Undue Influence in Irish Contract Law

Undue influence is one of the "vitiating factors" — the doctrines that let a party escape a contract because their consent was defective. It sits next to duress and unconscionable bargain on a spectrum of unfair dealing. Duress is overt pressure — a threat. Undue influence is subtler: there is no need for a threat at all, only a relationship that has been used so that the weaker party's will was not truly their own. Because it is an equitable doctrine, it is discretionary and can be lost by delay.

Actual vs presumed undue influence

Traditionally the doctrine is split into actual and presumed undue influence. The better modern view — accepted in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44 House of Lords — is that these are not two different wrongs but two ways of proving the same thing: that the transaction was not the product of the complainant's free will.

Actual undue influence

Here the complainant proves directly that improper pressure was applied, so that the transaction did not result from the free exercise of the donor's will. There is an Irish finding of it: in Ulster Bank Ireland Ltd v Roche and Buttimer [2012] IEHC 166 High Court (IE) Clarke J found actual undue influence established on the evidence, and the bank's claim against the guarantor failed. It is rare, but it is established. For actual undue influence the complainant does not need to show the transaction was to their manifest disadvantage — it is treated as a species of fraud (CIBC Mortgages plc v Pitt [1993] UKHL 7 House of Lords).

Presumed undue influence

More often, the complainant does not prove pressure directly but raises a presumption, shifting the burden onto the other party to show the transaction was a free, informed act — usually by proving the complainant had real independent advice. There are two ways to raise it.

The relationships that automatically raise the presumption

Certain relationships are treated by law as relationships of influence, so the presumption arises without proof — and in Ireland what the complainant must add is a transaction conferring a substantial benefit on the other party, not the English requirement of a transaction "not readily explicable on ordinary motives". Gilligan J held in Prendergast v Joyce [2009] IEHC 199 that Lord Scarman's "manifest disadvantage" requirement in National Westminster Bank v Morgan [1985] AC 686 "does not correctly state the law in this jurisdiction". The relationships include:

• Parent and child — Carroll v Carroll [1999] IESC 11 IE
• Trustee and beneficiary, solicitor and client, doctor and patient, guardian and ward
• Religious adviser and follower — Whyte v Meade (1840) 2 Ir Eq Rep 420 IE; Allcard v Skinner (1887) 36 Ch D 145 Eng
• Solicitor and client, doctor and patient, guardian and ward

Notice what is not on the list: husband and wife is not an automatic category. That matters enormously for the bank-guarantee cases below. Allcard v Skinner also shows the doctrine needs no bad motive — a religious gift was presumptively set aside despite no pressure beyond the community's own rules, precisely because the influence would be impossible to prove directly.

The rebuttal almost always turns on independent advice — but that advice must be genuine. In Carroll v Carroll [1999] IESC 11 IE a frail, dependent father's transfer of his pub to his son was set aside because the independent advice was inadequate: the son's solicitor was not independent and knew nothing of the family's circumstances (Denham J). In Prendergast v Joyce [2009] IEHC 199 IE advice from a bank official with a financial interest in the transaction was likewise not independent. And on Gregg v Kidd [1956] IR 183 IE the presumption may be rebutted by independent legal advice even where the donor did not act on it.

When the facts (not the relationship) raise the presumption

Where no listed relationship applies, a complainant can still raise the presumption by proving, as a fact, a relationship of trust and confidence plus a transaction that calls for explanation. The leading Irish authority is Prendergast v Joyce [2009] IEHC 199 High Court (IE), where a recently-widowed, vulnerable elderly woman's transfers to her nephew were set aside — there is no automatic aunt/nephew presumption, but the facts raised it, and advice from a bank official with a financial interest was not independent.

Two things are needed, and Prendergast is where to find them: a relationship of trust and confidence, and a transaction conferring a substantial benefit on the other party. Where the complaint is not influence but an improvident bargain — a different doctrine, which often arises on the same facts — the criteria the Irish courts use are these:

• one party was at a serious disadvantage (poverty, age, ignorance, ill-health);
• the transaction was at an undervalue; and
• there was a lack of independent advice.

Undue influence and bank guarantees — the surety cases

This is where undue influence earns most of its exam marks. The problem: the wrongdoer (say, a husband pressuring his wife) is often not a party to the contract that is challenged — the challenged contract is a guarantee given to a bank. The bank did nothing wrong itself. When is the bank nonetheless affected?

The English starting point is Barclays Bank plc v O'Brien [1993] UKHL 6 House of Lords: a creditor is bound only if the undue influence can be imputed to it through actual or constructive notice. A bank is put on inquiry where the relationship between the surety and the debtor is non-commercial (this is why husband and wife not being an automatic category still matters — the non-commercial relationship is what puts the bank on inquiry), and it must then take reasonable steps, chiefly urging independent legal advice (the Etridge guidelines).

The Irish position is more restrained than England's. In Ulster Bank Ireland Ltd v Roche and Buttimer [2012] IEHC 166 High Court (IE) Clarke J held that a bank is put on inquiry "where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee", and is then "obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing" — but not necessarily as far as Etridge goes. Crucially, the Irish courts insist on stage one first: unless the surety can show actual undue influence (or misrepresentation) by the debtor, a bank has no free-standing duty to ensure the surety got independent advice. Finlay Geoghegan J put it in terms in ACC Loan Management Ltd v Connolly [2017] IECA 119 IE: Roche and Buttimer "cannot in my view be considered as authority for a defence, independent of any allegation of undue influence or other wrong by the principal debtor, on the basis of a breach by a bank of a free standing obligation". See also Bank of Ireland v Curran [2016] IECA 399 IE. Get the jurisdictional order of play right and this becomes an easy issue to spot.

Remedies and time limits

Once undue influence is established the transaction is set aside. This is an all-or-nothing remedy — the court will not rewrite the deal down to what the victim would have agreed. Because it is equitable, it is subject to laches: the victim must act within a reasonable time after the influence has ended, or the right to rescind is lost (Allcard v Skinner (1887) 36 Ch D 145 Eng; and see Carroll v Carroll [1999] IESC 11 IE, where proceedings issued within a year of learning of the deed were in time).

Related Contract notes: offer vs invitation to treat · intention to create legal relations · all free Contract notes.