise of independent will. The most obvious way to prove this is by
establishing that the gift was made after the nature and effect of the transaction had been fully explained
to the donor by some independent and qualified person so completely as to satisfy the Court that the
donor was acting independently of any influence from the donee and with the full appreciation of what
he was doing; and in cases where there are no other circumstances this may be the only means by which
the donee can rebut the presumption. But the fact to be established is that stated in the judgment
already cited of Cotton LJ, and if evidence is given of circumstances sufficient to established this fact,
their Lordships see no reason for disregarding them merely because they do not include independent
advice from a lawyer. Nor are their Lordships prepared to lay down what advice must be received in
order to satisfy the rule in cases where independent legal advice is relied upon, further than to say that it
must be given with a knowledge of all relevant circumstances and must be such as a competent and
honest adviser would give if acting solely in the interests of the donor.
In the present case their Lordships do not doubt that Mr. Aitken acted in good faith; but he seems to
have received a good deal of his information from the respondent; he was not made aware of the
material fact that the property which was being given away constituted practically the whole estate of the
donor, and he certainly does not seem to have brought him to her mind the consequences to herself of
what she was doing, or the fact that she could more prudently, and equally effectively, have benefited the
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donee without undue risk to herself by retaining the property in her own possession during her life and
bestowing it upon him by her will. In their Lordships’ view the facts proved by the respondent are not
sufficient to rebut the presumption of undue influence which is raised by the relationship proved to have
been in existence between the parties; and they regard it as most important from the point of view of
public policy to maintain the rule of law which has been laid down and to insist that a gift made under
circumstances which give rise to the presumption must be set aside unless the donee is able to satisfy the
Court of facts sufficient to rebut the presumption.”
Special relationship: granddaughter and old and dependant grandmother.

Lim Kim Hua v Ho Chui Lan & Anor [1995] 3 MLJ 165 (HC)
The special relationship which existed between a grandmother and her granddaughter, who took care of her,
and entrusted with the management of her property, as she was old and dependant on the granddaughter, has
brought into operation presumed undue influence, which requires the granddaughter to bring proof to show that
she had not abuse her position.
▪ The plaintiff, Lim Kim Hua, a grandmother, was the registered proprietress of a parcel of land and
buildings situated at No 13, Kanowit Bazaar ('the shophouse'). On 6 October 1980, the plaintiff executed a
will devising and bequeathing the shophouse to four of her grandchildren, namely, Lim Kiew Yau (who is
the second defendant in this case), Soon Choon Eng, Teo Hock Yiew and Teo Sian Siong in equal
undivided shares of 1/4 each. On 10 March 1983, however, the plaintiff executed another will revoking the
1980 will and devising and bequeathing the shophouse to the same four grandchildren but in different
proportions as follows: 1/2 share to Lim Kiew Yau and 1/6 share each to Soon Choon Eng, Teo Hock
Yiew and Teo Sian Siong.
▪ On 3 May 1984, she executed a memorandum of transfer transferring her 1/2 share of the shophouse to the
second defendant, Lim Kiew Yau. On 30 December 1985, she executed another memorandum of transfer
transferring her remaining 1/2 share of the shophouse to Ho Chui Lan (who is the first defendant in this
case) and Ho Chui Hiong at 1/4 share each. On 24 January 1986, a tenancy agreement relating to the
shophouse was effected between the plaintiff as the landlady and one Chia Kang Poh as the tenant.
▪ The plaintiff then brought an action seeking for, inter alia, a declaration that the two memoranda of
transfer are null and void and for the cancellation of the entries of the said transfers in the land register.
One of the main grounds relied on by the plaintiff was undue influence on the part of the defendants.
▪ The High Court held that there was a special relationship between the plaintiff (a grandmother) and the
first defendant (her granddaughter) as the plaintiff was old, illiterate and with poor memory, living with
the defendant who provided her food and accommodation. as the plaintiff entrusted the management of her
shophouses to the first defendant and as the plaintiff was dependent on the first defendant in both her
physical and financial needs, and that undue influence could reasonably be inferred from those factors
unless the first defendant could show that she had not abused her position, and that the transfer was not
brought about by undue influence. The first defendant must show, by strict proof, that the plaintiff then
had fully understood, not just the nature of the transfer but its full significance and effect. The first
defendant had not adduced evidence to rebut the presumption. The court, therefore, declared that the
memorandum of transfer was null and void.
▪ Steve Shim J, in his judgment, said:
“I now turn to the issue of undue influence. Here, the plaintiff has alleged that there was undue influence
brought to bear by the first defendant on the plaintiff at the time the memorandum of transfer (ex P1)
was executed. Now, what is undue influence? In a contractual situation, the term as provided in s 16 of
the Contracts Act 1950 stipulates:
A contract is said to be induced by undue influence where the relations subsisting between the
parties are such that one of the parties is in a position to dominate the will of the other and uses
that position to obtain an unfair advantage over the other.
Undue influence may arise from the special relationship between parties. In this connection, Anson's Law
of Contract (26th Ed) at p 245 cited a passage from Tate v Williamson (1866) LR 55 wherein Lord
Chelmsford said, inter alia:
Whenever two persons stand in such a relationship that, while it continues, confidence is
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necessarily reposed by one and the influence which naturally grows out of that confidence is
possessed by the other, and this confidence is abused or the influence is exerted to obtain an
advantage at the expense of the confiding party, the person so availing himself of his position will
not be permitted to retain the advantage although the transaction would not have been impeached
if no such confidential relationship had existed.
It has been held that not every fiduciary relationship raises a presumption of undue influence: see Re
Coomber [1911] 1 Ch 723 at p 728. It must be one of a limited class which the courts regard as suggesting
undue influence and the relations which fall into this category are those between parent (or person in loco
parentis and child; see Bainbrigge v Browne (1881) 18 Ch D 188.
Having regard to the stated law, what then is the position in the instant case? In my view, although the
plaintiff's own evidence provides little assistance, there is, I hold, sufficient evidence to show the
existence of a special relationship between the plaintiff and the first defendant. It has not been disputed
that, at the material time, the plaintiff was living with the first defendant who provided her with food and
accommodation; that the first defendant was entrusted by the plaintiff to manage the affairs of the
shophouse. There can be no question but that the plaintiff was very much dependent on the first
defendant in both her physical and financial needs. This was so because she was getting on in age and
had a poor memory. She was also illiterate. It was therefore against such factual circumstances that the
memorandum of transfer (exh P1) was executed by the plaintiff in favour of the first defendant and Ho
Chui Hiong, PW2. From these factors, undue influence can reasonably be inferred unless the first
defendant could show that she had not abused her position and that the said transfer was not brought
about by undue influence. She must show, by strict proof, that the plaintiff, at the time of executing the
said transfer, had fully understood, not just the nature of the transfer but its full significance and effect:
see Zamet & Ors v Hyman & Anor [1961] 3 All ER 933; [1961] 1 WLR 1442 . I do not think that the first
defendant has done so. She has merely alleged that the plaintiff wanted to effect the said transfer in a
hurry and that the contents therein were read and explained to her. In my view, this would not be
sufficient to rebut undue influence. As Lord Eldon said in Huguenin v Baseley [1803-13] All ER 1 at p 3:
The question is not whether she knew what she was doing, had done or proposed to do, but how
the intention was produced: whether all that care and providence was placed round her, as against
those who advised her, which, from their situation and relation with respect to her they were
bound to exert on her behalf.
In the instant case, the first defendant has not adduced evidence to show that all care and providence
had been so taken by her that the plaintiff was put in possession of all material facts and information so
as to enable her to decide fairly, fully and freely what she wanted to do with her property. The plaintiff,
placed in the position she was in relation to the first defendant, must be in full and complete appreciation
of what she was doing. In my view, the first defendant should, in the circumstances of this case, not only
have drawn the plaintiff's attention to the provisions of the 1983 will but also to the consequential effect
or effects upon the execution of the memorandum of transfer (exh P1). By keeping silent, she had
actively concealed the material facts and thus committed dishonesty against the plaintiff.
On the evidence as a whole, I find that there was undue influence exerted by the first defendant upon
the plaintiff as regards the execution of the memorandum of transfer (exh P1) at all material times. In the
circumstances, I hold that the said memorandum of transfer is therefore null and void.”
Specific issues in English case law on undue influence
The issue whether “manifest disadvantage” needs to be shown

As far as the English law is concerned, Morgan decision as regard the need to establish manifest disadvantage
in presumed undue influence has been seen to be a new creation of the House of Lords, as it has never before
been a requirement under the English law. Nourse LJ in Barclays Bank plc v Coleman [2001] QB 20 observed
that the “real objection to the requirement … is that it is out of line with the well established principles
applicable to those cases” and that the introduction of the requirement was an “original creation” of the House
of Lords in Morgan. Lord Browne-Wilkinson, in CIBC Mortgages plc v Pitt [1994] 1 AC 200, observed that it
was difficult to reconcile the Morgan requirement with the long established principle applied in abuse of
confidence cases which require those in a fiduciary position who enter into transaction with those to whom they
owe fiduciary duties to establish affirmatively that the transaction was a fair one. Lord Browne-Wilkinson
further noted that the abuse of confidence principle is founded on considerations of general public policy.
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National Westminster Bank Plc v Morgan [1985] AC 686 (HL)

▪ In 1974, Mr. Morgan and his wife, the respondent, bought a house on mortgage.
▪ In 1977, the building society, Abbey National, began proceedings for possession when they defaulted
payments.
▪ Mr. Morgan’s business was in difficulties. He asked the appellant bank to refinance the building society
loan. The appellant bank granted a loan, but subject to a legal charge on the house in joint names. Mr.
Morgan signed the charge, and the bank manager called at the house to obtain the respondent’s signature.
▪ The bank manager was at the house for about 20 minutes, but his conversation with the respondent lasted
only five minutes.
▪ The respondent told the bank manager that she wanted the charge confined to paying off the Abbey
National loan and told him that she had no confidence in her husband’s business ability and did not want
the loan from the bank to cover her husband’s business liabilities.
▪ The manager advised her that the cover was so limited. She expressed her gratitude to the bank for saving
their home, and signed the charge.
▪ Mr. Morgan failed to repay the loan, and the bank brought proceedings for possession. Since Mr. Morgan
had passed away December 1982, the respondent became its sole owner. The bank relied on the charge
given by her and her husband to secure the loan.
▪ In defence, the respondent pleaded that she was induced to execute the charge by the exercise of undue
influence on the part of the bank, by its manager, at an interview at her home in February 1978.
▪ The main issue was whether the respondent has established a case of undue influence. There was no
suggestion that the relation of the respondent and her husband and the banker had been other than the
normal business of banker and customer. So far as the two customers are concerned, it was a rescue
operation to save their house from being taken by Abbey National.
▪ The question left to be answered—was the respondent able to show that there was a relationship of trust
and confidence between her and the bank manager of such a nature that it is fair to presume that the bank
had abused that relationship in procuring the charge? The facts were not sufficient to show that such
relationship ever existed.
▪ In allowing the bank’s appeal, the House of Lords held that, in order to set aside a transaction for undue
influence, whether actual or presumed, it had to be shown that the transaction had been wrongful in that it
had constituted a manifest and unfair disadvantage to the person seeking to avoid it. The evidence of
relationship of the parties was not sufficient to raise the presumption without also evidence that the
transaction itself had been wrongful. On the facts of the case, the court below was entitled to find that the
relationship between the respondent and the bank had never gone beyond the normal business relationship
of banker and customer and that the transaction had not been disadvantageous to the wife. The bank
manager had never “crossed the line”; nor was the transaction unfair to the respondent. The bank was,
therefore, under no duty to ensure that she had independent advice. It was an ordinary banking transaction
whereby the respondent sought to save her home from being taken by Abbey National.
▪ Lord Scarman, in delivering the judgment of the House (to Lord Keith of Kinkel, Lord Roskill, Lord
Bridge of Harwich and Lord Brandon of Oakbrook, agreed) said:
“The judge recognised that Mr. Barrow did not advise her to take legal advice: but he held that the
circumstances did not call for any such advice and that she was not hurried into signing. She was signing
to save her house and to obtain short-term bridging finance. “The decision,” the judge said, “was her
own.” [The trial judge] rejected the submission that there was a confidential relationship between Mrs.
Morgan and the bank such as to give rise to a presumption of undue influence. Had the relationship
been such as to give rise to the presumption, he would have held, as counsel for the bank conceded, that
no evidence had been called to rebut it. He concluded that Mrs. Morgan had failed to make out her case
of undue influence.
The Court of Appeal [1983] 3 All ER 85 disagreed. …
As to the facts, I am far from being persuaded that the trial judge fell into error when he concluded that
the relationship between the bank and Mrs. Morgan never went beyond the normal business relationship
of banker and customer. Both Lords Justices [at the Court of Appeal] saw the relationship between the
bank and Mrs. Morgan as one of confidence in which she was relying on the bank manager’s advice.
Each recognised the personal honesty, integrity, and good faith of Mr. Barrow. Each took the view that
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the confidentiality of the relationship was such as to impose upon him a “fiduciary duty of care.” It was
his duty, in their view, to ensure that Mrs. Morgan had the opportunity to make an independent and
informed decision: but he failed to give her any such opportunity. They, therefore, concluded that it was
a case for the presumption of undue influence.
My Lords, I believe that the Lords Justices were led into a misinterpretation of the facts by their use, as is
all too frequent in this branch of the law, of words and phrases such as “confidence,” “confidentiality,”
“fiduciary duty.” There are plenty of confidential relationships which do not give rise to the presumption
of undue influence (a notable example is that of husband and wife, Bank of Montreal v Stuart [1911] AC
120); and there are plenty of nonconfidential relationships in which one person relies upon the advice of
another, e.g. many contracts for the sale of goods. Nor am I persuaded that the charge, limited as it was
by Mr. Barrow’s declaration to securing the loan to pay off the Abbey National debt and interest during
the bridging period, was disadvantageous to Mrs. Morgan. It meant for her the rescue of her home upon
the terms sought by her—a short-term loan at a commercial rate of interest. The Court of Appeal has
not, therefore, persuaded me that the judge’s understanding of the facts was incorrect.
But, further, the view of the law expressed by the Court of Appeal was, as I shall endeavour to show,
mistaken. Dunn LJ, at p. 90, while accepting that in all the reported cases to which the court was referred
the transactions were disadvantageous to the person influenced, took the view that in cases where public
policy requires the court to apply the presumption of undue influence there is no need to prove a
disadvantageous transaction. Slade LJ also clearly held that it was not necessary to prove a
disadvantageous transaction where the relationship of influence was proved to exist. Basing himself on
the judgment of Cotton LJ in Allcard v Skinner (1887) 36 Ch D 145 , 171, he said, at p. 92:
Where a transaction has been entered into between two parties who stand in the relevant
relationship to one another, it is still possible that the relationship and influence arising therefrom
has been abused, even though the transaction is, on the face of it, one which, in commercial
terms, provides reasonably equal benefits for both parties.
I can find no support for this view of the law other than the passage in Cotton LJ’s judgment in Allcard v
Skinner to which Slade LJ referred. The passage is as follows, at p. 171:
The question is—Does the case fall within the principles laid down by the decisions of the Court
of Chancery in setting aside voluntary gifts executed by parties who at the time were under such
influence as, in the opinion of the court, enabled the donor afterwards to set the gift aside? These
decisions may be divided into two classes—First, where the court has been satisfied that the gift
was the result of influence expressly used by the donee for the purpose; second, where the
relations between the donor and donee have at or shortly before the execution of the gift been
such as to raise a presumption that the donee had influence over the donor. In such a case the
court sets aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act
of the donor acting under circumstances which enabled him to exercise an independent will and
which justifies the court in holding that the gift was the result of a free exercise of the donor’s will.
The first class of cases may be considered as depending on the principle that no one shall be
allowed to retain any benefit arising from his own fraud or wrongful act. In the second class of
cases the court interferes, not on the ground that any wrongful act has in fact been committed by
the donee, but on the ground of public policy, and to prevent the relations which existed between
the parties and the influence arising therefrom being abused.
The transactions in question in Allcard v Skinner were gifts: it is not to be supposed that Cotton LJ was
excluding the applicability of his observations to other transactions in which disadvantage or sacrifice is
accepted by the party influenced. It is significant for the proper understanding of his judgment that gifts
are transactions in which the donor by parting with his property accepts a disadvantage or a sacrifice, and
that in Allcard v Skinner the donor parted with almost all her property. I do not, therefore, understand the
Lord Justice, when he accepted that Miss Allcard’s case fell into the class where undue influence was to
be presumed, to have treated as irrelevant the fact that her transaction was manifestly disadvantageous to
her merely because he was concerned in the passage quoted to stress the importance of the relationship.
If, however, as Slade LJ clearly thought, Cotton LJ in the last sentence quoted should be understood as
laying down that the transaction need not be one of disadvantage and that the presumption of undue
influence can arise in respect of a transaction which provides “reasonably equal benefits for both
parties,” I have with great respect to say that in my opinion the Lord Justice would have erred in law:
principle and authority are against any such proposition.
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Like Dunn LJ, I know of no reported authority where the transaction set aside was not to the manifest
disadvantage of the person influenced. It would not always be a gift: it can be a “hard and inequitable”
agreement (Ormes v Beadel (1860) 2 Gif 166, 174); or a transaction “immoderate and irrational” (Bank of
Montreal v Stuart [1911] AC 120, 137) or “unconscionable” in that it was a sale at an undervalue
(Poosathurai v Kannappa Chettiar (1919) LR 47 IA 1, 3-4). Whatever the legal character of the transaction,
the authorities show that it must constitute a disadvantage sufficiently serious to require evidence to
rebut the presumption that in the circumstances of the relationship between the parties it was
procured by the exercise of undue influence. In my judgment, therefore, the Court of Appeal erred in
law in holding that the presumption of undue influence can arise from the evidence of the relationship
of the parties without also evidence that the transaction itself was wrongful in that it constituted an
advantage taken of the person subjected to the influence which, failing proof to the contrary, was
explicable only on the basis that undue influence had been exercised to procure it. …
In Poosathurai v Kannappa Chettiar LR 47 IA 1, 3 Lord Shaw of Dunfermline, after indicating that there was
no difference upon the subject of undue influence between the Indian Contract Act 1872 and English
law* quoted the Indian statutory provision, section 16(3):
Where a person who is in a position to dominate the will of another enters into a contract with
him, and the transaction appears on the face of it, or on the evidence, to be unconscionable, the
burden of proving that such contract was not induced by undue influence shall lie upon the
person in the position to dominate the will of the other.
He then proceeded, at p. 4, to state the principle in a passage of critical importance, which, since, so far
as I am aware, the case is reported only in the Indian Reports, I think it helpful to quote in full:
It must be established that the person in a position of domination has used that position to obtain
unfair advantage for himself, and so to cause injury to the person relying upon his authority or aid.
Where the relation of influence, as above set forth, has been established, and the second thing is
also made clear, namely, that the bargain is with the ‘influencer,’ and in itself unconscionable then
the person in a position to use his dominating power has the burden thrown upon him, and it is a
heavy burden, of establishing affirmatively that no domination was practised so as to bring about
the transaction, but that the grantor of the deed was scrupulously kept separately advised in the
independence of a free agent. These general propositions are mentioned because, if laid alongside
of the facts of the present case, then it appears that one vital element—perhaps not sufficiently
relied on in the court below, and yet essential to the plaintiff’s case—is wanting. It is not proved
as a fact in the present case that the bargain of sale come to was unconscionable in itself or
constituted an advantage unfair to the plaintiff; it is, in short, not established as a matter of fact
that the sale was for undervalue.
The wrongfulness of the transaction must, therefore, be shown: it must be one in which an unfair
advantage has been taken of another. The doctrine is not limited to transactions of gift. A commercial
relationship can become a relationship in which one party assumes a role of dominating influence over
the other. In Poosathurai’s case, LR 47 IA 1 the Board recognised that a sale at an undervalue could be a
transaction which a court could set aside as unconscionable if it was shown or could be presumed to
have been procured by the exercise of undue influence. Similarly a relationship of banker and customer
may become one in which the banker acquires a dominating influence. If he does and a manifestly
disadvantageous transaction is proved, there would then be room for the court to presume that it
resulted from the exercise of undue influence.
This brings me to Lloyds Bank Ltd v Bundy [1975] QB 326. It was, as one would expect, conceded by
counsel for the respondent that the relationship between banker and customer is not one which
ordinarily gives rise to a presumption of undue influence: and that in the ordinary course of banking
business a banker can explain the nature of the proposed transaction without laying himself open to a
charge of undue influence. This proposition has never been in doubt, though some, it would appear,
have thought that the Court of Appeal held otherwise in Lloyds Bank Ltd v Bundy. If any such view has
gained currency, let it be destroyed now once and for all time: see Lord Denning MR, at p. 336F, Cairns
LJ, at p. 340D, and Sir Eric Sachs, at pp. 341H - 342A. Your Lordships are, of course, not concerned
with the interpretation put upon the facts in that case by the Court of Appeal: the present case is not a
rehearing of that case. The question which the House does have to answer is: did the court in Lloyds Bank
Ltd v Bundy accurately state the law?
Lord Denning MR believed that the doctrine of undue influence could be subsumed under a general
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principle that English courts will grant relief where there has been “inequality of bargaining power” (p.
339). He deliberately avoided reference to the will of one party being dominated or overcome by
another. The majority of the court did not follow him; they based their decision on the orthodox view of
the doctrine as expounded in Allcard v Skinner 36 Ch D 145. The opinion of the Master of the Rolls,
therefore, was not the ground of the court’s decision, which was to be found in the view of the majority,
for whom Sir Eric Sachs delivered the leading judgment. …
A meticulous examination of the facts of the present case reveals that Mr. Barrow never “crossed the
line.” Nor was the transaction unfair to Mrs. Morgan. The bank was, therefore, under no duty to ensure
that she had independent advice. It was an ordinary banking transaction whereby Mrs. Morgan sought to
save her home; and she obtained an honest and truthful explanation of the bank’s intention which,
notwithstanding the terms of the mortgage deed which in the circumstances the trial judge was right to
dismiss as “essentially theoretical,” was correct: for no one has suggested that Mr. Barrow or the bank
sought to make Mrs. Morgan liable, or to make her home the security, for any debt of her husband other
than the loan and interest necessary to save the house from being taken away from them in discharge of
their indebtedness to the building society.
For these reasons, I would allow the appeal.”
Note:
Lord Scarman, in his speech above, stated that “In Poosathurai v Kannappa Chettiar LR 47 IA 1, 3 Lord Shaw
of Dunfermline, after indicating that there was no difference upon the subject of undue influence between the
Indian Contract Act 1872 and English law quoted the Indian statutory provision …” (Emphasis added.) This is
not as what has been reported in Poosathurai case, either in (1919) LR 47 IA 1, or AIR 1920 PC 65. Lord Shaw
was reported only as saying: “It is not necessary to speculate whether the provisions of the Indian Contract Act
differ in any particulars from the doctrines of the English Law upon the subject. For no such differences are
suggested to have any bearing on the issues between these parties.” Lord Shaw did not say that the laws of both
jurisdictions are the same!
Lord Shaw again had to deal with the issue of undue influence in Raghunath Prasad (1923) LR 51 IA 101. Not
even a word was mentioned to say that the laws from these two jurisdictions are the same. In Raghunath case,
Abdul Majeed v Khirode Chandra Pal I.E.R. 42 C 690; (1914) 42 Cal 69 was cited to support the argument that
presumed undue influence would arise “where there is ample security, the exaction of excessive and usurious
interest …” Lord Shaw observed (at p. 108) “that the decision to be wrong. There is no such presumption until
the question has been first settled as to the lender being in position to dominate the borrower’s will.”
In other words, Lord Shaw’s observation is an indication that, even if presumed undue influence should find its
way into the Indian and Malaysian law, it has to come through section 16(3): to prove the two basic elements of
“domination” and “unconscionable” bargain. Only upon such proof presumption would arise to shift the burden
to the wrongdoer to show otherwise.
Lord Scarman advised: “There is no precisely defined law setting limits to the equitable jurisdiction of a court
to relieve against undue influence. This is the world of doctrine, not of neat and tidy rules.”
Actual undue influence of husband & the need of manifest disadvantage shown
Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 (CA)
Aboody is an example where actual undue influence transaction was the issue. However, the ruling that a claim
to set aside a transaction under actual undue influence cannot succeed unless, like the case of presumed undue
influence, the claimant proves that the impugned transaction was manifestly disadvantageous to him, was later
overruled by the House of Lords in CIBC Mortgages Plc v Pitt and Anor [1994] 1 AC 200.
▪ Mrs. Aboody was born and educated in Baghdad. She has quite an extensive English vocabulary. Her
family moved to the local Iraqi Jewish community and observed its customs. None of the girls ever went
out to work. Marriages were always arranged by the parents.
▪ Mrs. Aboody married Mr. Aboody, who was 20 years older than she was. He was born and educated in
British India and had a small business in Egypt. In 1949 the couple came to England and settled in
Manchester. Mr. Aboody and his brother formed a small limited company trading in imported textiles
called Aboody Brothers.
▪ Mr. and Mrs. Aboody bought a house and it was bought in her name. The house was then sold and a new
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house was built. The house stood in Mrs. Aboody’s sole name.
▪ When the brother retired from business, Mr. Aboody took over the company and changed its name to
Eratex Ltd. He arranged for Mrs. Aboody to be a co-director and secretary of the company. She had no
experience whatever in running any business. Mr. Aboody assured her that she would not have to do
anything. She did not receive any remuneration as director or company secretary. “She had no difficulty in
signing documents presented for her signature by Mr. Aboody, and she has signed various Eratex
documents as secretary or director. She would sign any such document when Mr. Aboody asked her to
sign. It was routine for her to sign documents at home without much explanation.
▪ The plaintiff bank, in this action, claimed £604,110.93 and interest for moneys due pursuant to written
guarantee from the first and second defendants, Mr. Aboody and Mrs Aboody, respectively. The trial
judge entered judgment for the plaintiff.
▪ Mrs. Aboody challenged the validity of the guarantees and of one of the charges on the ground that they
had been obtained by the actual undue influence of the husband. The trial judge found that the husband
had caused the wife to enter into the transactions by the exercise of actual undue influence, in that he had
deliberately concealed matters from her, and that the husband had acted as the agent of the bank to procure
the wife’s consent to execute the relevant documents.
▪ The judge, however, refused to set aside the transactions on the ground that it had not been proved that any
of the transactions were manifestly disadvantageous to the Mrs. Aboody.
▪ Mrs. Aboody appealed against the decision. The Court of Appeal dismissed her appeal. The Court agreed
with the judge that the plea of actual undue influence must fail as no manifest disadvantage having been
established.
▪ Slade LJ said:
“In the majority of reported cases on undue influence successful plaintiffs appear to have succeeded in
reliance on the presumption. If on the facts both pleas are open to him, a plaintiff in such a case may
well be advised to rely on actual and presumed undue influence cumulatively or in the alternative.
In the present case, however, no doubt after carefully considered advice, no attempt has been made to
plead or submit that Mrs. Aboody is entitled to the benefit of any presumption. Her case throughout has
been pleaded and argued on the footing that it is a class 1 case, so that the onus falls on her to establish
undue influence—an onus which, subject to the question of manifest disadvantage, the judge considered
that she had discharged. …
… As to class 1 cases, it is said, the requirements are those set out by Lindley LJ in Allcard v Skinner 36
Ch D 145, 181:
First, there are the cases in which there has been some unfair and improper conduct, some coercion
from outside, some over-reaching, some form of cheating, and generally, though not always, some
personal advantage obtained by a donee placed in some close and confidential relation to the donor.
In other words, so the argument runs, the requirements in a class 1 case are (a) that the parties should be
placed in a close and confidential relationship, and (b) that the party exercising the influence should do
wrong in the sense illustrated, but not exhaustively defined, by Lindley LJ. In class 1 cases, unlike class 2
cases, the court focuses its attention on the conduct of the influencing party. If “unfair and improper
conduct, some coercion from outside, some over-reaching, some form of cheating” or the like are
established, this by itself will establish the wrongfulness of the transaction. The concept of manifest
disadvantage, so the argument runs, becomes relevant, and in National Westminster Bank Plc v Morgan
[1985] AC 686 was held by the House of Lords to be relevant, only in class 2 cases, where ex hypothesi the
wrongfulness of the transaction cannot otherwise be shown and the court is being asked to bridge an
evidential gap. …
In class 1 cases, it was submitted, proof of actual undue influence itself proves the wrongfulness of a
transaction. In class 2 cases proof of the special relationship, unaccompanied by proof of undue
influence, proves no such thing. This, it is argued, is why manifest disadvantage must be shown in class 2
cases. …
… In our judgment, and in the light of National Westminster Bank Plc v Morgan [1985] AC 686, even a party
who affirmatively proves that a transaction was induced by the exercise of undue influence is not entitled
to have it set aside in reliance on the doctrine of undue influence without proving that the transaction
was manifestly disadvantageous to him or her.
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Note:
In Morgan, the House of Lords held that the element of “manifest disadvantage” has to be shown before the
presumption of undue influence can set in.
In Aboody, the Court of Appeal observed that even in actual undue influence, the innocent party has to show
the element of “manifest advantage”. However, Aboody was overruled by the House of Lords in CIBC
Mortgages Plc v Pitts.
In Aboody, the Court of Appeal had also, at great length, dealt with the “agency” and “constructive notice”
issues which may affect a bank in relation to undue influence imposed by a husband on a wife to stand as a
guarantor or surety in any loan transactions.
Undue influence by husband: the element of ‘manifest disadvantage’ is not required to prove ‘actual undue
influence’.
In CIBC Mortgages Plc v Pitt and Anor [1994] 1 AC 200, the House of Lords upheld the trial judge’s finding
that the wife had been subjected to the husband’s actual undue influence when she executed a legal charge to
the plaintiff on their jointly-owned matrimonial home. The wife failed to have the charge set aside, not that the
transaction was not manifestly disadvantageous to her, but that her husband had not acted as the agent of the
plaintiff. The element of manifest disadvantage was held not to be a requirement for the purpose of establishing
actual undue influence.
CIBC Mortgages Plc v Pitt and Anor [1994] 1 AC 200 (HL)
▪ Mr. Pitt and Mrs. Pitt have been married since 1964. They bought a house which was in Mr. Pitt’s sole
name, but later it was put into their joint names. The house has been their matrimonial home since 1970,
where they lived with their two daughters. The value of the house in 1986 was £270,000. The only
encumbrance on the house was a mortgage in favour of a building society for £16,700.
▪ In 1986 Mr. Pitt told Mrs. Pitt that he wanted to borrow some money on the security of the house and to
use the loan to buy shares on the stock market so that they would have a better standard of living. Mrs. Pitt
was not happy about the suggestion.
▪ Mr. Pitt then started to put pressure on Mrs. Pitt which amounted to actual undue influence. As a result,
Mrs. Pitt agreed and an application for the loan was signed by both Mr. and Mrs. Pitt. Mr. and Mrs. Pitt
borrowed £150,000 for 19 years and charged their matrimonial home by way of first legal mortgage. Mrs.
Pitt signed the legal charge but did not read it.
▪ By another legal charge executed by Mr. and Mrs. Pitt on the same day a life policy on Mr. Pitt’s life was
charged to the plaintiff: again Mrs. Pitt did not read it.
▪ Mrs. Pitt did not receive any separate advice about the transaction, and nobody suggested that she should
do so. She did not even know the amount that was being borrowed. Mr. Pitt used the borrowed moneys to
buy shares in his own name, and later charged the securities he had bought with the moneys borrowed
from the plaintiff to borrow more moneys to buy more shares.
▪ When the Stock Market crashed in October, his creditor banks sold the securities charged to them and Mr.
Pitt landed himself in arrears in paying what was due under the charge.
▪ The plaintiff brought an action and sought for an order for possession of the charged property. The order,
however, was set aside as against Mrs. Pitt who alleged that the legal charge had been procured by the
undue influence and misrepresentation of Mr. Pitt.
▪ Mrs. Pitt alleged that she had been induced by the undue influence of Mr. Pitt who had falsely represented
to her that the borrowed moneys were to be used to purchase shares, whereas his actual intention was to
use the shares as collateral for further borrowings to purchase more shares. Mrs. Pitt further alleged that
she had not understood the nature of the obligation she was undertaking or the amount involved and that,
since Mr. Pitt had acted as the agent of the plaintiff; and that the transaction was not manifestly
disadvantageous to her; the charge should, therefore, be set aside as against the plaintiff.
▪ The trial judge held, inter alia, that Mr. Pitt had exercised actual undue influence on Mrs. Pitt to procure
her agreement; and that the transaction was manifestly disadvantageous to her. Mr. Pitt, however, had not
acted as the agent of the plaintiff. The plaintiff, therefore, had not been affected by the husband’s
misconduct. An order for possession and for payment of the sums secured by the charge was made for the
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plaintiff.
▪ Mrs. Pitt appealed to the Court of Appeal.
▪ The Court of Appeal dismissed her appeal. On the element of manifest disadvantage, Peter Gibson LJ said
that the legal charge did create a risk that the security might be enforced, but seriousness of the risk and
the benefits from the transaction must be assessed.
“The test is an objective one and although events subsequent to the transaction may exemplify what
might have been foreseen, the assessment is made in the light of the circumstances existing at the time of
the transaction. The matter can be tested by asking whether Mrs. Pitt would have been able to set aside
the transaction on the ground of undue influence immediately after it had been entered into.
In my judgment she would not. At July 31, 1986 the risk was not so serious as to make the transaction
manifestly disadvantageous. Compared with Mrs. Pitt's position before the legal charge the additional
charge of £133,300 was matched by the benefit of that sum being available for investment. … True it is
that the stockmarket crash (which took most investors by surprise) in 1987 dramatically demonstrated
the risk, but it is no less permissible to take account of the fact that Mr. Pitt was for a time highly
successful with his investments and had he taken his paper profits, he and, through him (the provider of
virtually everything enjoyed by Mrs. Pitt since her marriage), Mrs. Pitt would have been substantially
better off. Her evidence was that she was told by Mr. Pitt that their lifestyle would be better and there is
no reason to doubt that his intention was to benefit them both through the successful investment of the
borrowed moneys.
With all respect to the judge, I have reached the clear conclusion that he was wrong to find that the
transaction was to the manifest disadvantage of Mrs. Pitt. Accordingly her defence, based on undue
influence, to the plaintiff's claim must fail and on this ground too this appeal must fail.”
▪ Neill LJ, in his part of the judgment, said:
“Furthermore, the necessity of proving that the transaction was manifestly disadvantageous to the person
influenced appears to accord with the principle underlying the doctrine of undue influence, namely that
"it is right and expedient to save persons from being victimised by other people": see Allcard v Skinner
(1887) 36 Ch D 145 at p. 182; and National Westminster Bank v Morgan [1990] 2 Qd R 101 at p. 109.”
▪ Neill LJ seemed not very satisfied with the development of the law where the Lord Justice said:
“It may be that on some future occasion it will be necessary to look more closely at the requirement that
manifest disadvantage must be proved, but in the light of the conclusion which I have reached on the
second part of this case I do not think it is necessary for me to do so for the purposes of this appeal. I
merely note in passing that a different view appears to prevail in Australia (see Baburin v Baburin [1985]
AC 686 at p. 705; and that in Canada the matter has been left open (see Geffen v Goodman [1991] 2 SCR
353 at p. 394). The question has also been the subject of academic debate.”
▪ The House of Lords held, dismissing the further appeal by the wife, that a person who could prove the
exercise of actual undue influence by another in carrying out a transaction was entitled as of right against
the other to have the transaction set aside without proof of manifest disadvantage. As for this case, the law
Lords held that, in the circumstances, the wife had established actual undue influence by the husband, but
the plaintiff (CIBC Mortgages Plc) would not be affected by it unless the husband was acting as its agent
in procuring the wife's agreement, or the plaintiff had actual or constructive notice of the undue influence.
Since the husband was not acting as agent for the plaintiff, who had no actual notice of the undue
influence, and there was no indication that the transaction was anything other than a normal advance to the
husband and wife for their joint benefit, the plaintiff was not put on inquiry and could not be fixed with
constructive notice of the undue influence. The plaintiff, therefore, was entitled to enforce the charge.
▪ Lord Browne-Wilkinson said:
“Manifest disadvantage
In the present case, the Court of Appeal as they were bound to, applied the law laid down in National
Westminster Bank Plc v Morgan [1985] AC 686 as interpreted by the Court of Appeal in Bank of Credit and
Commerce International SA v Aboody [1990] 1 Q.B 923: a claim to set aside a transaction on the grounds of
undue influence whether presumed (Morgan) or actual (Aboody) cannot succeed unless the claimant
proves that the impugned transaction was manifestly disadvantageous to him. …
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My Lords, I am unable to agree with the Court of Appeal’s decision in Aboody. I have no doubt that the
decision in Morgan does not extend to cases of actual undue influence. Despite two references in Lord
Scarman’s speech to cases of actual undue influence, as I read his speech, he was primarily concerned to
establish that disadvantage had to be shown, not as a constituent element of the cause of action for
undue influence, but in order to raise a presumption of undue influence with Class 2. That was the only
subject matter before the House of Lords in Morgan and the passage I have already cited was directed
solely to that point. With the exception of a passing reference to Ormes v Beadel (1860) 2 Gif. 166, all the
cases referred to by Lord Scarman were cases of presumed undue influence. In the circumstances, I do
not think that this House can have been intending to lay down any general principle applicable to all
claims of undue influence, whether actual or presumed.
Whatever the merits of requiring a complainant to show manifest disadvantage in order to raise a Class 2
presumption of undue influence, in my judgment there is no logic in imposing such a requirement where
actual undue influence has been exercised and proved. Actual undue influence is a species of fraud. Like
any other victim of fraud, a person who has been induced by undue influence to carry out a transaction
which he did not freely and knowingly enter into is entitled to have that transaction set aside as of right.
…
I therefore hold that a claimant who proves actual undue influence is not under the further burden of
proving that the transaction induced by undue influence was manifestly disadvantageous: he is entitled as
of right to have it set aside. …
I should add that the exact limits of the decision in Morgan may have to be considered in the future. …
Notice
Even though, in my view, Mrs. Pitt is entitled to set aside the transaction as against Mr. Pitt, she has to
establish that in some way the plaintiff is affected by the wrongdoing of Mr. Pitt so as to be entitled to
set aside the legal charge as against the plaintiff.
The Court of Appeal in the present case treated themselves as bound by the Court of Appeal decision in
O’Brien [1993] QB 109. They were unwilling to distinguish O’Brien on the ground that the instant case is
one of a loan to the husband and wife jointly whereas O’Brien was a surety case. However, pre-echoing
our decision in O’Brien, they distinguished it on the grounds of notice. Peter Gibson LJ said:
‘… I must accept that in a case where a wife provides security for a husband’s debts, the creditor,
unless it takes steps to ensure that the wife understands the transaction and that her consent was
true and informed, may be affected by any undue influence exerted by the husband to procure the
wife’s actions, even if the creditor has no knowledge of the undue influence; but that is explicable on
the basis that such a transaction, favouring a husband at the expense of his wife, on its face puts the
creditor on notice of the possibility of undue influence by the husband. By parity of reasoning, if
there is a secured loan to a husband and wife but the creditor is aware that the purposes of the loan
are to pay the husband’s debts or otherwise for his (as distinct from their joint) purposes, the
creditor, without taking precautionary steps, may be affected by the husband’s misconduct.
On that footing, on the facts of the present case it is in my judgment clear that the plaintiff had no
actual knowledge of the acts of Mr. Pitt relied on by Mrs. Pitt as constituting undue influence. Nor
was there anything to put the plaintiff on notice that this was other than a routine transaction for the
benefit of both Mr. and Mrs. Pitt. It was, so far as the plaintiff was aware, partly a remortgaging
transaction, and partly the raising of money to purchase other property for the joint benefit of Mr.
and Mrs. Pitt and the cheque was made payable to them jointly. True it is that there was a greatly
increased borrowing on their house, but the valuation showed that there would be a substantial
equity in the house after the borrowing. In my judgment therefore the innocent plaintiff is not
affected by the undue influence exercised by Mr. Pitt over Mrs. Pitt and accordingly on this ground
Mrs. Pitt’s defence to these proceedings fails.’
I agree with this conclusion … Applying the decision of this House in O’Brien, Mrs. Pitt has established
actual undue influence by Mr. Pitt. The plaintiff will not however be affected by such undue influence
unless Mr. Pitt was, in a real sense, acting as agent of the plaintiff in procuring Mrs. Pitt’s agreement or
the plaintiff had actual or constructive notice of the undue influence. The judge has correctly held that
Mr. Pitt was not acting as agent for the plaintiff. The plaintiff had no actual notice of the undue
influence. What, then, was known to the plaintiff that could put it on inquiry so as to fix it with
constructive notice?
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So far as the plaintiff was aware, the transaction consisted of a joint loan to husband and wife to finance
the discharge of an existing mortgage on 26 Alexander Avenue, and as to the balance to be applied in
buying a holiday home. The loan was advanced to both husband and wife jointly. There was nothing to
indicate to the plaintiff that this was anything other than a normal advance to husband and wife for their
joint benefit.
Mr. Price, for Mrs. Pitt, argued that the invalidating tendency which reflects the risk of there being Class
2(B) undue influence was, in itself, sufficient to put the plaintiff on inquiry. I reject this submission
without hesitation. It accords neither with justice nor with practical common sense. If third parties were
to be fixed with constructive notice of undue influence in relation to every transaction between husband
and wife, such transactions would become almost impossible. On every purchase of a home in the joint
names, the building society or bank financing the purchase would have to insist on meeting the wife
separately from her husband, advise her as to the nature of the transaction and recommend her to take
legal advice separate from that of her husband. If that were not done, the financial institution would have
to run the risk of a subsequent attempt by the wife to avoid her liabilities under the mortgage on the
grounds of undue influence or misrepresentation. To establish the law in that sense would not benefit
the average married couple and would discourage financial institutions from making the advance.
What distinguishes the case of the joint advance from the surety case is that, in the latter, there is not
only the possibility of undue influence having been exercised but also the increased risk of it having in
fact been exercised because, at least on its face, the guarantee by a wife of her husband’s debts is not for
her financial benefit. It is the combination of these two factors that puts the creditor on inquiry.
For these reasons I agree with the Court of Appeal on this issue and would dismiss the appeal.
Etridge (No. 2) calls for the element of ‘manifest disadvantage’ to be discarded

In Pitt, Neill LJ (Court of Appeal) suggested that “on some future occasion it will be necessary to look more
closely at the requirement … [of] manifest disadvantage”; and Lord Browne-Wilkinson (House of Lords), not
satisfied with the application of the requirement of ‘manifest disadvantage, to presumed undue influence, stated
that “the exact limits of the decision in Morgan may have to be reconsidered in the future”.
Before Etridge (No. 2), in Barclays Bank plc v Coleman [2001] QB 20, the Court of Appeal had advocated that
such requirement needs to be discarded. In Etridge (No. 2), however, the five law Lords of the House of Lords
sought to refine the law on the issue. Lord Nicholls felt that in certain situations, the exact nature of the
transaction is necessary to look at in order to raise the presumption but at the same time recommended that the
label “manifest disadvantage” be discarded and insisted the test—“[I]f the gift is so large as not to be
reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which
ordinary men act, the burden is upon donee to support the gift”—as laid down by Lindley LJ in Allcard v
Skinner and adopted by Lord Scarman in Morgan’s case should be the guiding principle.
Professor J. Beatson in Anson’s Law of Contract, 28th ed., at p. 287ff, commented on the decision in Etridge
(No 2), that only special relationship type of cases (within the earlier Class 2A) “that there is true presumption
of undue influence [—where ‘the law presumes, irrebuttably, that one party had influence over the other’—],
arising from the law’s ‘sternly protective attitude towards certain types of relationship’. The claimant ‘need not
prove he actually reposed trusts and confidence in the other party. It is sufficient for him to prove the existence
of the reationship’.”
In the earlier Class 2B presumed undue influence cases, “there is no true presumption but only a shift of the
evidential onus on a question of fact. The burden of proving undue influence rests on the claimant, but will
normally be discharged by proof that he or she placed trust and confidence in the other party and that the
transaction between the parties is one which calls for explanation.”
▪ In Etridge (No 2), the Queen’s Bench Division of the High Court granted the claim of the plaintiff bank
for possession of the defendants’ property at Hampshire, under a legal charge made by them.
▪ The first defendant’s appeal to the Court of Appeal was dismissed.
▪ The matter then came on further appeal before the House of Lords.
▪ The first defendant appellant, Susan R. Etridge,, and the second defendant, Anthony T. Etridge, are
husband and wife.
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▪ The appellant agreed to charge her property in favour of the respondent bank in order to provide security
for the payment of her husband’s debts, or her husband company’s debts.
▪ The bank commenced proceedings for possession of the mortgaged property with a view to its sale.
▪ The appellant defended the claim by alleging—
(1) that her agreement to grant the charge to the bank was brought about by undue influence on the part of
her husband, and,
(2) that the bank, in the circumstances, ought not to be allowed to enforce the charge against her.
The question was whether the bank should be treated as having had notice of the undue influence of the
husband.
▪ The bank, however, had reason to believe that a solicitor had acted for the appellant in the transaction. The
question, then, was the extent of the solicitor’s participation had absolved the bank of the need to make
further inquiries about the circumstances in which the appellant was persuaded by her husband to agree to
grant the charge, or to take any further steps to satisfy itself that her consent to do so was a true and
informed consent.
▪ The House of Lords dismissed the appeal. Allcard v Skinner (1887) 36 Ch D 145, and National
Westminster Bank plc v Morgan [1985] AC 686, were considered, and Barclays Bank plc v O’Brien
[1994] 1 AC 180 were followed. The decision of the Court of Appeal in Barclays Bank plc v Coleman
[2001] QB 20 was affirmed. The House of Lords observed that the confusion could be cured by
“discarding a label which gives rise to this sort of ambiguity. The better approach is to adhere more
in National Westminster Bank plc v Morgan [1985] AC 686. The House held that—
(d) as a general rule, the burden of proving undue influence rests upon the person who claims to have
been wronged (the complainant). The complainant has to prove—
This will normally be sufficient to discharge the burden of proof. On proof of these two matters the
court will infer that, in the absence of a satisfactory explanation, the transaction can only have been
procured by undue influence. In other words, proof of these two facts is prima facie evidence that the
defendant abused the influence he acquired in the parties’ relationship.
(e) On presumed undue influence, Lord Nicholls said that the word ‘“presumption” is descriptive of a
(i) here a plaintiff claimed that the defendant abused the influence he acquired in a relationship of
trust and confidence the plaintiff would succeeded by recourse to presumption (rebuttable
evidential presumption). But this need not be so. Such a plaintiff may succeed even where this
presumption is not available to him; for instance, where the impugned transaction was not one
which called for an explanation.”
(ii) “The law has adopted a sternly protective attitude towards certain types of relationship in
which one party acquires influence over another who is vulnerable and dependent and where,
moreover, substantial gifts by the influenced or vulnerable person are not normally to be
expected. Examples of relationships within this special class are parent and child, guardian
and ward, trustee and beneficiary, solicitor and client, and medical adviser and patient. In
these cases the law presumes, irrebuttably, that one party had influence over the other. The
complainant need not prove he actually reposed trust and confidence in the other party. It is
This decision, at once, shown that the classification in Aboody and O’Brien is not appreciated. It was not
analysed by Lord Nicholls. Etridge (No 2) seemed to avoid the classification of undue influence,
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commonly known as Class 1 (actual undue influence), and Class 2 (presumed undue influence) which is
further subdivided into Classes 2A and 2B. Lord Clyde, in his part of the judgment in Etridge (No 2), was
not satisfied with the classifications in Aboody and reformulated in O’Brien. Lord Clyde (at p. 816) openly
questioned its wisdom:
“92 I question the wisdom of the practice which has grown up, particularly since Bank of Credit and
Commerce International SA v Aboody [1990] 1 QB 923 of attempting to make classifications of cases of
undue influence. That concept is in any event not easy to define. It was observed in Allcard v Skinner
(1887) 36 Ch D 145 that "no court has ever attempted to define undue influence" (Lindley LJ, at p 183).
It is something which can be more easily recognised when found than exhaustively analysed in the
abstract. Correspondingly the attempt to build up classes or categories may lead to confusion. The
confusion is aggravated if the names used to identify the classes do not bear their actual meaning. Thus
on the face of it a division into cases of "actual" and "presumed" undue influence appears illogical. It
appears to confuse definition and proof. There is also room for uncertainty whether the presumption is
of the existence of an influence or of its quality as being undue. I would also dispute the utility of the
further sophistication of subdividing "presumed undue influence" into further categories. All these
classifications to my mind add mystery rather than illumination.”
On “manifest disadvantage” Lord Nicholls started by observing that there are two prerequisites to the
evidential shift in the burden of proof from the complainant to the other party:
(1) that the complainant reposed trust and confidence in the other party, or the other party acquired
ascendancy over the complainant, and
(2) that the transaction is not readily explicable by the relationship of the parties. (Allcard v Skinner
36 Ch D 145—The mere existence of the influence is not enough. “But if the gift is so large as not to
be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary
motives on which ordinary men act, the burden is upon the donee to support the gift.”
Lord Nicholls observed further that this “is a necessary limitation upon the width of the first
prerequisite. It would be absurd for the law to presume that every gift by a child to a parent, or every
transaction between a client and his solicitor or between a patient and his doctor, was brought about
by undue influence unless the contrary is affirmatively proved.”
According to Lord Nicholls, Lord Scarman’s label of “manifest disadvantage” in Morgan to the second
ingredient has been causing difficulty. His Lordship was on the opinion that such label has to be
discarded to avoid further ambiguity. The better approach is to adhere more directly to the test outlined
by Lindley LJ in Allcard v Skinner 36 Ch D 145,
▪ Lord Nicholls of Birkenhead dismissed Mrs. Etridge’s appeal. His Lordship meticulously reviewed the
case law on undue influence and gave a thorough observation on every aspect of the principles relating to
it. His Lordship, in his speech, said:
5 My Lords, before your Lordships’ House are appeals in eight cases. Each case arises out of a
transaction in which a wife charged her interest in her home in favour of a bank as security for her
husband’s indebtedness or the indebtedness of a company through which he carried on business. The
wife later asserted she signed the charge under the undue influence of her husband. In Barclays Bank plc v
O’Brien [1994] 1 AC 180 your Lordships enunciated the principles applicable in this type of case. Since
then, many cases have come before the courts, testing the implications of the O’Brien decision in a variety
of different factual situations. Seven of the present appeals are of this character. In each case the bank
sought to enforce the charge signed by the wife. The bank claimed an order for possession of the
matrimonial home. The wife raised a defence that the bank was on notice that her concurrence in the
transaction had been procured by her husband’s undue influence. The eighth appeal concerns a claim by
a wife for damages from a solicitor who advised her before she entered into a guarantee obligation of this
character. …
12 In CIBC Mortgages plc v Pitt [1994] 1 AC 200 your Lordships’ House decided that in cases of undue
influence disadvantage is not a necssary ingredient of the cause of action. It is not essential that the
transaction should be disadvantageous to the pressurised or influenced person, either in financial terms
or in any other way. However, in the nature of things, questions of undue influence will not usually arise,
and the exercise of undue influence is unlikely to occur, where the transaction is innocuous. The issue is
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likely to arise only when, in some respect, the transaction was disadvantageous either from the outset or
as matters turned out.
Burden of proof and presumptions
13 Whether a transaction was brought about by the exercise of undue influence is a question of fact.
Here, as elsewhere, the general principle is that he who asserts a wrong has been committed must prove
it. The burden of proving an allegation of undue influence rests upon the person who claims to have
been wronged. This is the general rule. The evidence required to discharge the burden of proof depends
on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent
to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in
that relationship, and all the circumstances of the case.
14 Proof that the complainant placed trust and confidence in the other party in relation to the
management of the complainant’s financial affairs, coupled with a transaction which calls for explanation,
will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof.
On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory
explanation, the transaction can only have been procured by undue influence. In other words, proof of
these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties’
relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential
burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise
should be drawn.
15 Bainbrigge v Browne 18 Ch D 188, already mentioned, provides a good illustration of this commonplace
type of forensic exercise. Fry J held, at p 196, that there was no direct evidence upon which he could rely
as proving undue pressure by the father. But there existed circumstances “from which the court will infer
pressure and undue influence”. None of the children were entirely emancipated from their father’s
control. None seemed conversant with business. These circumstances were such as to cast the burden of
proof upon the father. He had made no attempt to discharge that burden. He did not appear in court at
all. So the children’s claim succeeded. Again, more recently, in National Westminster Bank plc v Morgan
[1985] AC 686, 707, Lord Scarman noted that a relationship of banker and customer may become one in
which a banker acquires a dominating influence. If he does, and a manifestly disadvantageous transaction
is proved, “there would then be room” for a court to presume that it resulted from the exercise of undue
influence.
16 Generations of equity lawyers have conventionally described this situation as one in which a
presumption of undue influence arises. This use of the term “presumption” is descriptive of a shift in the
evidential onus on a question of fact. When a plaintiff succeeds by this route he does so because he has
succeeded in establishing a case of undue influence. The court has drawn appropriate inferences of fact
upon a balanced consideration of the whole of the evidence at the end of a trial in which the burden of
proof rested upon the plaintiff. The use, in the course of the trial, of the forensic tool of a shift in the
evidential burden of proof should not be permitted to obscure the overall position. These cases are the
equitable counterpart of common law cases where the principle of res ipsa loquitur is invoked. There is a
rebuttable evidential presumption of undue influence.
17 The availability of this forensic tool in cases founded on abuse of influence arising from the parties’
relationship has led to this type of case sometimes being labelled “presumed undue influence”. This is by
way of contrast with cases involving actual pressure or the like, which are labelled “actual undue
influence”: see Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, 953, and Royal Bank
of Scotland plc v Etridge (No 2) [1998] 4 All ER 705, 711-712, paras 5-7. This usage can be a little confusing.
In many cases where a plaintiff has claimed that the defendant abused the influence he acquired in a
relationship of trust and confidence the plaintiff has succeeded by recourse to the rebuttable evidential
presumption. But this need not be so. Such a plaintiff may succeed even where this presumption is not
available to him; for instance, where the impugned transaction was not one which called for an
explanation.
18 The evidential presumption discussed above is to be distinguished sharply from a different form of
presumption which arises in some cases. The law has adopted a sternly protective attitude towards certain
types of relationship in which one party acquires influence over another who is vulnerable and dependent
and where, moreover, substantial gifts by the influenced or vulnerable person are not normally to be
expected. Examples of relationships within this special class are parent and child, guardian and ward,
trustee and beneficiary, solicitor and client, and medical adviser and patient. In these cases the law
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presumes, irrebuttably, that one party had influence over the other. The complainant need not prove he
actually reposed trust and confidence in the other party. It is sufficient for him to prove the existence of
the type of relationship.
19 It is now well established that husband and wife is not one of the relationships to which this latter
principle applies. In Yerkey v Jones (1939) 63 CLR 649, 675 Dixon J explained the reason. The Court of
Chancery was not blind to the opportunities of obtaining and unfairly using influence over a wife which a
husband often possesses. But there is nothing unusual or strange in a wife, from motives of affection or
for other reasons, conferring substantial financial benefits on her husband. Although there is no
presumption, the court will nevertheless note, as a matter of fact, the opportunities for abuse which flow
from a wife’s confidence in her husband. The court will take this into account with all the other evidence
in the case. Where there is evidence that a husband has taken unfair advantage of his influence over his
wife, or her confidence in him, “it is not difficult for the wife to establish her title to relief”: see In re
Lloyds Bank Ltd; Bomze and Lederman v Bomze [1931] 1 Ch 289, 302, per Maugham J.
Independent advice
20 Proof that the complainant received advice from a third party before entering into the impugned
transaction is one of the matters a court takes into account when weighing all the evidence. The weight,
or importance, to be attached to such advice depends on all the circumstances. In the normal course,
advice from a solicitor or other outside adviser can be expected to bring home to a complainant a proper
understanding of what he or she is about to do. But a person may understand fully the implications of a
proposed transaction, for instance, a substantial gift, and yet still be acting under the undue influence of
another. Proof of outside advice does not, of itself, necessarily show that the subsequent completion of
the transaction was free from the exercise of undue influence. Whether it will be proper to infer that
outside advice had an emancipating effect, so that the transaction was not brought about by the exercise
of undue influence, is a question of fact to be decided having regard to all the evidence in the case.
21 As already noted, there are two prerequisites to the evidential shift in the burden of proof from the
complainant to the other party. First, that the complainant reposed trust and confidence in the other
party, or the other party acquired ascendancy over the complainant. Second, that the transaction is not
readily explicable by the relationship of the parties.
22 Lindley LJ summarised this second prerequisite in the leading authority of Allcard v Skinner 36 Ch D
145, where the donor parted with almost all her property. Lindley LJ pointed out that where a gift of a
small amount is made to a person standing in a confidential relationship to the donor, some proof of the
exercise of the influence of the donee must be given. The mere existence of the influence is not enough.
He continued, at p 185 “But if the gift is so large as not to be reasonably accounted for on the ground of
friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon
the donee to support the gift.” In Bank of Montreal v Stuart [1911] AC 120, 137 Lord Macnaghten used the
phrase “immoderate and irrational” to describe this concept.
23 The need for this second prerequisite has recently been questioned: see Nourse LJ in Barclays Bank plc v
Coleman [2001] QB, 20, 30-32, one of the cases under appeal before your Lordships’ House. Mr Sher
invited your Lordships to depart from the decision of the House on this point in National Westminster
Bank plc v Morgan [1985] AC 686.
24 My Lords, this is not an invitation I would accept. The second prerequisite, as expressed by Lindley
LJ, is good sense. It is a necessary limitation upon the width of the first prerequisite. It would be absurd
for the law to presume that every gift by a child to a parent, or every transaction between a client and his
solicitor or between a patient and his doctor, was brought about by undue influence unless the contrary is
affirmatively proved. Such a presumption would be too far-reaching. The law would be out of touch with
everyday life if the presumption were to apply to every Christmas or birthday gift by a child to a parent,
or to an agreement whereby a client or patient agrees to be responsible for the reasonable fees of his legal
or medical adviser. The law would be rightly open to ridicule, for transactions such as these are
unexceptionable. They do not suggest that something may be amiss. So something more is needed before
the law reverses the burden of proof, something which calls for an explanation. When that something
more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the
explanation before the presumption will be regarded as rebutted.
25 This was the approach adopted by Lord Scarman in National Westminster Bank plc v Morgan [1985] AC
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686, 703-707. He cited Lindley LJ’s observations in Allcard v Skinner 36 Ch D 145, 185, which I have set
out above. He noted that whatever the legal character of the transaction, it must constitute a disadvantage
sufficiently serious to require evidence to rebut the presumption that in the circumstances of the parties’
relationship, it was procured by the exercise of undue influence. Lord Scarman concluded, at p 704:
the Court of Appeal erred in law in holding that the presumption of undue influence can arise from
the evidence of the relationship of the parties without also evidence that the transaction itself was
wrongful in that it constituted an advantage taken of the person subjected to the influence which, failing proof to
the contrary, was explicable only on the basis that undue influence had been exercised to procure it. (Emphasis
added.)
26 Lord Scarman attached the label “manifest disadvantage” to this second ingredient necessary to raise
the presumption. This label has been causing difficulty. It may be apt enough when applied to
straightforward transactions such as a substantial gift or a sale at an undervalue. But experience has now
shown that this expression can give rise to misunderstanding. The label is being understood and applied
in a way which does not accord with the meaning intended by Lord Scarman, its originator.
27 The problem has arisen in the context of wives guaranteeing payment of their husband’s business
debts. In recent years judge after judge has grappled with the baffling question whether a wife’s guarantee
of her husband’s bank overdraft, together with a charge on her share of the matrimonial home, was a
transaction manifestly to her disadvantage.
28 In a narrow sense, such a transaction plainly (“manifestly”) is disadvantageous to the wife. She
undertakes a serious financial obligation, and in return she personally receives nothing. But that would be
to take an unrealistically blinkered view of such a transaction. Unlike the relationship of solicitor and
client or medical adviser and patient, in the case of husband and wife there are inherent reasons why such
a transaction may well be for her benefit. Ordinarily, the fortunes of husband and wife are bound up
together. If the husband’s business is the source of the family income, the wife has a lively interest in
doing what she can to support the business. A wife’s affection and self-interest run hand-in-hand in
inclining her to join with her husband in charging the matrimonial home, usually a jointly-owned asset, to
obtain the financial facilities needed by the business. The finance may be needed to start a new business,
or expand a promising business, or rescue an ailing business.
29 Which, then, is the correct approach to adopt in deciding whether a transaction is disadvantageous to
the wife: the narrow approach, or the wider approach? The answer is neither. The answer lies in
discarding a label which gives rise to this sort of ambiguity. The better approach is to adhere more
in National Westminster Bank plc v Morgan [1985] AC 686, in the passages I have cited.
30 I return to husband and wife cases. I do not think that, in the ordinary course, a guarantee of the
character I have mentioned is to be regarded as a transaction which, failing proof to the contrary, is
explicable only on the basis that it has been procured by the exercise of undue influence by the husband.
Wives frequently enter into such transactions. There are good and sufficient reasons why they are willing
to do so, despite the risks involved for them and their families. They may be enthusiastic. They may not.
They may be less optimistic than their husbands about the prospects of the husbands’ businesses. They
may be anxious, perhaps exceedingly so. But this is a far cry from saying that such transactions as a class
are to be regarded as prima facie evidence of the exercise of undue influence by husbands.
31 I have emphasised the phrase “in the ordinary course”. There will be cases where a wife’s signature of
a guarantee or a charge of her share in the matrimonial home does call for explanation. Nothing I have
said above is directed at such a case.
A cautionary note
32 I add a cautionary note, prompted by some of the first instance judgments in the cases currently being
considered by the House. It concerns the general approach to be adopted by a court when considering
whether a wife’s guarantee of her husband’s bank overdraft was procured by her husband’s undue
influence. Undue influence has a connotation of impropriety. In the eye of the law, undue influence
means that influence has been misused. Statements or conduct by a husband which do not pass beyond
the bounds of what may be expected of a reasonable husband in the circumstances should not, without
more, be castigated as undue influence. Similarly, when a husband is forecasting the future of his
business, and expressing his hopes or fears, a degree of hyperbole may be only natural. Courts should not
too readily treat such exaggerations as misstatements.
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33 Inaccurate explanations of a proposed transaction are a different matter. So are cases where a
husband, in whom a wife has reposed trust and confidence for the management of their financial affairs,
prefers his interests to hers and makes a choice for both of them on that footing. Such a husband abuses
the influence he has. He fails to discharge the obligation of candour and fairness he owes a wife who is
looking to him to make the major financial decisions.
▪ Lord Hobhouse of Woodborough, in his judgment on Etridge said:

Royal Bank of Scotland v Etridge
128 This is a case which, after some delay and contested interlocutory proceedings, went to a trial before
Judge Behrens. The wife gave evidence. The judge found that, on the evidence, she had not been the
victim of any actual undue influence. However he went on to deal with the case on the basis of
presumed undue influence. On appeal, the Court of Appeal upheld the judge's finding of no actual
undue influence; nor did she at either level obtain a finding in her favour that she had been induced to
sign by any misrepresentation. Accordingly, on the correct view of the law, her case failed in limine and
none of the other points arose. Judgment was rightly entered for the bank. On this ground, I agree that
this appeal should be dismissed. This case provides an object lesson in the dangers of attempting a
summary resolution of issues of mixed law and fact without having ascertained the facts.
Agency, actual or constructive notice: Whether a third party creditor bank could be fixed with constructive
notice of the undue influence exerted by a husband debtor on his surety wife.
▪ Lord Browne-Wilkinson, in Barclays Bank plc v O’Brien & Anor [1993] 4 All ER 417 said:
[I]n surety cases the decisive question is whether the claimant wife can set aside the transaction, not
against the wrongdoing husband, but against the creditor bank. Of course, if the wrongdoing husband is
acting as agent for the creditor bank in obtaining the surety from the wife, the creditor will be fixed with
the wrongdoing of its own agent and the surety contract can be set aside as against the creditor. Apart
from this, if the creditor bank has notice, actual or constructive, of the undue influence exercised by the
husband (and consequentially of the wife’s equity to set aside the transaction) the creditor will take
subject to that equity and the wife can set aside the transaction against the creditor (albeit a purchaser for
value) as well as against the husband: see Bainbrigge v Browne (1881) 18 Ch D 188 and Bank of Credit and
Commerce International SA v Aboody [1990] 1 QB 923, 973. Similarly, in cases such as the present where the
wife has been induced to enter into the transaction by the husband’s misrepresentation, her equity to set
aside the transaction will be enforceable against the creditor if either the husband was acting as the
creditor’s agent or the creditor had actual or constructive notice. …
▪ Lord Browne-Wilkinson’s observations in Barclays Bank plc v O’Brien & Anor [1993] 4 All ER 417 (HL)
has been analysed thoroughly by Lord Nicholls of Birkenhead in Royal Bank of Scotland v Etridge (No. 2)
[2002] 2 AC 773 (HL) as follows:
The complainant and third parties: suretyship transactions
34 The problem considered in O’Brien’s case and raised by the present appeals is of comparatively recent
origin. … For most home-owning couples, their homes are their most valuable asset. They must surely
be free, if they so wish, to use this asset as a means of raising money, whether for the purpose of the
husband’s business or for any other purpose. Their home is their property. The law should not restrict
them in the use they may make of it. Bank finance is in fact by far the most important source of external
capital for small businesses with fewer than ten employees. These businesses comprise about 95% of all
businesses in the country, responsible for nearly one-third of all employment. Finance raised by second
mortgages on the principal’s home is a significant source of capital for the start-up of small businesses.
35 If the freedom of home-owners to make economic use of their homes is not to be frustrated, a bank
must be able to have confidence that a wife’s signature of the necessary guarantee and charge will be as
binding upon her as is the signature of anyone else on documents which he or she may sign. Otherwise
banks will not be willing to lend money on the security of a jointly owned house or flat.
36 At the same time, the high degree of trust and confidence and emotional interdependence which
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normally characterises a marriage relationship provides scope for abuse. One party may take advantage
of the other’s vulnerability. Unhappily, such abuse does occur. Further, it is all too easy for a husband,
anxious or even desperate for bank finance, to misstate the position in some particular or to mislead the
wife, wittingly or unwittingly, in some other way. The law would be seriously defective if it did not
recognise these realities.
37 In O’Brien’s case this House decided where the balance should be held between these competing
interests. On the one side, there is the need to protect a wife against a husband’s undue influence. On the
other side, there is the need for the bank to be able to have reasonable confidence in the strength of its
security. Otherwise it would not provide the required money. The problem lies in finding the course best
designed to protect wives in a minority of cases without unreasonably hampering the giving and taking of
security. The House produced a practical solution. The House decided what are the steps a bank should
take to ensure it is not affected by any claim the wife may have that her signature of the documents was
procured by the undue influence or other wrong of her husband. Like every compromise, the outcome
falls short of achieving in full the objectives of either of the two competing interests. In particular, the
steps required of banks will not guarantee that, in future, wives will not be subjected to undue influence
or misled when standing as sureties. Short of prohibiting this type of suretyship transaction altogether,
there is no way of achieving that result, desirable although it is. What passes between a husband and wife
in this regard in the privacy of their own home is not capable of regulation or investigation as a prelude
to the wife entering into a suretyship transaction.
38 The jurisprudential route by which the House reached its conclusion in O’Brien’s case has attracted
criticism from some commentators. It has been said to involve artificiality and thereby create uncertainty
in the law. I must first consider this criticism. In the ordinary course a bank which takes a guarantee
security from the wife of its customer will be altogether ignorant of any undue influence the customer
may have exercised in order to secure the wife’s concurrence. In O’Brien Lord Browne-Wilkinson prayed
in aid the doctrine of constructive notice. In circumstances he identified, a creditor is put on inquiry.
When that is so, the creditor “will have constructive notice of the wife’s rights” unless the creditor takes
reasonable steps to satisfy himself that the wife’s agreement to stand surety has been properly obtained:
see [1994] 1 AC 180, 196.
39 Lord Browne-Wilkinson would be the first to recognise this is not a conventional use of the equitable
concept of constructive notice. The traditional use of this concept concerns the circumstances in which a
transferee of property who acquires a legal estate from a transferor with a defective title may nonetheless
obtain a good title, that is, a better title than the transferor had. That is not the present case. The bank
acquires its charge from the wife, and there is nothing wrong with her title to her share of the
matrimonial home. The transferor wife is seeking to resile from the very transaction she entered into
with the bank, on the ground that her apparent consent was procured by the undue influence or other
misconduct, such as misrepresentation, of a third party (her husband). She is seeking to set aside her
contract of guarantee and, with it, the charge she gave to the bank.
40 The traditional view of equity in this tripartite situation seems to be that a person in the position of
the wife will only be relieved of her bargain if the other party to the transaction (the bank, in the present
instance) was privy to the conduct which led to the wife’s entry into the transaction. Knowledge is
required: see Cobbett v Brock (1855) 20 Beav 524, 528, 531, per Sir John Romilly MR, Kempson v Ashbee
(1874) LR 10 Ch App 15, 21, per James LJ, and Bainbrigge v Browne 18 Ch D 188, 197, per Fry J. The law
imposes no obligation on one party to a transaction to check whether the other party’s concurrence was
obtained by undue influence. But O’Brien has introduced into the law the concept that, in certain
circumstances, a party to a contract may lose the benefit of his contract, entered into in good faith, if he
ought to have known that the other’s concurrence had been procured by the misconduct of a third party.
41 There is a further respect in which O’Brien departed from conventional concepts. Traditionally, a
person is deemed to have notice (that is, he has “constructive” notice) of a prior right when he does not
actually know of it but would have learned of it had he made the requisite inquiries. A purchaser will be
treated as having constructive notice of all that a reasonably prudent purchaser would have discovered.
In the present type of case, the steps a bank is required to take, lest it have constructive notice that the
wife’s concurrence was procured improperly by her husband, do not consist of making inquiries. Rather,
O’Brien envisages that the steps taken by the bank will reduce, or even eliminate, the risk of the wife
entering into the transaction under any misapprehension or as a result of undue influence by her
husband. The steps are not concerned to discover whether the wife has been wronged by her husband in
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this way. The steps are concerned to minimise the risk that such a wrong may be committed.
42 These novelties do not point to the conclusion that the decision of this House in O’Brien is leading the
law astray. Lord Browne-Wilkinson acknowledged he might be extending the law: see [1994] 1 AC 180,
197. Some development was sorely needed. The law had to find a way of giving wives a reasonable
measure of protection, without adding unreasonably to the expense involved in entering into guarantee
transactions of the type under consideration. The protection had to extend also to any
misrepresentations made by a husband to his wife. In a situation where there is a substantial risk the
husband may exercise his influence improperly regarding the provision of security for his business debts,
there is an increased risk that explanations of the transaction given by him to his wife may be
misleadingly incomplete or even inaccurate.
43 The route selected in O’Brien ought not to have an unsettling effect on established principles of
contract. O’Brien concerned suretyship transactions. These are tripartite transactions. They involve the
debtor as well as the creditor and the guarantor. The guarantor enters into the transaction at the request
of the debtor. The guarantor assumes obligations. On the face of the transaction the guarantor usually
receives no benefit in return, unless the guarantee is being given on a commercial basis. Leaving aside
cases where the relationship between the surety and the debtor is commercial, a guarantee transaction is
one-sided so far as the guarantor is concerned. The creditor knows this. Thus the decision in O’Brien is
directed at a class of contracts which has special features of its own. That said, I must at a later stage in
this speech return to the question of the wider implications of the O’Brien decision.
The threshold: when the bank is put on inquiry
44 In O’Brien the House considered the circumstances in which a bank, or other creditor, is “put on
inquiry”. Strictly this is a misnomer. As already noted, a bank is not required to make inquiries. But it will
be convenient to use the terminology which has now become accepted in this context. The House set a
low level for the threshold which must be crossed before a bank is put on inquiry. For practical reasons
the level is set much lower than is required to satisfy a court that, failing contrary evidence, the court may
infer that the transaction was procured by undue influence. Lord Browne-Wilkinson said [1994] 1 AC
180, 196:
Therefore in my judgment a creditor in put on inquiry when a wife offers to stand surety for her
husband’s debts by the combination of two factors: (a) the transaction is on its face not to the
financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in
procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles
the wife to set aside the transaction.”
In my view, this passage, read in context, is to be taken to mean, quite simply, that a bank is put on
inquiry whenever a wife offers to stand surety for her husband’s debts.
45 The Court of Appeal, comprising Stuart-Smith, Millett and Morritt LJJ, interpreted this passage more
restrictively. The threshold, the court said, is somewhat higher. Where condition (a) is satisfied, the bank
is put on inquiry if, but only if, the bank is aware that the parties are cohabiting or that the particular
surety places implicit trust and confidence in the principal debtor in relation to her financial affairs: see
Royal Bank of Scotland plc v Etridge (No 2) [1998] 4 All ER 705, 719.
46 I respectfully disagree. I do not read (a) and (b) as factual conditions which must be proved in each
case before a bank is put on inquiry. I do not understand Lord Browne-Wilkinson to have been saying
that, in husband and wife cases, whether the bank is put on inquiry depends on its state of knowledge of
the parties’ marriage, or of the degree of trust and confidence the particular wife places in her husband in
relation to her financial affairs. That would leave banks in a state of considerable uncertainty in a
situation where it is important they should know clearly where they stand. The test should be simple and
clear and easy to apply in a wide range of circumstances. I read (a) and (b) as Lord Browne-Wilkinson’s
broad explanation of the reason why a creditor is put on inquiry when a wife offers to stand surety for
her husband’s debts. These are the two factors which, taken together, constitute the underlying rationale.
47 The position is likewise if the husband stands surety for his wife’s debts. Similarly, in the case of
unmarried couples, whether heterosexual or homosexual, where the bank is aware of the relationship: see
Lord Browne-Wilkinson in O’Brien’s case, at p 198. Cohabitation is not essential. The Court of Appeal
rightly so decided in Massey v Midland Bank plc [1995] 1 All ER 929: see Steyn LJ, at p 933.
48 As to the type of transactions where a bank is put on inquiry, the case where a wife becomes surety
for her husband’s debts is, in this context, a straightforward case. The bank is put on inquiry. On the
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other side of the line is the case where money is being advanced, or has been advanced, to husband and
wife jointly. In such a case the bank is not put on inquiry, unless the bank is aware the loan is being made
for the husband’s purposes, as distinct from their joint purposes. That was decided in CIBC Mortgages plc
v Pitt [1994] 1 AC 200.
49 Less clear cut is the case where the wife becomes surety for the debts of a company whose shares are
held by her and her husband. Her shareholding may be nominal, or she may have a minority
shareholding or an equal shareholding with her husband. In my view the bank is put on inquiry in such
cases, even when the wife is a director or secretary of the company. Such cases cannot be equated with
joint loans. The shareholding interests, and the identity of the directors, are not a reliable guide to the
identity of the persons who actually have the conduct of the company’s business.
The steps a bank should take
50 The principal area of controversy on these appeals concerns the steps a bank should take when it has
been put on inquiry. In O’Brien [1994] 1 AC 180, 196-197 Lord Browne-Wilkinson said that a bank can
reasonably be expected to take steps to bring home to the wife the risk she is running by standing as
surety and to advise her to take independent advice. That test is applicable to past transactions. All the
cases now before your Lordships’ House fall into this category. For the future a bank satisfies these
requirements if it insists that the wife attend a private meeting with a representative of the bank at which
she is told of the extent of her liability as surety, warned of the risk she is running and urged to take
independent legal advice. In exceptional cases the bank, to be safe, has to insist that the wife is separately
advised.
51 The practice of the banks involved in the present cases, and it seems reasonable to assume this is the
practice of banks generally, is not to have a private meeting with the wife. Nor do the banks themselves
take any other steps to bring home to the wife the risk she is running. This has continued to be the
practice since the decision in O’Brien’s case. Banks consider they would stand to lose more than they
would gain by holding a private meeting with the wife. They are, apparently, unwilling to assume the
responsibility of advising the wife at such a meeting. Instead, the banking practice remains, as before,
that in general the bank requires a wife to seek legal advice. The bank seeks written confirmation from a
solicitor that he has explained the nature and effect of the documents to the wife.
52 Many of the difficulties which have arisen in the present cases stem from serious deficiencies, or
alleged deficiencies, in the quality of the legal advice given to the wives. I say “alleged”, because three of
the appeals before your Lordships’ House have not proceeded beyond the interlocutory stage. The banks
successfully applied for summary judgment. In these cases the wife’s allegations, made in affidavit form,
have not been tested by cross-examination. On behalf of the wives it has been submitted that under the
current practice the legal advice is often perfunctory in the extreme and, further, that everyone, including
the banks, knows this. Independent legal advice is a fiction. The system is a charade. In practice it
provides little or no protection for a wife who is under a misapprehension about the risks involved or
who is being coerced into signing. She may not even know the present state of her husband’s
indebtedness.
53 My Lords, it is plainly neither desirable nor practicable that banks should be required to attempt to
discover for themselves whether a wife’s consent is being procured by the exercise of undue influence of
her husband. This is not a step the banks should be expected to take. Nor, further, is it desirable or
practicable that banks should be expected to insist on confirmation from a solicitor that the solicitor has
satisfied himself that the wife’s consent has not been procured by undue influence. As already noted, the
circumstances in which banks are put on inquiry are extremely wide. They embrace every case where a
wife is entering into a suretyship transaction in respect of her husband’s debts. Many, if not most, wives
would be understandably outraged by having to respond to the sort of questioning which would be
appropriate before a responsible solicitor could give such a confirmation. In any event, solicitors are not
equipped to carry out such an exercise in any really worthwhile way, and they will usually lack the
necessary materials. Moreover, the legal costs involved, which would inevitably fall on the husband who
is seeking financial assistance from the bank, would be substantial.
54 The furthest a bank can be expected to go is to take reasonable steps to satisfy itself that the wife has
had brought home to her, in a meaningful way, the practical implications of the proposed transaction.
This does not wholly eliminate the risk of undue influence or misrepresentation. But it does mean that a
wife enters into a transaction with her eyes open so far as the basic elements of the transaction are
concerned.
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55 This is the point at which, in the O’Brien case, the House decided that the balance between the
competing interests should be held. A bank may itself provide the necessary information directly to the
wife. Indeed, it is best equipped to do so. But banks are not following that course. Ought they to be
obliged to do so in every case? I do not think Lord Browne-Wilkinson so stated in O’Brien. I do not
understand him to have said that a personal meeting was the only way a bank could discharge its
obligation to bring home to the wife the risks she is running. It seems to me that, provided a suitable
alternative is available, banks ought not to be compelled to take this course. Their reasons for not
wishing to hold a personal meeting are understandable. Commonly, when a bank seeks to enforce a
security provided by a customer, it is met with a defence based on assurances alleged to have been given
orally by a branch manager at an earlier stage: that the bank would continue to support the business, that
the bank would not call in its loan, and so forth. Lengthy litigation ensues. Sometimes the allegations
prove to be well founded, sometimes not. Banks are concerned to avoid the prospect of similar litigation
which would arise in guarantee cases if they were to adopt a practice of holding a meeting with a wife at
which the bank’s representative would explain the proposed guarantee transaction. It is not unreasonable
for the banks to prefer that this task should be undertaken by an independent legal adviser.
56 I shall return later to the steps a bank should take when it follows this course. Suffice to say, these
steps, together with advice from a solicitor acting for the wife, ought to provide the substance of the
protection which O’Brien intended a wife should have. Ordinarily it will be reasonable that a bank should
be able to rely upon confirmation from a solicitor, acting for the wife, that he has advised the wife
appropriately.
57 The position will be otherwise if the bank knows that the solicitor has not duly advised the wife or, I
would add, if the bank knows facts from which it ought to have realised that the wife has not received
the appropriate advice. In such circumstances the bank will proceed at its own risk. …
The content of the legal advice
58 In Royal Bank of Scotland plc v Etridge (No 2) [1998] 4 All ER 705, 715, para 19, the Court of Appeal set
out its views of the duties of a solicitor in this context:
A solicitor who is instructed to advise a person who may be subject to the undue influence of
another must bear in mind that it is not sufficient that she understands the nature and effect of
the transaction if she is so affected by the influence of the other that she cannot make an
independent decision of her own. It is not sufficient to explain the documentation and ensure she
understands the nature of the transaction and wishes to carry it out: see Powell v Powell [1900] 1 Ch
243, 247, approved in Wright v Carter [1903] 1 Ch 27. His duty is to satisfy himself that his client is
free from improper influence, and the first step must be to ascertain whether it is one into which
she could sensibly be advised to enter if free from such influence. If he is not so satisfied it is his
duty to advise her not to enter into it, and to refuse to act further for her in the implementation of
the transaction if she persists. In this event, while the contents of his advice must remain
confidential, he should inform the other parties (including the bank) that he has seen his client
and given her certain advice, and that as a result he has declined to act for her any further. He
must in any event advise her that she is under no obligation to enter into the transaction at all and,
if she still wishes to do so, that she is not bound to accept the terms of any document which has
been put before her: see Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144.
59 I am unable to accept this as an accurate formulation of a solicitor’s duties in cases such as those now
under consideration. In some respects it goes much too far. The observations of Farwell J in Powell v
Powell [1900] 1 Ch 243, 247, should not be pressed unduly widely. Powell v Powell was a case where strong
moral pressure was applied by a stepmother to a girl who was only just 21. She was regarded as not really
capable of dealing irrevocably with her parent or guardian in the matter of a substantial settlement.
Farwell J’s observations cannot be regarded as of general application in all cases where a solicitor is
giving advice to a person who may have been subject to undue influence.
60 More pertinently, in In re Coomber; Coomber v Coomber [1911] 1 Ch 723, 730, Fletcher Moulton LJ
summarised the general rules applicable to cases of persons who are competent to form an opinion of
their own:
All that is necessary is that some independent person, free from any taint of the relationship, or of
the consideration of interest which would affect the act, should put clearly before the person what
are the nature and the consequences of the act. It is for adult persons of competent mind to decide
whether they will do an act, and I do not think that independent and competent advice means
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independent and competent approval. 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 know precisely what they are doing.
61 Thus, in the present type of case it is not for the solicitor to veto the transaction by declining to
confirm to the bank that he has explained the documents to the wife and the risks she is taking upon
herself. If the solicitor considers the transaction is not in the wife’s best interests, he will give reasoned
advice to the wife to that effect. But at the end of the day the decision on whether to proceed is the
decision of the client, not the solicitor. A wife is not to be precluded from entering into a financially
unwise transaction if, for her own reasons, she wishes to do so.
62 That is the general rule. There may, of course, be exceptional circumstances where it is glaringly
obvious that the wife is being grievously wronged. In such a case the solicitor should decline to act
further. In Wright v Carter [1903] 1 Ch 27, 57-58, Stirling LJ approved Farwell J’s observations in Powell v
Powell [1900] 1 Ch 243, 247. But he did so by reference to the extreme example of a poor man divesting
himself of all his property in favour of his solicitor.
63 In Royal Bank of Scotland plc v Etridge (No 2) [1998] 4 All ER 705, 722, para 49, the Court of Appeal
said that if the transaction is “one into which no competent solicitor could properly advise the wife to
enter”, the availability of legal advice is insufficient to avoid the bank being fixed with constructive
notice. It follows from the views expressed above that I am unable to agree with the Court of Appeal on
this point.
64 I turn to consider the scope of the responsibilities of a solicitor who is advising the wife. In
identifying what are the solicitor’s responsibilities the starting point must always be the solicitor’s
retainer. What has he been retained to do? As a general proposition, the scope of a solicitor’s duties is
dictated by the terms, whether express or implied, of his retainer. In the type of case now under
consideration the relevant retainer stems from the bank’s concern to receive confirmation from the
solicitor that, in short, the solicitor has brought home to the wife the risks involved in the proposed
transaction. As a first step the solicitor will need to explain to the wife the purpose for which he has
become involved at all. He should explain that, should it ever become necessary, the bank will rely upon
his involvement to counter any suggestion that the wife was overborne by her husband or that she did
not properly understand the implications of the transaction. The solicitor will need to obtain
confirmation from the wife that she wishes him to act for her in the matter and to advise her on the legal
and practical implications of the proposed transaction.
65 When an instruction to this effect is forthcoming, the content of the advice required from a solicitor
before giving the confirmation sought by the bank will, inevitably, depend upon the circumstances of the
case. Typically, the advice a solicitor can be expected to give should cover the following matters as the
core minimum. (1) He will need to explain the nature of the documents and the practical consequences
these will have for the wife if she signs them. She could lose her home if her husband’s business does
not prosper. Her home may be her only substantial asset, as well as the family’s home. She could be
made bankrupt. (2) He will need to point out the seriousness of the risks involved. The wife should be
told the purpose of the proposed new facility, the amount and principal terms of the new facility, and
that the bank might increase the amount of the facility, or change its terms, or grant a new facility,
without reference to her. She should be told the amount of her liability under her guarantee. The
solicitor should discuss the wife’s financial means, including her understanding of the value of the
property being charged. The solicitor should discuss whether the wife or her husband has any other
assets out of which repayment could be made if the husband’s business should fail. These matters are
relevant to the seriousness of the risks involved. (3) The solicitor will need to state clearly that the wife
has a choice. The decision is hers and hers alone. Explanation of the choice facing the wife will call for
some discussion of the present financial position, including the amount of the husband’s present
indebtedness, and the amount of his current overdraft facility. (4) The solicitor should check whether the
wife wishes to proceed. She should be asked whether she is content that the solicitor should write to the
bank confirming he has explained to her the nature of the documents and the practical implications they
may have for her, or whether, for instance, she would prefer him to negotiate with the bank on the terms
of the transaction. Matters for negotiation could include the sequence in which the various securities will
be called upon or a specific or lower limit to her liabilities. The solicitor should not give any confirmation
to the bank without the wife’s authority.
66 The solicitor’s discussion with the wife should take place at a face-to-face meeting, in the absence of
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the husband. It goes without saying that the solicitor’s explanations should be couched in suitably non-
technical language. It also goes without saying that the solicitor’s task is an important one. It is not a
formality.
67 The solicitor should obtain from the bank any information he needs. If the bank fails for any reason
to provide information requested by the solicitor, the solicitor should decline to provide the
confirmation sought by the bank.
68 As already noted, the advice which a solicitor can be expected to give must depend on the particular
facts of the case. But I have set out this “core minimum” in some detail, because the quality of the legal
advice is the most disturbing feature of some of the present appeals. The perfunctory nature of the
advice may well be largely due to a failure by some solicitors to understand what is required in these
cases.
Independent advice
69 I turn next to the much-vexed question whether the solicitor advising the wife must act for the wife
alone. Or, at the very least, the solicitor must not act for the husband or the bank in the current
transaction save in a wholly ministerial capacity, such as carrying out conveyancing formalities or
supervising the execution of documents and witnessing signatures. Commonly, in practice, the solicitor
advising the wife will be the solicitor acting also for her husband either in the particular transaction or
generally.
70 The first point to note is that this question cannot be answered by reference to reported decisions.
The steps a bank must take once it is put on inquiry, if it is to avoid having constructive notice of the
wife’s rights, are not the subject of exposition in earlier authority. This is a novel situation, created by the
O’Brien decision.
71 Next, a simple and clear rule is needed, preferably of well nigh universal application. In some cases a
bank deals directly with a husband and wife and has to take the initiative in requiring the wife to obtain
legal advice. In other cases, a bank may deal throughout with solicitors already acting for the husband
and wife. Bank of Baroda v Rayarel [1995] 2 FLR 376 is an example of the latter type of case. It would not
be satisfactory to attempt to draw a distinction along these lines. Any such distinction would lack a
principled base. Inevitably, in practice, the distinction would disintegrate in confusion.
72 Thirdly, here again, a balancing exercise is called for. Some features point in one direction, others in
the opposite direction. Factors favouring the need for the solicitor to act for the wife alone include the
following. Sometimes a wife may be inhibited in discussion with a solicitor who is also acting for the
husband or whose main client is the husband. This occurred in Banco Exterior Internacional v Mann [1995] 1
All ER 936: see the finding of the judge, at p 941f-g. Sometimes a solicitor whose main client is the
husband may not, in practice, give the same single-minded attention to the wife’s position as would a
solicitor acting solely for the wife. Her interests may rank lower in the solicitor’s scale of priorities,
perhaps unconsciously, than the interests of the husband. Instances of incompetent advice, or worse,
which have come before the court might perhaps be less likely to recur if a solicitor were instructed to
act for the wife alone and gave advice solely to her. As a matter of general understanding, independent
advice would suggest that the solicitor should not be acting in the same transaction for the person who,
if there is any undue influence, is the source of that influence.
73 The contrary view is that the solicitor may also act for the husband or the bank, provided the solicitor
is satisfied that this is in the wife’s best interests and satisfied also that this will not give rise to any
conflicts of duty or interest. The principal factors favouring this approach are as follows. A requirement
that a wife should receive advice from a solicitor acting solely for her will frequently add significantly to
the legal costs. Sometimes a wife will be happier to be advised by a family solicitor known to her than by
a complete stranger. Sometimes a solicitor who knows both husband and wife and their histories will be
better placed to advise than a solicitor who is a complete stranger.
74 In my view, overall the latter factors are more weighty than the former. The advantages attendant
upon the employment of a solicitor acting solely for the wife do not justify the additional expense this
would involve for the husband. When accepting instructions to advise the wife the solicitor assumes
responsibilities directly to her, both at law and professionally. These duties, and this is central to the
reasoning on this point, are owed to the wife alone. In advising the wife the solicitor is acting for the
wife alone. He is concerned only with her interests. I emphasise, therefore, that in every case the solicitor
must consider carefully whether there is any conflict of duty or interest and, more widely, whether it
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would be in the best interests of the wife for him to accept instructions from her. If he decides to accept
instructions, his assumption of legal and professional responsibilities to her ought, in the ordinary course
of things, to provide sufficient assurance that he will give the requisite advice fully, carefully and
conscientiously. Especially so, now that the nature of the advice called for has been clarified. If at any
stage the solicitor becomes concerned that there is a real risk that other interests or duties may inhibit his
advice to the wife he must cease to act for her.
Agency
75 No system ever works perfectly. There will always be cases where things go wrong, sometimes
seriously wrong. The next question concerns the position when a solicitor has accepted instructions to
advise a wife but he fails to do so properly. He fails to give her the advice needed to bring home to her
the practical implications of her standing as surety. What then? The wife has a remedy in damages against
the negligent solicitor. But what is the position of the bank who proceeded in the belief that the wife had
been given the necessary advice?
76 Mr Sher contended that, depending on the facts, the solicitor should be regarded as the agent of the
bank. Commonly, what happens is that the bank asks the solicitor acting for the husband to undertake
the conveyancing formalities on behalf of the bank. The bank also asks the solicitor to undertake the
further task of explaining the nature and effect of the documents to the wife, and then confirming to the
bank that he has done so. In carrying out these requested tasks, it was submitted, the solicitor is acting
for the bank. The bank requires the solicitor to advise the wife, not for her benefit, but for the benefit
and protection of the bank. Any deficiencies in the advice given to the wife should be attributed to the
bank. In this regard, it was submitted, the solicitor’s knowledge is to be imputed to the bank. A
certificate furnished by the solicitor to the bank should not prejudice the position of the wife when, as
happened in several cases, the contents of the certificate are untrue. If the solicitor has not given the wife
any advice, her rights should not be diminished by the solicitor telling the bank that she has been fully
advised.
77 I cannot accept this analysis. Confirmation from the solicitor that he has advised the wife is one of
the bank’s preconditions for completion of the transaction. But it is central to this arrangement that in
advising the wife the solicitor is acting for the wife and no one else. The bank does not have, and is
intended not to have, any knowledge of or control over the advice the solicitor gives the wife. The
solicitor is not accountable to the bank for the advice he gives to the wife. To impute to the bank
knowledge of what passed between the solicitor and the wife would contradict this essential feature of
the arrangement. The mere fact that, for its own purposes, the bank asked the solicitor to advise the wife
does not make the solicitor the bank’s agent in giving that advice.
78 In the ordinary case, therefore, deficiencies in the advice given are a matter between the wife and her
solicitor. The bank is entitled to proceed on the assumption that a solicitor advising the wife has done his
job properly. I have already mentioned what is the bank’s position if it knows this is not so, or if it
knows facts from which it ought to have realised this is not so.
▪ At paragraph 79 of the decision, Lord Nicholls explained the steps a bank should take when it has been put
on inquiry. To protect itself, the bank has to look to the fact that the wife has been advised independently by
a solicitor. Lord Nicholls continued:
Obtaining the solicitor’s confirmation
(1) One of the unsatisfactory features in some of the cases is the late stage at which the wife first
became involved in the transaction. In practice she had no opportunity to express a view on the
identity of the solicitor who advised her. She did not even know that the purpose for which the
solicitor was giving her advice was to enable him to send, on her behalf, the protective confirmation
sought by the bank. Usually the solicitor acted for both husband and wife.
Since the bank is looking for its protection to legal advice given to the wife by a solicitor who, in this
respect, is acting solely for her, I consider the bank should take steps to check directly with the wife
the name of the solicitor she wishes to act for her. To this end, in future the bank should
communicate directly with the wife, informing her that for its own protection it will require written
confirmation from a solicitor, acting for her, to the effect that the solicitor has fully explained to her
the nature of the documents and the practical implications they will have for her. She should be told
that the purpose of this requirement is that thereafter she should not be able to dispute she is legally
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bound by the documents once she has signed them. She should be asked to nominate a solicitor
whom she is willing to instruct to advise her, separately from her husband, and act for her in giving
the necessary confirmation to the bank. She should be told that, if she wishes, the solicitor may be
the same solicitor as is acting for her husband in the transaction. If a solicitor is already acting for the
husband and the wife, she should be asked whether she would prefer that a different solicitor should
act for her regarding the bank’s requirement for confirmation from a solicitor.
The bank should not proceed with the transaction until it has received an appropriate response
directly from the wife.
(2) Representatives of the bank are likely to have a much better picture of the husband’s financial
affairs than the solicitor. If the bank is not willing to undertake the task of explanation itself, the
bank must provide the solicitor with the financial information he needs for this purpose.
Accordingly it should become routine practice for banks, if relying on confirmation from a solicitor
for their protection, to send to the solicitor the necessary financial information. What is required
must depend on the facts of the case. Ordinarily this will include information on the purpose for
which the proposed new facility has been requested, the current amount of the husband’s
indebtedness, the amount of his current overdraft facility, and the amount and terms of any new
facility. If the bank’s request for security arose from a written application by the husband for a
facility, a copy of the application should be sent to the solicitor. The bank will, of course, need first
to obtain the consent of its customer to this circulation of confidential information. If this consent is
not forthcoming the transaction will not be able to proceed.
(3) Exceptionally there may be a case where the bank believes or suspects that the wife has been
misled by her husband or is not entering into the transaction of her own free will. If such a case
occurs the bank must inform the wife’s solicitors of the facts giving rise to its belief or suspicion.
(4) The bank should in every case obtain from the wife’s solicitor a written confirmation to the effect
mentioned above.
80 These steps will be applicable to future transactions. In respect of past transactions, the bank will
ordinarily be regarded as having discharged its obligations if a solicitor who was acting for the wife in the
transaction gave the bank confirmation to the effect that he had brought home to the wife the risks she
was running by standing as surety.
The creditor’s disclosure obligation
81 It is a well-established principle that, stated shortly, a creditor is obliged to disclose to a guarantor any
unusual feature of the contract between the creditor and the debtor which makes it materially different in
a potentially disadvantageous respect from what the guarantor might naturally expect. The precise ambit
of this disclosure obligation remains unclear. A useful summary of the authorities appears in O’Donovan
& Phillips, The Modern Contract of Guarantee, 3rd ed (1996), pp 122-130. It is not necessary to pursue these
difficult matters in this case. It is sufficient for me to say that, contrary to submissions made, the need to
provide protection for wives who are standing as sureties does not point to a need to re-visit the scope
of this disclosure principle. Wives require a different form of protection. They need a full and clear
explanation of the risks involved. Typically, the risks will be risks any surety would expect. The
protection needed by wives differs from, and goes beyond, the disclosure of information. The O’Brien
principle is intended to provide this protection.
A wider principle
82 Before turning to the particular cases I must make a general comment on the O’Brien principle. As
noted by Professor Peter Birks QC, the decision in O’Brien has to be seen as the progenitor of a wider
principle: see “The Burden on the Bank”, in Restitution and Banking Law, edited by Francis Rose (1998),
at p 195. This calls for explanation. In the O’Brien case the House was concerned with formulating a fair
and practical solution to problems occurring when a creditor obtains a security from a guarantor whose
sexual relationship with the debtor gives rise to a heightened risk of undue influence. But the law does
not regard sexual relationships as standing in some special category of their own so far as undue
influence is concerned. Sexual relationships are no more than one type of relationship in which an
individual may acquire influence over another individual. The O’Brien decision cannot sensibly be
regarded as confined to sexual relationships, although these are likely to be its main field of application at
present. What is appropriate for sexual relationships ought, in principle, to be appropriate also for other
relationships where trust and confidence are likely to exist.
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83 The courts have already recognised this. Further application, or development, of the O’Brien principle
has already taken place. In Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 the same
principle was applied where the relationship was employer and employee. Miss Burch was a junior
employee in a company. She was neither a shareholder nor a director. She provided security to the bank
for the company’s overdraft. She entered into a guarantee of unlimited amount, and gave the bank a
second charge over her flat. Nourse LJ, at p 146, said the relationship “may broadly be said to fall under
[O’Brien]”. The Court of Appeal held that the bank was put on inquiry. It knew the facts from which the
existence of a relationship of trust and confidence between Miss Burch and Mr Pelosi, the owner of the
company, could be inferred.
84 The crucially important question raised by this wider application of the O’Brien principle concerns the
circumstances which will put a bank on inquiry. A bank is put on inquiry whenever a wife stands as
surety for her husband’s debts. It is sufficient that the bank knows of the husband-wife relationship.
That bare fact is enough. The bank must then take reasonable steps to bring home to the wife the risks
involved. What, then, of other relationships where there is an increased risk of undue influence, such as
parent and child? Is it enough that the bank knows of the relationship? For reasons already discussed in
relation to husbands and wives, a bank cannot be expected to probe the emotional relationship between
two individuals, whoever they may be. Nor is it desirable that a bank should attempt this. Take the case
where a father puts forward his daughter as a surety for his business overdraft. A bank should not be
called upon to evaluate highly personal matters such as the degree of trust and confidence existing
between the father and his daughter, with the bank put on inquiry in one case and not in another. As
with wives, so with daughters, whether a bank is put on inquiry should not depend on the degree of trust
and confidence the particular daughter places in her father in relation to financial matters. Moreover, as
with wives, so with other relationships, the test of what puts a bank on inquiry should be simple, clear
and easy to apply in widely varying circumstances. This suggests that, in the case of a father and
daughter, knowledge by the bank of the relationship of father and daughter should suffice to put the
bank on inquiry. When the bank knows of the relationship, it must then take reasonable steps to ensure
the daughter knows what she is letting herself into.
85 The relationship of parent and child is one of the relationships where the law irrebuttably presumes
the existence of trust and confidence. Rightly, this has already been rejected as the boundary of the
O’Brien principle. O’Brien was a husband-wife case. The responsibilities of creditors were enunciated in a
case where the law makes no presumption of the existence of trust and confidence.
86 But the law cannot stop at this point, with banks on inquiry only in cases where the debtor and
guarantor have a sexual relationship or the relationship is one where the law presumes the existence of
trust and confidence. That would be an arbitrary boundary, and the law has already moved beyond this,
in the decision in Burch. As noted earlier, the reality of life is that relationships in which undue influence
can be exercised are infinitely various. They cannot be exhaustively defined. Nor is it possible to produce
a comprehensive list of relationships where there is a substantial risk of the exercise of undue influence,
all others being excluded from the ambit of the O’Brien principle. Human affairs do not lend themselves
to categorisations of this sort. The older generation of a family may exercise undue influence over a
younger member, as in parent-child cases such as Bainbrigge v Browne 18 Ch D 188 and Powell v Powell
[1900] 1 Ch 243. Sometimes it is the other way round, as with a nephew and his elderly aunt in Inche
Noriah v Shaik Allie Bin Omar [1929] AC 127. An employer may take advantage of his employee, as in
Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144. But it may be the other way round, with
an employee taking advantage of her employer, as happened with the secretary-companion and her
elderly employer in In re Craig, decd [1971] Ch 95. The list could go on.
87 These considerations point forcibly to the conclusion that there is no rational cut-off point, with
certain types of relationship being susceptible to the O’Brien principle and others not. Further, if a bank is
not to be required to evaluate the extent to which its customer has influence over a proposed guarantor,
the only practical way forward is to regard banks as “put on inquiry” in every case where the relationship
between the surety and the debtor is non-commercial. The creditor must always take reasonable steps to
bring home to the individual guarantor the risks he is running by standing as surety. As a measure of
protection, this is valuable. But, in all conscience, it is a modest burden for banks and other lenders. It is
no more than is reasonably to be expected of a creditor who is taking a guarantee from an individual. If
the bank or other creditor does not take these steps, it is deemed to have notice of any claim the
guarantor may have that the transaction was procured by undue influence or misrepresentation on the
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part of the debtor.

88 Different considerations apply where the relationship between the debtor and guarantor is
commercial, as where a guarantor is being paid a fee, or a company is guaranteeing the debts of another
company in the same group. Those engaged in business can be regarded as capable of looking after
themselves and understanding the risks involved in the giving of guarantees.
89 By the decisions of this House in O’Brien and the Court of Appeal in Credit Lyonnais Bank Nederland
NV v Burch [1997] 1 All ER 144, English law has taken its first strides in the development of some such
general principle. It is a workable principle. It is also simple, coherent and eminently desirable. I venture
to think this is the way the law is moving, and should continue to move. Equity, it is said, is not past the
age of child-bearing. In the present context the equitable concept of being “put on inquiry” is the parent
of a principle of general application, a principle which imposes no more than a modest obligation on
banks and other creditors. The existence of this obligation in all non-commercial cases does not go
beyond the reasonable.”
Whether third party creditor can be fixed with constructive notice

Lord Nicholls in Etridge (No 2) (see para 34 onwards, above), at para 89, above, supported O’Brien as a
workable principle in relation to husband-wide and financial institution relationship. His Lordship further
acknowledged that “It is also simple, coherent and eminently desirable.”
Where a wife has been induced by her husband to stand as a surety for his debts by his undue influence, equity
would step against him to set aside that security transaction. The wife’s right to set aside that transaction will be
enforceable against a third party creditor, if the husband was acting as the third party’s agent, or the third party
had actual or constructive notice of the facts giving rise to her equity.
The classification of undue influence, however, has not been appreciated.
Gopal Sri Ram JCA in Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin Shah Mohd [1996] 2 MLJ
265 is of the view that the position of “cohabitees” in O’Brien is not acceptable in Malaysia (See Note, below).
Barclays Bank Plc v O’Brien and Anor [1994] 1 AC 180 (HL)

▪ The matrimonial home of Mr. and Mrs. O’Brien was in their joint names and was subject to a mortgage to
a building society.
▪ Mr. O’Brien had an interest in a company, and it’s bank account was at the Woolwich branch of Barclays
Bank. In early 1987 the company had exceeded its overdraft facility of £40,000 and its cheques were
dishonoured. In April 1987, Mr. O’Brien told the bank manager that he wanted to remortgage the
matrimonial home.
▪ The manager made a note that Mrs. O’Brien might be a problem. Nevertheless, the manager raised the
overdraft facility to £60,000 for one month. By 15 June the company’s overdraft had risen to £98,000 and
its cheques were again dishonoured. On 22 June 1987, Mr. O’Brien and the manager agreed that the
overdraft limit be raised to £135,000. Mr. O’Brien would guarantee the company’s indebtedness and his
liability would be secured by a second charge on the matrimonial home.
▪ The bank prepared the necessary security documents and a legal charge by both Mr. and Mrs. O’Brien of
the matrimonial home to secure any liability of Mr. O’Brien to the bank.
▪ The manager sent the documents to the Burnham branch of the bank for execution by Mr. and Mrs.
O’Brien. There were specific instructions from the manager to the Burnham branch to advise the O’Briens
as to the current level of the facilities afforded by the bank (£107,000) and the projected increase to
£135,000, and to ensure that the O’Briens were fully aware of the nature of the documentation to be
signed. If they were in any doubt they should be advised to contact their solicitors before signing.
▪ The Burnham branch did not follow the instructions.
▪ On 1 July Mr. O’Brien alone signed the guarantee and legal charge on the matrimonial home at the
Burnham branch, witnessed by a clerk.
▪ On the following day Mrs. O’Brien went to the branch with her husband to sign the documents. The
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Burnham branch did not give Mrs. O’Brien any explanation of the effect of the documents, nor did anyone
suggest that she should take independent legal advice. She did not read the documents. She simply signed
the legal charge witnessed by the clerk. She was not given a copy of the guarantee.
▪ By October the company’s indebtedness was over £154,000. In November 1987 the bank made demand
against Mr. O’Brien under his guarantee.
▪ When the demand was not met possession proceedings under the legal charge were brought by the bank
against Mr. and Mrs. O’Brien. In her defence Mrs. O’Brien alleged that she was induced to execute the
legal charge by the undue influence of Mr. O’Brien and also by his misrepresentation.
▪ When the appeal came before the House of Lords, Lord Browne-Wilkinson, firstly, considered the
relationship between a wife and her husband as regards undue influence claim; and secondly, the position
of a suretyship given to a third party (e.g. a bank) by a wife, who alleged to have been unduly influenced
or misrepresented by her husband, to secure her husband’s indebtedness to the third party.
In many cases between husband and wife, the Class 2(B) category of undue influence would apply because
the wife demonstrates that she placed trust and confidence in her husband in relation to her financial
affairs and therefore raises a presumption of undue influence. Moreover, the sexual and emotional ties
between them provide a ready weapon for undue influence because of the wife’s fear of damaging their
relationship if she opposes the husband’s wishes.
▪ The wife’s right to set aside the transaction would also be enforceable against a third party who had actual
or constructive notice of the circumstances giving rise to her equity, or for whom the husband was acting
as agent of the third party. The same principles are extended and made applicable to cases where one
cohabitee stands surety for the other’s debts. In order for the creditor to avoid being fixed with
constructive notice, the creditor should take steps to bring home to the wife the risk she is running by
standing as surety and to advise her to take independent advice.
As to past transactions, the facts of each case would show whether the steps taken by the creditor satisfy
this test. However for the future transaction, the House of Lords advised that a creditor will have satisfied
these requirements. If the creditor insists that the wife attend a private meeting with a representative of the
creditor, in the absence of the husband, for her to be told of the extent of her liability as surety, she should
be warned of the risk she is running and urged to take independent legal advice. By doing so, the creditor
will have taken such reasonable steps as are necessary to preclude a subsequent claim that it had
constructive notice of the wife’s rights.
▪ In dismissing the appeal, Lord Browne-Wilkinson, in delivering the judgment of the House (agreed by
both Lord Slynn of Hadley and Lord Woolf), said:
“… The number of recent cases in this field shows that in practice many wives are still subjected to, and
yield to, undue influence by their husbands. Such wives can reasonably look to the law for some
protection when their husbands have abused the trust and confidence reposed in them.
On the other hand, it is important to keep a sense of balance in approaching these cases. It is easy to
allow sympathy for the wife who is threatened with the loss of her home at the suit of a rich bank to
obscure an important public interest viz., the need to ensure that the wealth currently tied up in the
matrimonial home does not become economically sterile. If the rights secured to wives by the law
renders vulnerable loans granted on the security of matrimonial homes, institutions will be unwilling to
accept such security, thereby reducing the flow of loan capital to business enterprises. It is therefore
essential that a law designed to protect the vulnerable does not render the matrimonial home
unacceptable as security to financial institutions.
With these policy considerations in mind I turn to consider the existing state of the law. The whole of
modern law is derived from the decision of the Privy Council in Turnbull & Co v Duval [1902] AC 429
which, as I will seek to demonstrate, provides an uncertain foundation. Before considering that case
however, I must consider the law of undue influence which (though not directly applicable in the present
case) underlies both Duval’s case and most of the later authorities.
Undue influence
A person who has been induced to enter into a transaction by the undue influence of another (“the
wrongdoer”) is entitled to set that transaction aside as against the wrongdoer. Such undue influence is
either actual or presumed. In Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, 953,
the Court of Appeal helpfully adopted the following classification.
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In these cases the complainant only has to show, in the first instance, that there was a relationship of
trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to
presume that the wrongdoer abused that relationship in procuring the complainant to enter into the
impugned transaction. In Class 2 cases therefore there is no need to produce evidence that actual undue
influence was exerted in relation to the particular transaction impugned: once a confidential relationship
has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into the
impugned transaction freely, for example by showing that the complainant had independent advice. Such
a confidential relationship can be established in two ways, viz.,
Class 2(A)
Certain relationships (for example solicitor and client, medical advisor and patient) as a matter of law
raise the presumption that undue influence has been exercised.
Class 2(B)
Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence
of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer,
the existence of such relationship raises the presumption of undue influence. In a Class 2(B) case
therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting
aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the
wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise
abused such trust and confidence in relation to the particular transaction impugned.
As to dispositions by a wife in favour of her husband, the law for long remained in an unsettled state. In
the 19th century some judges took the view that the relationship was such that it fell into Class 2(A) i.e.
as a matter of law undue influence by the husband over the wife was presumed. It was not until the
decisions in Howes v Bishop [1909] 2 KB 390 and Bank of Montreal v Stuart [1911] AC 120 that it was finally
determined that the relationship of husband and wife did not as a matter of law raise a presumption of
undue influence within Class 2(A). It is to be noted therefore that when the Duval case was decided in
1902 the question whether there was a Class 2(A) presumption of undue influence as between husband
and wife was still unresolved.
An invalidating tendency?
Although there is no Class 2(A) presumption of undue influence as between husband and wife, it should
be emphasised that in any particular case a wife may well be able to demonstrate that de facto she did leave
decisions on financial affairs to her husband thereby bringing herself within Class 2(B) i.e. that the
relationship between husband and wife in the particular case was such that the wife reposed confidence
and trust in her husband in relation to their financial affairs and therefore undue influence is to be
presumed. Thus, in those cases which still occur where the wife relies in all financial matters on her
husband and simply does what he suggests, a presumption of undue influence within Class 2(B) can be
established solely from the proof of such trust and confidence without proof of actual undue influence.
In the appeal in CIBC Mortgages Plc v Pitt (judgment in which is to be given immediately after that in the
present appeal), post, p. 200, Mr. Price for the wife argued that in the case of transactions between
husband and wife, there was an “invalidating tendency” i.e. although there was no Class 2(A)
presumption of undue influence, the courts were more ready to find that a husband had exercised undue
influence over his wife than in other cases. Scott LJ in the present case also referred to the law treating
married women “more tenderly” than others. This approach is based on dicta in early authorities. In
Grigby v Cox (1750) 1 Ves Sen 517 Lord Hardwicke, whilst rejecting any presumption of undue influence,
said that a court of equity “will have more jealousy” over dispositions by a wife to a husband. In Yerkey v
Jones (1939) 63 CLR 649, 675, Dixon J refers to this “invalidating tendency.” He also refers to the court
recognising “the opportunities which a wife’s confidence in her husband gives him of unfairly or
improperly procuring her to become surety:” see p. 677.
In my judgment this special tenderness of treatment afforded to wives by the courts is properly
attributable to two factors. First, many cases may well fall into the Class 2(B) category of undue influence
because the wife demonstrates that she placed trust and confidence in her husband in relation to her
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financial affairs and therefore raises a presumption of undue influence. Second, the sexual and emotional
ties between the parties provide a ready weapon for undue influence: a wife’s true wishes can easily be
overborne because of her fear of destroying or damaging the wider relationship between her and her
husband if she opposes his wishes.
For myself, I accept that the risk of undue influence affecting a voluntary disposition by a wife in favour
of a husband is greater than in the ordinary run of cases where no sexual or emotional ties affect the free
exercise of the individual’s will.
Undue influence, misrepresentation and third parties
Up to this point I have been considering the right of a claimant wife to set aside a transaction as against
the wrongdoing husband when the transaction has been procured by his undue influence. But in surety
cases the decisive question is whether the claimant wife can set aside the transaction, not against the
wrongdoing husband, but against the creditor bank. Of course, if the wrongdoing husband is acting as
agent for the creditor bank in obtaining the surety from the wife, the creditor will be fixed with the
wrongdoing of its own agent and the surety contract can be set aside as against the creditor. Apart from
this, if the creditor bank has notice, actual or constructive, of the undue influence exercised by the
husband (and consequentially of the wife’s equity to set aside the transaction) the creditor will take
subject to that equity and the wife can set aside the transaction against the creditor (albeit a purchaser for
value) as well as against the husband: see Bainbrigge v Browne (1881) 18 Ch D 188 and Bank of Credit and
Commerce International SA v Aboody [1990] 1 QB 923, 973. Similarly, in cases such as the present where the
wife has been induced to enter into the transaction by the husband’s misrepresentation, her equity to set
aside the transaction will be enforceable against the creditor if either the husband was acting as the
creditor’s agent or the creditor had actual or constructive notice. …
Conclusions
(a) Wives
My starting point is to clarify the basis of the law. Should wives (and perhaps others) be accorded special
rights in relation to surety transactions by the recognition of a special equity applicable only to such
persons engaged in such transactions? Or should they enjoy only the same protection as they would
enjoy in relation to their other dealings? In my judgment, the special equity theory should be rejected.
First, I can find no basis in principle for affording special protection to a limited class in relation to one
type of transaction only. Second, to require the creditor to prove knowledge and understanding by the
wife in all cases is to reintroduce by the back door either a presumption of undue influence of Class 2(A)
(which has been decisively rejected) or the Romilly heresy (which has long been treated as bad law).
Third, although Scott LJ found that there were two lines of cases one of which supported the special
equity theory, on analysis although many decisions are not inconsistent with that theory the only two
cases which support it are Yerkey v Jones 63 CLR 649, and the decision of the Court of Appeal in the
present case. Finally, it is not necessary to have recourse to a special equity theory for the proper
protection of the legitimate interests of wives as I will seek to show.
In my judgment, if the doctrine of notice is properly applied, there is no need for the introduction of a
special equity in these types of cases. A wife who has been induced to stand as a surety for her husband’s
debts by his undue influence, misrepresentation or some other legal wrong has an equity as against him
to set aside that transaction. Under the ordinary principles of equity, her right to set aside that transaction
will be enforceable against third parties (e.g. against a creditor) if either the husband was acting as the
third party’s agent or the third party had actual or constructive notice of the facts giving rise to her
equity. Although there may be cases where, without artificiality, it can properly be held that the husband
was acting as the agent of the creditor in procuring the wife to stand as surety, such cases will be of very
rare occurrence. The key to the problem is to identify the circumstances in which the creditor will be
taken to have had notice of the wife’s equity to set aside the transaction.
The doctrine of notice lies at the heart of equity. Given that there are two innocent parties, each enjoying
rights, the earlier right prevails against the later right if the acquirer of the later right knows of the earlier
right (actual notice) or would have discovered it had he taken proper steps (constructive notice). In
particular, if the party asserting that he takes free of the earlier rights of another knows of certain facts
which put him on inquiry as to the possible existence of the rights of that other and he fails to make such
inquiry or take such other steps as are reasonable to verify whether such earlier right does or does not
exist, he will have constructive notice of the earlier right and take subject to it. Therefore where a wife
has agreed to stand surety for her husband’s debts as a result of undue influence or misrepresentation,
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the creditor will take subject to the wife’s equity to set aside the transaction if the circumstances are such
as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety.
It is at this stage that, in my view, the “invalidating tendency” or the law’s “tender treatment” of married
women, becomes relevant. As I have said above in dealing with undue influence, this tenderness of the
law towards married women is due to the fact that, even today, many wives repose confidence and trust
in their husbands in relation to their financial affairs. This tenderness of the law is reflected by the fact
that voluntary dispositions by the wife in favour of her husband are more likely to be set aside than other
dispositions by her: a wife is more likely to establish presumed undue influence of Class 2(B) by her
husband than by others because, in practice, many wives do repose in their husbands trust and
confidence in relation to their financial affairs. Moreover the informality of business dealings between
spouses raises a substantial risk that the husband has not accurately stated to the wife the nature of the
liability she is undertaking, i.e., he has misrepresented the position, albeit negligently.
Therefore in my judgment a creditor is put on inquiry when a wife offers to stand surety for her
husband’s debts by the combination of two factors: (a) the transaction is on its face not to the financial
advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the
wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set
aside the transaction.
It follow that unless the creditor who is put on inquiry takes reasonable steps to satisfy himself that the
wife’s agreement to stand surety has been properly obtained, the creditor will have constructive notice of
the wife’s rights.
What, then are the reasonable steps which the creditor should take to ensure that it does not have
constructive notice of the wife’s rights, if any? Normally the reasonable steps necessary to avoid being
fixed with constructive notice consist of making inquiry of the person who may have the earlier right (i.e.
the wife) to see whether such right is asserted. It is plainly impossible to require of banks and other
financial institutions that they should inquire of one spouse whether he or she has been unduly
influenced or misled by the other. But in my judgment the creditor, in order to avoid being fixed with
constructive notice, can reasonably be expected to take steps to bring home to the wife the risk she is
running by standing as surety and to advise her to take independent advice. As to past transactions, it will
depend on the facts of each case whether the steps taken by the creditor satisfy this test. However for the
future in my judgment a creditor will have satisfied these requirements if it insists that the wife attend a
private meeting (in the absence of the husband) with a representative of the creditor at which she is told
of the extent of her liability as surety, warned of the risk she is running and urged to take independent
legal advice. If these steps are taken in my judgment the creditor will have taken such reasonable steps as
are necessary to preclude a subsequent claim that it had constructive notice of the wife’s rights. I should
make it clear that I have been considering the ordinary case where the creditor knows only that the wife
is to stand surety for her husband’s debts. I would not exclude exceptional cases where a creditor has
knowledge of further facts which render the presence of undue influence not only possible but probable.
In such cases, the creditor to be safe will have to insist that the wife is separately advised.
I am conscious that in treating the creditor as having constructive notice because of the risk of Class 2(B)
undue influence or misrepresentation by the husband I may be extending the law as stated by Fry J in
Bainbrigge v Browne 18 Ch D 188, 197, and the Court of Appeal in the Aboody case [1990] 1 QB 923, 973.
Those cases suggest that for a third party to be affected by constructive notice of presumed undue
influence the third party must actually know of the circumstances which give rise to a presumption of
undue influence. In contrast, my view is that the risk of Class 2(B) undue influence or misrepresentation
is sufficient to put the creditor on inquiry. But my statement accords with the principles of notice: if the
known facts are such as to indicate the possibility of an adverse claim that is sufficient to put a third
party on inquiry.
If the law is established as I have suggested, it will hold the balance fairly between on the one hand the
vulnerability of the wife who relies implicitly on her husband and, on the other hand, the practical
problems of financial institutions asked to accept a secured or unsecured surety obligation from the wife
for her husband’s debts. In the context of suretyship, the wife will not have any right to disown her
obligations just because subsequently she proves that she did not fully understand the transaction: she
will, as in all other areas of her affairs, be bound by her obligations unless her husband has, by
misrepresentation, undue influence or other wrong, committed an actionable wrong against her. In the
normal case, a financial institution will be able to lend with confidence in reliance on the wife’s surety
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obligation provided that it warns her (in the absence of the husband) of the amount of her potential
liability and of the risk of standing surety and advises her to take independent advice.
Mr. Jarvis, for the bank, urged that this is to impose too heavy a burden on financial institutions. I am
not impressed by this submission. The Report by Professor Jack’s Review Committee on Banking Services:
Law and Practice (1989) (Cmnd. 622), recommended that prospective guarantors should be adequately
warned of the legal effects and possible consequences of their guarantee and of the importance of
receiving independent advice. Pursuant to this recommendation, the Code of Banking Practice (adopted by
banks and building societies in March 1992) provides in paragraph 12.1 as follows:
“Banks and building societies will advise private individuals proposing to give them a guarantee or
other security for another person’s liabilities that: (i) by giving the guarantee or third party security he
or she might become liable instead of or as well as that other person; (ii) he or she should seek
independent legal advice before entering into the guarantee or third party security. Guarantees and
other third party security forms will contain a clear and prominent notice to the above effect.”
Thus good banking practice (which applies to all guarantees, not only those given by a wife) largely
accords with what I consider the law should require when a wife is offered as surety. The only further
substantial step required by law beyond that good practice is that the position should be explained by the
bank to the wife in a personal interview. I regard this as being essential because a number of the decided
cases show that written warnings are often not read and are sometimes intercepted by the husband. It
does not seem to me that the requirement of a personal interview imposes such an additional
administrative burden as to render the bank’s position unworkable.
(b) Other persons
I have hitherto dealt only with the position where a wife stands surety for her husband’s debts. But in my
judgment the same principles are applicable to all other cases where there is an emotional relationship
between cohabitees. The “tenderness” shown by the law to married women is not based on the marriage
ceremony but reflects the underlying risk of one cohabitee exploiting the emotional involvement and
trust of the other. Now that unmarried cohabitation, whether heterosexual or homosexual, is widespread
in our society, the law should recognise this. Legal wives are not the only group which are now exposed
to the emotional pressure of cohabitation. Therefore if, but only if, the creditor is aware that the surety is
cohabiting with the principal debtor, in my judgment the same principles should apply to them as apply
to husband and wife.
In addition to the cases of cohabitees, the decision of the Court of Appeal in Avon Finance Co Ltd v Bridger
[1985] 2 All ER 281 shows (rightly in my view) that other relationships can give rise to a similar result. In
that case a son, by means of misrepresentation, persuaded his elderly parents to stand surety for his
debts. The surety obligation was held to be unenforceable by the creditor inter alia because to the bank’s
knowledge the parents trusted the son in their financial dealings. In my judgment that case was rightly
decided: in a case where the creditor is aware that the surety reposes trust and confidence in the principal
debtor in relation to his financial affairs, the creditor is put on inquiry in just the same way as it is in
relation to husband and wife.
Summary
I can therefore summarise my views as follows. Where one cohabitee has entered into an obligation to
stand as surety for the debts of the other cohabitee and the creditor is aware that they are cohabitees: (1)
the surety obligation will be valid and enforceable by the creditor unless the suretyship was procured by
the undue influence, misrepresentation or other legal wrong of the principal debtor; (2) if there has been
undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has
taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in
knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be
fixed with constructive notice of the surety’s right to set aside the tranxaction; (3) unless there are special
exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with
constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of
the amount of her potential liability and of the risks involved and advises the surety to take independent
legal advice.
I should make it clear that in referring to the husband’s debts I include the debts of a company in which
the husband (but not the wife) has a direct financial interest.
The decision of this case
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Applying those principles to this case, to the knowledge of the bank Mr. and Mrs. O’Brien were man and
wife. The bank took a surety obligation from Mrs. O’Brien, secured on the matrimonial home, to secure
the debts of a company in which Mr. O’Brien was interested but in which Mrs. O’Brien had no direct
pecuniary interest. The bank should therefore have been put on inquiry as to the circumstances in which
Mrs. O’Brien had agreed to stand as surety for the debt of her husband. If the Burnham branch had
properly carried out the instructions from Mr. Tucker of the Woolwich branch, Mrs. O’Brien would have
been informed that she and the matrimonial home were potentially liable for the debts of a company
which had an existing liability of £107,000 and which was to be afforded an overdraft facility of
£135,000. If she had been told this, it would have counteracted Mr. O’Brien’s misrepresentation that the
liability was limited to £60,000 and would last for only three weeks. In addition according to the side
letter she would have been recommended to take independent legal advice.
Unfortunately Mr. Tucker’s instructions were not followed and to the knowledge of the bank (through
the clerk at the Burnham branch) Mrs. O’Brien signed the documents without any warning of the risks
or any recommendation to take legal advice. In the circumstances the bank (having failed to take
reasonable steps) is fixed with constructive notice of the wrongful misrepresentation made by Mr.
O’Brien to Mrs. O’Brien. Mrs. O’Brien is therefore entitled as against the bank to set aside the legal
charge on the matrimonial home securing her husband’s liability to the bank.
For these reasons I would dismiss the appeal with costs.”
Note:
Gopal Sri Ram JCA, in delivering the judgment of the Court of Appeal in Tengku Abdullah ibni Sultan Abu
Bakar v Mohd Latiff bin Shah Mohd [1996] 2 MLJ 265, at p. 309, ventured to review the position of
“cohabitees” as observed in O’Brien in the context of the Malaysian society. The learned Judge of the Court of
Appeal said:
“In our judgment, it would be quite wrong, and indeed wholly out of place, to decide a Malaysian case solely
by reference to English or other Commonwealth decisions. Indeed, the more recent decisions of the English
courts demonstrate that their concept of the doctrine and the relationships to which it may be extended do
not accord to the standards of our society.
Thus, in Barclays Bank plc v O’Brien & Anor [1993] 4 All ER 417 at p 431, the House of Lords expressed its
readiness to apply the doctrine to non-marital cohabitees. Lord Browne-Wilkinson, with whose speech the
other members of the House concurred, said:
I have hitherto dealt only with the position where a wife stands surety for her husband’s debts. But in
my judgment the same principles are applicable to all other cases where there is an emotional
relationship between cohabitees. The ‘tenderness’ shown by the law to married women is not based on
the marriage ceremony but reflects the underlying risk of one cohabitee exploiting the emotional
involvement and trust of the other. Now that unmarried cohabitation, whether heterosexual or
homosexual, is widespread in our society, the law should recognize this. Legal wives are not the only
group which are now exposed to the emotional pressure of cohabitation. Therefore if, but only if, the
creditor is aware that the surety is cohabiting with the principal debtor, in my judgment the same
principles should apply to them as apply to husband and wife.
The views expressed in O’Brien’s case merely reflect the law’s attempt to keep in tandem with the moral
standards of the society in which an English court functions. Our society, on the other hand, has an entirely
different set of moral standards. It would therefore be quite wrong to blindly follow all foreign decisions if
the result would facilitate moral decadence within our social structure.
Accordingly, on grounds of public policy, this court will not extend the doctrine to those non-marital
relationships alluded to by Lord Browne-Wilkinson in the passage quoted above. Our refusal to act in such
cases is based upon the policy consideration that refusing to accede to such an extension may deter a fall in
the moral standards of our society.”
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The shifting of the burden of proof

Section 16(3)(a) of the Contracts Act 1950 states:
“Where a person who is in a position to dominate the will of another, enters into a contract with him, and the
transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of
proving that the contract was not induced by undue influence shall lie upon the person in a position to
dominate the will of the other.”
Rosli bin Darus v Mansor bin Hj Saad & Anor [2001] 4 MLJ 206 (HC)
(For detailed facts and judgment. see previous notes.)
Jeffrey Tan J said:
“Indeed, where a complainant shows, ‘in the first instance, that there was a relationship of trust and confidence
between complainant and wrongdoer of such nature that it is fair to presume that the wrongdoer abused that
relationship in procuring the complainant to enter into the impugned transaction’, the complainant need not
‘produce evidence that actual undue influence was exerted in relation to the particular transaction … once a
confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the
complainant entered into the impugned transaction freely …’ (Bank of Credit and Commerce International SA v
Aboody [1990] QB 923 and cited with approval in Barclays Bank plc v O’Brien [1994] 1 AC 180; see also Southern
Bank Bhd v Abdul Raof Rakinan & Anor [2001] 1 CLJ 94). ‘Where on account of such relationship one of them is
in a position to exert undue influence or ‘dominion’ over the other and takes any benefit from him, the burden
of proving good faith of the transaction is thrown upon the dominant party, ie the party who is in a position of
active confidence … . When the party complaining show such relation, the law presumes everything against the
transaction and the onus is cast upon the person holding the position of confidence or trust to show that the
transaction is perfectly fair and reasonable, that no advantage has been taken of his position and that no
information which should have been communicated has been withheld’ (Sarkar on Evidence (14th Ed) at p
1463).
[Comment: The first part of the judgment above, is purely English. One needs only to prove “relationship” of a
special kind—in this case, in loco parentis relationship. Englsih law: once a confidential relationship has been
proved, the burden then shifts to the wrongdoer.
This view contradicts the second part of the above judgment, where the learned judge, as quoted from Sarkar
on Evidence: ‘Where on account of such relationship one of them is in a position to exert undue influence or
‘dominion’ over the other and takes any benefit from him, the burden of proving good faith of the transaction is
thrown upon the dominant party, ie the party who is in a position of active confidence …”
This, however, seems to be in line with section 16(3)(a). The “relationship of domination” is established, and it
is established that the “benefit” is taken away from the innocent party by the wrongdoer. At this juncture, undue
influence is presumed and the burden shifts.]
Consider also the following cases:

1. Raghunath Prasad v Sarju Prasad (1923) 51 IA 101 (PC).
The presumption of undue influence, if any under the Contracts Act 1950, has to satisfy the requirements under
section 16(3)(a) thereto. This has been clearly expressed by Lord Shaw of Dunfermlime in an India appeal to
the Privy Council in Raghunath Prasad v Sarju Prasad (1923) 51 IA 101 (PC), as follows:
“[T]heir Lordships think it desirable to make clear their views upon, in particular, s. 16, sub-s. 3 of the
Contract Act … By this sub-section three matters are dealt with. In the first place the relations between the
parties to each other must be such that one is in a position to dominate the will of the other. Once that
position is substantiated the second stage has been reached, viz., the issue whether the contract has been
induced by undue influence. Upon the determination of this issue a third point emerges, which is that of the
onus probandi. The burden of proving that the contract was not induced by undue influence is to lie upon the
person who was in a position to dominate the will of the other.
Error is almost sure to arise if the order of these propositions be changed. The unconscionableness of the
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bargain is not the first thing to be considered. The first thing to be considered is the relations of these
parties.”
[Comment: “Rebuttable evidential presumption” of undue influence would only arise under the Contracts Act
1950 upon evidence of “domination of will” of the other by the wrongdoer, and “unconscionable bargain”
either shown “on the face of it or on the evidence adduced”. The burden of proof would then be shifted to the
wrongdoer to prove that the agreement entered into has not been procured by undue influence.]
2. Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 (HL).

The English approach has to be reevaluated. It may not be in line with the provision in our Act; therefore
should not be applied: see Etridge (No. 2).
(f) On presumed undue influence, Lord Nicholls said that the word ‘“presumption” is descriptive of a
(i) Here a plaintiff claimed that the defendant abused the influence he acquired in a relationship of
trust and confidence the plaintiff would succeed by recourse to presumption (rebuttable evidential
presumption). But this need not be so. Such a plaintiff may succeed even where this presumption
is not available to him; for instance, where the impugned transaction was not one which called for
an explanation.”
(ii) “The law has adopted a sternly protective attitude towards certain types of relationship in which
one party acquires influence over another who is vulnerable and dependent and where, moreover,
substantial gifts by the influenced or vulnerable person are not normally to be expected. Examples
of relationships within this special class are parent and child, guardian and ward, trustee and
beneficiary, solicitor and client, and medical adviser and patient. In these cases the law presumes,
irrebuttably, that one party had influence over the other. The complainant need not prove he
actually reposed trust and confidence in the other party. It is sufficient for him to prove the
existence of the type of relationship.”
3. Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127.

The approach taken by Visu Sinnadurai J in Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127
requires a rethinking. The approach is not in line with the Privy Council ruling in Poosathurai and Raghunath
Prasad, and even the English authorities. In Polygram the learned judge said:
“The relationship between Eric and the group was a relationship which, though not falling within the class
2A category, was one of trust and confidence, such that Eric was in a position to procure them to enter into
the second contract. For these reasons, I am satisfied from the evidence that the relationship between the
group and Eric was such that, the presumption of undue influence arises. [Emphasis added.]
In this regard, I may also add that once the presumption of undue influence arises against Eric, as the
employee of the plaintiffs, a similar presumption also arises against the plaintiffs themselves: see Waller LJ in
O’Sullivan’s case ([1985] QB 428; [1985] 3 All ER 351 at p ; [1984] 3 WLR 488.
The defendants, having succeeded in so establishing that they reposed trust and confidence in Eric, need not
… show that he abused such trust and confidence in relation to the second contract. Such being the case, the
burden moves to the plaintiffs to disprove the existence of any undue influence: see s 16(3) of the Act.”
[Question: Is it sufficient to show only the relationship of domination without showing the unconscionableness
of the bargain before the presumption arises and the burden is shifted to the wrongdoer?
The above statement shows that undue influence had been presumed under Class 2B, without even having to
show unconscionable bargain. The learned judge continued:]
“In the present case, the plaintiffs have failed to adduce any evidence to disprove the existence of any undue
influence. It was clearly established that the group had no independent advice given to them as to the terms
of the second contract, albeit, the terms were similar to the first contract. …
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However, before the defendants may set aside the contract on the grounds of undue influence, it is necessary
for the defendants to establish another element.
It was pointed out by the Privy Council in Poosathurai v Kannappa Chettiar (1919) LR 47 IA 1, that a party
claiming to set aside a contract on the grounds of undue influence, under s 16 of the Indian Contract Act,
which is in pari materia to s 16 of the Malaysian Contracts Act, cannot succeed in setting aside the contract
unless, the party, besides establishing evidence of undue influence, also proves that the contract was
‘unconscionable’.”
[If presumption has arisen, undue influence is already proven. The contract, therefore, can be set aside, unless,
in defence, the defendant has failed to rebut the presumption. What is not easily comprehended here is:
(1) Why cannot the contract be set aside when the court has been satisfied, upon evidence adduced, that the
presumption has set in?
(2) Why is there a need to prove the element of “manifest disadvantage”, only after the presumption has
arisen?
In Raghunath, even if it has to work through presumption, the two element must be there:
“domination/relation” and “unconsciounable/manifest disadvantage bargain”. This has led to some confusion in
the area of proof.]
Rebutting the presumption

Lim Kim Hua v Ho Chui Lan & Anor [1995] 3 MLJ 165 (HC)
Steve Shim J said:
“… the plaintiff was very much dependent on the first defendant in both her physical and financial needs.
This was so because she was getting on in age and had a poor memory. She was also illiterate. … From these
factors, undue influence can reasonably be inferred unless the first defendant could show that she had not
abused her position and that the said transfer was not brought about by undue influence. She must show, by
strict proof, that the plaintiff, at the time of executing the said transfer, had fully understood, not just the
nature of the transfer but its full significance and effect: see Zamet & Ors v Hyman & Anor [1961] 3 All ER
933; [1961] 1 WLR 1442 . I do not think that the first defendant has done so. She has merely alleged that the
plaintiff wanted to effect the said transfer in a hurry and that the contents therein were read and explained to
her. In my view, this would not be sufficient to rebut undue influence. As Lord Eldon said in Huguenin v
Baseley [1803-13] All ER 1 at p 3:
The question is not whether she knew what she was doing, had done or proposed to do, but how the
intention was produced: whether all that care and providence was placed round her, as against those
who advised her, which, from their situation and relation with respect to her they were bound to exert
on her behalf.
In the instant case, the first defendant has not adduced evidence to show that all care and providence had
been so taken by her that the plaintiff was put in possession of all material facts and information so as to
enable her to decide fairly, fully and freely what she wanted to do with her property. The plaintiff, placed in
the position she was in relation to the first defendant, must be in full and complete appreciation of what she
was doing. In my view, the first defendant should, in the circumstances of this case, not only have drawn the
plaintiff's attention to the provisions of the 1983 will but also to the consequential effect or effects upon the
execution of the memorandum of transfer (exh P1). By keeping silent, she had actively concealed the material
facts and thus committed dishonesty against the plaintiff.
On the evidence as a whole, I find that there was undue influence exerted by the first defendant upon the
plaintiff as regards the execution of the memorandum of transfer (exh P1) at all material times. In the
circumstances, I hold that the said memorandum of transfer is therefore null and void.”
[Comment: To rebut the presumption, in defence, the defendant has to—
(1) show, by strict proof, that the plaintiff, at the time of executing the said transfer/agreement, had fully
understood—
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(a) the nature of the transfer/agreement;

(b) the full significant of the transfer/agreement; and
(c) the effect of the transfer/agreement.
(2) show that all care and providence had been taken by the defendant to put the plaintiff in possession of
all material facts and information, to enable the plaintiff to decide fairly, fully and freely what the
plaintiff wanted to do with the property.]
Inche Noriah v Shaik Allie bin Omar [1929] AC 127 (PC)

To rebut the presumption of undue influence, Lord Hailsham LC said:
“[T]he case of Rhodes v Bate (1865) LR 1 Ch 252, at p. 257, and … the judgment of Turner LJ: “… persons
standing in a confidential relation … cannot … hold benefits which those others may have conferred upon
them, unless they can show to the satisfaction of the court that the persons by whom the benefits have been
conferred had competent and independent advice in conferring them.” … Farwell J in Powell v Powell [1900]
1 Ch 243, at pp. 245-246: “It has been … settled that no one standing in a fiduciary relation to another can
retain a gift within a reasonable time, unless the donee can prove that the donor had independent advice, or
that the fiduciary relation had ceased … The donee must show (and the onus is on him) that the donor either
was emancipated”; and on the further statement of the learned judge: “Further, it is not sufficient that the
donor should have an independent adviser unless he acts on his advice. … The real meaning of the rule is
that the youth, being in the eye of the Court unfit to deal irrevocably with his parent or guardian in the
matter of a gift of this kind, must appoint some independent adviser to act for him. It is the action resulting
from the advice, not action against the advice, that binds the donor.”
On the other hand, the respondent relied on a number of statements of the law which indicate that
independent advice is only one of the methods by which the presumption can be rebutted. As an instance,
the judgment of Wright J in Morley v Loughman [1893] 1 Ch 736, at p. 752, where the learned judge says: “The
burthen lies on the recipient to show that the donor had independent advice, or adopted the transaction after
the influence was removed, or some equivalent circumstances”; also the judgment of the Court of Appeal in
the case of In re Coomber [1911] 1 Ch 723.
… [T]heir Lordships are not prepared to accept the view that independent legal advice is the only way in
which the presumption can be rebutted; nor are they prepared to affirm that independent legal advice, when
given, does not rebut the presumption, unless it be shown that the advice was taken. It is necessary for the
donee to prove that the gift was the result of the free exercise of independent will. The most obvious way to
prove this is by establishing that the gift was made after the nature and effect of the transaction had been
fully explained to the donor by some independent and qualified person so completely as to satisfy the Court
that the donor was acting independently of any influence from the donee and with the full appreciation of
what he was doing; and in cases where there are no other circumstances this may be the only means by which
the donee can rebut the presumption. But … if evidence is given of circumstances sufficient to established
this fact, their Lordships see no reason for disregarding them merely because they do not include
independent advice from a lawyer. Nor are their Lordships prepared to lay down what advice must be
received in order to satisfy the rule in cases where independent legal advice is relied upon. [The advice]…
must be given with a knowledge of all relevant circumstances and must be such as a competent and honest
adviser would give if acting solely in the interests of the donor.
In the present case … Mr. Aitken [the lawyer] acted in good faith; but he seems to have received a good deal
of his information from the respondent; he was not made aware of the material fact that the property which
was being given away constituted practically the whole estate of the donor, and he certainly does not seem to
have brought him to her mind the consequences to herself of what she was doing, or the fact that she could
more prudently, and equally effectively, have benefited the donee without undue risk to herself by retaining
the property in her own possession during her life and bestowing it upon him by her will. In their Lordships’
view the facts proved by the respondent are not sufficient to rebut the presumption of undue influence …”
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Pengiran Othman Shah bin Pengiran Mohd Yusoff & Anor v Karambunai Resorts Sdn Bhd [1996] 1 MLJ
309
The appellants alleged that they had been unduly influenced by the third respondent to part with their landed
property. They relied on the evidence that they had no independent legal advice when they executed the various
agreements; and that they were placed in an unequal bargaining power.
▪ The Court of Appeal held the doctrine was to save persons from being forced tricked or misled into parting
with their property. In the light of the documentary evidence, the appellants had not been denied of any
independent legal advice when they executed the various agreements. They executed the agreements freely.
They had not been rushed into executing them. Their intentions were to enter into a contractual relationship.
The parties were on equal footing and there was no question of one party dominating the will of the other.
▪ Siti Norma Yaakob JCA said:
“Turning now to the appellants’ allegation that they have been unduly influenced by the third respondent to
part with the main bulk of the Karambunai land, they rely on the evidence:
(1) that they had no independent legal advice when they executed the various agreements; and
(2) that they were placed in an unequal bargaining power.
It is the appellants’ contention that the legal representatives cannot give them the independent legal advice as
one of them, the appellants’ father, was already indebted to the third respondent as the latter had promised
to settle the estate duty due on their mother’s estate. They contend further that the public trustee, who was
then managing their mother’s estate, should have been consulted for such legal advice but he never joined in
the arrangements.
That we agree would have been the ideal situation but it must be remembered that any move to consult the
public trustee should come from the appellants’ father, considering the tender ages of the appellants then.
Their father never did so and for that matter neither did Pengiran Othman. As a minister, he must be
acknowledged as a man of some good sense and we very much doubt that Pengiran Othman would readily
lend his hand in dealings that could work against the appellants’ interests but, on the contrary, his presence
and endorsement lend support to our belief that the appellants had all the necessary independent advice that
they needed to enter into the memorandum of intent.
If that is not enough, the memorandum was executed by the appellants before an advocate and solicitor,
Encik Yussof Ahmad, … leaves us in no doubt that the appellants executed the memorandum before an
advocate and solicitor and in all probability the appellants must have been legally represented and advised as
well.
Two years later, … this first agreement was again executed by the appellants in the presence of Encik Yussof
Ahmad. That first agreement runs into 25 pages and it is most unlikely that Encik Yussof Ahmad did not
explain the contents and implications of such a lengthy document.
There is also documentary evidence that besides Encik Yussof Ahmad, the appellants had also sought the
opinion of another advocate and solicitor, Encik Ansari Abdullah, over the first agreement. That evidence is
found in Encik Ansari Abdullah’s bill of charges dated 29 May 1986 which included ‘giving opinion on the
agreement dated 8 March 1984 executed between yourselves and Messrs Lipkland (S) Sdn Bhd’.
Seven months after the first agreement was executed, it was replaced by the second agreement dated 18
October 1984 which was executed together with a power of attorney. …
Besides the second agreement and the power of attorney, Encik Ansari Abdullah also admitted witnessing
the execution of the third agreement, together with the revocation of the power of attorney, the fourth
agreement and the trust deed but denied preparing any of such documents, a denial that is challenged by the
third respondent.
Another advocate and solicitor, Mr Billy Lee Chong Hoe, prepared, explained and witnessed the execution
of the fifth agreement. [and] ten months later, to prepare the supplemental agreement and although he
explained the contents of the supplemental agreement to the appellants, its execution was witnessed by Mr
Lee Choon Wan instead. …
In the light of the documentary evidence, we cannot see how the appellants can contend that they were
denied of any independent legal advice when they executed the various agreements. They executed such
documents freely and without protest, and this is not a case where the appellants were rushed into executing
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the documents within a limited span of time but that such execution were done over a period of ten years.
They cannot now complain that just because they have been deprived of the main bulk of their inheritance,
they had been unduly influenced into entering into contractual obligations which they now say are
unconscionable. This is so as they had received consideration for each agreement that they had executed.
…”
[Query: Is it sufficient for a plaintiff to establish undue influence by just complaining that he had no
independent legal advice when he executed the agreement?]
Tate v Williamson [1866] 2 Ch App 55

(For facts, see previous notes.)
“…the Defendant, pending the agreement, was bound to communicate all the information he acquired,
which it was material for the intestate to know in order to enable him to judge of the value of his property. It
was admitted that the valuation of Mr. Cope was in the hands of the Defendant at the time he wrote his
letter of the 10th September, 1859. The Defendant is charged with making untrue representations in that
letter. If he had done so, it would of course strengthen the case against him, but I find nothing in the letter
which amounts to a misrepresentation, nor anything more than a disparagement of the property, not
uncommon with a purchaser when he desires to stimulate the owner of the property to close with his offer.
Having stated my opinion with regard to the duty cast upon the Defendant to communicate Cope's valuation
to the intestate, it seems unnecessary to pursue the case further. The fair dealing, in other respects, of the
Defendant during the negotiation, and before the agreement was signed, becomes almost irrelevant. The
refusal of the solicitors to proceed with the agreement unless the young man had some legal assistance, the
recommendation of the Defendant that the intestate should apply to his father for advice, the opportunity
afforded him pending the negotiation of consulting any friends who were capable of advising him, the
reference to Mr. Payne, whether merely for the purpose of completing the agreement, or to afford the
intestate an opportunity of obtaining his opinion as to the value, all these considerations are of no
consequence, when once it is established that there was a concealment of a material fact, which the
Defendant was bound to disclose.
Nor, after this, is it of any importance to ascertain the real value of the property.
Even if the Defendant could have shewn that the price which he gave was a fair one, this would not alter the
case against him. The Plaintiff, who seeks to set aside the sale, would have a right to say, "You had the
means of forming a judgment of the value of the property in your possession, you were bound, by your duty
to the person with whom you were dealing, to afford him the same opportunity which you had obtained of
determining the sufficiency of the price which you offered; you have failed in that duty, and the sale cannot
stand." But, in truth, there are strong grounds for thinking that the price agreed to be paid by the Defendant
is quite inadequate to the value of the property. There is no occasion to weigh the opposite opinion of the
engineers and surveyors, and to form a conclusion from them. It is sufficient to take the valuation of the
mines by Cope, amounting to £20,000, and the valuation of the surface by the Defendant's own witnesses,
ranging from £10,000 to £11,290, and making every allowance for a reduction of the value of the intestate's
share, in consequence of its being an undivided moiety, it will appear that the value, by the Defendant's own
shewing, must have been at the least £14,000. For this property the Defendant agreed to pay £7,000,
apparently about half the valuer and that not at once, but £1,500 was to be advanced to the intestate which
was to bear interest till the day for the completion of the purchase, which advance must have been intended
to enable the intestate to pay off his debts immediately; £2,000 was to be paid on the 25th March, 1860, and
the residue by yearly instalments in the four following years.
It appears to me, upon a careful review of the whole case, that it would be contrary to the principles upon
which equity proceeds, in judging of the dealings of persons in a fiduciary relation, to allow the purchase by
the Defendant, Robert Williamson, to stand.
I am satisfied that the Defendant had placed himself in such a relation of confidence, by his undertaking the
office of arranging the intestate's debts by means of a mortgage of his property, as prevented him from
becoming a purchaser of that property without the fullest communication of all material information which
he had obtained as to its value; that this openness and fair dealing were the more necessary when he was
negotiating with an extravagant and necessitous young man, deprived at the time of all other advice, eager to
raise money, and apparently careless in what manner it was obtained; and the Defendant having, by
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concealment of a valuation which he had privately obtained, procured a considerable advantage in the price
which the seller was induced to take, and which even the Defendant's witnesses prove to be grossly
inadequate, he cannot be permitted so to turn the confidence reposed in him to his own profit, and the sale
ought to be set aside.”
[Comment: The defendant, having assumed such fiduciary relation, had a duty to declare or communicate to the
plaintiff the true valuation of the property. And the defendant was bound by his duty to the plaintiff, to afford
him the same opportunity which the defendant had obtained of determining the sufficiency of the price which
the defendant had offered. The defendant had placed himself in such a relation of confidence that prevented
him from becoming a purchaser of that property without the fullest communication of all material information
which he had obtained as to its value.
Once he had purchased the property by concealing its true value, he would not be able to rebut the presumption
by showing—
a. that there was fair dealing of the defendant, in other respects, during the negotiation, and before the
agreement was signed;
b. that the solicitors refused to proceed with the agreement unless the young man had some legal
assistance;
c. that the defendant had recommended that the intestate should apply to his father for advice;
d. that the opportunity afforded the intestate, pending the negotiation, of consulting any friends who were
capable of advising him; and
e. that the intestate was referred to another, Mr. Payne, whether merely for the purpose of completing the
agreement, or to afford the intestate an opportunity of obtaining his opinion as to the value.
The court observed that all these considerations are of no consequence, when once it is established that there
was a concealment of the material fact.]

Lord Nicholls of Birkenhead said:
“Independent advice
20 Proof that the complainant received advice from a third party before entering into the impugned
transaction is one of the matters a court takes into account when weighing all the evidence. The weight, or
importance, to be attached to such advice depends on all the circumstances. In the normal course, advice
from a solicitor or other outside adviser can be expected to bring home to a complainant a proper
understanding of what he or she is about to do. But a person may understand fully the implications of a
proposed transaction, for instance, a substantial gift, and yet still be acting under the undue influence of
another. Proof of outside advice does not, of itself, necessarily show that the subsequent completion of the
transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside
advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue
influence, is a question of fact to be decided having regard to all the evidence in the case.”
[Comment: “Whether … that outside advice had an emancipating effect …”, requires the defendant to show
that the plaintiff had been advised by others (outside advice, legal or otherwise), not by him, at the time of
entering into the contract, so that when the plaintiff made the decision to proceed with it he has freed himself
from the influence of the defendant, because the plaintiff’s decision has been induced by that outside advice,
rather than that of the defendant’s. ]
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Remedies
Section 20 of the Contracts Act 1950: Power to set aside contract induced by undue influence.
“When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option
of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party
who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court
may seem just.”
Section 34 of the Specific Relief Act 1950: When rescission may be adjudged.
“(1) Any person interested in a contract in writing may sue to have it rescinded, and such rescission may be
adjudged by the court in any of the following cases, namely—
(a) where the contract is voidable or terminable by the plaintiff;
(b) where the contract is unlawful for causes not apparent on its face, and the defendant is more to blame
than the plaintiff; and
(c) where a decree for specific performance of a contract of sale, or of a contract to take a lease, has been
made, and the purchaser or leasee makes default in payment of the purchase-money or other sums
which the court has ordered him to pay.
(2) When the purchaser or lessee is in possession of the subject-matter, and the court finds that his possession is
wrongful, the court may also order him to pay to the vendor or lessor the rents and profit, if any, received by
him as possessor.
In the same case, the court may, by order in the suit in which the decree has been made and not complied with,
rescind the contract, either so far as regards the party in default, or altogether, as the justice of the case may
require.”

(For facts, see previous notes.) In equity, the remedy of restitution is available. The claim, however, has to be
made within reasonable time, delay or laches, and acquiescence may deprive the plaintiff of such remedy.
The plaintiff, Miss Allcard, brought an action to recover the whole of the money back which she had given to
the sisterhood, whilst acting under the defendant’s (Miss Skinner) undue influence and without any
independent and separate advice, amounting to nearly £8500. Kekewich J tried the action, and gave judgment
for the defendant. From this judgment the plaintiff appealed, but she has limited her appeal to two sums of £500
and £1171, railway stock transferred by her to Miss Skinner, the lady superior, which was still standing in her
name.
The court held that she would have been entitled to claim the restitution of such part of her property as was still
in the hands of the defendant, upon leaving the sisterhood, but not of such part as had been expended on the
purposes of the sisterhood while she was there. The Court of Appeal upheld the trial judge’s decision and held
that, under the circumstances, the plaintiff's claim was barred by her laches and acquiescence since she left the
sisterhood.
Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127
In Polygram Records case, Visu Sinnadurai J referred to Elton John & Ors v Richard Leon James & Ors [1991]
FSR 397 where Nicholls J held that, in principle, the agreements ought to be set aside on the grounds of undue
influence; though because of the long delay in bringing the action, such a remedy, in the instant case, was not
appropriate.
The defendants' challenge to set aside the second contract as being voidable on the grounds of undue influence,
however, was held unsuccessful.
Public Finance Bhd v Lee Bee Rubber Factory Sdn Bhd & Ors [1994] 1 MLJ 495 (HC)
Edgar Joseph Jr J observed that in the case of the third defendant, the additional plea of undue influence (a
delay of some two and a half years after judgment in default of defence had been entered) and this concerned
the bona fides of their conduct in making the present application and whether it was barred by laches. The
learned judge said:
“Indeed, the second and third defendants did not bestir themselves even when the plaintiff had caused a writ
of seizure and sale to be issued against the defendant company's factory on 26 February 1985 (see exh CSH5
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to the affidavit of the plaintiff company's manager, Mr Choo) although, being directors and shareholders of
the plaintiff company, they must, at least by then, have known that the plaintiff company was actively
enforcing the default judgment. On the contrary, they waited some 2½ years before causing to be issued the
application to set aside the default judgment.
In Malaysia Building Society Bhd v Lim Kheng Kim [1988] 3 MLJ 175, at p 184 col 2H, when dealing with the
subject of delay in the context of a similar situation, I had held that a delay of one year and two months in
applying to set aside a default judgment gave rise to an inference of laches. In this context, the case of Hong
Leong Equipment Sdn Bhd v Manfo Development Sdn Bhd & Anor [1986] 1 CLJ 417at p 419 para 3, also merits
reading. I appreciated, however, that it was a question of fact in each case, whether the delay involved was so
inordinate as to show that a party has been guilty of laches.
It is also clear law that a defendant who is seeking the indulgence of the court to set aside a default judgment
should make full, frank, candid and honest disclosure of all the relevant facts. (See Hong Leong Equipment Sdn
Bhd v Manfo Development Sdn Bhd & Anor [1986] 1 CLJ 417. )
In these circumstances, the inevitable conclusion at which I had arrived was that the second and third
defendants had been guilty of laches, their conduct had not been bona fide and there had been a deplorable
lack of candour on their part.”
Saad bin Marwi v Chan Hwan Hua & Anor [2001] 3 CLJ 98
Gopal Sri Ram JCA in his judgment, narrated the available equitable remedy and the doctrine of laches, and
said:
“The appellant defended the claim on two broad grounds. First, he claimed that the agreement had been
vitiated by undue influence. His second line of defence was that the respondents were barred by laches from
seeking relief.
The learned judge who heard the action rejected the defence of undue influence. But he declined specific
performance apparently on the ground that - and I quote his words - "both parties were equally to blame for
the predicament in which they found themselves." The judge then awarded the respondents damages of
RM1.2 million representing half the current market value of the subject property. The appellant's appeal is
directed against this order of the learned judge. The respondents cross-appealed against the judge's refusal to
decree specific performance. However, at the conclusion of his argument, counsel for the respondents
informed us that he was abandoning the cross-appeal. …
In my judgment, a judicial tribunal properly directing itself on the law and the evidence would have
concluded that the agreement between the appellant and the respondents was an unconscionable bargain.
Such a conclusion would result in the agreement not being enforceable either at common law by an award of
damages or by a decree of specific relief in equity. The appellant was entitled to have the suit dismissed with
costs.
That brings me to the question of laches which is the second ground advanced in this appeal. …
Now the doctrine of laches in courts of equity is not an arbitrary or a technical doctrine. Where it would be
practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly
be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not
waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if
the remedy were afterwards to be asserted, in either of these cases, lapse and delay are most material. But in
every case, if an argument against relief, which otherwise would be just, is founded upon mere delay, that
delay of course not amounting to a bar by any statute of limitations, the validity of that defence must be tried
upon principles substantially equitable. Two circumstances, always important in such cases, are, the length of
the delay and the nature of the acts done during the interval, which might affect either party and cause a
balance of justice or injustice in taking the one course or the other, so far as relates to the remedy. …
The question that has been posed in the present appeal is whether the equitable defence of laches may be
used to defeat the common law remedy of damages. I think that that question must receive an affirmative
answer.
In the first place, there is s. 32 of the Limitation Act 1953. It provides as follows:
Nothing in this Act shall affect any equitable jurisdiction to refuse relief on the ground of acquiescence,
laches or otherwise.
It is important to notice that the section speaks of "any equitable jurisdiction to refuse relief" without
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specifying the kind of relief that may be refused. It must therefore follow that the section permits laches to
be used as a defence to the common law relief of damages. …
Returning to the factual narrative, there is only one last event that calls for mention. It is that the writ in
these proceedings was issued out on 22 May 1981. Now, if one takes the one-year period prescribed by the
agreement as the commencement point, it means that the respondents did nothing to enforce their rights, if
any, against the appellant for more than four years after the accrual of a cause of action. If one takes the later
date of 23 October 1979, when the appellant returned the deposit, then nothing was done about 19 months.
If in M Ratnavale v. S Lourdenadin [1988] 2 MLJ 371 delay of fourteen months was fatal, it must come as no
surprise to the respondents that I find their conduct most dilatory. The appellant's conduct of returning the
deposit was the clearest evidence of an intention to repudiate his obligations, if any, under the agreement.
The respondents' continued inaction thereafter necessarily attracts the inference of disinterestedness. In my
judgment, it would be positively unjust to permit the respondents to succeed in their action against the
appellant. The appellant was accordingly entitled to have the claim dismissed on the ground of the
respondents' laches.”
Tengku Abdullah ibni Sultan Abu Bakar v Mohd Latiff bin Shah Mohd [1996] 2 MLJ 265
(For facts of the case, see previous notes.)
On the question of relief for breach of trust or of fiduciary relationship, Gopal Sri Ram JCA observed that a
plaintiff is entitled to a wide range of relief, such as an account of profits, the appointment of receiver to
recover money due to him, or damages; and depends very much upon the facts of each case.
Pursuant to section 19(1) of the Contracts Act 1950 [sic: which concerns an agreement caused by coercion,
fraud, or misrepresentation; section 20 is for undue influence], and section 34(1) of the Specific Relief Act
1950, the usual remedy by which an innocent party may relieve himself of all his obligations under a contract
procured by undue influence is rescission. The Specific Relief Act 1950, however, does not prohibit against the
grant of some other kind of relief to a party who seeks to remedy a wrong perpetrated upon him by another in
consequence of exerting undue influence in the wider sense which existed in this case.
Gopal Sri Ram JCA said:
“The consequence of undue influence upon a contract is prescribed by s 19(1) of the Contracts Act 1950 [sic]
[s 20, above, would be more correct] …
The usual remedy by which an innocent party may relieve himself of all his obligations under a contract
procured by undue influence is rescission. The circumstances in which that remedy may lie in cases of
contract appear in s 34(1) of the Specific Relief Act 1950, which reads as follows:
(34) (1) Any person interested in a contract in writing may sue to have it rescinded, and such rescission
may be adjudged by the court in any of the following cases, namely:
(a) where the contract is voidable or terminable by the plaintiff;
(b) where the contract is unlawful for causes not apparent on its face, and the defendant is more
to blame than the plaintiff; and
(c) where a decree for specific performance of a contract of sale, or of a contract to take a lease,
has been made, and the purchaser or lessee makes default in payment of the purchase-money or
other sums which the court has ordered him to pay.
In Hungerford Investment Trust Ltd v Haridas Mundhra & OrsAIR 1972 SC 1826, the Supreme Court of India,
when discussing the remedy of specific performance provided for in the parallel Indian legislation, made the
following observation:
The question then is whether the application was maintainable under any other provision of the law.
The Specific Relief Act 1963 is not an exhaustive enactment. It does not consolidate the whole law on
the subject. As the preamble would indicate, it is an Act 'to define and amend the law relating to certain
kinds of specific relief'. It does not purport to lay down the law relating to specific relief in all its
ramifications. In Ramdas Khatau and Co v Atlas Mills Co Ltd AIR 1931 Bom 151 it was held that the
Specific Relief Act 1877 was not exhaustive. In Rahmath Unnissa Begum v Shimoga Co-operative Bank Ltd
AIR 1951 Mys 59, the court said that the Specific Relief Act 1877 is founded on English equity
jurisprudence and that it is permissible to refer to English law on the subject wherever the Act did not
deal specifically with any topic (see also Firm Kishore Chand Shiva Charan Lal v Budaun Electric Supply Co
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Ltd AIR 1944 All 66 at p 77). Although a matter on which the Act defines the law might generally be
exhaustive, the Act as a whole cannot be considered as exhaustive of the whole branch of the law of
specific performance.
In our judgment, much the same may be said of our Specific Relief Act, the preamble to which merely reads:
'An Act relating to specific relief'. It is noteworthy that nowhere in the Act is there a prohibition against the
grant of some other kind of relief to a party who seeks to remedy a wrong perpetrated upon him by another
in consequence of exerting undue influence in the wider sense that we have earlier discussed.
Cases may arise where to grant rescission may cause grave injustice. Yet the maxim of the law is ubi jus ibi
remedium . If a wrong is found to have occurred in circumstances which disclose an abuse of confidence in
respect of which a court of equity may grant relief, it is open to the court to grant such relief as would meet
the ends of justice. This is the core of equity jurisprudence which was invented to mitigate the rigours of the
common law. To demand, in the circumstances adumbrated a moment ago, that rescission be the sole
remedy, albeit that its grant may cause as much, if not greater, harm than that inflicted by the wrongdoer, will
denude equity jurisprudence—whether in point of right or remedy—of the very flexibility which the courts
have strived to achieve in order to dispense justice according to the facts of a given case. The proposition
that equity, in keeping with its flexibility, moulds the relief that ought to be granted in a particular case to
meet the justice of that case is well supported by authority.
In Gluckstein v Barnes (1900) AC 240, the House of Lords rejected the identical argument as here advanced by
Allied, Lord Macnaghten treating the point as being settled. He said (at p 249):
The third ground of defence was that the only remedy was rescission. That defence, in the
circumstances of the present case, seems to me to be as contrary to common sense as it is to authority.
The point was settled more than 60 years ago by the decision in Hichens v Congreve (1831) 58 ER 157
and, so far as I know, that case has never been questioned.
Raja Aziz has also drawn our attention to Dusik v Newton(1985) 62 BCLR 1, a decision of the Court of
Appeal of British Columbia. The joint judgment of the court contains much learning upon the subject of
unconscionable bargains. On the flexibility of equitable remedies, particularly in the context of the remedy of
rescission, we think it appropriate to reproduce the following passage from that judgment:
Where rescission is impossible or inappropriate, it would be inequitable for the defendant to retain the
benefits of the unconscionable bargain. As Dickson J (as he then was) stated in Pettkus v Becker [1980]
117 DLR (3d) 257 at p 273:
'The great advantage of ancient principles of equity is their flexibility: the judiciary is thus able to shape these malleable
principles so as to accommodate the changing needs and mores of society, in order to achieve justice.' In the instant
case, it would be unjust to allow the board to employ technical arguments in order to preserve the
fruits of its unconscionable actions. To echo the words of Davey JA in Morrison v Coast Fin Ltd
[1965] 55 DLR (2d) 710 at p 716: 'I cannot believe that the law is so deficient that it cannot reach
and remedy such a gross abuse of overwhelming inequality between the parties.
The ability of the court to award damages in cases such as the one at bar is bolstered by the view
that a finding of unconscionability raises a presumption of fraud, although not 'fraud' as defined in
Derry v Peek. Davey JA in Morrison at p 713, noted that proof of the requisite elements of
unconscionable bargain 'creates a presumption of fraud which the stronger must repel by proving
that the bargain was fair, just and reasonable'; cf the rule formulated by McIntyre JA (as he then
was) in Harry v Kreutziger [1978] 95 DLR (3d) 231 at p 237. In the face of a finding of constructive or
equitable fraud, as demonstrated by proof of an unconscionable bargain, it cannot be argued that the
court is foreclosed from providing a remedy.
Prof Waddams, in The Law of Damages (1983) at p 601, makes the following comment:
'Practical impossibility of rescission can rationally be held to relieve the defendant from an actual
order of rescission. There is no reason why it should relieve him from liability to pay the financial
equivalent. The Court of Equity undoubtedly had good reason before the Judicature Act for its
reluctance to award damages alone, for this would have had the appearance of trespassing on the
jurisdiction of the common law courts. But no such reason can justify the refusal of the modern
court to make use of the most appropriate money remedy.'
…
In Hospital Products Ltd , Mason J expressed a similar view. He said (at p 107):
The principle, accepted by the courts below, is that the fiduciary cannot be permitted to retain a profit
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or benefit which he has obtained by reason of his breach of fiduciary duty : Consul Development Pty Ltd v
DPC Estate Pty Ltd(1975) 132 CLR 373 at p 393; Queensland Mines Ltd v Hudson(1978) 52 ALJR 399 at p
401. A fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where
there was a conflict, or possible conflict of interest and duty, or (2) by reason of the fiduciary position
or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in
consequence of his occupation of the fiduciary position. (Emphasis added.)
Useful reference may also be made to the speech of Lord Browne-Wilkinson in Target Holdings Ltd v Redferns
(a firm) & Anor[1995] 3 All ER 785.
Based on these authorities, Raja Aziz has argued that the purpose of equity is to ensure disgorgement by a
wrongdoer who has profited through an abuse of confidence. That, in the present case, he argues, is
achieved by getting Allied to return to the club, the difference between the fair price for the construction of
the club's premises and the price charged and substantially collected by Allied. He says that this is precisely
why the learned judge made those orders complained of by Allied.
We are of opinion that there is merit in the argument advanced by the respondents. As demonstrated earlier,
both principle and authority lie in favour of the grant of relief that prevents unjust enrichment by Allied as a
wrongdoer. In our judgment, no technical argument ought to be permitted to stand in the way of righting
the wrong done to the respondents.
For the reasons we have thus far given, the arguments of Allied directed against the nature of the remedy
fail.
That brings us to Mr Anantham's submission that the judge has permitted double recovery—the award of
damages against the appellants in the first appeal and the judgment for repayment of the difference against
Allied. Raja Aziz's argument in response is that there will be no double recovery in fact. This is because the
respondents may obtain only nominal damages against the appellants if they recover the full sum awarded
against Allied. Counsel also argues that it may be that the respondents will not recover anything from Allied.
In that event, they will have to look to the appellants in the first appeal for satisfaction of the judgment.
We think that there is much force in the arguments advanced by Raja Aziz. In cases like this, a court must
always look at the practical consequences of any order it makes or of any relief that it grants. As a matter of
practicality, the two awards are there not for double enforcement but for recovery of the actual loss suffered
by the respondents. Pursuant to the control a court exercises over all its orders, there will no double
recovery. …”
Agency, actual or constructive notice:

Whether a third party creditor bank could be fixed with constructive notice of the undue influence exerted by
a husband dbtor on his surety wife.
O’Brien:
▪ Whether the claimant wife can set aside the transaction, not against the wrongdoing husband, but against the
creditor bank.
▪ If the wrongdoing husband is acting as agent for the creditor bank in obtaining the surety from the wife, the
creditor will be fixed with the wrongdoing of its own agent and the surety contract can be set aside as
against the creditor.
▪ If the creditor bank has notice, actual or constructive, of the undue influence exercised by the husband (and
consequentially of the wife’s equity to set aside the transaction) the creditor will take subject to that equity
and the wife can set aside the transaction against the creditor (albeit a purchaser for value) as well as against
the husband.
▪ Etridge (No. 2):
The complainant and third parties: suretyship transactions
▪ [37] [W]here the balance should be held between these competing interests. On the one side, there is the
need to protect a wife against a husband’s undue influence. On the other side, there is the need for the bank
to be able to have reasonable confidence in the strength of its security.
▪ [38] In the ordinary course a bank which takes a guarantee security from the wife of its customer will be
altogether ignorant of any undue influence the customer may have exercised in order to secure the wife’s
concurrence. In O’Brien Lord Browne-Wilkinson prayed in aid the doctrine of constructive notice. In
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circumstances he identified, a creditor is put on inquiry. When that is so, the creditor “will have constructive
notice of the wife’s rights” unless the creditor takes reasonable steps to satisfy himself that the wife’s
agreement to stand surety has been properly obtained.
▪ [40] The law imposes no obligation on one party to a transaction to check whether the other party’s
concurrence was obtained by undue influence. But O’Brien has introduced into the law the concept that, in
certain circumstances, a party to a contract may lose the benefit of his contract, entered into in good faith, if
he ought to have known that the other’s concurrence had been procured by the misconduct of a third party.
The threshold: when the bank is put on inquiry

▪ [44] In O’Brien the House considered the circumstances in which a bank, or other creditor, is “put on
inquiry”. … a bank is not required to make inquiries. But … The House set a low level for the threshold
which must be crossed before a bank is put on inquiry. … the level is set much lower than is required to
satisfy a court that, failing contrary evidence, the court may infer that the transaction was procured by undue
influence. …
▪ [44] … a creditor in put on inquiry when a wife offers to stand surety for her husband’s debts by the
combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and
(b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety,
▪ [49] … where the wife becomes surety for the debts of a company whose shares are held by her and her
husband. Her shareholding may be nominal, or she may have a minority shareholding or an equal
shareholding with her husband. ... the bank is put on inquiry in such cases, even when the wife is a director
or secretary of the company.
The steps a bank should take

▪ [50] In O’Brien … a bank can reasonably be expected to take steps to bring home to the wife the risk she is
running by standing as surety and to advise her to take independent advice. That test is applicable to past
transactions.
▪ [50] For the future a bank satisfies these requirements if it insists that the wife attend a private meeting with
a representative of the bank at which she is told of the extent of her liability as surety, warned of the risk she
is running and urged to take independent legal advice. In exceptional cases the bank, to be safe, has to insist
that the wife is separately advised.
▪ [53] It is plainly neither desirable nor practicable that banks should be required to attempt to discover for
themselves whether a wife’s consent is being procured by the exercise of undue influence of her husband.
This is not a step the banks should be expected to take.
▪ [54] The … bank can be expected … to take reasonable steps to satisfy itself that the wife has had brought
home to her … the practical implications of the proposed transaction. This does not wholly eliminate the
risk of undue influence or misrepresentation. But it does mean that a wife enters into a transaction with her
eyes open so far as the basic elements of the transaction are concerned.
The content of the legal advice

▪ [61] … it is not for the solicitor to veto the transaction by declining to confirm to the bank that he has
explained the documents to the wife and the risks she is taking upon herself. If the solicitor considers the
transaction is not in the wife’s best interests, he will give reasoned advice to the wife to that effect. But at
the end of the day the decision on whether to proceed is the decision of the client, not the solicitor. A wife is
not to be precluded from entering into a financially unwise transaction if, for her own reasons, she wishes to
do so.
▪ [64] ... the scope of the responsibilities of a solicitor who is advising the wife. ... What has he been retained
to do? ... the scope of a solicitor’s duties is dictated by the terms, whether express or implied, of his retainer.
... the relevant retainer stems from the bank’s concern to receive confirmation from the solicitor that ... the
solicitor has brought home to the wife the risks involved in the proposed transaction. As a first step the
solicitor will need to explain to the wife the purpose for which he has become involved at all. ... The
solicitor will need to obtain confirmation from the wife that she wishes him to act for her in the matter and
to advise her on the legal and practical implications of the proposed transaction.
▪ [65] ... the advice a solicitor can be expected to give should cover the following matters as the core
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minimum.
(1) ... need to explain the nature of the documents and the practical consequences these will have for the wife
if she signs them. She could lose her home if her husband’s business does not prosper. ... She could be made
bankrupt. (2) ... point out the seriousness of the risks involved. The wife should be told the purpose of the
proposed new facility, the amount and principal terms of the new facility, and that the bank might increase
the amount of the facility, or change its terms, or grant a new facility, without reference to her. ... the amount
of her liability under her guarantee. ... discuss the wife’s financial means, including her understanding of the
value of the property being charged. ... discuss whether the wife or her husband has any other assets out of
which repayment could be made if the husband’s business should fail. These matters are relevant to the
seriousness of the risks involved.
(3) ... state clearly that the wife has a choice. The decision is hers and hers alone.
(4) ... check whether the wife wishes to proceed. ... asked whether she is content that the solicitor should
write to the bank confirming he has explained to her the nature of the documents and the practical
implications they may have for her, or whether, for instance, she would prefer him to negotiate with the bank
on the terms of the transaction. ... The solicitor should not give any confirmation to the bank without the
wife’s authority.
▪ [66]... discussion with the wife should take place at a face-to-face meeting, in the absence of the husband. ...
in suitably non-technical language. ... It is not a formality.
▪ [67] ... obtain from the bank any information he needs. If the bank fails for any reason to provide
information requested by the solicitor, the solicitor should decline to provide the confirmation sought by the
bank.
▪ [68]... the advice which a solicitor can be expected to give must depend on the particular facts of the case.
But I have set out this “core minimum” in some detail, because the quality of the legal advice is the most
disturbing feature of some of the present appeals.
Independent advice
▪ [69] Commonly, in practice, the solicitor advising the wife will be the solicitor acting also for her husband
either in the particular transaction or generally.
▪ [74] … in every case the solicitor must consider carefully whether there is any conflict of duty or interest
and, more widely, whether it would be in the best interests of the wife for him to accept instructions from
her. If he decides to accept instructions, his assumption of legal and professional responsibilities to her
ought, in the ordinary course of things, to provide sufficient assurance that he will give the requisite advice
fully, carefully and conscientiously. Especially so, now that the nature of the advice called for has been
clarified. If at any stage the solicitor becomes concerned that there is a real risk that other interests or duties
may inhibit his advice to the wife he must cease to act for her.
© mohaimin ayus

1.5 Case Notes On Undue Influence (2023)

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Undue Influence under English Law I (1993 - 2001)

Class 2A: Class 2B:

Undue Influence made out

Undue Influence under English Law II (2001 – today)

Presumption of undue influence made out.

Undue Influence under Section 16 of the Contracts Act 1950, Malaysia

1st element 2nd element

Where he holds a real or

Undue Influence under English law: an overview

Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 (HL)

The Malaysian law on Undue Influence

The application of section 16 of the Contracts Act

Section 16(3) of the Act.

English Position on Undue Influence

Allcard v Skinner (1887) 36 Ch D 145

At p. 185, Lindley LJ further said:

Cotton LJ, at p. 171, observed:

20th century approach

Modern classification of undue influence

21st century development

Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 (HL)

Actual undue influence

▪ Presumed undue influence (under the previous Class 2 classification)

▪ Presumed undue influence (known previously as Class 2A undue influence)

Presumed undue influence—special relationship (e.g. of Class 2A case)

mind as well as person—an entirely free agent.” …

▪ Presumed undue influence (under previous Class 2B classification)

Presumed undue influence (Class 2B)

Malaysian Case Law on Undue Influence

(b) To whom was the duty owed?

The third issue: breach of duty

prove good faith.”

so. Section 16(1) of the Contracts Act reads:

Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127

Mental incapacity & Independent legal advice

Special relationship: granddaughter and old and dependant grandmother.

Specific issues in English case law on undue influence

The issue whether “manifest disadvantage” needs to be shown

National Westminster Bank Plc v Morgan [1985] AC 686 (HL)

Etridge (No. 2) calls for the element of ‘manifest disadvantage’ to be discarded

▪ Lord Hobhouse of Woodborough, in his judgment on Etridge said:

part of the debtor.

Whether third party creditor can be fixed with constructive notice

Barclays Bank Plc v O’Brien and Anor [1994] 1 AC 180 (HL)

Class 1: Actual undue influence

The shifting of the burden of proof

Consider also the following cases:

2. Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 (HL).

3. Polygram Records Sdn Bhd v The Search [1994] 3 MLJ 127.

Rebutting the presumption

(a) the nature of the transfer/agreement;

Inche Noriah v Shaik Allie bin Omar [1929] AC 127 (PC)

Tate v Williamson [1866] 2 Ch App 55

Royal Bank of Scotland v Etridge (No. 2) [2002] 2 AC 773 (HL)

Allcard v Skinner (1887) 36 Ch D 145

Agency, actual or constructive notice:

The threshold: when the bank is put on inquiry

The steps a bank should take

The content of the legal advice

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