Contract -> Answer Undue Influence

The CoA defined undue influence in Allcard v Skinner as “some unfair and improper conduct, some coercion from outside, some over reaching, some form of cheating generally, though not always some personal advantage gained”.

Allcard v Skinner suggests in every professional relationship involves parties dealing with each other on some unequal footing. There must be evidence of victimisation or improper conduct leading to some personal advantage being gained.

Relationship between bank & debtor

In Lloyds Bank v Bundy the HoL stated ‘there must be evidence that the bank overstepped the boundaries of a normal confidential relationship before undue influence can be presumed’ also that the transaction was ‘wrongful’ (RBS v Etridge). So has the bank overstepped its boundary to a normal bank and customer relationship.

Wife Undue Influence

Current law suggests banks must take reasonable steps when dealing with wives acting as surety for a husbands business (Etridge No.2). Failure to do so mean the banks fainted by undue influence of the debtor, leaving it with little chance of enforcing the security against the wife.

We must ask whether the bank was ‘put on enquiry’ in considering the nature of the transaction. Drawing an analogy with Goode Durrant v Biddulph was the wife risk/benefit ratio grossly disproportionate to that of the debtor?

However if on the face of it the transaction is not suspicious the bank need only act as a reasonable prudent one, and need not show suspicion (Woolwich v Gomm).

If wife successfully argues the bank was put on enquiry then the bank will need to show it followed procedures laid down in Etridge (No.2); the bank should have persuaded the wife to seek an independent advisor to explain the nature of the transaction & possible liability. As well as discussing with her directly if she wished to proceed (Aboody). In not doing so they falls short of the standards expected in Northern Rock BS v Archer.

Guidelines under Etridge (No.2) clearly state it is the independent legal advisor who will confirm to the bank that the proper advice has been given to the surety.

If the bank fails to comply with Etridge No.2 the wife will still need to establish that her husband/debtor acted wrongfully towards her.

If there’s a manifest disadvantage the bank has a duty to ensure wife receive independent advice (Natwest v Morgan).

Remedies

If successful the primary remedy is rescission subject to the lapse of time, affirmation and restitutio in integrum. Damages NOT available for undue influence, unless bank has broken a duty of care towards wife damages available in negligence. Advice would be to act sooner rather than later and notify the bank of their intention to avoid contract.