PageStatus: Negative Judicial Treatment *923 Bank of Credit and Commerce International S.A. v Aboody and AnotherCourt of Appeal28 October 1988[1989] 2 W.L.R. 759[1990] 1 Q.B. 923 Slade, Balcombe and Woolf L.JJ. 1988 Sept. 19, 20, 22, 23, 27, 28, 29; Oct. 28Undue InfluenceActual undue influenceHusband and wifeWife charging house to secure indebtedness of family companyBank seeking to enforce chargeWife challenging validity of chargeUse of undue influence by husband establishedWhether necessary to show charge manifestly disadvantageous to wifeThe defendants, who were husband and wife, were directors and shareholders of a family company which constantly exceeded the prescribed limits of its overdraft at the plaintiff bank. The company's liabilities to the bank were secured by three guarantees entered into by the defendants and three charges of the wife's house signed or made by the wife in favour of the bank. In May 1983 the company collapsed owing the bank 888,051. In an action against the defendants to enforce its securities, the bank obtained judgment by default against the husband. The wife challenged the validity of the guarantees and of one of the charges on the ground, inter alia, that they had been obtained by the actual undue influence of the husband. The judge found that the husband had caused the wife to enter into the transactions by the exercise of actual undue influence, in that he had deliberately concealed matters from her, and that the husband had acted as the agent of the bank to procure the *924 wife's consent to execute the relevant documents; but he refused to set aside the transactions on the ground that it had not been proved that any of the transactions were manifestly disadvantageous to the wife.On appeal by the wife: -Held, dismissing the appeal, that the husband, in inducing the wife to enter into the transactions, had acted in a way which prevented her from giving proper detached consideration to her independent interests in transactions which involved substantial risks to her, and the mere fact that he might have had no intention to injure her did not save his conduct from being unconscionable; but that, even where a party proved that a transaction had been induced by the exercise of undue influence, and was not relying on any presumption, the transaction would not be set aside unless it was also established that the transaction was to their manifest disadvantage; that, in determining whether the giving of a guarantee or charge was manifestly disadvantageous to the giver, the seriousness of the risk of enforcement to the giver in practical terms had to be balanced against the benefits gained by the giver in accepting that risk, and, on the evidence, there was no ground for interfering with the judge's conclusion that on balance none of the transactions had been shown to be to the manifest disadvantage of the wife; and that, further, as, on the evidence, the probability was that the wife would have entered into the transactions even in the absence of undue influence, it would not have been appropriate to grant her equitable relief as against the bank (post, pp. 964F-G, 965F-G, 967A, 970C-D, 971A-B, D-E).National Westminster Bank Plc. v. Morgan [1985] A.C. 686, H.L.(E.) considered. Per curiam. (i) Leaving aside manifest disadvantage, a person relying on a plea of actual undue influence must show that (a) the other party to the transaction (or someone who induced the transaction for his own benefit) had the capacity to influence the complainant, (b) the influence was exercised, (c) its exercise was undue, and (d) its exercise brought about the transaction (post, p. 967E-F).(ii) There are two distinct grounds on which the bank could be affected by the undue influence exerted by the husband: agency and notice. Notice on the part of a creditor that undue influence would or might have been exercised is not a necessary ingredient of agency (post, pp. 971H-972A, G-H).Decision of Sir Joseph Cantley, sitting as a judge of the Queen's Bench Division, affirmed.The following cases are referred to in the judgment of the court:Allcard v. Skinner (1887) 36 Ch.D. 145, C.A..Avon Finance Co. Ltd. v. Bridger [1985] 2 All E.R. 281 , C.A..Bainbrigge v. Broome (1881) 18 Ch.D. 188Bank of Baroda v. Shah [1988] 3 All E.R. 24, C.A.. Bank of Credit and Commerce International S.A. v. Kanamia (unreported), 6 March 1986, Hoffmann J. Bank of Montreal v. Stuart [1911] A.C. 120, P.C..Brocklehurst, decd., In re The Estate of [1978] Ch. 14 ; [1977] 3 W.L.R. 696; [1978] 1 All E.R. 767, C.A..Chaplin & Co. Ltd. v. Brammall [1908] 1 K.B. 233, C.A..*925 Coldunell Ltd. v. Gallon [1986] Q.B. 1184; [1986] 2 W.L.R. 466; [1986] 1 All E.R. 429, C.A..Craig, decd., In re [1971] Ch. 95; [1970] 2 W.L.R. 1219; [1970] 2 All E.R. 390Demerara Bauxite Co. Ltd. v. Hubbard [1923] A.C. 673, P.C..Goldsworthy v. Brickell [1987] Ch. 378; [1987] 2 W.L.R. 133; [1987] 1 All E.R. 853, C.A..Howes v. Bishop [1909] 2 K.B. 390, C.A..Kempson v. Ashbee (1874) L.R. 10 Ch.App. 15Kings North Trust Ltd. v. Bell [1986] 1 W.L.R. 119; [1986] 1 All E.R. 423, C.A..Lancashire Loans Ltd. v. Black [1934] 1 K.B. 380, C.A..Lloyds Bank Ltd. v. Bundy [1975] Q.B. 326; [1974] 3 W.L.R. 501; [1974] 3 All E.R. 757, C.A.. Midland Bank Plc. v. Johns (unreported), 30 July 1987; Court of Appeal (Civil Division) Transcript No. 824 of 1987, C.A.. Midland Bank Plc. v. Shephard [1988] 3 All E.R. 17, C.A..Moody v. Cox and Hatt [1917] 2 Ch. 71, C.A..National Westminster Bank Plc. v. Morgan [1983] 3 All E.R. 85, C.A.; [1985] A.C. 686; [1985] 2 W.L.R. 588; [1985] 1 All E.R. 821, H.L.(E.). Ormes v. Beadel (1860) 2 Gif. 166 Poosathurai v. Kannappa Chettiar (1919) L.R. 47 I.A. 1, P.C.. Rhodes v. Bate (1865) L.R. 1 Ch.App. 252Tate v. Williamson (1866) L.R. 2 Ch.App. 55Tufton v. Sperni [1952] 2 T.L.R. 516, C.A..Turnbull & Co. v. Duval [1902] A.C. 429 , P.C..The following additional cases were cited in argument: Huguenin v. Baseley (1807) 14 Ves.Jun. 273aInche Noriah v. Shaik Allie Bin Omar [1929] A.C. 127, P.C..Mackenzie v. Royal Bank of Canada [1934] A.C. 468, P.C.. Midland Bank Plc. v. Perry (unreported), 21 May 1987; Court of Appeal (Civil Division) Transcript No. 491 of 1987, C.A.. Midland Bank Plc. v. Phillips (unreported), 14 March 1986; Court of Appeal (Civil Division) Transcript No. 258 of 1986, C.A.. Morley v. Loughnan [1893] 1 Ch. 736Norway's (State of) Application (No. 2), In re [1988] 3 W.L.R. 603, C.A..Talbot v. von Boris [1911] 1 K.B. 854Zamet v. Hyman [1961] 1 W.L.R. 1442; [1961] 3 All E.R. 793, C.A.. APPEAL from Sir Joseph Cantley, sitting as a judge of the Queen's Bench Division.By writ dated 14 June 1983 the plaintiff, Bank of Credit and Commerce International S.A., claimed 604,110.93 and interest for moneys due pursuant to written guarantee from Edward Aboody and Doris Aboody, the first and second defendants respectively. On 30 September 1987 the judge, inter alia, entered judgment for the plaintiff and declared to be valid and enforceable three guarantees made between the defendants and the plaintiff and a legal charge dated 7 February 1980 made between Eratex Ltd., the second defendant and the plaintiff. *926 By notice of appeal dated 7 January 1988 the second defendant appealed on the grounds that (1) the judge was wrong in law in holding that in a case in which a party had proved that she had entered into a transaction as a result of the exercise of actual undue influence over her by an agent of the other party to the transaction, the court could not grant her relief from the transaction and she was not entitled to avoid it unless she could prove that the transaction was manifestly disadvantageous to her at the time when she entered into it; and (2) the judge was wrong to hold, and in so far as it was a matter of fact to find, that the second defendant had suffered no manifest disadvantage when she entered into each of the six transactions the subject of the appeal and ought to have held or found that (a) in each case the second defendant had entered into a transaction which materially increased the burden of her contingent obligations to the plaintiff, (b) in each case she had accepted a contingent liability likely to be substantially beyond her means if she were called on to meet it in full, (c) she had thereby materially increased the risk or likelihood of her own bankruptcy in the event that the family company failed, and (d) she had obtained no material advantage thereby over such as she would have obtained had she not accepted contingent liabilities of such extent.By a respondent's notice dated 28 January 1988 the plaintiff gave notice of its intention to contend that the judge's decision should be affirmed on the additional grounds, inter alia, that (1) the judge erred in law in holding that the facts, that the first defendant knew that the second defendant reposed trust and confidence in him and his business ability and intended that the second defendant should enter into each of the first five transactions without discussion or consideration of its risk, could in law amount to the exercise of undue influence; (2) the judge erred in holding that the first defendant had exercised actual undue influence over the second defendant in the absence of evidence that the first defendant had exerted any pressure on the second defendant; (3) the judge erred in holding that there was actual undue influence in the absence of evidence that the first defendant knew and intended that the second defendant should act to her detriment; (4) even if the judge were correct in finding that actual undue influence had been exercised, he ought to have found as a fact that such undue influence did not cause the second defendant to enter into any of the first five transactions, as she would have done so in any event; (5) the judge ought to have found that none of those transactions had been entered into by the second defendant as a result of any actual undue influence exercised on her; (6) the judge erred in finding that the first defendant's behaviour in relation to the sixth transaction brought about the second defendant's execution thereof and ought to have found that she would have entered into the transaction in any event; (7) as the first, fourth and fifth transactions were entered into by the second defendant in person at the plaintiff's premises in unremarkable circumstances, the judge erred in law in holding that the plaintiff was affected by any undue influence exercised by the first defendant; (8) further or alternatively, the judge erred in law in holding, in those circumstances, that the first defendant was in relation to any of those transactions the agent of the plaintiff; (9) further *927 or alternatively, in relation to the first five transactions, the judge ought to have held that, notwithstanding that the first defendant might have been the agent of the plaintiff and notwithstanding the exercise of any undue influence by the first defendant over the second defendant, the plaintiff's rights were not affected in the absence of it having knowledge of circumstances suggesting that the first defendant was or was likely to exercise undue influence over the second defendant; and (10) the judge erred in law in holding that the independent solicitor engaged at the plaintiff's request to advise the second defendant with regard to the sixth transaction was the plaintiff's agent at all or for any purpose sufficient to fix the plaintiff with knowledge of the first defendant's behaviour.The facts are stated in the judgment of the court.J.P. Wadsworth Q.C. and Nicholas Davidson for the second defendant. The appeal raises two issues: first, whether a party who proves that a transaction was induced by the actual exercise of undue influence is entitled to have it set aside without also proving that the transaction was manifestly disadvantageous to her, and, secondly, if so, whether each relevant transaction in the present action was manifestly disadvantageous to the second defendant, Mrs. Aboody.Cases of undue influence fall into two classes which may overlap: see Allcard v. Skinner (1887) 36 Ch.D. 145,171, 181. Class 1 cases are those in which the court finds unfair conduct or the overreaching of another's mind by a person who actually exercises undue influence. Class 2 cases are those in which a party who has a duty to advise another derives an immoderate or excessive benefit from the relationship. In such cases the party benefiting must prove that he has not abused his position. It has been consistently emphasised that the courts should not seek to define undue influence: see National Westminster Bank Plc. v. Morgan [1985] A.C. 686, 709G.As a matter of principle it should not be necessary, in order to avoid a transaction where actual undue influence is proved, to show additionally that manifest disadvantage has been occasioned. That view is supported both by authority and analysis of the recognised division of undue influence cases into the two classes. Always accepting that undue influence is not precisely defined, the question for the court is whether at the time of the transaction the person carrying it out was under such influence as to prevent it being considered as the action of one free to determine what should be done, i.e. whether it is against conscience for the benefit of the transaction to be retained. The question is not whether she knew what she was doing but how the intention was produced. The purpose of the undue influence doctrine is to prevent people being forced, tricked or misled into parting with their property. What is to be proved may be summarised as "wrongfulness." In class 1 cases proving that undue influence was actually exercised in itself proves wrongfulness: wrongfulness is inherent in the fact of the influence being undue. In class 2 cases the first fact proved by the victim is the existence of the special relationship between the victim and another person, usually the other party to the transaction. Proof of that *928 relationship, unaccompanied by proof that influence, let alone undue influence, was exercised in fact does not prove wrongfulness. For a prima facie case of wrongfulness to be proved, something more must be proved and that is "manifest disadvantage." The very important feature of a class 2 case is that, if the alleged victim can prove enough to bring the presumption into operation, then the burden of disproving the exercise of undue influence is placed on the party seeking to uphold the transaction. There is no reason to throw such a burden on that party unless circumstances are shown to exist which demonstrate a real possibility that that party has in fact abused his position, even though he is not affirmatively proved to have done so. On the contrary, the effect of the reversal of the burden of proof, which is only rarely, if ever, carried successfully by the party seeking to uphold the transaction, is so serious that many legitimate transactions would be liable to be impeached if the victim did not first have to prove wrongfulness by demonstrating manifest disadvantage.The judge posed two questions: (a) why should equity officiously set aside a transaction in which the balance of advantage is with the person seeking to set it side, and (b) why should influence procuring such a transaction be held to be undue influence if the party influenced at least understood what he was doing without necessarily calculating where the advantage lay? The answers to question (a) are, first, that the very wrongfulness in the occurrence of the transaction gave rise to a right in the party influenced. As a matter of principle it should be for the party wronged, not the court, to decide whether or not to accept the transaction; in the absence of special circumstances, such as undue delay, the party wronged should not be held to a transaction which he does not want. Secondly, in practice the situation would arise only in extreme cases. The reason undue influence is raised is invariably that the transaction has worked out badly. In a class 1 case it is against conscience for a party who has obtained a transaction by wrongful means to hold the opposing party to it when the transaction has in fact worked out badly for the party influenced.As to question (b), knowledge of the nature of the act is irrelevant. All gifts are known to be gifts by the donor; if the party does not know what she is doing the case is framed primarily as non est factum rather than undue influence. It is the misplaced trust which induces the failure to calculate the advantage or causes the mind to be overreached and is the very basis of an undue influence case. This is directly covered by modern authority: see In re Craig, decd. [1971] Ch. 95, 101, and Kings North Trust Ltd. v. Bell [1986] 1 W.L.R. 119, 123. Once the court finds such exercise as a matter of fact, the party influenced has been wronged and is entitled to relief, exceptional circumstances apart. The court is so jealously on guard against undue influence that a strict rule is applied: see Inche Noriah v. Shaik Allie Bin Omar [1929] A.C. 127, 136.Cases under class 1 are rare in the reports. Most reported cases are class 2 cases and often relate to the making of gifts. Huguenin v. Baseley (1807) 14 Ves.Jun. 273a, which was the start of the modern law, was a case of actual, not presumed, influence and contains, at p. 284, what has been accepted as the locus classicus. Lord Eldon, at p. 287, sets out *929 disjunctively circumstances in which the court will interfere if the giver is weak and liable to be imposed on as immoderate gift, no proportion to the circumstances of the giver, and no reason for the gift or false reason. He accepts the reasoning that it is against conscience that one person should hold a benefit derived through the fraud of another. The question is whether the instruments are pure, voluntary and understood: see p. 296.Though Rhodes v. Bate (1965) L.R. 1 Ch.App. 252 was a class 2 case, Turner L.J., with whom Knight Bruce L.J. agreed, asserted, at p. 258, that manifest disadvantage had to be proved in a class 2 case but that, if it was not proved, "the court, before it would undo the benefit conferred, would . . . require some further proof - proof not merely of influence derived from the relation, but of mala fides, or of undue or unfair exercise of the influence." The decision is entitled to great weight as an exposition of the doctrine of undue influence, but it is accepted that, to the extent that it deals with class 2 cases, the passage relied on is obiter. Turner L.J.'s exposition of the doctrine was expressly cited, and adopted in similar words by Lindley L.J. in Allcard v. Skinner, 36 Ch.D. 145, 185. Tate v. Williamson (1866) L.R. 2 Ch.App. 55 is a case of a sale at undervalue. The inadequacy of the price was known to the purchaser who stood in an influential relationship with the seller. The case was in both classes 1 and 2. It is clear authority for the proposition that the mere fact that the sale was obtained by undue influence is sufficient. The unfairness of the price was an additional, not a necessary, reason for the court to act.National Westminster Bank Plc. v. Morgan [1985] A.C. 686 is the leading case and the one on which the judge principally relied. It is a class 2 or "presumption" case and was only concerned with class 2 cases: see p. 690g-h. No argument was addressed by the defendant to class 1 cases, her principal case being that, even though no actual influence has been used, it was unnecessary for her to prove manifest disadvantage. In the relevant passage, at pp. 703-707, Lord Scarman was clearly dealing with manifest disadvantage as a necessary element in presumption cases, yet the judge in the present case erroneously concluded that Lord Scarman held that manifest disadvantage must be proved in both class 1 and class 2 cases. Lord Scarman cited the passage from Bank of Montreal v. Stuart [1911] A.C. 120, 137 because of its significance for class 2 cases. Bank of Montreal v. Stuart itself was both class 1 and class 2, and there was clear disadvantage. In the passage cited by Lord Scarman Lord Macnaughten distinguished between class 2 cases and class 1 cases in a way which would be inconsistent with the suggestion that "unfair advantage" could not be considered proved unless it were first proved that the transaction brought about was immoderate and irrational. Lord Scarman implicitly approved the pasage from Rhodes v. Bate, L.R. 1 Ch.App. 252, 258: the particular paragraph was cited [1985] A.C. 686, 691e as the first authority supporting the need for manifest disadvantage and Lord Scarman, at pp. 705-706, cited from Lindley L.J. in Allcard v. Skinner, 36 Ch.D.145, 185, in which Lindley L.J. adopted what Turner L.J.'s expression of the law relating to *930 class 1 cases was wrong, or even doubtful, he would have said so, instead of which he said that subsequent authority supported the view of the law as expressed by Lindley L.J.The judge also relied on Goldsworthy v. Brickell [1987] Ch. 378, a class 2 case in which the point now at issue was not argued, and Coldunell Ltd. v. Gallon [1986] Q.B. 1184, 1194, 1196, which was a class 1 case but in which the disadvantage was so manifest that the point never fell for argument and did not form part of the ratio. Bank of Credit and Commerce International S.A. v. Kanamia (unreported), 6 March 1986, was another case relied on by the judge. Though it was a class 1 case in which Hoffmann J. did hold that manifest disadvantage was required, the contrary does not appear to have been argued and Hoffmann J. does not give a reasoned analysis for his conclusion.Since the judgment in the present case Neill L.J. has said, in Bank of Baroda v. Shah [1988] 3 All E.R. 24 that manifest disadvantage was required in a case of proof of actual undue influence, but it was obiter and the point was not argued, nor was Rhodes v. Bate, L.R. 1 Ch.App. 252 cited. Midland Bank Plc. v. Johns (unreported), 30 July 1987; Court of Appeal (Civil Division) Transcript No. 824 of 1987 was decided after the conclusion of argument but before judgment in the present case. Nourse L.J. indicated that manifest disadvantage was required in a class 1 case, but again it appears that the point was not argued and Rhodes v. Bate, L.R. 1 Ch.App. 252 was not cited. [Reference was made to Midland Bank Plc. v. Shephard [1988] 3 All E.R. 17]. As to the status of the various dicta, the court is invited to conclude that this point is not yet the subject of any expressions of opinion formed by the Court of Appeal after full argument and that the weight of the dicta should be judged accordingly: see In re State of Norway's Application (No. 2) [1990] 1 A.C. 723, 738-740, 750-751, 769-771.The division of undue influence cases into two classes necessarily implies that, while there may be particular cases which fall into both classes, there must also be some cases which fall into class 1 only and others which fall into class 2 only. Class 1 cases themselves depend on the existence of a special relationship between the influencer and the victim. Influence, as distinct from misrepresentation or deceit, is not objectionable between persons at arms' length; in order for the use of influence to be objectionable, or undue, there must be some special factor in the relationship. This may itself be proved in one of two ways: (A) where the relationship is one which is established by authority to be such a special relationship, e.g. parent over minor, doctor over patient; (B) where, though not being within group (A), on the particular facts a special relationship is proved to have existed, as can happen between husband and wife, or bank manager and customer. It is necessary to consider why there can be cases which fall within class 1 and yet not fall within class 2B, despite the fact that in each case the complaining party has proved that there is a special relationship between the parties. Why should a complainer in class 1 have the burden of proving the actual exercise of undue influence, while the complainer in class 2B can invoke the presumption to give his opponent the burden of proving that undue influence was not exercised? There is *931 no, or no material, distinction between the relationship to be proved in each class of case. In the class 1 case the relationship is a strong and special one, with actual undue influence being equated with domination where the plaintiff's mind becomes a mere channel through which the defendant's will operated. If anything, the relationship in a class 1 case may be stronger than that needed for a class 2 case which is demonstrated by the fact that a plaintiff might fail under class 1 but succeed under class 2; and that emphasises the need to observe why some plaintiffs might succeed under class 1 yet fail under class 2. The only identifiable circumstance in which that can happen is where the plaintiff can prove (i) the special relationship and (ii) the actual exercise of undue influence, but not (iii) manifest disadvantage. It follows that the complaining party may set out to prove (i) a special relationship, and/or (ii) the actual exercise of undue influence, and/or (iii) manifest disadvantage. If he proves all three his case is within both classes 1 and 2. If he proves (i) and (iii) but not (ii) his case is within class 2. If he fails to prove (i) he must fail and similarly if he fails to prove either (ii) or (iii).On the assumption that the argument so far fails, one comes next to the question of whether there was any manifest disadvantage to Mrs. Aboody. The test of manifest disadvantage stated by the judge was: Was the transaction, judged at the time, disadvantageous to Mrs. Aboody and manifestly so in the sense that "it would have been obvious as such to any independent and reasonable person who considered the transaction at the time with knowledge of all the relevant fact?" The judge did not have Midland Bank Plc. v. Phillips (unreported), 14 March 1986; Court of Appeal (Civil Division) Transcript No. 258 of 1986 cited to him in which it was said that the court must look primarily at the terms of the transaction but also at what has happened as an example of what might happen having made such an arrangement. It follows that the court must give full weight to the degree of risk of any particular consequence: and in the present case that means the degree of risk of the failure of the family company. Each subsequent transaction was more onerous than the one before and the only reason why each is not manifestly dangerous is held to be the existence of the previous one. The question, therefore, really is whether the first can stand. Had Mrs. Aboody had a free power of choice she should have refused to commit herself beyond the equity of her house to avoid risk of bankruptcy, or to commit herself at all on the basis that her assets were already fully committed by previous transactions; and refused if necessary on the further basis that the pledge gave the bank adequate security. The effect was that Mrs Aboody increased her own liability and either did not affect the amount of lending by the bank or enabled the company to overtrade even more than it would otherwise have done. If the guarantee did not affect the lending there was disadvantage and no benefit. If it did there was no benefit to Mrs. Aboody.Hazel Williamson Q.C. and Anthony Trace for the plaintiff bank. Manifest disadvantage is, as a matter of law, a necessary ingredient in a claim based on actual undue influence. This is clear law and is a *932 requirement whether the case is within the class of cases where there is a presumption of undue influence or not. The court will not give relief under the doctrine of undue influence where the transaction is beneficial. There has to be an element of malign intention. It is not undue influence to attempt to persuade someone to do something which is to their benefit. It is a matter of policy in class 2 cases that persons in a position of influence should be subject to a high degree of probity. The doctrine is based on unconscionability and there is nothing unconscionable where a person has suffered no disadvantage. The defendant's submissions start from general principle as if there is no authority. That is wrong; the law was laid down in Allcard v. Skinner, 36 Ch.D. 145, as interpreted and approved in National Westminster Bank Plc. v. Morgan [1985] A.C. 686, which are the only cases in which courts of higher authority have laid down principles in relation to undue influence generally. The test in Allcard v. Skinner, 36 Ch.D. 145, 182-183, is "forced, tricked or misled" all of which contain an element of malign intent. Lord Scarman in National Westminster Bank Plc. v. Morgan [1985] A.C. 686, 709g, is laying down a totally universal principle, applicable to all undue influence cases, namely, that the starting point is a disadvantageous transaction. He derives that from Allcard v. Skinner, 36 Ch.D. 145 which considered all the cases, finding that in practice they fell into the two well known classes, but seeking to derive a principle covering them all. The principle so derived is identified as that of "victimisation" and it is important to read the whole of p. 182 of Lindley L.J.'s judgment in Allcard v. Skinner in order to follow this sequence of reasoning and to see the relevance of Rhodes v. Bate, L.R. 1 Ch.App. 252, in its true context. The passage in Rhodes v. Bate, at p. 258, relied on the defendant was obiter; it was unnecessary. The case has been used simply as an example of a relationship in which the presumption applies and no more.Lord Scarman in Morgan, at pp. 705a, 707b and 709g, approves of "victimisation" as an expression of principle and modernises the language by using the phrases "unfair advantage" and "disadvantageous Transaction" but is quite plainly endorsing Allcard v. Skinner, as he interprets the decision, as laying down a requirement of disadvantage in both classes of case. He supports that by reference to two Privy Council cases, Bank of Montreal v. Stuart [1911] A.C. 120 and Poosathurai v. Kannappa Chettiar (1911) L.R. 47 I.A. 1, in which the phrases "unfair advantage" and "unconscionable" are used. The fact that Lord Scarman is not confining himself to presumption cases is further demonstrated by the citation, at p. 704f, of Ormes v. Beadel (1860) 2 Gif. 166which was a case of actual and not presumed undue influence. Accordingly, the judge was right in saying that Lord Scarman was laying down the law and that "victimisation" and "unfair advantage" are to be equated. It is highly significant that the courts since Morgan's case [1985] A.C. 686 have clearly regarded Lord Scarman's speech as covering both classes of case. Even if the ratio is too wide it can only be departed from by the House of Lords. [Reference was made to Halsbury's Laws of England, 4th ed., vol. 26 (1979), para. 573.] *933 As to the other authorities cited by the defendant in support of the proposition that manifest disadvantage is not a universal requirement, these have been misinterpreted. Huguenin v. Baseley, 14 Ves.Jun. 273a, was the defendant's starting point, the reply of Sir Samuel Romilly being relied on as the locus classicus of the requirements of undue influence. In fact when read in full the reply shows that manifest disadvantage is a necessary requirement: see p. 287. Moreover, the case was approved by Lindley L.J. in Allcard v. Skinner, 36 Ch.D. 145, 183, and in Morgan's case [1985] A.C. 686, 705c, Lord Scarman approved Lindley L.J. In Tufton v. Sperni [1952] 2 T.L.R. 516 the Court of Appeal described the passage from Huguenin v. Baseley, 14 Ves.Jun. 273a as the basis of the doctrine; so the case is of no assistance to the defendant. Rhodes v. Bate, L.R. 2 Ch.App. 55, was decided 22 years before Allcard v. Skinner, 36 Ch.D. 145 and 120 years before National Westminster Bank Plc. v. Morgan [1985] A.C. 686. It was a class 2 case, though the classes were not then identified, and can only ever be authority in a class 2 case. It is authority for the proposition that the mere relationship of confidence between the parties is not alone sufficient to "prove" undue influence, a disadvantageous transaction being also necessary. The case was cited in Allcard v. Skinner, 36 Ch.D. 145, for that proposition and that proposition alone, and Lord Scarman in Morgan's case [1985] A.C. 686, 706a, does no more than approve its citation for that proposition. It was not cited in Morgan's case to show that manifest disadvantage was not needed in class 1 cases: see p. 691e. When Morgan's case is properly analysed it is apparent that everyone proceeded on the basis that a disadvantageous transaction was necessary in a case of actual undue influence, and the issue for decision was whether this was also necessary in a presumption case. If anything, given that Lord Scarman regarded himself as laying down a general principle, Morgan's case is implicit disapproval of the obiter dictum in Rhodes v. Bate, L.R. 1 Ch.App. 252 on which the defendant relies.Tate v. Williamson, L.R. 2 Ch.App. 55, is relied on by the defendant as a class 1 case but it is not a class 1 case. The entire judgment proceeded on the basis of a finding that the defendant had assumed a relationship of trust and confidence towards the deceased, and it must be treated as a presumption case. Also, the ratio was not that manifest disadvantage was unnecessary in a case of actual undue influence, but, in so far as it dealt with manifest disadvantage at all, it said that manifest disadvantage was not necessary in a presumption case. Accordingly, the dictum relied on cannot stand after National Westminster Plc. v. Morgan [1985] A.C. 686 in which Tate v. Williamson, L.R. 2 Ch.App.55, was cited on the central issue.In the later cases of Goldsworthy v. Brickell [1987] Ch. 378, Coldunell Ltd. v. Gallon [1986] Q.B. 1184, Bank of Credit and Commerce International S.A. v. Kanamia (unreported), 6 March 1986, Hoffman J., Bank of Baroda v. Shah [1988] 3 All E.R. 24 and Midland Bank plc. v. Johns (unreported), 30 July 1987; Court of Appeal (Civil Division) Transcript No. 824 of 1987, the courts clearly regarded manifest disadvantage as a requirement in an actual undue influence case. If the court finds in the defendant's favour on this point, it must go so far as to *934 say that all those differently constituted courts wholly misunderstood Allcard v. Skinner, 36 Ch.D. 145 and, more importantly, the House of Lords in National Westminster Bank Plc. v. Morgan [1985] A.C. 686. Like Lord Scarman and Dunn L.J. in Morgan's case [1983] 3 All E.R. 85, neither the bank nor the defendant in the present case have been able to find any case in which a transaction has been set aside for undue influence where the transaction has not been manifestly disadvantageous to the complainant. That accords with principle and authority. There is no reason as a matter of law to relieve anyone who has not suffered manifest disadvantage. [Reference was made to Tufton v. Sperni [1952] 2 T.L.R. 516, 518 and Snell's Principles of Equity,28th ed. (1982), pp. 5, 6, 8-9.]There was no manifest disadvantage to the defendant in any of the transactions in issue. The defendant has to bring herself within recognised legal principle and she cannot do that unless she can show that she has suffered. There must be a disadvantage, and it must be unfair. It must be "manifest." The test of manifest disadvantage is an objective one: it must be obvious to a reasonable person that the transaction is disadvantageous. The judge correctly held that "manifest" meant "obvious," i.e. not a matter of close or fine evaluation. The fact that one is deprived of the opportunity to consider the advantages and disadvantages of the transaction cannot affect the question of whether it is disadvantageous. Before the judge the bank's submission was that the disadvantage had to be plain and obvious. The judge was not addressed on the basis that undue influence was used to procure it. In Morgan's case [1985] A.C. 686, 704h, Lord Scarman's test of manifest disadvantage appears to be based on unconscionability in that the transaction is not explicable on the basis on which mankind can be expected to act. Manifest disadvantage must be judged in the circumstances subsisting at the time of the transaction. If a person takes the benefit of a transaction, relief will not be given unless the situation can be restored.Given the actual circumstances of the transactions, there was no obvious disadvantage to Mrs. Aboody in entering into them. Examples of an obvious disadvantage would be a sale at an undervalue or a gift, or the giving of a guarantee or mortgage where the donor has no interest in the principal transaction secured. The present case is very different. There is always the risk that a guarantee may be called or a charge enforced. The question whether the assumption of such a risk is "manifestly disadvantageous" therefore depends on the balance of two factors: the seriousness of the risk of enforcement to the guarantor and the benefits gained by the guarantor from accepting such risk. Mrs. Aboody gained considerable practical benefits from giving the guarantees and charges in question in that they enabled the family business, which was the only source of income for her and her family, to function. In any event, in giving the guarantees and mortgages to the bank Mrs. Aboody did not assume any greater practical risk than she was already committed beyond her means to an earlier creditor of the *935 company. Similarly, when each further transaction was entered into she was already committed beyond her means. In any event, the company's liability was prima facie secured, with a margin, by the goods in pledge; the risk being run by Mrs. Aboody assessed dispassionately, was therefore small and certainly not sufficiently great to be manifestly disadvantageous. It cannot be said that Mrs. Aboody would have gained the same advantages if she had declined to execute the guarantees. Even if Mrs. Aboody is successful on the issue of manifest disadvantage, the judge's decision ought to be upheld on the following grounds. First, there was, on the evidence, no actual undue influence, in law, exercised over Mrs. Aboody by her husband in respect of any of the first five transactions in issue. Her case has throughout been put on the basis of actual undue influence; it is not a presumption case. The judge found that there was actual undue influence, but when the elements which he found to exist are analysed they do not amount to actual undue influence. The judge applied the wrong test. The essence of actual undue influence is the victimisation of the complaint. There must be some actual oppressive behaviour, i.e. actual pressure: see Snell's Principles of Equity, 28th ed., pp. 539-540, and per Lord Scarman in National Westminster Bank Plc. v. Morgan [1985] A.C. 686, 702e, "she was not harried into signing." [Reference was made to In re Craig, decd. [1971] Ch. 95, 121.]In any event, even if actual pressure is not necessarily required, some action which can itself be identified as undue influence must be required on principle; such action is what is presumed to have occurred in the presumption cases. Omission or passivity cannot be sufficient, otherwise every husband-wife, or similar, situation would be likely to be classified as one of actual undue influence. This would drive a coach and horses through the rule of policy that there can be no presumption of undue influence in the case of husband and wife, the practical effect being that what is really a presumption situation is simply relabelled "actual." The judge rightly held that the mere fact that a complainant reposed ill-advised trust and confidence in another is insufficient and does not amount to the exercise of actual undue influence. But he went on to hold that there was actual undue influence in the present case because that trust and confidence had been abused in that Mrs. Aboody's husband "intended and knew" that she would enter into the transactions in reliance on her judgment of him. That finding is insufficient to amount to actual undue influence in law because it is a finding of passivity only. It has never been held that it is actual undue influence merely to allow someone to proceed on a basis of trust, even though the alleged influencer may be aware that they are likely so to act.If that is wrong and a mere relationship of an appropriate nature, without accompanying action in the way of persuasion or coercion, can constitute actual undue influence, then it must be a relationship of dominance: there must be "overbearing of the will:" see Mackenzie v. Royal Bank of Canada [1934] A.C. 468, 475. [Reference was made to Bank of Montreal v. Stuart [1911] A.C. 120, 127, 136; Morley v. *936 Loughnan [1893] 1 Ch. 736, 751: and Tufton v. Sperni [1952] T.L.R. 516, 519-520, 528.] Merely a relationship of confidence is not enough.If a relationship merely of trust, coupled with simply requesting or allowing someone to act as you would wish and intend them to act, suffices as a basis for actual undue influence, it must be accompanied by a malign intent to make it undue; otherwise, it can only be "ordinary" influence. There must be an intention to get the other party to act to their detriment, i.e. an intent to harm. The complainant must be victimised. The judge seems to have accepted Mr. Aboody's evidence that he did not think that the execution by Mrs. Aboody of any of the transactions was disadvantageous to her. Accordingly, he could not properly conclude that the element of victimisation existed.Secondly, even if there was behaviour by Mr. Aboody capable of amounting to actual undue influence in law, it did not, on the evidence, operate to cause Mrs. Aboody's execution of any of the transactions, whereas the influence exercised must be operative in procuring the transaction, i.e. it must be causative. If the transaction would have proceeded without what is said to be the exercise of undue influence, then the court will not interfere: see National Westminster Bank Plc. v. Morgan [1985] A.C. 686, 619d, 709g, and Coldunell Ltd. v. Gallon [1968] Q.B. 1184, 1194. The judge held that Mrs. Aboody was "deprived altogether of the free use of any independent and informed judgment." In a non-presumption case that is the wrong test. The test is simply: was there independent judgment? It does not have to be informed. Even if it was the right test, on the evidence, Mrs. Aboody was sufficiently independent and informed. Her level of appreciation was more than enough to negative any overbearing of her will and to constitute a sufficient exercise of judgment. In any event, the judge found that the probability was that even if Mrs. Aboody had been told all the facts known to her husband she would still have signed the relevant document. Therefore, it cannot be said that the transactions were "procured" by the undue influence, which the judge found, at all. The doctrine of undue influence is based on conscience, and there is nothing unconscionable in upholding a transaction which would have been concluded in any event.Thirdly, even if there was actual undue influence by Mr. Aboody and it was operative, the bank are not affected thereby, as a matter of law, (i) in respect of the 1976 guarantee, the equitable charge and the 1979 charge the husband was not the bank's agent for any or any sufficient purpose to fix the bank with the consequences of such actual undue influence; and/or (ii) in respect of all the transactions, save the 1980 charge, the bank had no knowledge of the circumstances suggesting that Mr. Aboody was or was likely to exercise undue influence over his wife; and (iii) in respect of the 1980 charge the solicitor was not the bank's agent for any or any sufficient purpose to fix the bank with his knowledge of such undue influence.The cases establish that a bank is only fixed with the undue influence of another party as its agent where it "left it all to" that agent to procure the execution of the document. It is a startling proposition that a husband who brings his wife into a bank to sign a document can invest *937 the bank with the consequences of something which has happened outside. An agency has to be established; it cannot be inferred simply from the fact that there is an intermediary. [Reference was made to Midland Bank Plc. v. Perry (unreported), 21 May 1987; Court of Appeal (Civil Division) Transcript No. 491 of 1987; Turnbull & Co. v. Duval [1902] A.C. 429 and Chaplin & Co. Ltd. v. Brammall [1908] 1 K.B. 233, 237.]The 1976 guarantee, the equitable charge and the 1979 charge were all executed by Mrs. Aboody at the bank in totally unremarkable circumstances. It could not be inferred from the evidence that the bank had "left it all to" her husband or that the bank had "appointed" him to act for them; it was for Mrs. Aboody to prove the necessary agency. In a situation where one is fixing an innocent party with vicarious liability for the undue influence of another, there must be clear evidence that an actual agency, to support such vicarious liability, was actually constituted.On a proper analysis of the authorities there must not only be agency but an agency in circumstances where the creditor either knew or ought to have known that undue influence would or might be exerted. [Reference was made to Avon Finance Co. Ltd. v. Bridger [1985] 2 All E.R. 281, 287; Kings North Trust Ltd. v. Bell [1986] 1 W.L.R. 119; Coldunell Ltd. v. Gallon [1986] Q.B. 1184 and Bank of Baroda v. Shah [1988] 3 All E.R. 24.] In the case of husband and wife the law recognises that some influence will exist and this is not proscribed: see Talbot v. von Boris [1911] 1 K.B. 854, 863-864. The degree of knowledge necessary in a husband and wife case, is, therefore, that some undue influence will be exercised. Appointing the debtor to procure the execution of a security is what fixes the creditor with constructive knowledge of possible undue influence; the fact that the debtor is the husband is not crucial. However, where the husband is appointed agent but is not the debtor the creditor's knowledge of his possible undue influence becomes the necessary ingredient. Here the debtor was the family company. There was no evidence that the bank either knew or intended that Mr. Aboody would exercise undue influence over his wife.For Mrs. Aboody to succeed in fixing the bank with the actual undue influence of the husband in relation to the 1980 charge, she had to show that the solicitor's knowledge of his behaviour was imputed to the bank. A finding of not merely agency, but an agency importing a duty to report the knowledge in question is therefore crucial to such a contention. [Reference was made to Bowstead on Agency, 15th ed. (1985).] The judge correctly found that the solicitor's client was Mrs. Aboody. However, he concluded that in addition to his duties to Mrs. Aboody the solicitor had a duty to report to the bank any relevant circumstances affecting the validity of the document known to him at the time it was executed. There was no evidence to support such a finding and, in any event, it was a wrong analysis in law of the position. If there was a contract between the bank and the solicitor, it was not one of agency; it was merely a contract to do something for a third party. If the solicitor did owe a duty to report to the bank, in the circumstances, it was not qua agent, but a tortious duty of care to correct any false impression *938 conveyed by signing the certificate. The principle of imputed knowledge depends on the relationship of principal and agent, importing a duty to report as a matter of contract or implied contract, so that it can be said that the knowledge of the agent is the principal's knowledge. The principle does not apply where the duty arises in tort, and a fortiori where the innocent party is to be fixed with the very knowledge which it was a tort not to communicate.J. P. Wadsworth Q.C. in reply. In class 1 cases of undue influence the court is focussing on the alleged wrongfulness of the donee's behaviour and whether in the light of that he is entitled to retain the benefit of the transaction. The wrong is complete as soon as the relevant transaction occurs, and the court should be ready to undo the wrong. The court should aid the person who says, "This was imposed on me and I am entitled to be put in the position in which I would have been had it never happened." As a matter of principle, reliance on the presumption is necessary only to bridge an evidential gap, where the actual exercise of undue influence cannot be proved: see In re The Estate of Brocklehurst, decd. [1978] Ch. 14, 43. If the tool of presumption is used in proving undue influence, the party using it takes on the burden of proving manifest disadvantage. If the tool is not used, there is no reason why that burden should be imposed on the party seeking to establish the undue influence. Once wrongfulness has been established, relief should be given unless the influencer establishes that in equity it should not be given. Particular matters which may prevent relief include laches, approbation and not coming with clean hands. This is supported by Inche Noriah v. Shaik Allie Bin Omar[1929] 127, 136; Tufton v. Sperni [1952] 2 T.L.R. 516, 525, and the numerous cases in which creditors have failed in attempts to enforce securities in reliance on which they have subsequently made loans.Though these are class 2 cases, the class 1 influencer, against whom mala fides, unfairness or other form of undue influence has been proved, cannot be in a better position than the class 2 donee, against whom the equity may arise simply because he cannot rebut the presumption on the facts. In a class 1 case it is even more important that those responsible for the undue influence, whether directly or indirectly, should not benefit from it. That doctrine should be applied liberally and insisted on. Where there has been actual undue influence, the victim is entitled to relief because he has been injured, just as he would be if he had suffered manifest disadvantage: see Hanbury & Maudsley's Modern Equity, 12th ed. (1985), p. 800.The present is a class 1 case within the terms of Lindley L.J. in Allcard v. Skinner, 36 Ch.D. 145, 181, which require the parties to be in a close and confidential relationship and the influencer to do wrong in the sense illustrated, but not exhaustively defined, by Lindley L.J. When contrasting the two classes Lindley L.J. demonstrates that in class 1 cases the court is asked to consider what has happened to the donor; and in the class 2 case the court only goes on to consider what was done by the donee if that becomes necessary in the light of *939 what is proved to have happened to the donor. The same contrast is made by Cotton L.J., at p. 171, and the approaches of Lindley and Cotton L.JJ. were not disturbed, let alone overruled, in National Westminster Bank Plc. v. Morgan [1985] A.C. 686.The ratio of Morgan's case is not that manifest disadvantage is required in both classes of case - the headnote is wrong - but is found in the two separate propositions: (1) to establish undue influence in any case it is necessary to show that the transaction "is wrongful in the sense explained by Lindley L.J." and (2), if it is sought to establish undue influence by relying on the presumption, there must be "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 ordinary speech, as Lord Scarman recognised, a husband, who takes advantage of his wife's trust in his judgment and propriety by concealing from her risks relating to a transaction which he invites her to undertake, takes an unfair advantage of her trust. Ormes v. Beadel, 2 Gif. 166 does not assist; it merely decides that the court can set aside an agreement which is hard and inequitable in itself, from which it does not follow that the court cannot set aside an agreement which is not.Analysis of the critical passage from Lindley L.J. in Allcard v. Skinner, 36 Ch.D. 145, 181 shows that in a class 2 case the existence of influence is enough if accompanied by manifest disadvantage, whereas in a class 1 case the existence of such influence is not enough, but proof of its exercise is the substitute for proof of manifest disadvantage. Lindley L.J. cited Rhodes v. Bate, L.R. 1 Ch.App. 252, 258 as authority, distilling what Turner L.J. had said, but carefully including Turner L.J.'s reference to the availability of class 1 where class 2 cannot be used because the gift is trifling. In order to succeed the bank needs to persuade the court to disregard Rhodes v. Bate and Tate v. Williamson, L.R. 2 Ch.App. 55, 65-66. Tate's case was a class 1 case and demonstrates that in such cases it is sufficient, in order to establish actual undue influence, that the relationship of confidentiality had imposed a duty to disclose and the party under that duty had passively failed to do so. This analysis is supported by Asburner's Principles of Equity, 2nd ed. (1933), pp. 299 and 300.If the House of Lords had intended to overrule previous expressions of law, it would have done so in clear terms: see Goldsworthy v. Brickell [1987] Ch. 379, 412, 415, 417. Goff and Jones, The Law of Restitution,3rd ed. (1986), pp. 249-250, 251, 253, written after Morgan's case [1985] A.C. 686, says that the requirement of manifest disadvantage applies only in class 2 cases. Without the special relationship needed in a class 1 case influence exercised will not be undue. Unless the submissions put forward on behalf of Mrs. Aboody are correct, there is no satisfactory answer to the question: in what type of case can equity give relief on the basis that it is a class 1 case, but not also a class 2 case? Otherwise, class 1 is and always has been redundant.It can be said that the categories of undue influence are never closed and are not to be closed by any attempt at precise definition. Thus, *940 there is no particular form of words which must be satisfied before the court can hold that in a particular case there was undue influence. The decision in Moody v. Cox and Hatt [1917] 2 Ch. 71 was based expressly on a confidential and not a fiduciary relationship. Where it is not possible to show a confidential relationship, it is sufficient to prove trust and reliance and either manifest disadvantage or wrongfulness. On the facts of the present case a relationship of trust and reliance "equivalent" to a fiduciary relationship could be established. In abuse of confidence cases one of the recognised fiduciary relationships is required. There is an overlap between abuse of confidence and undue influence, but they are not the same. This is an area of doctrine, not of neat and tidy rules. To distinguish totally between abuse of confidence and undue influence, but they are not the same. This is an area of doctrine, not of neat and tidy rules. To distinguish totally between abuse of confidence and undue influence would result in injustice. In abuse of confidence the law imposes a duty on, for example, a solicitor because of his position, regardless of whether his client actually trusts him. In undue influence, actual trust and reliance must be shown.It has particularly been established that it is not necessary to prove that there was "domination:" see Goldsworthy v. Brickell [1987] Ch. 378, 402, 405, 406, 416, 417. Conversely, there are instances of forms of words which, if satisfied, show that undue influence is established. "Domination" would itself be such a word. They can be said to be conditions which are sufficient, but not necessary. One such form is that used by Romer J. at first instance in Tufton v. Sperni (unreported), where the case was put as being in either class 1 or class 2, but failed on class 1, because the position was not reached "in which it could fairly be said that the plaintiff's mind was in effect a mere channel through which the will of the defendant operated." The members of the Court of Appeal clearly accepted [1952] 2 T.L.R. 516, 525, 530, 532 that, if that could have been fairly said, the claim under class 1 would have succeeded.In the present case the judge held that that position had been reached, having directed himself, inter alia, that (1) he must consider the questions of influence and of undue influence, (2) he must consider those questions separately in relation to each transaction impugned, (3) trust is not the observe of undue influence, and (4) influence arising from trust and confidence is not in itself undue influence, but it is otherwise if the trust and confidence are shown to have been abused.Another sufficient, but not necessary, test was accepted by the Court of Appeal in Zamet v. Hyman [1961] 1 W.L.R. 1442, 1444, 1453, 1454 a class 2 case in which it is explained that the burden "is cast upon those who support the document of establishing affirmatively that the woman executed this document not merely understanding its effect but as a result of full, free and informed thought about it." The expression "after full, free and informed thought" was again emphasised in Lloyds Bank Ltd. v. Bundy [1975] Q.B. 326, 340, 342. While those two cases are class 2 cases, and it is accepted that mere proof that someone acted otherwise than as a result of full, free and informed thought does not prove actual undue influence, those words provide a most helpful test of actual undue influence if it is proved that influence was exercised with the result that the person influenced acted without full, free and *941 informed thought. In Zamet v. Hyman [1961] 1 W.L.R. 1442, 1452 Donovan L.J. said that the existence of an actual relationship of trust and reliance imposed a duty to explain a transaction in proper detail; the case was decided on grounds not of abuse of confidence but of undue influence. The necessary relationship was proved in the present case, and there had, therefore, been a clear duty to explain the transaction in proper detail to Mrs. Aboody. If there is proof of a special relationship and of the exercise of influence, the court will intervene if the person influenced acted without full, free and informed thought. The judge found that Mr. Aboody had deprived Mrs. Aboody altogether of the free use of any independent and informed judgment and that he knew that she would sign the documents without any consideration of risk.As to causation, what is required is that the instruments should be "pure, voluntary and well understood acts of her mind:" see Huguenin v. Basely, 14 Ves.Jun. 273a. It was said that even if Mrs. Aboody had been told all the facts she would still have signed, but it is no defence to fraud to say, "I now realise that the owner might freely have given me what I wanted even without my fraud." Once wrongfulness has been found, it is no answer to say that the influencer might have got what he wanted even if he had not exercised undue influence; he would, at the very least, have to prove that he would certainly have got it beyond any doubt. What matters, when undue influence has been exercised for the purpose of inducing a transaction, is whether something happens thereafter which frees the victim of the undue influence from it: see Kempson v. Ashbee (1874) L.R. 10 Ch.App. 15 and , 284.As to whether there was manifest disadvantage, Mrs. Aboody relies on deprivation of the power of choice as being manifest disadvantage. When the court in Coldunell Ltd. v. Gallon [1986] Q.B. 1184 speaks of "a bargain in itself unconscionable" the whole bargain must be looked at, not just its financial implication or the balancing exercise. This is the other side of the wrongfulness test. It is "in itself unconscionable" that anyone should part with a substantial amount of property when the mind does not go with the act. Also relied on are the domino effect, the fact that whether something is a "disadvantage" is a matter of comparing it with something else, e.g. a possible alternative transaction, and the fact that in the balancing exercise it was relevant and clearly established that the bank would lend without full cover.As to the issues of notice and agency, "agent" is used in more than one sense. In the primary sense it means a person empowered to make a contract on behalf of his principal, and, in the secondary sense, a person carrying out duties on behalf of another: see Halsbury's Laws of England, 4th ed., vol. 1 (1973), p. 702. In undue influence cases "agent" is used in the secondary sense. If a creditor uses an agent who exercises undue influence against the surety in a class 1 case the creditor cannot enforce the transaction as it can be in no better position than its agent. If a creditor uses an agent whom the creditor should reasonably know stands in a position in relation to the surety such that transactions *942 between the agent and the surety are open to review under class 2, the surety is entitled to raise the presumption against the creditor.Quite separately, if the creditor has actual or constructive notice of the exercise of (undue) influence it cannot enforce the transaction: an equity is raised against the creditor irrespective of any question of agency. And if the creditor has actual or constructive notice of the fact that the surety and the party obtaining the surety's agreement to the transaction stand in such a position that transactions between them are open to review under class 2, the surety is entitled to raise the presumption against the creditor. If the influencer is not the creditor's agent, and if the creditor has no notice of the exercise of undue influence, or of the involvement of someone standing in a class 2 relationship to the surety, then the creditor can enforce the security.The fact that recent cases, especially Kings North Trust Ltd. v. Bell [1986] 1 W.L.R. 119 and Coldunell Ltd. v. Gallon [1986] Q.B. 1184, have involved misrepresentation has possibly deflected attention away from the importance of the equitable concept of notice. What the court needs to consider was explained by James L.J. in Kempson v. Ashbee, L.R. 10 Ch.App. 15, 21, that is, whether the security was obtained by the undue exercise of influence such that the knowledge of it could be imputed to the creditor. The need to see whether knowledge can be imputed to the creditor enables one to see the place of Brandon L.J.'s second requirement for the finance company to be defeated by undue influence in Avon Finance Co. Ltd. v. Bridger [1985] 2 All E.R. 281, 287f. This is an unnecessary requirement, but it can be rationalised on the basis that, in the particular type of case, the bank is being affected by undue influence of which it has constructive, but not actual, notice.In considering whether it is equitable for a lender to be fixed with constructive notice, in practice the courts have concluded that it is equitable that the lender should be fixed with constructive notice if the borrower, or the person principally concerned to arrange the borrowing, has been used by the lender as an instrument to bring the transaction about. Always provided that the lender should reasonably have been aware that the relationship between the person used and the surety was such that that person could be expected to have some influence over the surety which might be open to abuse by the person concerned to arrange the borrowing. The actual identity of the borrower is not critical. This approach is entirely consistent with that of Fry J. in Bainbrigge v. Broome (1881) 18 Ch.D. 188, 196-197, and was well established in earlier cases.The doctrine does correspond with the division of the categories of undue influence into class 1, class 2A and class 2B. In a class 1 case the lender will be affected if it or its agent has notice of the exercise of undue influence, or if it leaves the arranging of the transaction in the hands of someone likely to have influence over the surety. In a class 2A case the lender will be affected, by the operation of the presumption, if it has notice of the fact that the relationship between an intermediary used by it and the surety is a class 2A relationship. In a class 2B case the lender will be affected, by the operation of the presumption, if it has notice that the relationship between the intermediary used by it and the *943 surety is a class 2B relationship. As a matter of principle, it is both desirable and sensible that there should be direct communication between the lender and the surety.The fact that a husband who is the prime mover in wishing to borrow may exercise influence over his wife in order to procure her agreement to a security transaction is notorious: see Chaplin & Co. Ltd. v. Brammall [1908] 1 K.B. 233. The bank's contention that Chaplin is no longer good law, for which it relies on the decision of the Privy Council in Bank of Montreal v. Stuart [1911] A.C. 120, must be wrong; the court is bound by Chaplin and the Privy Council's decision is persuasive only. In any event Chaplin was followed in Avon Finance Co. Ltd. v. Bridger [1985] 2 All E.R. 281 and Coldunell Ltd. v. Gallon [1986] Q.B. 1184, the latter after the House of Lords' decision in National Westminster Bank Plc. v. Morgan [1985] A.C. 686.Although agency has been much stressed in recent cases, the line of notice and knowledge is a clearer line over a longer period, and the court must deal with that separately from agency. "Knowledge" means knowledge from which the necessary inference can be drawn; if the court would draw that inference from knowing what the lender knew, constructive knowledge is to be imputed to him.As to the 1980 charge in relation to which the bank arranged for Mrs. Aboody to see a solicitor, the solicitor was the bank's agent: he was paid by the bank, not by Mrs. Aboody, and owed a duty to report to the bank any circumstance the occurrence of which would prima facie render the security questionable, notwithstanding his conflicting duties to Mrs. Aboody. When solicitors put themselves in a position where they have accepted two competing contractual obligations, Lancashire Loans Ltd. v. Black [1934] 1 K.B. 380, 416, 422 shows that, if they become aware of the fact that the transaction is being procured by the exercise of influence over the surety, the lender will be affected by that notice.Williamson Q.C. in reply. Rhodes v. Bate, L.R. 1 Ch.App. 252 is of no help to Mrs. Aboody. In that it conflicts with National Westminster Bank Plc. v. Morgan [1985] A.C. 686 it cannot stand with it, but even Rhodes does not go far enough to support the contention that it is possible to found a case on actual undue influence without proving manifest disadvantage. For there to be such disadvantage there has to be a "loser." Lord Scarman in Morgan was not dealing solely with class 2 cases.A party who can bring his case in abuse of confidence by proving the existence of a fiduaciary relationship is in an infinitely better position than he would be under class 2 undue influence. Fiduciary relationships are confined to those of trustee and beneficiary, solicitor and client (and analogous relationships), and agent and principle. Some transactions arising out of such a relationship are set aside automatically; others are carefully scrutinised. The further one moves away from a pure trust relationship, the greater the need for a disadvantageous transaction.The function of the jurisdiction to set aside for undue influence is to protect parties from improper pressure. There does not seem to have been any other case in which a plaintiff has sought to have a transaction *944 set aside by proving only actual undue influence. It is clear from Bainbrigge v. Broome, 18 Ch.D. 188, and , 121 that it is undue pressure which is required, and that mere non-disclosure will not suffice. Tate v. Williamson, L.R. 2 Ch.App. 55 was not an undue influence case (or if it was, it was at most a class 2 case): it turned on a confidential trust relationship. This is clear from the way Tate is dealt with in Snell's Principles of Equity, 28th ed. (1982), p. 247. The non-disclosure cases, like Tate, are all cases where there was a fiduciary relationship and a duty not to profit from a trust, or where there was a contract uberrimae fidei; they do not import duties of disclosure into the undue influence field. The American Restatement rightly describes undue influence as unfair persuasion. Goldsworthy v. Brickell [1987] Ch. 379, 400 does not assist Mrs. Aboody; Nourse L.J. there said that if one is relying on a relationship in a class 1 case, then it is necessary to prove domination; only in class 2 cases is domination not required.Non-disclosure cases are not relevant to the present case. They can be categorised as falling into two types of cases: those involving fiduciary relationship, and those relating to contracts of the utmost good faith; see Moody v. Cox and Hatt [1917] 2 Ch. 71, 79, per Lord Cozens-Hardy M.R.The judge was wrong to label the conduct here as actual undue influence. He took the test from Zamet v. Hyman [1961] 1 W.L.R. 1442 that to be untainted the transaction must be made after full, free and informed thought about it: see p. 1446 per Lord Evershed M.R. But the real point in Zamet was whether the case fell into a class 2A or a 2B situation. The court held that the relationship of an engaged couple did not give rise to the automatic presumption. Therefore if the judge applied that test in the present case, which has always been put as a class 1 case, he was wrong, confusing the test for the presumption of undue influence with the test for actual undue influence. For the test in the latter category the complainant must show that the party influencing her has done so by taking some active step. Mere inactivity is not enough; but if on particular facts it is sufficient, then there must be evidence of domination. Failure to advise or disclose cannot be sufficient unless it is accompanied by malign intent, and there is no evidence here of that. The test advanced on behalf of Mrs. Aboody is too wide. It is not enough to say that A. trusted B. who let her down. Breach of a fiduciary relationship or oppression must be shown. Trust is not the obverse of undue influence and it does not follow that trust being reposed imposes duties on those in whom it is reposed. On the issue of causation, Mrs. Aboody has to show that the transaction was actually procured by undue influence: see In re Craig, decd. [1971] Ch. 95 and dicta of Lord Scarman in National Westminster Bank Plc. v. Morgan [1985] A.C. 686,709g and of Oliver L.J. in Coldunell Ltd. v. Gallon [1986] Q.B. 1184, 1194h. Here there is ample evidence, including that given by Mrs. Aboody herself that the *945 transactions would have taken place in any event: see In re Craig, decd. [1971] Ch. 95 and compare Bank of Montreal v. Stuart [1911] A.C. 120.Turning to the issue of agency, there must be notice to the bank in addition to agency that undue influence has been or might have been exercised: see Bank of Baroda v. Shah [1988] 3 All E.R. 24. The judge did not find that the bank's knowledge that a husband was involved and that the husband was likely to influence a wife in business amounted to the bank having notice of undue influence; and he did not find that the bank had knowledge of actual undue influence. If constructive knowledge is relied on, then the facts on which such knowledge is allegedly based must be shown: see Kempson v. Ashbee, L.R. 10 Ch.App. 15. Here Mrs. Aboody has failed to establish in relation to the earlier transactions that there were such relevant facts within the bank's knowledge. [Reference was made to Coldunell v. Gallon [1986] Q.B. 1184, 1199g, and Bainbrigge v. Broome, 18 Ch.D. 145.] There was accordingly insufficient agency in respect of the 1976 and 1979 charges. With regard to the 1980 charge the question is whether the bank should be fixed with the solicitor's knowledge, which will only arise if he can be held to have been its agent. The bank's own solicitors arranged for him to provide independent advice for Mrs. Aboody. It is, of course, crucial that an agent must be appointed by his principal and be used by the principal for some purpose: here, if agency is to exist, for the purpose of procuring the signing of the charge. Arranging per se is not enough, procuring is essential, otherwise there is an insufficient appointment: see Midland Bank Plc. v. Phillips (unreported), 14 March 1986, Court of Appeal (Civil Division) Transcript No. 258 of 1986. In relation to the 1979 charge the relevant question is: did the bank appoint Mr. Aboody to procure the signing? Clearly, on the evidence, they did not do so, Mr. Aboody himself offering the charge to the bank, the bank not being aware that the property belonged to Mrs. Aboody and there being nothing to alert them to that fact. The proper test is to look at the surrounding circumstances from the bank's view. The test asserted on behalf of Mrs. Aboody, that the facts should be considered from her standpoint is wrong.In all agency cases the question arises as to the possibility of undue influence: see Chaplin & Co. Ltd. v. Brammall [1908] 1 K.B. 233 and Turnbull & Co. v. Duval [1902] A.C. 429. Where the creditor has left the debtor to procure the signature his influence might be presumed: see Coldunell Ltd. v. Gallon [1986] Q.B. 1184, 1196g but that is a separate requirement from cases of actual undue influence. If the agent is not a person who might exercise actual or presumed undue influence, the third party can only be fixed with what the agent does if he has appointed the debtor. Equity will choose between innocent parties, protecting the creditor unless he is at fault in choosing the agent. This is not extraordinary because equity goes to conscience: see Midland Bank Plc. v. Shephard [1988] 3 All E.R. 17.It is accepted that the position with regard to the 1980 charge is different. The relationship between Mrs. Aboody and the solicitor was that of client-solicitor, but there was no such relationship between him and the bank. He was instructed to give independent advice: *946 compare Lancashire Loans Ltd. v. Black [1934] 1 K.B. 380, and acted for Mrs. Aboody and told the bank that her interests were protected. The certificate is not a certificate as to undue influence. It is obvious that the bank was striving to obtain independent advice for Mrs. Aboody and it is ridiculous to suggest that by asking for confirmation as to her understanding, it should be fixed with knowledge of other facts.The solicitor was not in a position of conflicting interests. The bank retained its own solicitors, Mr. Hallworth advised Mrs. Aboody, and was under no duty, either contractual or tortious, to report back to the bank. There was accordingly no sufficient notice to the bank in respect of the 1980 charge, and since agency only is insufficient to found liability, the requirement as to notice in respect of the 1980 charge has not been fulfilled.Cur. adv. vult.28 October. The following judgment of the court was handed downSLADE L.J.This is the judgment of the court, to which all its members have contributed, on an appeal by Mrs. Doris Aboody from part of a judgment of Sir Joseph Cantley, sitting as a judge of the Queen's Bench Division, given on 30 September 1987. The plaintiff in the action was Bank of Credit and Commerce International Socit Anonyme ("the bank"). The defendants were Mr. Edward Aboody and the appellant, who was and is his wife. A cross-appeal by the bank from part of the judgment has not been pursued.The proceedings arose out of six transactions comprising three guarantees and three charges of Mrs. Aboody's house, 1, Bridge Drive, Cheadle, Cheshire, signed or made by Mrs. Aboody in favour of the bank to secure the liabilities to the bank of a family company called Eratex Ltd. of which Mr. and Mrs. Aboody were directors and shareholders. The six guarantees and charges comprised (1) a joint and several guarantee signed by Mr. and Mrs. Aboody in 1976 limited to 100,000 ("the 1976 guarantee"); (2) a joint and several guarantee signed by them and dated 17 July 1978 limited to 400,000 ("the 1978 guarantee"); (3) a joint and several guarantee signed by them and dated 26 September 1979 limited to 600,000 ("the 1979 guarantee"); (4) an equitable mortgage by deposit of title deeds made on 7 December 1979 ("the 1979 equitable mortgage"); (5) a charge by way of legal mortgage dated 7 December 1979 ("the 1979 charge"); and (6) a charge by way of legal mortgage dated 7 February 1980 ("the 1980 charge").Eratex Ltd. traded in imported textiles. At all material times it was to a greater or lesser degree in financial difficulties. The judge accepted that from beginning to end "Eratex was highly geared and overtrading - highly geared because of the high proportion of its borrowing against the company's own contribution to the enterprise, and overtrading because it was trading to an extent which its resources were insufficient to support, with the result that its overdraft was constantly going into excess over the prescribed limits." *947 The final collapse of Eratex Ltd. in May 1983 was accelerated by two additional factors. First, from 1979 to 1983, Mr. Aboody, together with others, not including Mrs. Aboody who was kept in complete ignorance, perpetrated a series of massive frauds on the bank, to which we will again briefly refer later in this judgment. Secondly, between 1980 and 1982 Mr. Aboody caused Eratex Ltd. to pay out sums in excess of 200,000 to a brother-in-law of his, Mr. Zalouf, who had devised what the judge described as a "hare-brained" scheme for making a large profit by selling land in Florida for development.By 8 June 1983, as the judge found, a debt of 888,051.71 was owing by Eratex Ltd. to the bank. In its action, which was instituted on 14 June 1983, the bank joined Mr. and Mrs. Aboody as defendants, claiming a sum of 600,000 said to be due and owing to it under the 1979 guarantee, plus interest. Mr. Aboody, who had no possible defence to this claim, suffered judgment by default. However, Mrs. Aboody, who owned no assets of any substantial value except her house and home, 1, Bridge Drive, has throughout strongly contested the proceedings. She put in a defence and counterclaim by which, in its re-re-re-amended form, she challenged the validity of all three guarantees and of the 1980 charge on the grounds (among other grounds not pursued in this court, such as misrepresentation) that they had been obtained by the actual undue influence of her husband. No presumption of undue influence on his part was relied on. No undue influence on the part of the bank itself was alleged.After a lengthy trial, during which he heard 33 days of very detailed evidence, the judge delivered a very full and careful judgment covering 137 pages of transcript, to which we pay grateful tribute. In the result, the judge found actual undue influence on the part of Mr. Aboody proved in respect of each of the six transactions. He also found that, in causing Mrs. Aboody to enter into each of them by the exercise of undue influence, Mr. Aboody was at the time acting as the agent of the bank to procure her consent to join in the transactions and execute the relevant documents. However, in the light of the decision of the House of Lords in National Westminster Bank Plc. v. Morgan [1985] A.C. 686, the judge held that "manifest disadvantage" to the complaining party must be shown before a transaction will be set aside for undue influence, whether he or she seeks to do so on the grounds of actual or presumed undue influence. On a meticulous examination of the facts of each of the respective transactions, he was not satisfied that manifest disadvantage to Mrs. Aboody had been proved as to any of them. He therefore gave a monetary judgment for the bank in its claim against her.The amount of this claim, however, fell to be substantially reduced because of a cross-claim by Mrs. Aboody. The security taken by the bank included a pledge over goods of Eratex Ltd. The bank had arranged for these goods to be held to its order in the custody of a warehouse. As the result of a series of ingenious frauds on the part of Mr. Aboody and two of the warehousemen from 1979 onwards, large quantities of the goods on pledge to the bank had over the years been removed from the warehouse without the bank's knowledge or consent. The judge held that the bank was in breach of a duty to Mrs. Aboody to *948 take reasonable care to preserve those goods and that she was entitled to be relieved from her guarantees to the extent to which loss of the security of the pledged goods was established - a loss which the judge calculated, on the basis of the evidence before him, as amounting to 873,308.By the time that the order giving effect to the judge's judgment came to be drawn up 1, Bridge Drive had been sold and a sum (which we are told amounted to 184,000) representing the net proceeds of sale together with interest thereon, stood to the credit of a deposit account in the names of the respective solicitors of the bank and Mrs. Aboody.By his order the judge declared that the 1976, 1978 and 1979 guarantees and also the 1980 charge were valid and enforceable. He ordered Mrs. Aboody to pay to the bank the sum of 26,460.58, representing a sum of 14,743.71 plus interest. He ordered an inquiry as to (a) the likely cost of the realisation of the stock which ought to have been present at the warehouse, and (b) what further sums were due and owing to the bank pursuant to each guarantee. He also ordered that the sum of money standing to the joint account of the two firms of solicitors be released to the bank.The bank served a notice of cross-appeal, by which in effect it challenged the judge's finding that Mrs. Aboody was entitled to be relieved against her guarantees to the extent to which loss of the security of pledged goods was established. However, in the event this cross-appeal has not been pursued. Miss Williamson on behalf of the bank has explained to us that, while it strongly disputes the correctness of this part of the judge's judgment, Mrs. Aboody's financial position is such as not to make it worthwhile for it to pursue this claim. In all the circumstances, we were told, it is not the intention of either party to pursue the inquiry directed by the judge's order.In the event, the issues which have been argued on this appeal have been the following. On behalf of Mrs. Aboody it has been submitted that the judge's decision was wrong and the appeal should be allowed on the grounds that (1) a party who proves that a transaction was induced by the actual exercise of undue influence is entitled to have it set aside without also proving that the transaction was manifestly disadvantageous to her ("issue (1)"); and (2) in any event, each of the six transactions was manifestly disadvantageous to her ("issue (2)"). On behalf of the bank submissions, supported by a respondents' notice, have been made to the effect that the judgment should be affirmed on the additional grounds that (3) on the evidence, no actual undue influence in law has been shown to have been exercised by Mr. Aboody over Mrs. Aboody in respect of any of the six transactions, save the 1980 charge, as to which it is now admitted ("issue (3)"); (4) even if there was behaviour by him capable of amounting to actual undue influence in law, it did not on the evidence operate to cause her execution of any of the six transactions ("issue (4)"); and (5) even if there was actual undue influence by Mr. Aboody and it was operative, the bank is not affected by this as a matter of law ("issue (5)").In the end our conclusion will be that this appeal must fail, if only because neither of the two grounds of appeal is established. This will *949 mean that the issues raised by the respondent's notice do not strictly arise. However, the issue raised by that notice concerning the nature in law of undue influence is closely linked to the issue raised by the notice of appeal disputing the alleged requirement of manifest disadvantage. Furthermore, all the issues have been very fully argued with great care and erudition on both sides. In these circumstances, we propose to express our views on all of them. Before doing so we must refer further to the facts of the case. Our summary will be derived largely from the judgment of the judge.The factsMrs. Aboody is by origin an Iraqi Jew, who was born and educated in Baghdad. There she was educated in a day school where the only languages used were French and Arabic. At the age of 17 she knew no English, but now, as the judge said, she has quite an extensive vocabulary, though it does not include all the jargon of the law. Her family moved exclusively within the local Iraqi Jewish community and observed its customs. None of the girls ever went out to work. Business was not a matter discussed with the women; that was a man's exclusive province. Marriage were always arranged by the parents. Through the arrangement of her father, Mrs. Aboody in 1946 at the age of 17 married Mr. Aboody, who is 20 years older than she is. He was born and educated in British India and had a small business in Egypt. She became engaged to him on the first day that she met him and they were married within a month. Her father provided her with a dowry of about 2,000, which passed into Mr. Aboody's control.In 1949 the couple left Egypt and came to England where they settled in Manchester. Mr. Aboody and a brother of his formed a small limited company called Aboody Brothers, which traded in imported textiles. After about a year they bought a house with the help of a further 2,000 which Mrs. Aboody's father provided. It was bought in her name. In about 1964 this house was sold and 1, Bridge Drive was built with money provided by Mr. Aboody but derived by him from Eratex Ltd. The house at all material times stood in Mrs. Aboody's sole name. It is common ground that as between herself and Mr. Aboody she has at all times been the sole beneficial owner of it.In December 1959, the brother having retired from business, Mr. Aboody took over the company and changed its name to Eratex Ltd. He arranged for Mrs. Aboody to be a co-director and secretary of the company. She had no training or experience whatever in either capacity or in running any business. Mr. Aboody assured her that she would not have to do anything. He told her that there had to be two persons in a limited company and persuaded her to be the other person. He also arranged for her to have a 35 per cent. shareholding. She did not pay anything for her shares and never received any dividend. Nor did she receive any remuneration or salary as director or company secretary. When from time to time she needed money for housekeeping or other purposes, she told Mr. Aboody and he gave her varying amounts in accordance with what she wanted. She never signed a cheque drawn on an Eratex Ltd. bank account. She did at one time have a small account *950 of her own at a local bank. She attempted at first to draw one or two cheques on that account, but after they had been returned by the bank as incompletely or incorrectly drawn, she gave up. Mr. Aboody would write the necessary details on any cheque for her and she would sign the cheque and use it. The judge made the following general findings as regards the signature by Mrs. Aboody of documents placed before her for signature by her husband: "She had no difficulty in signing documents presented for her signature by Mr. Aboody, and she has signed various Eratex documents as secretary or director. She would sign any such document when Mr. Aboody asked her to sign. He would say: 'Sign here' and 'Initial here,' sometimes marking the place with a cross. It was routine for her to sign documents at home without more explanation than something like: 'It is the end of the year,' presumably referring to the company's annual accounts, or: 'It's for a loan,' if it was a bank guarantee. She told me: 'My husband would bring it home in his briefcase and he would just ask me to "Sign here." He had already signed it, and I usually signed below it and just carried on with the dinner or whatever I was doing.'"If it was a legal document she might try to begin to read it, but as she did not understand the legal jargon in which it was composed, she would give up and just sign the document. She is an intelligent lady and capable of independence. It was not that she would sign anything anybody would ask her to sign. In answer to counsel she said: 'If someone else, like an outsider, would give me a thing to read, I would ask him: "What does it mean?" but with my husband I had every trust in him. If he tells me to sign it, it is for the good of the business and indirectly for the good of me.'"In this way she has blindly and without a care signed many company documents over the years - records of board meetings which did not formally take place, and of at least one extraordinary general meeting which did not take place, and company records composed and made ready for signature by Mr. Aboody. She has signed the audited company accounts with only a vague general idea of the function of an auditor and no idea at all of what was in the accounts or what was to be done with the accounts after they were taken away from her. Mr. Aboody ran Eratex Ltd. like a one-man business, which it was in effect. Mr