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The Etridge Influence on Undue Influence

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The Etridge Influence on Undue Influence View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by UC Research Repository THE ETRIDGE INFLUENCE ON UNDUE INFLUENCE: ATTEMPTS AT FUSION WITH DURESS AND UNCONSCIONABILITY Tina Yee School of Law, University of Canterbury Masters of Law 2008 CONTENTS Page Number Acknowledgments Abstract Chapter 1: Introduction ………………………………………………………................... 1 Chapter 2: The Theoretical Basis of Undue Influence ………………………………........ 3 Introduction ………………………………………………………………………………. 4 Defendant Based Arguments …………………………………………….......................... 4 Plaintiff Based Arguments ……………………………………………………………….. 8 Public Policy Arguments ………………………………………………………………… 14 1. Meaning of Public Policy ……………………………………………………….... 16 2. Efficacy of Public Policy ………………………………………………………… 18 3. Public Policy Conclusion ………………………………………………………… 20 Reconciling the Authorities ……………………………………………………………… 21 Conclusion ……………………………………………………………………………….. 23 Chapter 3: The Evolution of Undue Influence …………………………………………… 26 The Concept of Undue Influence …………………………………………………………. 27 The Pre-Etridge Classes of Undue Influence ……………………………………………... 27 1. The Presumption of What? ………………………………………………………... 29 2. Manifest Disadvantage ……………………………………………………………. 31 (a) History …………………………………………………………………….. 31 (b) Meaning of Manifest Disadvantage ……………………………………….. 32 (c) Problems with Manifest Disadvantage ……………………………………. 34 The Etridge Case ………………………………………………………………………….. 35 Chapter 4: Proving Undue Influence ……………………………………………………… 40 Actual Undue Influence …………………………………………………………………... 41 1. Impairment of Free Will …………………………………………………………... 42 2. Indirect Pressure …………………………………………………………………... 45 3. Causation ………………………………………………………………………….. 48 The Evidential Presumption of Undue Influence …………………………………………. 50 1. Relationship of Trust and Confidence …………………………………………….. 51 2. A Transaction That Calls For Explanation ………………………………………... 57 Rebutting the Evidential Presumption ……………………………………………………. 64 1. General Principles ………………………………………………………………… 64 2. Independent Advice ……………………………………………………………….. 66 3. Inadequate Independent Advice …………………………………………………... 67 4. Effect of a Conflict of Interest ……………………………………………………. 69 5. Lack of Independent Advice is Not Fatal ………………………………………… 71 Chapter 5: The Legacy of Etridge ………………………………………………………… 74 Introduction ……………………………………………………………………………….. 75 The “Presumption” of Undue Influence ………………………………………………….. 75 Class 2B …………………………………………………………………………………... 76 Replacement Transactions ………………………………………………………………... 78 Transaction That Calls For Explanation ………………………………………………….. 80 Conclusion ……………………………………………………………………………….... 82 Chapter 6: Duress …………………………………………………………………………. 83 Introduction ……………………………………………………………………………….. 84 Illegitimate Pressure ………………………………………………………………………. 85 1. Threats of Unlawful Conduct ……………………………………………………... 86 2. Threats of Lawful Conduct ……………………………………………………….. 91 Coercion …………………………………………………………………………………... 93 Duress and Undue Influence ……………………………………………………………… 98 Chapter 7: Unconscionability ……………………………………………………………... 101 Introduction ……………………………………………………………………………….. 102 Elements …………………………………………………………………………………... 103 Special Disadvantage ……………………………………………………………………... 105 Exploitation ……………………………………………………………………………….. 108 Substantial Inadequacy of Consideration …………………………………………………. 111 Undue Influence and Unconscionability ………………………………………………….. 115 1. Similarities ………………………………………………………………………... 115 2. A Unique New Zealand Perspective ……………………………………………… 117 3. Which Doctrine is “Wider”? ……………………………………………………… 119 4. Differences ………………………………………………………………………... 121 (a) Plaintiff-Defendant Basis …………………………………………………. 122 (b) Fiduciary Elements ………………………………………………………... 124 (c) Miscellaneous Distinctions ……………………………………………….. 126 Duress and Unconscionability …………………………………………………………….. 127 The Interaction of All Three Doctrines …………………………………………………… 131 Conclusion ………………………………………………………………………………… 134 Chapter 8: Conclusion: Attempting Fusion ……………………………………………….. 135 Introduction ……………………………………………………………………………….. 136 Duress and Undue Influence ……………………………………………………………… 136 Merger of Three Doctrines ………………………………………………………………... 139 Conclusion ………………………………………………………………………………… 144 Bibliography ………………………………………………………………………………. 147 Books ……………………………………………………………………………………… 148 Articles ……………………………………………………………………………………. 152 Cases ……………………………………………………………………………………… 158 ACKNOWLEDGEMENTS I would like to thank Professor Stephen Todd for his invaluable assistance, guidance and input into my thesis. Professor Todd has given me great insight into the topic of undue influence and has challenged me to look beyond established conclusions. I would like to thank Associate Professor Maree Chetwin for her continued help and support. She has always been available for general discussion and to help me refocus my attention. I would like to thank the Law Library staff at Canterbury University for their assistance in helping me locate cases, articles and books. I would also like to thank my husband, Dr Tony Goh for proof reading my thesis, and for undertaking a great deal of the domestic duties while I was studying. I would finally like to thank my two children, Anthony and Ashleigh Goh for being very good children while I undertook my studies, for being very understanding when I was busy, and for “staying home on their days off” while I finished my thesis. ABSTRACT The doctrine of undue influence has undergone reconsideration by the House of Lords in Royal Bank of Scotland v Etridge (No 2) [2004] 4 All ER 449. The case was an attempt by the House of Lords to clarify the law and dispel some of the misconceptions that have developed in the law over the last 200 years. This thesis will examine the law of undue influence. It will examine the theoretical basis of undue influence, the general misconceptions in the law, the impact of the Etridge case, and related doctrines of duress and unconscionability. Given the developments in the law due to Etridge, issues regarding simplification of the law will be examined. The three doctrines share much in common, and issues of fusion of one or all of the existing doctrines will be considered, and whether this would lead to a better understanding of the law in this area. CHAPTER 1 INTRODUCTION 1 In 1807 Lord Eldon in Huguenin v Baseley1 held that undue influence is a doctrine utilised by the courts of equity to set aside a transaction that has been obtained by the use of undue influence, in the sense that the transaction was not the pure voluntary and well understood act of the influenced party, but a transaction entered into without knowledge of the effect, nature and consequence. Such transactions are against public policy. Nearly two centuries later Sir Martin Nourse in Hammond v Osborn2 held that there were continuing misconceptions surrounding the doctrine of undue influence. The passage of time and the body of case law has not assisted with the understanding of the doctrine. Todd writes that “in recent times the Courts have debated at length about how the doctrine operates and how best to arrange and explain the cases.”3 This thesis will examine the doctrine of undue influence, and the closely related doctrines of duress and unconscionability. The thesis will begin with an examination of the theoretical basis of undue influence, which is whether it is concerned with the wrongful conduct of the influencing party, or the excessively impaired consent of the plaintiff. The recent focus of the courts utilising public policy as the fundamental basis has clouded this inquiry. How public policy interacts with the defendant or plaintiff based arguments will be considered. The evolution of undue influence will be examined. This will consider how undue influence has been established in pre-Etridge law, the misconception of the effect of the presumptions that existed, and the role and misunderstanding of manifest disadvantage. The Etridge case and the restatement of the law by the House of Lords will be analysed. Then, in light of Etridge the elements required to prove undue influence will be examined with post-Etridge cases. This will determine whether any meaningful understanding of the law has developed, or whether the continuing misconceptions in the law continue to plague it. In the final chapters of this thesis, the doctrines of duress and unconscionability will be examined. These doctrines are closely related to undue influence, and there is substantial overlap between the three. The elements of establishing duress and unconscionability will be examined. Issues relating to the amount and type of pressure in the doctrines will be raised, illustrating the similarities that exist within the three doctrines. In order to simplify and clarify the law, the debate concerning whether some or all of these doctrines can be merged will be considered in the conclusion. 1 [1803-13] All ER Rep 1, per Lord Eldon, p 13. 2 [2002] EWCA Civ 885. 3 S Todd, Burrows Finn & Todd, Law of Contract in New Zealand (3rd ed 2007), p 351. 2 CHAPTER 2 THE THEORETICAL BASIS OF UNDUE INFLUENCE 3 INTRODUCTION In 1887 Lindley LJ posed the question: 4 What then is the principle [of undue influence]? Is it that it is right and expedient to save persons from the consequences of their own folly? or (sic) is it that it is right and expedient to save them from being victimised by other people? Over a hundred years later, that question is still debated by judges and academics. What is the theoretical basis for undue influence? Is the doctrine plaintiff
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