The Gazette 1994

GAZETTE

JUNE 1994

H u s b a n d s a n d W i v e s - U n d u e I n f l u e n c e i n B a n k i n g L a w by Christopher Doyle BL*

The Nature of Undue Influence

often, however, Irish courts merely copy English law. Where the English decisions conflict (as those of the Court of Appeal before O'Brien did) it is all too likely that the Irish courts, in copying them, will also conflict. The first two decisions on this point. Bank of Ireland v Smyth 4 and Bank of Nova Scotia v HogatY show markedly different approaches. In the first Geoghegan J imposed a heavy burden on a bank which seeks to escape being tainted with an husband's undue influence. In the latter, Keane J stated that undue influence does not usually arise in normal banking transactions. Both decisions have been appealed to the Supreme Court. There is no presumption that a bank unduly influences a customer or a surety: a wife who claims that the bank exerted such influence must prove her case. Claims that the bank itself unduly influenced the wife are relatively uncommon; more often a wife claims that her husband was acting as the bank's agent. In National Westminster Bank v Morgan the wife did allege that it was her bank manager who influenced her to create a charge over the family home. The claim failed. There was nothing in the relationship between Mrs Morgan and her bank manager to raise the presumption that he was likely to unduly influence her and she had failed to show on the evidence that any such influence had been exercised. Nor did the House feel that in what it termed a "normal banking transaction" there was any duty on the bank to recommend that the wife take independent legal advice. Further it suggested that even if the bank had exercised undue influence and if it should have recommended legal advice, the transaction would not be set aside unless the wife showed that it was to her "manifest disadvantage". In CIBC Mortgages v Pitt this last suggestion was disapproved; it was Undue Influence by the Bank

Undue influence occurs where one person (the wrongdoer) without the use of coercion succeeds through a dominating influence in persuading another person to enter a transaction. The victim is entitled to have the transaction set aside as against the wrongdoer and as against a third party who had notice of the undue influence. Undue influence is a form of fraud: where it is proved, the victim need now show loss, since a wrongdoer is never entitled to profit by his wrong. Undue influence may be actual or presumed. Where actual undue influence is alleged, the person claiming it must prove it. In the case of presumed undue influence, the burden shifts to the alleged wrongdoer to prove that no such influence was exercised. The presumption will be raised where a confidential relationship exists between the parties. There are certain categories of relationship - for example, solicitor and client - where the presumption arises as a matter of law. Banker and customer is not such a relationship; neither, strictly speaking, is husband and wife, although the position here is rather confused. Claims of undue influence were infrequent in banking actions until about 1970. Since the 1970s, the law has developed with extraordinary speed in the UK. Certain judges attempted to replace the doctrine of undue influence with one of "inequality of bargaining power". Had the attempt succeeded, the consequences for banks might have been severe. In National Westminster Bank v Morgan ', however, the House of Lords rejected the new doctrine. It also seemed to suggest that undue influence will not usually arise in what it called a "normal banking transaction". Undue Influence in Banking Law

Christopher

Doyle

As between banker and account holder, the Morgan decision no doubt made life a little easier for banks. However, claims of undue influence frequently arise over secondary obligations entered into by the wife of a customer. Morgan did not check the flow of claims by wives who claimed to have entered such transactions through the undue influence of the bank or of their husbands. The question which has caused the most trouble is whether the bank should be penalised when the undue influence is that of the husband. Numerous decisions by the Court of Appeal failed to settle the matter. Finally, in Barclays Bank v O'Brien 2 the House of Lords stated that the bank will normally be prevented from recovering against the wife only where it has notice of the husband's wrongdoing. At the same time, in CIBC Mortgages v Pitt 2 the House doubted its previous suggestion in Morgan that undue influence is unlikely to arise in normal banking transactions. Irish law develops more slowly than English. In theory this should give the Irish Courts time to analyse and criticise English decisions. All too