Editorial Committee of the Cambridge Law Journal

Undue Influence and Contracts of LoanAuthor(s): Neil AndrewsSource: The Cambridge Law Journal, Vol. 44, No. 2 (Jul., 1985), pp. 192-195Published by: Cambridge University Press on behalf of Editorial Committee of the Cambridge LawJournalStable URL: http://www.jstor.org/stable/4506730 .

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The Cambridge Law Journal The Cambridge Law Journal

plans does leave a lot to be desired from the point of view of natural justice-as Comyn J. so forcefully pointed out in R. v. Hammersmith

Borough Council, ex p. People Before Profit Ltd. [1981] J.P.L. 869. Also, potential developers are more likely to know where they stand if policies are made explicit and open. However, the inclusion of a policy in the plan does carry the considerable sting in its tail that once six weeks have elapsed the policy will become unchallengeable in

legal proceedings by virtue of section 244 of the 1971 Act. This would appear to be so even if the policy is clearly ultra vires, according to one recent decision: Westminster City Council v. Secretary of Statefor the Environment [1984] J.P.L. 27. At least non-statutory policies have no such immunity.

All in all, the decisions in the two House of Lords cases give much food for thought for planning lawyers and local authorities. The issues raised are some of the most fundamental in planning: the purpose of planning powers; and the balance to be struck between administrative convenience and the goal of adequate public participa- tion. The guidance given by the decisions is to be welcomed, but it is perhaps to be lamented that their Lordships were not more explicit in defining and considering the general issues at stake.

STEPHEN TROMANS.

UNDUE INFLUENCE AND CONTRACTS OF LOAN

BEFORE examining the decision in National Westminster Bank v. Morgan [1985] 2 W.L.R. 588, it is sensible to place it in context. The following doctrines exist to relieve a party to a contract from the effects of coercion, improper influence, unconscionability and unfairness:

(i) Application of illegitimate pressure which has the effect of giving the coerced party no effective choice renders a contract voidable for duress at common-law: Universe Tankships v. . T. W.F. [1983] 1 A.C. 366.

(ii) So too in equity, there is some support for a general doctrine of unfair pressure, although its limits have not been fully explored: Mutual Finance v. Wetton [1937] 2 K.B. 389.

(iii) Undue influence, the subject of this note. (iv) "Unconscionably" taking advantage of an inequality of

bargaining position and, more particularly, of another's poverty, ignorance and necessity: Cresswell v. Potter [1978] 1 W.L.R. 255n. Perhaps the Admiralty cases should best be included in this section, a striking example of which is The Port Caledonia and the Anna [1903] P. 184. The restraint of trade doctrine, too, can be seen to perform a

plans does leave a lot to be desired from the point of view of natural justice-as Comyn J. so forcefully pointed out in R. v. Hammersmith

Borough Council, ex p. People Before Profit Ltd. [1981] J.P.L. 869. Also, potential developers are more likely to know where they stand if policies are made explicit and open. However, the inclusion of a policy in the plan does carry the considerable sting in its tail that once six weeks have elapsed the policy will become unchallengeable in

legal proceedings by virtue of section 244 of the 1971 Act. This would appear to be so even if the policy is clearly ultra vires, according to one recent decision: Westminster City Council v. Secretary of Statefor the Environment [1984] J.P.L. 27. At least non-statutory policies have no such immunity.

All in all, the decisions in the two House of Lords cases give much food for thought for planning lawyers and local authorities. The issues raised are some of the most fundamental in planning: the purpose of planning powers; and the balance to be struck between administrative convenience and the goal of adequate public participa- tion. The guidance given by the decisions is to be welcomed, but it is perhaps to be lamented that their Lordships were not more explicit in defining and considering the general issues at stake.

STEPHEN TROMANS.

UNDUE INFLUENCE AND CONTRACTS OF LOAN

BEFORE examining the decision in National Westminster Bank v. Morgan [1985] 2 W.L.R. 588, it is sensible to place it in context. The following doctrines exist to relieve a party to a contract from the effects of coercion, improper influence, unconscionability and unfairness:

(i) Application of illegitimate pressure which has the effect of giving the coerced party no effective choice renders a contract voidable for duress at common-law: Universe Tankships v. . T. W.F. [1983] 1 A.C. 366.

(ii) So too in equity, there is some support for a general doctrine of unfair pressure, although its limits have not been fully explored: Mutual Finance v. Wetton [1937] 2 K.B. 389.

(iii) Undue influence, the subject of this note. (iv) "Unconscionably" taking advantage of an inequality of

bargaining position and, more particularly, of another's poverty, ignorance and necessity: Cresswell v. Potter [1978] 1 W.L.R. 255n. Perhaps the Admiralty cases should best be included in this section, a striking example of which is The Port Caledonia and the Anna [1903] P. 184. The restraint of trade doctrine, too, can be seen to perform a

[1985] [1985] 192 192

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Case and Comment

similar function, in protecting weaker parties, as is well illustrated by Schroeder v. MacCaulay [1974] 1 W.L.R. 1308.

(v) Although there is widespread agreement that the courts are both unwilling and incompetent to relieve a party from the effects of a hard bargain which is the consequence of the ordinary interplay of market forces, or "mere commercial pressure," or the party's improvidence and folly, there is relief in equity against (a) forfeiture of possessory and proprietary interests and pre-payments and (b) penalty clauses. To this extent there is protection against the effects of a bargain which is unfair simpliciter.

The House of Lords in the Morgan case was concerned with the following facts. Mr. and Mrs. M. had at various stages run into financial difficulties, principally because Mr. M's business had proved unsuccessful. Their building society had obtained a possession order against them following non-payment of the mortgage instalments. The couple had a joint account at the appellant bank (N.W.B.). To save their house, they agreed with the bank a short-term loan which was to be secured against the property. The manager of the branch visited the house to arrange this, and Mrs. M. took him aside and stressed that the loan should be restricted so as to cover the liabilities towards the building society and not any business debts which the husband might incur. Mrs. M. and N.W.B. were always agreed on this, but the document was by mistake not limited in these terms.

Mr. M. died. He left no business debts, only the original liability of the loan made by N.W.B. The bank, relying on its charge, now sought to evict Mrs. M. for non-payment of this debt. Mrs. M. claimed that the loan was vitiated by undue influence. The county court judge found: (i) that there had been no actual pressure exerted by N.W.B.; (ii) that a relationship of "confidentiality" had not been proved by Mrs. M. to exist, and (iii) that the contract was not disadvantageous to Mrs. M. because she had succeeded in removing the threat of eviction by the building society and secondly because the mistake in the drafting of the document of loan constituted merely a "theoretical" disadvantage.

A two-man Court of Appeal, consisting of Dunn and Slade L.JJ., overturned this ([1983] 3 All E.R. 85). They held that a relationship of "confidentiality" had been proved to exist, that it imposed a "fiduciary duty of care" to ensure that Mrs. M. received independent advice, and that this duty had been breached. Slade L.J. stated that it made no difference that the contract might not have been disadvan- tageous to Mrs. M. (at its inception).

The House of Lords, Lord Scarman delivering the only reasoned judgment, allowed the bank's appeal. It held that the bank's relation to Mrs. M. was not one of "confidentiality." But what is the test for

C.L.J. 193

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194 The Cambridge Law Journal [1985]

such a relationship? The best exposition appears to be that of Sir Eric

Sachs in Lloyds Bank v. Bundy [1975] Q.B. 326 at 341C-341G, where he suggested the following elements were important:

(i) reliance by A on the guidance or advice of B;

(ii) knowledge by B of this reliance;

(iii) a potential benefit to B if the transaction takes place;

(iv) "confidentiality": a special element which Sachs L.J. did not

elucidate fully, but which requires, it seems, the factors in (i) and (ii) to amount to a relationship of trust and potential influence.

The Court of Appeal in Morgan was satisfied that these factors

were present. Lord Scarman, however, preferred the view of the first

instance judge. Certainly the facts of Morgan were borderline in this

respect and are to be contrasted with those in the Bundy case. The

real problem is a lack of clear analysis of Sachs L.J.'s fourth and

"vital" factor. On close examination there appear to be potentially two duties in issue in these cases: (i) the duty not to abuse a position of influence and (ii) the duty upon B to ensure that A, the other

party, receives independent advice and does not rely exclusively on

the advice of B who is simultaneously seeking to advise A and to

secure a contract with him. This second duty was held to arise in

Bundy and, by the Court of Appeal, in the Morgan case. This duty enables a party to be informed of the significance and consequences ofthe contemplated transaction, a "notarial" function. The first duty

protects a party against being forced or unfairly coaxed into entering a contract.

The second main aspect of Lord Scarman's speech is his support for

the proposition, conceded by N.W.B. at first instance but rejected by Slade L.J. unequivocally, that it is insufficient to establish that the

parties stood in a relationship of "confidentiality" since the contract

must in addition be "manifestly disadvantageous." Before this point can be assessed, it should be noted that commentators treat a

relationship of "confidentiality" as raising not one but two presump- tions (see, for example, J. C. Shepherd, The Law of Fiduciaries, at

p. 210). The first is that the "confidant" possesses the opportunity for overt or subtle influence of the other party. The second presumption is that this opportunity has in fact been taken. It is different in

probate matters where, curiously, neither of these presumptions operates: see Winder, (1939) 3 M.L.R. 95 at pp. 104 et seq.

Lord Scarman's view is effectively that the second presumption does not apply if the contract is not "manifestly disadvantageous." With respect, this is to consider only one half of the question. While it

is true that it is less likely to be necessary to push a party into making a reasonable or advantageous contract, the remaining issue is

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Case and Comment Case and Comment

whether the transaction conferred a significant advantage upon the other party (the alleged "influencer"). In other words, it is clear that this person had the opportunity to influence (the first presumption), but did he have the incentive or motive to use this opportunity (the second presumption)? Even if this second presumption does not apply, it should still be possible to prove that actual pressure or other influences were used. This point is neatly stated by Isaacs J. in Watkins v. Combes (1922) 30 C.L.R. 180 (H.Ct. of Australia) at p. 193: "is it an ordinary sale for full value? If so, no burden rests on the 'confidant,' but the party impeaching it has to show affirmatively the exercise of undue influence."

What of the second duty mentioned above, the duty to ensure that the other party receives independent legal (or other) advice? This duty should arise if a party A relies heavily on the advice of B and B realises this, provided also that this is the only way to ensure that this imbalance does not confer an unwarranted advantage on the confidant B, whether by gift, gratuitous contract or otherwise. Discharge of this duty will help to make A aware of the consequences of the proposed transaction. Sometimes this duty will arise in circumstances where there is a risk of pressure; at other times it may arise independently either because there is no risk of pressure or because the confidant has shown, as the bank in the Morgan case succeeded in doing, that no pressure was applied. This duty should be capable of being imposed even if a contract is not "manifestly disadvantageous." If this sounds hard on banks and other institu- tions, perhaps the following words of Sachs L.J. in Lloyds Bank v. Bundy provide sufficient support for this position:

it would be odd indeed if a bank [which] vis-a-vis a customer attained a special relationship in some ways akin to that of a "man of affairs"-something which can be a matter of pride and enhance its reputation-should not, where a conflict of interest has arisen as between itself and the person advised, be under [the duty to ensure that independent advice is obtained].

NEIL ANDREWS.

TORT DAMAGES AND THE DECLINE OF FAULT LIABILITY: PLATO OVERRULED, BUT FULL MARKS TO ARISTOTLE!

IN THE remarkable case of Meah v. McCreamer [19851 1 All E.R. 367, Woolf J. delivered a decisive, if not express, condemnation of dualist theories of mind, from Plato to Sir John Eccles, brushed aside any thought that free-will theories, in their great variety, carried a shred of truth, refused to take any account of brain scientists like Sir Colin Blakemore and their work on the integrity of the human mind in the

whether the transaction conferred a significant advantage upon the other party (the alleged "influencer"). In other words, it is clear that this person had the opportunity to influence (the first presumption), but did he have the incentive or motive to use this opportunity (the second presumption)? Even if this second presumption does not apply, it should still be possible to prove that actual pressure or other influences were used. This point is neatly stated by Isaacs J. in Watkins v. Combes (1922) 30 C.L.R. 180 (H.Ct. of Australia) at p. 193: "is it an ordinary sale for full value? If so, no burden rests on the 'confidant,' but the party impeaching it has to show affirmatively the exercise of undue influence."

What of the second duty mentioned above, the duty to ensure that the other party receives independent legal (or other) advice? This duty should arise if a party A relies heavily on the advice of B and B realises this, provided also that this is the only way to ensure that this imbalance does not confer an unwarranted advantage on the confidant B, whether by gift, gratuitous contract or otherwise. Discharge of this duty will help to make A aware of the consequences of the proposed transaction. Sometimes this duty will arise in circumstances where there is a risk of pressure; at other times it may arise independently either because there is no risk of pressure or because the confidant has shown, as the bank in the Morgan case succeeded in doing, that no pressure was applied. This duty should be capable of being imposed even if a contract is not "manifestly disadvantageous." If this sounds hard on banks and other institu- tions, perhaps the following words of Sachs L.J. in Lloyds Bank v. Bundy provide sufficient support for this position:

it would be odd indeed if a bank [which] vis-a-vis a customer attained a special relationship in some ways akin to that of a "man of affairs"-something which can be a matter of pride and enhance its reputation-should not, where a conflict of interest has arisen as between itself and the person advised, be under [the duty to ensure that independent advice is obtained].

NEIL ANDREWS.

TORT DAMAGES AND THE DECLINE OF FAULT LIABILITY: PLATO OVERRULED, BUT FULL MARKS TO ARISTOTLE!

IN THE remarkable case of Meah v. McCreamer [19851 1 All E.R. 367, Woolf J. delivered a decisive, if not express, condemnation of dualist theories of mind, from Plato to Sir John Eccles, brushed aside any thought that free-will theories, in their great variety, carried a shred of truth, refused to take any account of brain scientists like Sir Colin Blakemore and their work on the integrity of the human mind in the

C.L.J. C.L.J. 195 195

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