Undue Influence

Introduction
 A development of equity
 It is to save persons from being victimised
by other people
◦ Not to seek relief against the consequences of
one‘s own folly
 There are two classifications of undue
influence

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Raghunath Prasad v Sarju Prasad AIR 1924 PC 60

In the first place, the relations between the parties to each

other must be such that one is in a position to dominate the
will of the other. Once that position is substantiated the
second stage has been reached, viz the issue whether the
contract has been induced by undue influence. Upon the
determination of this issue a third point emerges, which is that
of the onus probandi. The burden of proving that the contract
was not induced by undue influence is to lie upon the person
who was in a position to dominate the will of the other.

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Thus, essentially, three things/steps:

1. The ‘relations’ are such that one is in a

position to dominate;
2. He uses that position to obtain contract
3. The burden of proving it was not undue
influence falls on the one accused of it

“In a position to dominate” has been

categorised into two.

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 Allcard v Skinner

First, where the court has been satisfied

that the gift was the result of influence
expressly used by the donee for the
purpose;
Second, where the relations between the
donor and donee have at or shortly
before the execution of the gift been such
as to raise a presumption that the donee
had influence over the donor.

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Thus, the common law classification are:
1. Direct/Actual undue influence
◦ Directly influences a person

2. Presumed undue influence

◦ It is presumed that the person had been
influenced
◦ due to the relationship

 For presumption, it is rebuttable

 Common law has made more classifications
of undue influence
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Class 1: Actual Undue Influence
In these cases, it is necessary for the claimant to prove affirmatively
that the wrongdoer exerted undue influence on the complainant to
enter into the particular transaction which is impugned.

Class 2: Presumed Undue Influence

In these cases the complainant only has to show … that there was a
relationship of trust and confidence between the complainant and
the wrongdoer of such a nature that it is fair to presume that the
wrongdoer abused that relationship in procuring the complainant to
enter into the impugned transaction.

Class 2A:
Certain relationships as a matter of law raise the presumption

Class 2B:
Even if there is no relationship falling within class 2A, if the
complainant proves the de facto existence of a relationship under
which the complainant generally reposed trust and confidence in the
wrongdoer, the existence of such relationship raises the presumption
of undue influence.

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ACTUAL UNDUE INFLUENCE
Introduction
 It is an equitable wrong committed by the
dominant party against the other which
makes it unconscionable for the dominant
party to enforce his legal rights
 It is usually an express conduct overbearing
the other party‘s will
 Class 1: actual undue influence
◦ In these cases, it is necessary for the claimant to
prove affirmatively that the wrongdoer exerted
undue influence on the complainant to enter into
the particular transaction which is impugned

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 S.16. (1)

A contract is said to be induced by “undue

influence” where the relations subsisting
between the parties are such that one of
the parties is in a position to dominate the
will1 of the other and uses that position to
obtain an unfair advantage2 over the other.

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Thus, two things needs to be proven:

1. Dominate the will

◦ It is the act

2. Obtained an unfair advantage

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1. DOMINATE THE WILL

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Saw Gaik Beow v Cheong Yew Weng

P is suing for specific performance of a

S&P agreement. D claims that he had not
given free consent as he had been
exposed to influence from P as his
spiritual advisor.

Held … no undue influence. D was an

educated, intelligent and mentally alert
man with a strong personality.
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Morley v Loughnan [1893] 1 Ch 736
The deceased made a series of gift amounting to
£140,000 to L, a member of the ‘Exclusive Brethren‘. He
had been under the said member‘s religious influence
and had lived in L‘s house in great seclusion for the last
7 years of his life. The deceased executors claimed to
recover the said sum.

Held … money was obtained by the exercise and abuse

of personal influence and ascendancy established and
maintained for that very purpose, under a cover of
religion and religious brotherhood.

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“[T]he defendant took possession .. of the
whole life of the deceased, and the gifts
were not the result of the deceased‘s
own free will, but the effect of that
influence and domination.”

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2. OBTAINED UNFAIR
ADVANTAGE

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 S.16. (1)

A contract is said to be induced by “undue

influence” where the relations subsisting
between the parties are such that one of
the parties is in a position to dominate the
will1 of the other and uses that position to
obtain an unfair advantage2 over the other.

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Polygram Records Sdn Bhd v The Search
It has long been generally accepted … that in every
case where undue influence was being alleged, the
party seeking to set aside the transaction must also
establish some manifest disadvantage to the
contracting party …

However … the House of Lords in CIBC Mortgages

Plc v Pitt & Anor [1993] 4 All ER 422 … the
requirement of establishing manifest disadvantage
was not applicable to cases of actual undue influence
but applied (if at all), only to cases of presumed
undue influence.

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Summary
Actual Undue Influence

 The relationship is such that

◦ One party dominates the will of another
-prove the act -

 The dominator
◦ Got an unfair advantage over the other
- show that it is undue -

Once this is proven, the contract is voidable.

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PRESUMED UNDUE INFLUENCE
Introduction
 ‘Presumed’ undue influence occurs when a person is
presumed to have used his influence on another to
enter into a contract, due to his position of influence

 Here, two things needs to be proved before the

presumption arises:
1. the relationship, and
2. manifest disadvantage

 Once the presumption arises, it can be rebutted

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1. RELATIONSHIP

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Introduction
There are essentially two types:

1. Refers to a relationship of trust and

confidence, or

2. Fiduciary relationship

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 s.16 (2)
In particular and without prejudice to the
generality of the foregoing principle, a person is
deemed to be in a position to dominate the will
of another—

a) where he holds a real or apparent authority1

over the other, or where he stands in a fiduciary
relation2 to the other; or

b) where he makes a contract with a person

whose mental capacity is temporarily or
permanently affected by reason of age, illness, or
mental or bodily distress3.
Undue Influence 24
 Class 2: Presumed Undue Influence

In these cases the complainant only has to show … that there

was a relationship of trust and confidence between the
complainant and the wrongdoer of such a nature that it is fair
to presume that the wrongdoer abused that relationship in
procuring the complainant to enter into the impugned
transaction.

Class 2A:
Certain relationships as a matter of law raise the presumption

Class 2B:
Even if there is no relationship falling within class 2A, if the
complainant proves the de facto existence of a relationship
under which the complainant generally reposed trust and
confidence in the wrongdoer, the existence of such
relationship raises the presumption of undue influence.

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 s.16 (2)
presumed

In particular and without prejudice to the

generality of the foregoing principle, a person is
deemed to be in a position to dominate the will
of another—

a) where he holds a real or apparent authority1

over the other, or where he stands in a fiduciary
relation2 to the other; or
Class 2A Class 2B
b) where he makes a contract with a person
whose mental capacity is temporarily or
permanently affected by reason of age, illness, or
mental or bodily distress3.
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(i) Fiduciary relationship
 Class 2A
 A relationship of trust and confidence
that is established/recognised by law
 Only the relationship needs to be shown
◦ Does not have to prove that it was a
relationship of trust and confidence
 It is automatic

Undue Influence 27
 Public Finance Bhd v Lee Bee Rubber Factory
Certain classes of relationship by themselves
and nothing more do give rise to a presumption
of undue influence; examples are: parent and
child, a person in loco parentis and his charge,
guardian and ward, doctor and patient, solicitor
and client, spiritual adviser and a member of his
congregation, a man and his fiance and perhaps,
trustee and beneficiary.
However, the relationship of husband and wife
does not give rise to a presumption of undue
influence.

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(ii) Trust and confidence
 Class 2B
 It can fall into two aspects:
◦ Real and apparent authority
◦ Relies on you as he suffers from mental incapacity
due to age/illness/distress
 For this aspect, you must not only look at
the position itself,
◦ But was such a position, a position of trust and
confidence to the other person?
 Focus on the “relationship” of trust and
confidence
Undue Influence 29
 Polygram Records v The Search
P entered into a written contract (C1) with
The Search on 7 Oct 1984. Signed on by
Eric, their manager. C1 was for 2 years, with
an option for two further periods of one
year each, exercisable at the discretion of P.
On 12 June 1985, a new contract (C2) was
entered into, with some major modifications
which the groups was unaware of i.e. two
additional periods of 24 months each
(instead of 12 months).

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Held …

Evidence shows that there existed a close

relationship between the group and Eric: a
relationship of trust and confidence.

Therefore, Eric was in a position to influence

them … [this] case is one dealing with
presumed undue influence, falling under the
class 2B category …
[s.16(2)(a)]
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Inche Noriah v Shaikh Allie bin Omar

A woman, who was of great age and wholly

illiterate, executed a deed of gift of landed
property in Singapore in favour of her
nephew, the respondent.

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Held:

She was a feeble old woman, unable to leave the

house, relying entirely upon the respondent for
everything – even for her food and clothes – leaving
the management of her affairs to him, so that she
had no knowledge of her own affairs or as to the
value of her properties and so that she was
completely in the respondent‘s hand.
[s.16(2)(b)]

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 Summary: Relationship
There are essentially two types:
1. Refers to a relationship of trust and
confidence
◦ S.16(2)(a): real and apparent authority
◦ S.16(2)(b): mental capacity affected due to
age/illness/duress
◦ Class 2B

2. Fiduciary relationship
◦ Relationship of trust and confidence as is imposed
by law
◦ Class 2A

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 2. MANIFEST
DISADVANTAGE

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Introduction
 First, the relationship needed to be proven
 Now, the requirement of ‘manifest
disadvantage’ is required
◦ Define
◦ requirements

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Polygram Records Sdn Bhd v The Search
It has long been generally accepted … that in every
case where undue influence was being alleged, the
party seeking to set aside the transaction must also
establish some manifest disadvantage to the
contracting party …

However … the House of Lords in CIBC Mortgages

Plc v Pitt & Anor [1993] 4 All ER 422 … the
requirement of establishing manifest disadvantage
was not applicable to cases of actual undue influence
but applied (if at all), only to cases of presumed
undue influence.

Undue Influence 37
Manifest disadvantage, it is generally said,
for the purposes of the doctrine of undue
influence, has to be a disadvantage which
was so obvious to any independent and
reasonable person who considered the
transaction as a whole at the time it was
entered into, with full knowledge of all the
relevant facts.
… The mere overbearing of a person’s will
is not in itself a disadvantage in the relevant
sense.

Undue Influence 38
In Polygram Records case, D failed to prove
manifest disadvantage

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3. REBUTTING THE
PRESUMPTION

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 Introduction
 Once the first two have been established,
the burden of proof now shifts to the other
party
 The burden of proving that the contract was
not induced by undue influence is to lie
upon the person who was in a position to
dominate the will of the other.
 As per s.16(3)

Undue Influence 41
 s.16(3)
Where a person who is in a position to
dominate the will of another, enters into a
contract with him, and the transaction appears,
on the face of it or on the evidence adduced, to
be unconscionable, the burden of proving that
the contract was not induced by undue
influence shall lie upon the person in a position
to dominate the will of the other.
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 How to prove that there had not been
undue influence?
 Guidelines as per Inche Noriah v Shaik Allie
bin Omar‘s case

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 Inche Noriah
The most obvious way to prove this is by
establishing that the gift was made after the nature
and effect of the transaction had been fully explained
to the donor by some independent and qualified
person so completely as to satisfy the court that the
donor was acting independently of any influence
from the donee and with the full appreciation of
what he was doing.

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If evidence given of circumstances sufficient
to establish this fact, their Lordships see no
reason for disregarding them merely because
they do not include independent advice
from a lawyer.

Note: it does not have to include independent legal advice.

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Nor are their Lordships prepared to lay
down what advice must be received in
order to satisfy the rule in cases where
independent legal advice is relied upon,

further than to say that it must be given

with a knowledge of all relevant
circumstances and must be such as a
competent and honest adviser would give if
acting solely in the interest of the donor.

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 Essentially:
◦ Must show that there had been independent action
by the donor

 One way is to show that there had been

independent legal advice obtained prior to
signing the contract
◦ Requires FULL knowledge of facts
◦ Giving advice SOLELY for donor’s benefit

 So, note:
◦ It does not have to be independent legal advice
◦ Nor does it even have to be a legal advice

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 Inche Noriah
their Lordships are not prepared to accept
the view that independent legal advice is the
only way in which the presumption can be
rebutted;

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nor are they prepared to affirm that
independent legal advice, when given, does
not rebut the presumption, unless it be
shown that the advice was taken.

Note: it means that it does not have to be that the advice is

taken for it to be rebutted

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 Inche Noriah
Before executing the deed, she had
independent advice from a lawyer who acted in
good faith.

However, he was unaware that the gift

constituted practically the whole of the
donor‘s property. Thus, he did not bring home
to her mind that she could, more prudently,
and just as effectively, benefit the donee by
bestowing the property upon him by will.
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 Summary
Therefore, it appears that, in order to
rebutt the presumption:
1. Independent
2. Advice
3. From one who
i. competent and honest, and
ii. knows of the all relevant facts
4. And gives advice in good faith, for the
benefit of the donor
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 What‘s important is that advice is given,
not that it was taken.
 For then, it can be shown that he had
exercised his own free will.
 He chose not to heed the advice.

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Miscellaneous Issue
 Can Undue Influence be committed by a
third party?
 Yes

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Malaysian French Bank v Abdullah bin
Mohd Yusof & Ors
A letter of guarantee was executed by D1
and D2, and a second letter of guarantee
executed by D3 and D4 – whereby all four
defendants agreed to guarantee payment of
all moneys due and payable by Syarikat
Samaria Supply.

D3 and D4 later alleged that D1 had

exercised undue influence to induce them
to execute the guarantee agreement.

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From the Bank of Montreal case, it appears that
when a party enters into a contract with
another and that party was induced by undue
influence by a person who is not party to the
contract, the contract is not enforceable.

In my view this conclusion is not inconsistent

with s.16 of the Contracts Act 1950. It is
based on common law and should be
considered as a principle of law in addition to
what is provided in s.16 especially in cases of
bank guarantees.
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REMEDIES
 s.20
When consent to an agreement is caused by
undue influence, the agreement is a contract
voidable at the option of the party whose
consent was so caused. Any such contract
may be set aside either absolutely or, if the
party who was entitled to avoid it has
received any benefit thereunder, upon such
terms and conditions as to the court may
seem just.

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Thus, the contract becomes voidable
 To affirm, or
 To rescind

In rescinding (set aside), two possibilities:

 Rescind “absolutely”, or
 Rescind “upon such terms and conditions
as to the court may seem just”

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 i. Rescind absolutely
 Restitution: placed in a position as if
contract never happened

S.20 illustration (a)

A’s son has forged B’s name to a promissory

note. B, under threat of prosecuting A‘s son,
obtains a bond from A for the amount of
the forged note. If B sues on this bond, the
court may set the bond aside.

Undue Influence 59
 ii. Upon terms/conditions
 As benefits had been received
 Purpose is still restitution

S.20 illustration (b)

A, a moneylender, advances $100 to B, an
agriculturist, and, by undue influence, induces B
to execute a bond for $200 with interest at 6%
per month. The court may set aside the bond,
ordering B to repay the $100 with such interest
as may seem just.

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Reminder:

 To rescind, must do so within a reasonable

time
 Otherwise, regarded as being “affirmed” /
right to rescind is lost

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CONSUMER PROTECTION
(AMENDMENT) ACT 2010
Introduction
s24A
 Contract
◦ Same meaning as s.2 Contracts Act
 Standard form contract
◦ Consumer contract drawn up for general use in a
particular industry, whether or not the contract
differs from other contracts normally used in that
industry
 Unfair term
◦ Term in a consumer contract which, with regard to all
circumstances, causes a significant imbalance in the
rights and obligations of the parties arising under the
contract to the detriment of the consumer

2. Exemption clause: Is it Binding? 63

 s.24C Consumer Protection Act
A Contract / term is procedurally unfair if it has
resulted in:
an unjust advantage to the supplier or unjust
disadvantage to the consumer

on account of:
◦ the conduct of the supplier, or
◦ the manner in which or circumstances under which
the contract or term of the contract has been entered
into

2. Exemption clause: Is it Binding? 64

(2) For the purposes of this section, a court or the Tribunal
may take into account the following circumstances:

(g) whether or not, even if the consumer had the

competency to enter into the contract based on his or
her capacity and soundness of mind, the consumer –
i. …
ii. suffered serious disadvantages in relation to other parties
because the consumer was unable to appreciate adequately
the contract or a term of the contract or its implications by
reason of age, sickness, or physical, mental, educational or
linguistic disability, or emotional distress or ignorance of
business affairs;
(h) whether or not independent legal or other expert
advice was obtained by the consumer who entered into
the contract;

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s.24D Consumer Protection Act
(1) A contract or a term of a contract is
substantially unfair if the contract or the
term of the contract –

(a) is in itself harsh;

(b) is oppressive;
(c) is unconscionable;
(d) …; or
(e) …
66
(2) For the purpose of this section, a court or
the Tribunal may take into account the
following circumstances:

(f) whether the benefits to be received by the

consumer who entered into the contract are
manifestly disproportionate or inappropriate,
to his or her circumstances;

(g) whether the consumer who entered into the

contract was in a fiduciary relationship with
the supplier; and

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 s.24G : Effect of unfair terms
Where a court concludes that a contract /
term is either procedurally or substantially
unfair or both,
Court may declare the contract / term as:
(1) Unenforceable or void
(2) Severable and whether (and to what
extent) the remaining terms can be
enforced / given effect to

2. Exemption clause: Is it Binding? 68

END