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How To Prove Undue Influence Of Lifetime Transactions

Posted: Wednesday, 3 January 2024 @ 16:38

The Background

In the case of Niersmans v Pesticcio [2004] EWCA Civ 372 the judge LJ Mummery identified a number of social trends that lead to pressure on the vulnerable to make life time gifts (often even their homes) of their property “As people live longer, the inheritors will have to wait longer… the elderly and infirm in need of full time residential care are vulnerable to suggestions that they should dispose of the home to which they are unlikely to return”.

What Are Some Legal Principles?

"Persuasion is not unlawful, but pressure of whatever character if so exerted as to overpower the volition without convincing the judgment …, will constitute undue influence, though no force has been either used or threatened”. Sir J P Wilde Hall v. Hall LR 1 P&D 481, at p. 482 2.

Lifetime Transactions: mortgages, gifts, right-to-buy, contracts at undervalue etc are the usual subject matter of undue influence litigation.

What is the key law now?

The common law test for capacity to make a gift was set out in Re Beaney [1978] 1 WLR 770:  a donor must have a high level of understanding of the fact that they are making a gift, the nature of that gift and the consequences of that gift. 

The test is about ability to understand rather than actual understanding. As to the degree of understanding required: “that the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument and may be described as the capacity to understand the nature of that transaction when it is explained.”

How can transactions be set aside? 

A lifetime gift can be set aside due to either actual undue influence or presumed undue influence, the manner of proof being the distinction between the two. I Lord Nicholls: Royal Bank of Scotland v. Etridge described the two forms of undue influence: a. “Overt acts of improper pressure or coercion, such as unlawful threats” b. “A relationship where one has acquired over another a measure of influence or ascendancy of which the ascendant person then takes unfair advantage… without any specific acts of coercion”.

Actual v Presumed Undue Influence

The case of Royal Bank of Scotland v Etridge (No 2) [2002] 1 AC 773  showed  direct proof of actual undue influence is “overt acts of improper pressure” e.g unlawful threats  and the  second  Presumed undue influence “arises out of a relationship between two persons where one had acquired over another a measure of influence”.

What is the Difference? 

In the broadest possible way, the difference between the two types is that in the case of actual undue influence something has to be done to twist the mind of a donor whereas in cases of presumed undue influence it is more a case of what has not been done namely ensuring that independent advice is available to the donor.

Actual undue influence applies where there are overt acts of wrongdoing. The individual subject to the influence has been coerced or improperly pressured into doing something. For example the individual subjecting the influence may have made unlawful threats. Generally, the burden of proving an allegation of undue influence falls to the person claiming to have been wronged.

Presumed undue influence is for lifetime gifts where there is: a relationship of trust and confidence (such a relationship) is assumed in some incidences, namely that between parent and child, solicitor and client, medical practitioner and patient or trustee and beneficiary; and  a transaction is of such a size or nature that it calls for an explanation.

At a practical level once these requirements have been satisfied, the burden of proof shifts to the person seeking to uphold the transaction to show that on the balance of probabilities the transaction was entered in to by the influenced person independently and free from influence. If undue influence is proved then the transaction is declared void.