Chapter 1

Undue Influence
UNDUE INFLUENCE

•The law on undue influence in Malaysia is provided in s 16 of the Contracts Act which
has embodied English law on this subject.

•This part will examine:

(i) English law and developments on undue influence;

(ii) s 16 of the Contracts Act and Malaysian decisions on undue influence;

and

(iii) the effect of, and relief for contracts entered into under undue influence.

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.
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.
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 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.
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.

The presumption that undue influence was exercised would only arise if the
transaction was "manifestly disadvantageous" to the person influenced. The
principle justifying the court in setting aside a transaction for undue
influence can now be seen to have been established by Lindley LJ in Allcard
v Skinner. It is not a vague 'public policy' but specifically the victimisation of
one party by the other.” Ibid, at 827-828.

… The wrongfulness of the transaction must, therefore, be shown: it must

be one in which an unfair advantage has been taken of another.” Ibid, at
829.

This requirement was applied by the Court of Appeal in Bank of Credit and
Commerce International SA v Aboody (1988). However, it was overruled by
the House of Lords in CIBC Mortgages plc v Pitt & Anor [1993] 4 All ER 433,
HL, where
The position in Pitt is supported by the judgment of Lord Nicholls in Royal Bank of
Scotland plc v Etridge (No 2),5656 [2001] 4 All ER 449, HL. which had discussed the
requirement of manifest disadvantage in relation to the evidential shift in the burden
of proof in cases where a presumption has been drawn.

Lord Nicholls stated:

Lord Scarman [in National Westminster Bank v Morgan] attached the label 'manifest
disadvantage" to the second ingredient necessary to raise the presumption. This label has
been causing difficulty. It may be apt enough when applied to straightforward transactions
such as a substantial gift or a sale at an undervalue. But experience has now shown that
this expression can give rise to misunderstanding. The label is being understood and
applied in a way which does not accord with the meaning intended by Lord Scarman, its
originator. “ Ibid. at 461-462.
The answer lies in discarding a label which gives rise to this sort of ambiguity. The better
approach is to adhere more directly to the test outlined by Lindley LJ in Allcard v Skinner
and adopted by Lord Scarman in Morgan's case.” Ibid, at 462.
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.
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.
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.
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.
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.
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(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.
 Continue….
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.
At the same time, it was recognised that undue influence as an equitable
doctrine should be interpreted flexibly. Gopal Sri Ram continued:
Undue influence, like all other equitable doctrines, is an extremely flexible concept.
Subject to policy considerations, the categories in which it may operate are therefore
not closed. For this reason, it is important to apply the doctrine, as housed in s 16 of
the Contracts Act 1950, to varying fact patterns in a flexible manner. This is to be
done by interpreting s 16 in a broad and liberal fashion. Being a remedial provision -
in the sense that it is designed to relieve obligations - it should, in our judgment, be
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.
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.
 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
[at 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.
 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.
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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.
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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.
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.
 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.
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.
 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), the Privy Council considered the role of independent legal
advice in cases of undue influence.

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 was
to 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 19(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.