Governed by s 16 of the Contracts Act 1950, which incorporates English law.
Examines English law, s 16 of the Contracts Act, Malaysian decisions, and the effects/relief for contracts under undue influence.
Undue Influence Under English Law
Discusses classification, manifest disadvantage, husband and wife relationships, and the role of independent advice.
Key case: Royal Bank of Scotland plc v Etridge (No 2) [2001] 4 All ER 449, HL, which reviewed and adjusted the law on undue influence.
Classification of Undue Influence
Allcard v Skinner (1887) 36 Ch D 145: Established the basis for judicial intervention and classified undue influence into actual and presumed.
Bank of Credit and Commerce International SA v Aboody [1992] 4 All ER 955: Retained the two classes, subdividing presumed undue influence into Class 2A and Class 2B.
Barclays Bank plc v O'Brien [1993] 4 All ER 417: Adopted the Aboody classification.
Royal Bank of Scotland Plc v Etridge (No 2) [2001] 4 All ER 449: Argued the sub-classification causes confusion and preferred the original rule in Allcard v Skinner.
Allcard v Skinner Case
The plaintiff, a member of a religious sisterhood, bequeathed all property to the defendant (lady superior).
Later, she claimed the return of her property, alleging undue influence.
Lindley LJ explained the principle: the doctrine protects people from being forced, tricked, or misled into parting with their property.
Confidential Relationships
Gifts to those in confidential relations require proof of influence if the gift is small.
If the gift is large and not reasonably accounted for by ordinary motives, the burden is on the recipient to support the gift.
Barclays Bank plc v O'Brien
House of Lords adopted the classification of the Court of Appeal in Bank of Credit and Commerce International SA v Aboody. Lord Browne-Wilkinson stated that a person induced into a transaction by undue influence is entitled to set it aside.
Bank of Credit and Commerce International SA v Aboody Classification
Class 1: Actual Undue Influence: Claimant must prove the wrongdoer exerted undue influence.
Class 2: Presumed Undue Influence: Complainant shows a relationship of trust and confidence where it is fair to presume abuse.
No need to prove actual undue influence in the transaction.
Burden shifts to the wrongdoer to prove the complainant acted freely, possibly with independent advice.
Confidential relationships are established under two sub-classes: Class 2A and Class 2B.
Class 2A
Certain relationships (e.g., solicitor-client, doctor-patient) automatically presume undue influence.
Class 2B
If no Class 2A relationship exists, the complainant proves a de facto relationship of trust and confidence.
In the absence of disproving evidence, the complainant succeeds by proving trust and confidence without needing to prove actual undue influence.
Rejection of Sub-classification
Royal Bank of Scotland Plc v Etridge (No 2) disagreed with the Class 2A/2B approach, deeming it confusing.
Lord Nicholls and Lord Clyde advocated discarding the classification in O’Brien's case.
A better approach is to adhere to the test in Allcard v Skinner, adopted by Lord Scarman in National Westminster Bank plc v Morgan [1985] AC 686.
Manifest Disadvantage
Derived from Lord Scarman in National Westminster Bank plc v Morgan [1985] 1 All ER 821, HL.
Presumption of undue influence arises only if the transaction is manifestly disadvantageous.
Lindley LJ in Allcard v Skinner established that the principle is based on preventing the victimisation of one party by another.
Overruling of Manifest Disadvantage
Applied in Bank of Credit and Commerce International SA v Aboody but overruled in CIBC Mortgages plc v Pitt & Anor [1993] 4 All ER 433, HL.
Lord Nicholls in Royal Bank of Scotland plc v Etridge (No 2) [2001] 4 All ER 449, HL, discussed manifest disadvantage in relation to the evidential shift in the burden of proof.