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Coercion and

Undue Influence
INTRODUCTION

A contract is valid and binding if it is properly formed, a party to the


contract may avoid the contract if it has not been entered into freely.

The principle of freedom of contract rests on the free choice of parties as


to whom they wish to contract with and the terms of the contract entered
into.

The element of free consent is vital and a contract which bears any of the
vitiating factors of coercion, undue influence, fraud and
misrepresentation may be rescinded by the party whose consent was not
freely obtained.
REQUIREMENT OF FREE CONSENT

Section 10(1) of the Contracts Act emphasises the need for free consent to
a contract.

It provides that:
All agreements are contracts if they are made by the free consent of parties competent to contract,
for a lawful consideration and with a lawful object, and are not hereby expressly declared to be
void. (Emphasis added).

The concept of consensus ad idem [agreement as to the same thing]

Necessary to bind both parties is infused into s 13 of the Contracts Act


which defines "consent" as follows:
Two or more persons are said to consent when they agree upon the same thing in the same sense.
This is followed by s 14 of the Contracts Act which defines free consent:
Consent is said to be free when it is not caused by -

(a) coercion, as defined in section 15;

(b) undue influence, as defined in section 16;

(c) fraud, as defined in section 17;

(d) misrepresentation, as defined in section 18; or

(e) mistake, subject to sections 21, 22 and 23.

Consent is said to be so caused when it would not have been given but for
the existence of such coercion, undue influence, fraud,
misrepresentation, or mistake.
MEANING OF "VOIDABLE CONTRACT"

Section 2(i) of Contracts Act stipulates that:

an agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other or others, is a voidable contract.

Thus, while a contract is valid and binding having satisfied the


requirements on formation of contract, where a contract is voidable, one of
the parties to the contract has the option to avoid the contract. He has the
choice whether to carry on (affirm) the contract or to terminate (rescind) the
contract.
WHEN CONTRACTS ARE VOIDABLE

There are two main situations when a contract is rendered voidable.


First, there is a lack of free consent in entering into the agreement.
When an innocent party rescinds due to any vitiating factor, it is
known as "rescission ab initio“.

Second, a contract is also voidable when there is a serious breach of


the terms of the contract under ss 40, 54 and 56 of the Contracts Act.
This is known as "rescission for breach“.

In both situations, the innocent party may rescind the contract


although there are some differences in the effects of the rescission.
This chapter will examine the vitiating factors of coercion and undue
influence for voidable contracts which are provided in ss 15 and 16 of the
Contracts Act.

There are some differences between the concept of coercion in s 15 and


the English common law concept of duress. The English law's
development of economic duress is also important.

For the law on undue influence, s 16 has embodied English law.

The Malaysian courts have continued to interpret the provisions in s 16


while taking cognisance of English law developments on undue influence.
COERCION
Section 10

Section 14(a)

Section 15
The law on coercion in Malaysia is provided in s 15 of
the Contracts Act. Section 15 defines coercion as follows:

"Coercion" is the committing, or threatening to commit


any act forbidden by the Penal Code, or the unlawful
detaining or threatening to detain, any property, to the
prejudice of any person whatever, with the intention of
causing any person to enter into an agreement.

The above definition provides two types of coercion


The commission, or threat to commit, of any act
forbidden by the Penal Code.
The unlawful detention or threatened detention of
any property, to prejudice of any person.
The person alleging that the contract is voidable must identify the
coercive act and prove the necessary elements. In Teck Guan
Trading Sdn Bhd v Hydrotek Engineering (S) Sdn Bhd & Ors [1996] 4
MLJ 331.
Ian Chin J stated:
“There are two ways of committing 'coercion' as defined by s 15, one
of which is the threatening of an act forbidden by the Penal Code,
while the other is the unlawful detention or the threatening of such
to the prejudice of any person, with the intention of causing any
person to enter into an agreement Mr Lim [counsel for the
defendants] did not submit whether any or which of the acts of the
plaintiff can be considered as a threat to commit an act forbidden by
the Penal Code and which section of the Penal Act as forbidding the
threatened act. Mr Lim must say what offence the plaintiff had
committed under the Penal Code before the court can decide whether
such an offence had been committed (see Pollock & Mulla on Indian
Contract and Specific Relief Acts (9th Ed) at p 133)” Ibid, at 337.
Continue…
In Nuri Asia Sdn Bhd v Fosis Corp Sdn Bhd (2006) 3 MLJ 249,
the Plaintiff supplied goods to the first defendant and alleged
that it did so upon the second defendant giving an oral
guarantee for its payment. When the sum was unpaid, the
Plaintiff got the second defendant to sign a written
guarantee and sue upon it.
It was held that the written guarantee had been tainted
with coercion as defined in Section 15 of Contract Act
1950 and so there was no free consent under Section 14,
as a result of which the written guarantee was vitiated
thereby.
Continue…
In CIMB Bank Bhd v Tan Hua Peng @ Tan Kwah Peng (2012) 8
MLJ 442, 450, the High Court stated that coaxing is not coercion
and persuasion is not prohibited in the way banks may want to
market their financial products.

Similarly in Asbir, Hira Singh & Co v Supramaniarn a/l


Pitchaimuthu & Ors [2000] 1 MLJ 83, the High Court held that
the first defendant's contention that he was coerced by the
plaintiff into signing an agreement to pay the plaintiff RM40,000
fees remained a bare allegation as the elements under s 15 of
the Contracts Act were not proved.

Ultiriam a/l Sebatian Pillai v Stevenson Erutyanathan A/L Leo


(2009) 5 AMRS 846.
Common Law Position
Coercion as provided in s 15 of the Contracts Act is not the
same as duress under the common law.

The meaning of ‘coercion’ in the Contracts Act 1950 is not co-


extensive with ‘duress’ at common law

The common law of duress only recognises actual or


threatened violence to persons and threats to property were
held to be insufficient to amount to duress.

In Barton v Armstrong [1975] 2 WLR 1050, PC (Appeal from


Australia) the appellant alleged that the respondent had
coerced him into entering an agreement with the respondent
by threatening to have him murdered and by otherwise
exerting unlawful pressure on him. The Privy Council allowed
the appeal and granted a declaration that the agreements
were executed by the appellant under duress and were void.
Through the passage of time, the English courts have recognised that
the doctrine of duress should not be so limited.

• In Occidental Worldwide- Investment Corp v Skibs a/l Avanti & Ors (the "Siboen" and
the "Sibotre") [1976] 1 Lloyd's Rep 293, in response to counsel's submission that a
contract could only be set aside for duress to the person but not in any other case of
duress, Kerr J stated:

“I do not think that English law is as limited as submitted ... For


instance, if I should be compelled to sign a lease or some other
contract for a nominal but legally sufficient consideration under an
imminent threat of having my house burnt down or a valuable
picture slashed, though without any threat of physical violence to
anyone, I do not think that the law would uphold the agreement. I
think that a plea of coercion or compulsion would be available in
such cases.”
The above decision and other cases have led to the development of the
concept of "economic duress".

The issue whether s 15 of the Contracts Act covers illegitimate pressure


in commercial transactions through the doctrine of economic duress is
very pertinent.

Although s 15 is wider than the historical common law doctrine of duress


by its reference to crimes under the Penal Code and detention of
property, coercion under s 15 of the Contracts Acts is still very limited.

Offences outside the Penal Code or which are merely civil wrongs are
not covered. Thus, the scope of coercion is obsolete and it also does not
address the chief objection to the use of illegitimate pressure.
Economic duress

Whether English law recognizes a category of duress known as


economic duress.

It is applicable in commercial transactions where a blameworthy


party attempts to modify the contract terms and threatens to
discontinue unless he is paid more than was originally agreed.

Commercial pressure alone is not sufficient to constitute


economic duress.
The case of Universe Tankships Inc of Monrovia v International
Transport Workers Federation & Or [1982] 2 WLR 803, HL involved a
ship which did not hold a "blue certificate" which was issued by ITF, a
trade union, entitling ships to be exempt from blacking by ITF. As a
result of blacking by ITF, the ship could not sail. Negotiations took place
between the shipowners and ITF which led to the owners' complying
with ITF's demands to pay US$80,000 to JTF.
The shipowners acceded for fear of disastrous economic
consequences if they refused as they had signed a special
agreement incorporating an JTF collective agreement. economic
consequences if they refused as they had signed a special
agreement incorporating an JTF collective agreement. After the
payment, the ship was enabled to sail. The shipowners later
demanded the return of the US$80,000 on the ground that the
agreement to pay was void due to duress.
The House of Lords found that the shipowners had been subjected
to economic duress.
Lord Diplock stated that:
“It is not disputed that the circumstances in which ITF demanded
that the shipowners should enter into the [agreements] ...
amounted to economic duress upon the shipowners; that is to say, it
is conceded that the financial consequence to the shipowners of the
Universe Sentinel continuing to be rendered off-hire under her time
charter to Texaco, while the blacking continued, were so
catastrophic as to amount to a coercion of the shipowners' will
which vitiated their consent to those agreements and to the
payments made by them to ITF)”
In Pao On & Ors v Lau Yin Long & Anor [1980] AC 614; [1979] 3 All ER 65,
PC (Appeal from Hong Kong) , the Privy Council held that commercial
pressure alone is insufficient and also set out the factors to determine
whether there is a coercion of will such as to vitiate true consent.

Lord Scarman, reading the judgment of the Board, stated:

Duress, whatever form it takes, is a coercion of the will so as to vitiate


consent. Their Lordships agree with the observation of Kerr J in The
Siboen and The Sibotre that in a contractual situation commercial
pressure is not enough. There must be present some factor ‘which could
in law be regarded as a coercion of his will so as to vitiate his consent ...
In determining whether there was a coercion of will such that there was
no true consent, it is material to enquire whether the person alleged to
have been coerced did or did not protest; whether, at the time he was
allegedly coerced into making the contract, he did or did not have an
alternative course open to him such as an adequate legal remedy;
whether he was independently advised; and whether after entering the
contract he took steps to avoid it.“
The Privy Council then considered whether English law recognises a
category of duress known as "economic duress". Lord Scarman
continued:
“ Recently two English judges have recognised that commercial
pressure may constitute duress the pressure of which can render a
contract voidable: see Kerr J in The Siboen and The Sibotre [1976] 1
Lloyd's Rep 293 and Mocatta J in North Ocean Shipping Co Ltd v
Hyundai Construction Co Ltd [1978] 3 All ER 1170. Both stressed that
the pressure must be such that the victim's consent to the contract
was not a voluntary act on his part. In their Lordships' view, there is
nothing contrary to principle in recognising economic duress as a
factor which may render a contract voidable, provided always that
the basis of such recognition is that it must amount to a coercion of
will, which vitiates consent. It must be shown that the payment
made or the contract entered into was not a voluntary act.
On the facts of this case, it was held that there was no coercion of the
defendant's will to sign the guarantee. The defendant had considered
the matter thoroughly, chose to avoid litigation and formed the opinion
that the risk in giving the guarantee was more apparent than real.
According to the Board, "there was commercial pressure but no
coercion".
The two authorities referred to by the Privy Council are set out below.

In North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd [1978] 3


All ER 1170, the plaintiff had already made a contract with a third party
to hire the ship to carry goods. The defendant promised to build the ship
for the plaintiff at an agreed price. Subsequently, the defendant asked for
more payment and threatened to stop work on building the ship if its
demands were not complied with. The plaintiff paid the amount and
later brought proceedings to recover the amount paid. The Court held
that the case involved economic duress as the defendant had
threatened economic loss to the plaintiff. On the facts, the Court found
that the plaintiff had agreed to pay the additional 10% under economic
duress and the contract was initially voidable. Mocatta J stated that:

“First, I do not take the view that the recovery of money paid under
duress other than to the person is necessarily limited to duress to
goods Secondly, from this it follows that the compulsion may take
the form of "economic duress" if the necessary facts are proved. A
threat to break a contract may amount to such 'economic duress'.
Thirdly, if there has been such a form of duress leading to a contract
for consideration, I think that contract is a voidable one which can be
avoided and the excess money paid under it recovered.
In Malaysia, arguments based on economic duress had come before the
courts.
In Teck Guan Trading Sdn Bhd v Hydrotek Engineering (S) Sdn Bhd & Ors
[1996] 4MLJ 331, the plaintiffs agreed to sell round iron bars to the first
defendant. The dispute concerned the price of the bars.
The defendants contended that the price was RM1,180 as stated in a
document drawn out as a result of a discussion between the parties. The
plaintiffs contended that this was a typing error and that the actual price
was RM1,244.
They refused to supply the bars unless the defendants agreed to pay
RM1,244. The first defendant initially resisted the demand but eventually
acceded to it as: (a) the plaintiffs persistently refused to supply; (b) the first
defendant had committed itself to supplying and producing concrete
requiring the bar; and (c) there was no time to look for another source of
supply.
The defence contended that the first defendant was subjected to "economic
blackmail" which constituted another category of coercion. This argument
was rejected by the High Court.
In Mohd Fariq Subraman jam v Naza Motor Trading Sdn Bhd [1998] 6
MLJ 193 the defendants held 50 permits for the operation of taxis and,
by an agreement, appointed the plaintiff as one of their taxi drivers.
The plaintiff was to pay the defendants, inter alia, a daily rental of
RM43 per day, presumably for the use of the taxi and the licence
that went with it. Subsequently, the defendants repossessed the
taxi on the ground that the plaintiff had failed to pay an
outstanding amount of daily rentals.
This repossessionwas permitted by a variation to the agreement
between the parties which was entered into about two months
after the main agreement. The plaintiff contended, inter alia, that
he had signed this variation under economic duress, in that the
defendants would not have released the taxi to him if he had not
signed it and that would lead to a deprivation of his livelihood.
On the facts, the High Court found that there was no coercion. The
plaintiff made no protest either before or after the agreement was
executed. He admitted that the contents in the agreement were
read to him (as he did not know how to read) and no force was
applied to make him sign the agreement. There was also no
evidence that he had taken any steps subsequently to repudiate
the agreement.
While the above cases appear to recognise the doctrine of economic duress,
in Perlis Plantations Berhad v Mohammad Abdullah Ang[1988] 1 CQ 670 the
High Court after referring to the submission of economic duress held that
the "Contract Act does not provide for any form of coercion other than as
defined by section 15". VC George J stated:

“For duress to amount to a defence the defendant should be able to show


that his consent to the agreement he had entered into was not free in that
such consent was caused by coercion as defined by section 15 of the Act.
This the defendant does not even attempt to do. He does not make any
accusation of the committing or threatening to commit any act forbidden
by the Penal Code or of the detention or threat to detain property. [Counsel
for the defence] submitted that the defendant's consent to the contract was
not free because it was obtained by what she referred to as "economic
coercion" ... our Contract Act does not provide for any form of coercion
other than as defined by section 15.” Ibid. at 676.

In view of the limited definition of coercion in s 15 of the Contracts Act and


that issues of renegotiation and contract modifications cannot be adequately
addressed in view of the decision in Williams v Roffey Bros & Nicholls
(Contractors) Lid [1990] 1 All ER 512.
Effect of, and relief for coercion

Section 19(1) of the Contracts Act provides that where consent to an


agreement is caused by, inter alia, coercion, the agreement is voidable
at the option of the party whose consent has been so caused. If the
party exercises the option to rescind, the effects of rescission will apply.
However, the right to terminate the contract must be exercised within
a reasonable time. Otherwise, the courts can decide that the contract
has been affirmed.

In relation to economic duress, in North Ocean Shipping Co Ltd v


Hyundai Construction Co [1982] 2 WLR 803, HL. set out earlier,
although the Court held that there was economic duress, in this case,
the shipowners were taken to have affirmed the agreement due to their
failure to take any action by way of protest between the date of the
agreement and the date on which arbitration in relation to the
agreement commenced.
In Universe Tankships Inc of Monrovia v International Transport
Workers Federation & Ors 30 Lord Diplock described the remedy for
economic duress in the following terms:

“The remedy to which economic duress gives rise is not an action for
damages but an action for restitution of property or money exacted
under such duress and the avoidance of any contract that has been
induced by it; but where the particular form taken by the economic
duress used is itself a tort, the restitutional remedy for money had
and received by the defendant to the plaintiff's use is one which the
plaintiff is entitled to pursue as an alternative remedy to an action
for damages in tort.” Ibid. at 814.
Coercion under section 73 Contracts Act

Section 73 of the Contracts Act provides:

“A person to whom money has been paid, or anything delivered,


by mistake or under coercion, must repay or return it.”

Section 73 is a restitutionary provision allowing a person who has


paid money or delivered something, whether by mistake or
coercion, the right to claim restoration of the money paid or thing
delivered. In this context, the courts have held that the meaning of
"coercion" in s 73 is different from the meaning of "coercion" in s 15
dealt with above.
Continue…
It must be noted that section 73, unlike section 15, does not
require that the act done that constitutes coercion must be done
with the intention of causing any person to enter into agreement.

Chin Nam Bee Development Sdn Bhd v Tai Kim Choo (1988) 2
MLJ 117, the High Court upheld the respondents’ claim and held
that the definition of ‘coercion’ in section 15 should only apply
for the purpose contained in section 14 as section 14 of the Act
specifically says so. It does not apply to section 73. The word
coercion in the context of section 733 of the Act should be given
in its ordinary and general meaning since there is nothing under
section 15 that says that the meaning of the word ‘coercion’ under
section 15 should apply throughout the Act.
In Kanhaya Lal v National Batik of India Ltd ILR (1913) 40 Cal 598, PC
(Appeal fron India) the plaintiff was the proprietor of Delhi Cotton Mills
while the defendant was a bank which obtained judgment against another
company, Delhi Cotton Mills Co. Due to the similarity between that
company's name and the plaintiff's, the plaintiff's property was wrongly
attached. The plaintiff was compelled to pay the sum due under the
judgment by Delhi Cotton Mills Co in order to prevent attachment of its
property. Subsequently, the plaintiff sued for the return of the money. The
defendant contended that the plaintiff's action did not show that there was
coercion within the meaning of s 15 of the Indian Contract Act (in pari
materia with s 15 of the Contracts Act), in that there was unlawful
detaining of property with the intention of causing the plaintiff to enter
into the agreement.

The Privy Council held that the plaintiff was entitled to the return of the
money. It was held that the definition of "coercion" under s 15 only
applies to the question whether there was free consent to an agreement
so as to render it a contract under s 10, and in that case the definition of
coercion would be limited to unlawful acts done with intention of causing a
person or persons to enter into an agreement
Further, the definition of coercion in s 15 does not restrict the meaning
of the word when used in its general and ordinary sense, as to construe it
otherwise would be inconsistent with s 72 of the Indian Contract Act (in
pari ma teria with s 73 of the Contracts Act).

Kanhaya Lal's decision was followed in the Malaysian case of Chin Nam
Bee Development Sdn Bhd v Tai Kim Choo & 4 Ors [1988] 2 MLJ 11 .
In this case, the defendant, a housing developer, told the purchasers to pay
an additional $4,000 and threatened to cancel their bookings if they did not
do so. The purchasers paid the said sum and later claimed for its return on
the ground that it was paid under coercion within s 73 whilst the defendant
contended that this did not fall within coercion as defined in s 15 of the
Contracts Act.
The High Court referred to the Privy Council decision of Kanhatja Lal and
held that the meaning of coercion under s 73 is wider and should be given
its ordinary and general meaning. It is not confined to situations falling
within s 15 of the Contracts Act.
Eusoff Chin J stated:
“It would be difficult to give effect to section 73 illustration (b) if the word
"coercion" is to be given the meaning as defined in section 15 of the Act. They
appear to be in conflict with each other. Therefore the word "coercion" in the
context of section 73 of the Act should be given its ordinary and general
meaning since there is nothing under section 15 which says that the word
"coercion" should apply throughout the Act. The definition of "coercion" in
section 15 should only apply for the purpose contained in section 14, as section 14
of the Act specifically says so.” Ibid. at 119.

In an early case, CM Naested v State of Perak (1925) 5 FMLSR 185, CA the


Court applied s 72 of the Contract Enactment 1899 (s 73 of the Contracts Act)
to allow recovery of sums paid by the plaintiff, a private individual, and his
mercantile agent who had paid monies to the defendant, the government of a
state which had the power to decide whether to grant the defendant's
application for land. The Court of Appeal held that the payment was not a
voluntary payment as the parties were not on equal terms and the plaintiff
paid it to prevent the threatened consequences of non-payment.
The Effect of Coercion and
its Remedies
Rescission
The effect of coercion is that the agreement is a contract
voidable at the option of the party coerced. The
contract between the parties remains valid until and
unless it is set aside by the coerced party.
Section 19

Restitution
Section 65
Section 66
UNDUE INFLUENCE
Undue influence under section 16 Contracts Act

The law on undue influence in Malaysia is provided in s 16 of the Contracts


Act. Section 16 defines undue influence as follows:
(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) (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 the Evidence Act, 1950.

Section 16 has embodied the English equitable doctrine. The traditional


categories of actual and presumed undue influence can be seen in the
provisions ins 16 where the courts have applied s 16(1) for cases of
actual undue influence and s 16(2) for cases of presumed undue
influence. Section 16(3) deals with the burden of proof of undue
influence.
In Saw Gaik Beow v Cheong Yew Weng & Ors [1989] 3 MLJ 301.
Edgar Joseph Jr J stated:
“Now, s 16 of our Contracts Act is in pari materia with the identically
numbered section of the Indian Contracts Act. In Poosathurai v Kannappa
Chettiar & Ors AIR 1920 PC 65, Lord Shaw speaking for their Lordships of
the Board indicated that there was no difference on the subject of undue
influence between the Indian Contract Act 1872 and the English law.
Accordingly, the general principles of equity as illustrated by English
authorities would afford considerable assistance in resolving problems
concerning undue influence in our court.” Ibid. at 307.
In keeping with the equitable nature of the doctrine of undue influence, s
16 has been interpreted flexibly while bearing in mind the Malaysian
context by looking at the actual words provided in the section itself.
In Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah
Mohd & Ors and other appeals [1996] 2 ML] 265, CA, Gopal Sri Ram
JCA stated:
“It has been recognised that the section does not differ from the English law
upon the subject of undue influence. See Poosathurai v Kanappa 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.
In Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd Latiff
bin Shah Mohd & Ors and other appeals [1996] 2 ML] 265,
CA, Gopal Sri Ram JCA stated:
“It has been recognised that the section does not differ from the
English law upon the subject of undue influence. See Poosathurai v
Kanappa 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
Commenwealth 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. Ibid. at 309.
Not mere influence but undue: s 16(1)

Under s 16(1), both elements must be satisfied: (i) the relation subsisting
between the parties are such that one person is in a position to dominate the will
of another; and (ii) the dominant person uses that position to obtain an unfair
advantage over the other.

This was made clear in Poosathurai v Kannappa Chettiar & 0rs (1919) LR 47 IA 1,
Pc (Appeal from India) where the Privy Council held that it is not sufficient to
have mere influence, the influence must be "undue" in that the dominant person
has used his position to obtain an unfair advantage.

Lord Shaw stated:

“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 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.
Under s 16(1), both elements must be satisfied: (i) the relation
subsisting between the parties are such that one person is in a position
to dominate the will of another; and (ii) the dominant person uses that
position to obtain an unfair advantage over the other.

This was made clear in Poosathurai v Kannappa Chettiar & 0rs (1919) LR
47 IA 1, Pc (Appeal from India) where the Privy Council held that it is
not sufficient to have mere influence, the influence must be "undue" in
that the dominant person has used his position to obtain an unfair
advantage.
Lord Shaw stated:
“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 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.
In this case, the appellant alleged that his maternal uncles influenced him
to execute a deed of sale and he sought to cancel the deed. On the facts,
the Privy Council held that it was not proved that the sale was
unconscionable or constituted an advantage unfair to the plaintiff, that is, it
was not a sale for undervalue.

The above principles were applied in the Malaysian case of Saw Gaik Beow v
Cheong Yew Weng & Ors [198913 MLJ 3O1, where the High Court
emphasised the requirement that an unfair advantage was obtained and in
this case, referred to it as "manifest advantage".

Edgar Joseph Jr J stated:


“… it is only in exceptional circumstances that the equitable remedy of setting aside a transaction
on grounds of undue influence will be granted. So even if a bargain may appear to be harsh,
courts are not inclined to intervene unless it can also be demonstrated that the transaction was to
the manifest disadvantage of the person subjected to the dominating influence. The foundation of
the principle to grant equitable relief of this kind is not inequality of bargaining power but the
prevention of victimisation by one party of another…quite apart from the question of
manifest disadvantage, a party relying on the plea of undue influence would have to
show that (a) the other party had the capacity to influence him, (b) the influence
was exercised, (c) its exercise was undue and (d) that its exercise brought about the
transaction (see Bank of Credit & Commerce & Anor v Aboody [1989] 2 WLR 759,
Ibid, at 308.
Continue…
In this case, the plaintiff sued for specific performance of a sale and
purchase agreement entered into between herself and the first
defendant.
The first defendant alleged that he had not given free consent to the
agreement as he had been exposed to influence from the plaintiff as his
spiritual advisor. Applying the principles above to the facts, the Court held
that there was no undue influence. The first defendant was an educated,
intelligent and mentally alert man with a strong personality. The agreement
was in his clear handwriting. He also took no steps to repudiate the
agreement over the course of six years.
The Court also held that the said transaction was not unfair to the
defendants and there was no evidence that the transaction itself was
"wrongful" in that it constituted an advantage taken of the person subjected
to the influence.
Similarly, in Ibrahim bin Musa v Bahari bin Nciyan (Sued as Administrator
of the estate of Chin @ Husin bin Derwnbang, deceased [1990] 2 CLJ 223,
which also involved a sale and purchase of property, the High Court held
that there was no unfair advantage obtained. The plaintiff sought specific
performance of an alleged sale and purchase agreement he entered into
with Tok Chin (the deceased). The defendant, as administrator of Tok Chin's
estate, contended, inter alia, that the agreement was brought about by the
undue influence of the plaintiff as the deceased was an illiterate, elderly
and feeble man who was subject to the influence of the plaintiff being in a
position of trust and confidence.
The Court held that undue influence had not been made out.
KC Vohrah J stated that:
“The evidence of Tok Chin being under the influence of the plaintiff was far from
clear. The plaintiff was his nephew and lived near him but not with him as the
defendant tried to make out ... the plaintiff and his wife did provide food for Tok
Chin and his wife but I cannot see from this relationship the plaintiff's dominance
over Tok Chin.

.
In Hongkong & Shanghai Banking Corp v Syarikat United Leong
Enterprise Sdn Bhd & A nor [1993] 2 MLJ 449; [1993] 2 AMR Supp Rep
524, the second defendant failed to establish that the first requirement
"a position to dominate" was established. In this case, the second
defendant had signed a guarantee in favour of the plaintiffs for loans
given to the company in which he was a director. His allegation that he
signed under undue influence was rejected by the High Court.
The Court held that PW1 (an advocate of the law firm acting as solicitors for
the bank) was not in a position to dominate the will of the second defendant
as alleged by the second defendant.
On the contrary, the forcefulness of the second defendant's character was
demonstrated when the second defendant got PW1 to meet him at a coffee
house instead of going to PW1's office himself.
Further, the lack of independent legal advice did not necessarily point to
undue influence, as the second defendant, being a man wise of the world,
had not said that he wanted legal advice or had asked for it.
Deemed to be in position to dominate: s 16(2)

When one party is in a special relationship/standing to another or by virtue of


some special condition existing at the time of the transaction, a presumption may
arise that the person is in a position to dominate the other.

Section 16(2) of the Contracts Act provides for two categories:


(a) where a person holds a real or apparent authority over the other or where
there is a fiduciary relationship; and
(b) when the contract is made with a person whose mental capacity is affected
by age, illness, or mental or bodily distress.

If any of the above is established, a presumption arises that the party is in a


position to dominate and exercise undue influence over the other. The party who is
in the position to dominate has the burden to prove that the transaction was right
and proper and that the other party acted freely without any undue influence on his
part.
In an early case, Saiwath Haneem v Hadjee Abdullah(1894) 2 SSLR 57,
the parties involved were family members. The plaintiff was the sister in
law of the two defendants, Abdullah and Daud, who were the younger
brothers of Arshad, the plaintiff's husband. During Arshad's absence from
Singapore from 1878 to 1889, his property was managed by Abdullah,
who collected his rents, paid for his expenses, and supplied the plaintiff
with money.

The parties were on intimate terms: Abdullah and Daud were frequently
in their brother Arshad's house and had access to the women's quarters.
Arshad's sons went to school in Abdullah's house and frequently went
there to play with their relatives. Abdullah was trustee of a house for one
of the sons. After some negotiations over a family dispute, the plaintiff
signed a conveyance of some properties to the defendants. She sought to
set aside the conveyance and the issue of undue influence was raised.
The Court stated the principles as follows:
“It is a well recognised doctrine of equity that when a
confidential relationship has existed between two
persons and one of them has obtained from the other a
conveyance of property or other advantage for which he
has given no consideration, then it is for such party, if
he claims the benefit of the transaction, to prove that it
was a righteous and proper transaction. And accordingly
such party must show that the deed he sets up as
embodying the transaction was fully understood by the
person who executed it, and that such person executed
it freely and without being subject to undue influence”.
Ibid, at 73-74.
On the facts, the Court held that there was a confidential relationship
between the plaintiff and the defendants:
“The Defendants are the brothers-in-law of the Plaintiff. When her husband,
Arshad, was absent from the Colony... Abdullah managed his business,
collected his rents, paid his expenses, supplied her with money for her wants,
in fact acted as her husband's representative
Eat the time the agreement and conveyance were executed] Arshad was
lying on his bed dangerously ill and unable to attend to business
the Plaintiff, Saiwath, the other wife, Zainab, and the children must have
looked upon Abdullah as the representative of their husband and father, as
the head of the family from whom they could expect advice and protection.
Under such circumstances, his influence over them must have been
necessarily great...” Ibid,at74.
However, the defendants failed to prove that the plaintiff had acted of her
own volition in executing the agreement and the conveyance:
A confidential relationship was also held to have arisen in Rosli bin
Darus v Mansor @ Harun bin Hj Saad & Anor.90 90 [2001] 4 MLJ 206.
In this case, the defendants who were the uncles of the plaintiff failed to
rebut the presumption that undue influence was exercised in the
conveyance of the plaintiff's land to them. The plaintiff had inherited land
from his adoptive mother after her death and had subsequently transferred
it to his uncles, the defendants, in equal shares. He later applied for a
declaration that the transfer was null and void on the ground that it was
induced by the undue influence of the defendants. The High Court agreed
and set aside the conveyance.
Jeffrey Tan J stated the applicable principles:

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 ... Ibid, at 216.

(Active confidence) may be presumed to exist as a natural consequence of the


condition of the parties, though it be not actually proved that the one habitually
acted as if under the dominion of the other. There are many relations of common
occurrence in life from which the court presumes confidence put in the general
course of affairs and influence exerted in the particular transaction complained of
(see Smith v Kay 7 HL Cas 750). Persons may therefore not only be proved by direct
evidence of conduct, but presumed by reason of standing in any of these suspected
relations, as they be called, to a position of commanding influence over those from
whom they take a benefit. In either case, they are called upon to rebut the
presumption that the particular benefit was procured by the exertion of that
influence and was not given with due freedom and deliberation. They must take
upon themselves the whole proof that the thing is righteous.” Ibid, at 218.
In Tong Seng Din Bon & Anor v Ban Chap Ah Seng [1987] 2 CLJ 269 the Court
set aside the transfer of property from the first and second plaintiffs to the
defendant on grounds of undue influence. The evidence showed that the
defendant had fully won over the love and trust of both the plaintiffs, who
were an elderly childless couple, to such as extent that the defendant was
treated like their son. The defendant who was in a position of active
confidence of the plaintiffs had subtly exerted undue influence over them.
There are a number of cases where the courts have
considered whether a presumption of undue
influence arises where some special relationships
falling within s 16(2)(a) are involved, that is:
(i) father and son;
(ii) solicitor and client;
(iii) fiduciary relationships; and
(iv) husband and wife.

The courts have also considered whether the


presumption arises under s 16(2)(b) where a person's
mental capacity has been affected by illness.
Continue…
Father and son
The presumption has been applied to a father and son relationship in
Khaw Cheng Bok & Ors v Khaw Cheng Poon & Ors [1998]3 MLJ 457.
In this case, the deceased was a man of great wealth and the plaintiffs and
defendants were his children and grandchildren, respectively. An issue arose
whether the deceased had been unduly influenced by his third son, Cheng
Poon, into making certain gifts. Cheng Poon was the only son who lived with
the deceased and was the deceased's favourite son.
Jeffrey Tan J held that a presumption of undue influence was raised and
that it had not been discharged.
“Furthermore, and it was not the father and son relationship per se, undue
influence could be presumed. The deceased, at death's door, was totally
dependent, and in that sense beholden, to Cheng Poon and his family. From
the evidence adduced, there existed that close confidential relationship
where Cheng Poon and his family were persons with great influence and pull
over the life of the deceased and in a commanding person to exert undue
influence or 'dominion' over the deceased; the deceased and Cheng Poon,
with regard to the gifts, were not persons dealing on a footing of equality.
Continue..
Solicitor and client

A type of relationship where one party may be deemed to hold authority and
exercise undue influence over another is the solicitor- client relationship.

A case in point which went on to the Federal Court is Tara Rajaratnam v Datuk
Jagindar Singh & Ors [1983] 2 MLJ 127, HC; [1983] 2 MLJ 196, FC In this case, the
plaintiff agreed to transfer her land as security for an advance of $220,000 to the
plaintiff. The money was to be used to pay off a charge as well as to the first
defendant an amount payable by the plaintiff's brother-in-law for whom the first
defendant stood as surety for a loan obtained. The first and second defendants
were advocates and solicitors who prepared the necessary documents. The
plaintiff's land was transferred to the second defendant who bought the land on
behalf of the first defendant. The second defendant had assured the plaintiff that
although it was in the form of a sale, it would remain a security and will be
transferred back to her after one year. Through the collusion of the defendants,
the land was eventually transferred to the third defendant, who was also an
advocate and solicitor. In the third defendant's action for possession of the land,
the plaintiff pleaded, inter alia, undue influence.
Abdul Razak J referred to the presumption under s 16(2) of the Contracts
Act in relation to solicitors and applied it to the facts of this case as
follows:
“But once a person acts as a solicitor then the presumption of undue influence
arises, and unless they can rebut it the property they acquired from their client
cannot be allowed to remain in their hands. Acting as a solicitor intrinsically
creates a fiduciary relationship between a solicitor and his client which the
solicitor cannot take advantage of since it imposes an obligation on its part to act
with strict-fairness and openness towards them (Haisbury's, Vol. 26 Para. 131).
But a person need not be having fiduciary relationship with another for undue
influence to arise if the relation between the parties are such that one of the
parties is in a position to dominate the will of the other (s 16(2) Contracts Act).

The evidence led showed that the plaintiff had been asked to sign [the
agreement] in circumstances, if not in terms clearly unfavourable to her when
between her, a lay person and the defendants, very senior lawyers and State
Dato', position of respect and dignity in the State, they were clearly in a position
to dominate her will to their advantage.
As earlier stated, the burden of proving that the contract was not induced by
undue influence was on the person in a position to dominate the will of the
other that is the first and second defendants. It is clear from what has been
said they had not discharged that burden.” Ibid, at 138.

The High Court's decision was upheld on appeal to the Federal Court.

In Seah Siang Mong v Ong Ban Chai & Another Case [1998] 1 CLJ Supp 295,
the High Court held that the solicitor-client relationship came within a
fiduciary relationship under s 16(2)(a) of the Contracts Act. The Court held
that the defendant (OBC) who was an advocate and solicitor had failed to
discharge the burden of showing that no undue influence had been
exercised by him.
Mohd Ghazali J stated:
“ … the solicitor-client relationship that existed between the plaintiff 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. 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.” [1998] 1 CLJ
Supp 295 at 327.
Continue…
Fiduciary relationship

A significant case on fiduciary relationship under s 16(2)(a) of the Contracts


Act is the Court of Appeal's decision in Tengku Abdullah ibni Sultan Abu Bakar &
Ors v Mohd Latiff bin Shah Mohd & Ors and other Appeals [1996] 2 MLJ 265, CA.
In this case, the Court of Appeal stated that "the categories of fiduciary
relations are never closed" and held that the fiduciary doctrine applied to
promoters of a club.

In this case, the first and second appellants, together with the Ayala Group of
Companies from the Philippines, planned to incorporate..a. proprietary club in
Malaysia. They acquired all the shares in a company called Raintree Development
Sdn Bhd (RDB) which owned a piece of land that was identified as the proposed
site of the clubhouse. Allied Capital Sdn Bhd was incorporated to build the club's
premises. The preponderance of the shares in RDB and Allied were held by the
first and second appellants. Later, the shareholders of RDB sold their shares to
Allied.
A protem committee of the club was elected and passed a resolution
which authorised the first and second appellants to enter into a share
acquisition agreement on behalf of the club under which the entire
capital of RDB was to be purchased by the club from Allied for RM47
million. The purpose was to acquire the building and the facilities for the
club. The club members were subsequently informed that the total cost
of acquiring the club's premises from Allied would cost much more than
RM47 million due to additional costs. The club members (the
respondents) brought a representative action against the appellants, the
promoters of the club. Meanwhile, Allied brought a separate action
against the club (the respondents) to recover what was due to it under
the share acquisition agreement. The action was resisted on the ground
that the agreement had been procured by undue influence.
Gopal Sri Ram JCA adopted a broad approach to the equitable doctrine of
undue influence as applied to s 16 of the Contracts Act and stated:

“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.

… the respondents' pleading speaks of undue influence and of domination.


True it is, that the facts of this case certainly do not fall within any of the
traditional categories of relationships in which a court of equity intervenes to
relieve a party who has entered into a disadvantageous bargain with one
whose undue influence occasioned it. But, as we observed a moment ago, the
categories to which the doctrine applies are not closed and it is a question of
subjecting the facts of a particular case to meticulous scrutiny in order to
determine if there is room for the operation of the doctrine.
… We have no hesitation in accepting that the principles and guidelines
formulated by Evershed MR in Tufton v Spermi [1952] 2 TLR 516 and in
the authorities quoted by him represent the jurisprudence that underlies s
16 of the Contracts Act 1950.

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

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 bonafide purchaser
opposed to a volunteer) for value without notice (actual or constructive) of
the invalidating circumstances.” Ibid, at 314-315.

After applying the law to the facts of the instant case, the Court concluded
that the share acquisition agreement was procured by undue influence and
considered the appropriate remedies. Gopal Sri Ram JCA stated:

‘… 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.” Ibid, at 318.
The consequence of undue influence upon a contract is prescribed
by s 19(1) of the Contracts 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.” Ibid, at 323.
The Court granted the plaintiff a remedy allowed restitutionary relief and
directed that Allied return to the club, the difference between RM47m
and the fair price of the shares, as ordered by the trial judge. The Court
also upheld the award of damages given by the trial judge.
Husband and wife
Following English cases, the Malaysian courts have held that a husband
and wife relationship does not give rise to a presumption of undue
influence. The facts situation in which such arguments are raised are
similar: a wife has given a guarantee for a loan granted to her husband by
a finance company and upon the finance company enforcing the
guarantee, the wife raises as a defence that she had signed the
guarantee under the undue influence of her husband.
In Public Finance Bhd v Lee Bee Rubber Factory Sdn Bhd & Ors [1994] 1
MLJ 495, the High Court held that no presumption of undue influence
arose by reason of the husband and wife relationship alone.
Edgar Joseph Jr SCJ stated:

“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 Alicard v Skinner (1887) 36 Ch D 145), a man and
his fiancee (see Yerkey o 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.”
Ibid,at 505.
This decision was followed in Mayban Finance Bhd v Liew Ek Chiu & Ors
[1998] 1 CLJ 56, where Steve Shim J stated:
“ …the onus of proof generally lies on the party alleging undue influence.
There are however certain relationships which can give rise to a presumption
of undue influence but the case authorities appear to establish that the
relationship of husband and wife is not one of them: see Public Finance Bhd v
Lee Bee Rubber Factory Sdn Bhd & Ors [1994] 1 MLJ 495 on p 505. That being
the position, in the instant case, the 2nd defendant, having alleged undue
influence on the part of the plaintiff and the 1st defendant, the onus would
be on her to prove it.” Ibid,at 6l.
However, it should be noted that in both Mayban Finance Bhd's case above
and in Southern Bank Bhd v Abdul Raof bin Rakinan & Anor [200014 MLJ
719 the courts also referred to the House of Lords decision in Barclays Bank
plc v O'Brien and another [199314 All ER 417; 119931 3 WLR 786 where
Lord Browne-Wilkinson held that a wife who has been induced to stand
surety for her husband's debt by his undue influence, has an equity as
against him and in some circumstances, also as against the creditor, to set
aside the transaction.
In the Southern Bank Bhd case [2000] 4 MLJ 719, KC Vohrah J quoted
Lord Browne-Wilkinson's judgment in Barclays Bank pie v O'Brien [1993]
4 All ER 417; [1993] 3 WLR 786, HL. "' as follows:

“…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 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 (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.

The key to the problem is to identify the circumstance 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 in which she agreed to
stand surety.” [2000] 4 MLJ 719 at 724-725.
However, as set out earlier, the position adopted by Lord Browne-
Wilkinson has not been affirmed by later English decisions. The latest
statement of the law on this issue is Royal Bank of Scotland v Etridge (No
2) and other appeals [2002] 6 MLJ 273; [2001] 6 CLJ 79.

where the House of Lords held that in the ordinary course, a wife's
guarantee of her husband's business debts is not 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 of the
husband.

Such transactions as a class are not to be regarded as prima facie


evidence of the exercise of undue influence by husband, though there
will be cases which call for an explanation. The House of Lords has also
set out the principles and guidance with regard to the position of the
bank and the duty of the solicitor acting for the wife in the transaction.
Parkinson's disease

A presumption under s 16(2)(b) of the Contracts Act can arise where a


person's mental capacity has been affected by illness.

In Chemsource (M) Sdn Bhd v Udanis bin Mohammad Nor, 121 the High
Court applied the doctrine of undue influence to a case of a defendant
afflicted with Parkinson's disease.

Abdul Malik Ishak J stated:


“… in my judgment, the doctrine of undue influence can be extended to the
situation where the defendant was so afflicted with the Parkinson's disease
that he was unduly influenced to sign the said agreement. The doctrine
must be extended to the situation at hand. Of course, the defendant
must affirmatively prove, at the trial, that the plaintiff had in fact exerted
influence over him and, in consequent thereof, the plaintiff had procured
a contract that would otherwise not have been made by the
defendant.” [2001] 6 CLJ 79 at 99.
Burden of proof: s 16(3)

Section 16(3)(a) of the Contracts Act provides as follows:


“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 fact 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.”
Pursuant to s 16(3)(a), once a position to dominate the will has been established, the
burden of proof then shifts to the person accused of exerting undue influence to
prove that he did not do so.
In Raghunath Prasad v Sarju Prasad,123 123 AIR 1924 PC 60, PC (Appeal from India),
the Privy Council laid out the order of proof as follows:
“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.” Ibid, 63.
Lord Shaw pointed out that: “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?...”Ibid, 63.

In this case, the defendant took a loan from the plaintiff upon the security of
a mortgage. The interest rate for the loan was very high, namely 2% per
mensem (or 24% annually). The defendant contended that the mortgage was
entered into under undue influence, in view of the high interest rate and the
fact that he was desperately in need of money at the time.

The Privy Council held that the defendant had not brought himself within s 16
of the Indian Contract Act (in pari matenia with s 16 of the Contracts Act).
Lord Shaw stated though the bargain had been unconscionable (and it has the
appearance of being so) a remedy does not arise until the initial fact of a
position to dominate the will has been established. After that fact is
established, then the unconscionable nature of the bargain and the burden of
proof on the issue of undue influence comes into operation. In this case, the
Privy Council held that the relation between the parties was simply that of
lender and borrower.
In an early case, Chait Singh v Budin bin Abdullah (1918) FMSLR 348
of the transaction was also consideredthe unconscionable nature . In
this case, a moneylender sued a borrower upon a promissory note
which provided for interest at the rate of 36%. The borrower had
furnished good collateral security for the loan. The Court held that
these circumstances raised a presumption that the transaction was an
unconscionable one, especially since the rate of interest was
extravagant, within the meaning of s 16(iii) of the Contract Enactment
and liable to be set aside under s 19A of that Enactment. It was also
pointed out that a presumption of the same strength would not arise in
the case of a man of better education and having the advantage of
some business experience (here the borrower was illiterate).
Rebutting the presumption of undue influence

When the exercise of undue influence has been raised,


one of the ways to prove that the other party has acted
of his own free will is to show that legal advice had
been obtained before the complainant signed the
alleged document. However, the fact that legal advice
had been obtained will not, in itself, necessarily rebut
any presumption of undue influence.
In Inche Noriah v Shaik Allie bin Omar [1929] AC 127, PC (Appeal from
Singapore), In this case, the appellant was an elderly woman who was
wholly illiterate. The respondent was her nephew by marriage. The
appellant's husband had died, leaving her with considerable landed
property. The respondent, who was of Arab birth, had arrived in
Singapore when he was about 23 years of age. He and his wife lived
together at the appellant's house, and after his divorce and re-marriage,
he lived in the communicating house next door, which he rented from
the appellant's daughter.
The respondent saw the appellant daily. The respondent was entirely
without means when he reached Singapore, and it was the appellant who
started him in business. After the death of the appellant's daughter, the
appellant executed a deed of gift whereby she gave to the respondent
absolutely the whole of her landed property, leaving herself with a total
gross income of about $30 a year. At the time when the deed was executed,
the appellant was so old and infirm that she wasto leave the house. She
seldom saw any of her relatives and friends, and the respondent managed
all her affairs, including her domestic affairs, and bought her food and
clothing. The issue which arose was whether the deed could be set aside on
the ground of undue influence exerted by the respondent.
The Privy Council upheld the trial judge's finding that the relations
between the appellant and the respondent were such as to give rise to a
presumption of undue influence. The respondent brought evidence that
the appellant had received independent legal advice from a solicitor.
However, this fact was not sufficient to rebut the presumption. In this
case, although the solicitor, Mr Aitken, had acted in good faith, he had
received most of his information from the respondent and had not
brought home to the appellant's mind the consequences of what she was
doing, or the fact that she could more prudently and effectively have
benefited the respondent without undue risk to herself by retaining the
property in her own possession during her life and bestowing it upon him
by her will.
Undue influence from third parties

It has been established that a contract resulting from undue influence


exerted by a third party (that is, one who is not a party to the contract)
is voidable. In Malaysian French Bank Bhd v Abdullah bin Mohd Yusof &
Ors [1991] 2 MLJ 475 by a letter of guarantee executed by the first and
second defendants and by a second letter of guarantee executed by the
third and fourth defendants, the four defendants agreed to guarantee
payment of all moneys due and payable by Syarikat Samaria Supply. The
third and fourth defendants later alleged that the first defendant had
execised undue influence to induce them to execute the guarantee
agreement.

The High Court, while holding that a person not a party to the contract
can commit undue influence, found on the facts that the mere
allegations of the third and fourth defendants were not sufficient to
raise the issue of undue influence.
Zakaria Yatim J stated that:

“In order to establish undue influence, the third and fourth defendants
have to prove that the other party to the contract, that is the plaintiff,
was in a position to dominate their will and that the other party had
obtained an unfair advantage by using that position. A plea of undue
influence can only be raised by a party to the contract and not by a third
party. “ Ibid, at 477.

From the Bank of Montreal case [1911] AC 120, it appears that when a
party enters into a contract with another and that party was induced by
undue influence by a person who is not a party to the contract, the
contract is not enforceable. In my view this conclusion is not inconsistent
with s 16 of the Contracts Act 1950. It is based on the common law and
should be considered as a principle of law in addition to what is provided
in s 16 especially in cases of bank guarantees.”Ibid,at 478.
Unconscionability and inequality of bargaining power

The doctrine of unconscionability is related to the doctrine of undue


influence in that both doctrines arose out of the law's concern to
protect a weaker party from abuse or exploitation by the stronger
party.

In this regard, the concept of inequality of bargaining power is also


relevant as the parties in such transactions are seldom on equal terms.
The courts have, however, refrained from recognising such a wide
concept and Lord Denning's attempt in Lloyds Bank Ltd v Bundy [19751
QB 326 at 336. to use the concept of inequality of bargaining power was
disapproved by the House of Lords in National Westminster Bank plc v
Morgan [1985] AC 686, HL.

In Malaysia, Lord Denning's concept of inequality of bargaining power


has also not been accepted by the courts on the ground of a lack of any
established precedent.
The provision in s 16(3)(a) of the Contracts Act concerning the burden of proof
when a position to dominate has been established and the transaction appears to
be unconscionable, has raised the issue of the relationship between the
doctrines of undue influence and unconscionability.

Both are equitable doctrines and there are differing views whether they are so
similar that the doctrine of unconscionability can be developed within s
16(3)(a)'35 or are they distinct doctrines that merit unconscionability a separate
development.

In other common law jurisdictions, the doctrine of unconscionability is well


developed, particularly in Australia with the High Court's decision in
Commercial Bank ofAustralia v Amadio & Anor (1983) 151 CLR 447.

In Malaysia, the Court of Appeal in Saad Marwi v Chan Hwan Hua & Anor
[2001] 2 AMR 2010; [2001] 3 CLJ 98, CA. has recognised the doctrine of
unconscionability and at the same time referred to the doctrine of inequality of
bargaining power.

There have, however, been differing judicial views on this matter in light of, inter
alia, the provision on undue influence in s 16 of the Contracts Act.
Effect of, and relief for undue influence

Section 20 of the Contracts Act provides that where a party's consent to an


agreement has been caused by undue influence, the agreement is a contract
voidable at the option of that party.

Thus, the innocent party has the option to rescind or affirm the contract. If
the party chooses to rescind, the effects of rescission as provided in ss 65,66
and 76 of the Contracts Act apply.

Section 20 also provides that the contract may be set aside either absolutely
or upon such terms and conditions as the court may deem just. This
provision giving the court power to set aside a voidable contract on terms as
the court deems just appears only in s 20 (and not in s 19 applicable for
voidable contracts due to coercion, fraud and misrepresentation). This is due
to the equitable nature of the doctrine of undue influence.
In this respect, the Court of Appeal's decision in Tengku Abdullah ibni
Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and other
appeals [1991] 2 MLJ 265 CA is relevant.

In this case, Gopal Sri Ram JCA stated:


“The consequence of undue influence upon a contract is prescribed by s 20(1)
of the Contracts Act 1950 [section quoted]
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 1.950 [section
quoted].”
It is noteworthy that nowhere in the Act [Specific Relief 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 had earlier discussed.
Undue influence under English law

• In this part, the following matters will be discussed: (i) classification of


undue influence; (ii) requirement of manifest disadvantage; (iii) undue
influence in husband and wife relationships; and (iv) the role of
independent advice in undue influence.

• As a quick highlight, the House of Lords decision of Royal Bank of


Scotland plc v Etridge (No 2) 37 [2001] 4 All ER 449, HL has reviewed
the law on undue influence and on some issues, has adopted a different
approach from previous decisions.
Classification of undue influence
A starting point of the English doctrine of undue influence is the case of Allcard v
Skinner (1887) 36 Ch D 145 where the Court considered the basis for judicial
intervention of undue influence cases and classified them into two main categories of
actual and presumed undue influence.
In Bank of Credit and Commerce International SA v Aboody (1988) [1992] 4 All ER
955; [1990] 1 QB 923, CA, the Court of Appeal retained the two traditional classes of
"actual undue influence" and "presumed undue influence" but went on to subdivide
"presumed undue influence" into two further sub-classes, known as Class 2A and
Class 2B cases.
This was adopted by the House of Lords in Barclays Bank plc v O'Brien [1993] 4 All
ER 417; [1993] 3 WLR 786, HL. However, there have been differing views on this
approach.
The later House of Lords decision of Royal Bank of Scotland Plc v Etridge (No 2)
[2001] 4 All ER 449, HL. is of the view that this sub-classification would give rise to
confusion.
In Allcard v Skinner (1887) 36 Ch D 145 the plaintiff became a member of a religious
sisterhood and bound herself to observe the rules of poverty, chastity and obedience.
Within a few days after becoming a member, she made a will bequeathing all her
property to the defendant, the lady superior of the sisterhood. Subsequently, she left
the sisterhood and, some six years later, commenced an action claiming the return of
her property on the ground that it was made over by her while acting under the undue
influence of the defendant.
Cotton LJ divided undue influence cases to two classes, rationalised the
courts' intervention, and set out the principles as follows:

“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... 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.” Ibid. at 171.

.
In the same case, Lindley LJ stated:
“First, there are the cases in which there has been some unfair and improper
conduct, some coercion from outside, some overreaching, 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
The second group consists of cases in which the position of the donor to the donee
has been such that it has been the duty of the donee to advise the donor, or even
to manage his property for him. In such cases the Court throws upon the donee
the burden of proving that he has not abused his position, and of proving that the
gift made to him has not been brought about by any undue influence on his part.
In this class of cases it has been considered necessary to shew that the donor had
independent advice, and was removed from the influence of the donee when the
gift to him was made.”Ibid. at 181.
Lindley LJ also stated that the basis of the doctrine of undue influence is not to
"save persons from the consequences of their own folly" but to "save them
from being victimised by other people.”
In Barclays Bank plc v O'Brien [1993] 4 All ER 417; [1993] 3 WLR 786, HL.

the House of Lords adopted the classification applied by the Court of Appeal
in Bank of Credit and Commerce International SA v Aboody [1992] 4 All ER
955; [1990] 1 QB 923, CA which further subdivided "presumed undue
influence" into two further sub-classes.

Lord Browne-Wilkinson at the House of Lords stated:

“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 (1988) [1992] 4


All ER 955 at 964, [1990] 1 QB 923 at 953 the Court of Appeal helpfully
adopted the following classification.
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.
In Bank of Credit and Commerce International SA v Aboody (1988) [1992] 4 All ER 955 at
964, [1990] 1 QB 923 at 953 the Court of Appeal helpfully adopted the following
classification.
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 2A
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 2A
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 2B
Even if there is no relationship falling within class 2A, 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 2B 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. “ [1993] 3
WLR 186 at 791-792.
However, the subsequent House of Lords decision, Royal Bank of
Scotland Plc v Etridge (No 2) [2001] 4 All ER 449, HL disagreed with
this approach. Lord Nicholls and Lord Clyde stated that distinguishing
between actual and presumed undue influence can give rise to
confusion, and Lord Clyde questioned the utility of further subdividing
"presumed undue influence" into Classes 2A and 2B.

Lord Nicholls described the doctrine of undue influence in very broad


terms and stated as follows:
“The law has long recognised the need to prevent abuse of influence in
these 'relationship' cases despite the absence of evidence of overt acts of
persuasive conduct... Sir Guenter Treitel QC has rightly noted that the
question is whether one party has reposed sufficient trust and confidence
in the other, rather than whether the relationship between the parties
belongs to a particular type (see Treitel, The Law of Contract (10th
edn,1999)pp380-381 ...
Even this test is not comprehensive. The principle is not confined to cases
of abuse of trust and confidence. It also includes, for instance, cases
where a vulnerable person has been exploited. Indeed, there is no single
touchstone for determining whether the principle is applicable. Several
expressions have been used in an endeavour to encapsulate the essence:
trust and confidence, reliance, dependence or vulnerability on the one
hand and ascendancy, domination or control on the other. None of these
descriptions is perfect. None is all embracing. Each has its proper place.”
Ibid. at 458.

In Etridge's case, the House of Lords held that there are two
prerequisites to the evidential shift in the burden of proof from the
complainant to the other party as follows:

“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 .” Ibid. at 460.

The House of Lords then discussed the requirement of manifest


disadvantage.
Manifest disadvantage

The requirement of manifest disadvantage originated from Lord Scarman's


judgment in National Westminster Bank plc v Morgan [1985] 1 All ER 821, HL.

Which held that relief for undue influence rests, not upon some vague "public
policy", but specifically upon the victimisation of one party by the other. Thus, the
presumption that undue influence was exercised would only arise if the transaction
was "manifestly disadvantageous" to the person influenced.

Lord Scarman stated:


“ … 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 Orrnes v Beadel (1860) 2 Gift 166 at 174, 66 ER 70 at
74); or a transaction 'immoderate and irrational' (see Bank of Montreal v Stuart [19111 AC
120 at 137) or 'unconscionable' in that it was a sale at an undervalue (see Poosathurai v
Kannappa Chettiar (1919) LR 47 Ind App 1 at 3 -4). Whatever the legal nature 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 ... 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 partieswithout 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 Malaysia, the requirement of manifest disadvantage was applied in
Polygram Records Sdn Bhd v The Search & Anor [ 1994] 3MLJ 127.
This case involved a group of young singers known as "The Search" who had
entered into two written contracts with the plaintiffs, both recording
contracts containing substantially the same terms. The defendants, the
group of singers, alleged that the second contract was made under undue
influence. In this case, having established the existence of undue influence,
the next issue was whether the defendants had succeeded in establishing
the necessary element of "manifest disadvantage".

Visu Sinnadurai J stated:


“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-Wilkinsoin 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 .” Ibid, at 156-157
The High Court considered whether the second recording contract was
manifestly disadvantageous as alleged by the defendants and held that it
was not.
Visu Sinnadurai J stated:
“As for the duration of the contract, it is true that the period of the contract was
being extended under the second contract. But this change in the duration of the
contract by itself cannot render the entire contract to be manifestly
disadvantageous to the defendants, though it be said that it appears to be
unreasonable…
Though a period of six years may appear to be unreasonable, but considering the
nature of the recording contract, under which both the recording company and
the artistes themselves may need a reasonable time to achieve their respective
objectives; the recording company to recoup its investments in promoting
relatively unknown artistes; and the artistes'-ambition to achieve recognition as a
successful group, I am inclined to take the view that the duration of the second
contract in the present case is not of such a duration so as to render the entire
contract to be manifestly disadvantageous to the defendants. Manifest
disadvantage, it is generally said, for purposes of the doctrine of undue influence,
has to be a disadvantage which was so obvious to any independent and
reasonable person who considered the transaction as a whole at the time it was
entered into, with full knowledge of all the relevant facts. The mere overbearing
of a person's will is not in itself a disadvantage in the relevant sense. Surely, in the
present case, at the date when the second contract was entered into, no
reasonable person, considering the commercial practice of the recording industry
at that time would say thatthe second contract whereby the defendants
undertook to record for the plaintiffs was clearly disadvantageous to the
defendants .” Ibid, at 158.
As the defendants had failed to establish manifest disadvantage, their attempt
to set aside the contract failed.

His Lordship added that that even if manifest disadvantage no longer needed
to be established as a separate requirement, it was still doubtful if the
defendants would be allowed to set the contract aside as they appeared to
have affirmed it. This was because the group had taken no steps to set aside
the contract but had continued to fulfill their obligations under the second
contract by recording for the plaintiffs.
Guarantee by wives

Situations of guarantees executed by wives at the request of their spouses


raise a specific concern of undue influence.

Cases prior to Barclays Bank plc v O'Brien [1993] 4 All ER 417; [1993] 3 WLR
786, HL. had applied the agency theory, holding the husband to be acting as the
agent of the creditor bank when he asked his wife to execute the guarantee or
charge over his debts. Therefore, if the husband was guilty of undue influence in
procuring the wife's agreement, the bank as his principal would be party to the
same wrongdoing and would be unable to enforce the guarantee or charge.

This approach was rejected by Lord Browne-Wilkinson in O'Brien who was of


the view that it was founded on obscure and possibly mistaken foundations which
had given rise to artificial developments and conflicting decisions.

His Lordship, in restating the law, applied the doctrine of constructive notice,
holding that the bank would have constructive notice of the husband's
wrongdoing unless it had taken reasonable steps to satisfy itself that the wife
had undertaken her obligations freely and with knowledge of all relevant facts.
“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.” [1993]
4 All ER 417 at 428.

Lord Browne-Wilkinson held that a creditor would be put on inquiry


when a wife offered 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.
The House of Lords also took a different view on the application of the
presumption of undue influence to the husband and wife relationship,
in particular cases where wives guaranteed the payment of their
husband's business debts.

Lord Browne-Wilkinson noted that although there was no Class 2A


presumption of undue influence in cases involving the husband and
wife relationship, the courts were more ready to find that a husband
had exercised undue influence over his wife than in other cases:
“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 2B category of undue influence
because the wife demonstrate 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.” Ibid, at 424.
However, in Royal Bank of Scotland v Etridge [2001] 4 All ER 449, HL.

Lord Nicholls made it clear that the court should not be too ready to find
undue influence in every case where a wife stands as surety for her
husband's business debts:
“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 and fears, a degree
of hyperbole may be only natural. Courts should not too readily treat such
exaggerations as misstatements.”Ibid, at 462-463.
Independent legal advice

In cases of undue influence, evidence showing that the complainant had


received independent advice has been a common mode to disprove the
exercise of undue influence. However, proof of it does not, of itself,
necessarily show that the transaction was free of undue influence.

In Etridge's case, Lord Nicholls considered at length the steps and the
content of legal advice that banks should adopt in cases of guarantees given
by wives for their husbands' debts. Lord Nicholls stated:
“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.” Ibid. at 467.
His Lordship pointed out that the practice of banks, even after the decision
in O'Brien which raised the issue of-constructive notice, was not to have a
private meeting with the wife. His Lordship noted that it was
understandable for banks to be reluctant to hold such meetings, as there
was the risk that assurances allegedly given by the bank's representatives at
such meetings might be used against the bank in subsequent litigation,
whether such allegations were well-founded or not. In the circumstances,
ordinarily it would be reasonable for a bank to rely upon confirmation from
a solicitor, acting for the wife, that he had advised the wife appropriately.
Lord Nicholls set out the scope of the responsibilities of such solicitor as
follows:

“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 .” Ibid, at 470.
Lord Nicholls also set out the legal content which was considered the
core minimum as follows:
“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. ... (2) He will need to point out 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 …(4) The solicitor should check whether
the wife wishes to proceed …

The solicitor's discussion with the wife should take place at a face-to- face
meeting, in the absence of 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's not a
formality.

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.”Ibid,
at 470.