Posts Tagged ‘presumption’

Undue influence: what is the next stage once the presumption of undue influence has arisen?

April 7, 2014

In Hammond v Osborn ( [2002] EWCA Civ 885) O took care of P (an elderly neighbour) out of kindness and compassion. He gave her GBP300,000 (the value of his investments). Part of the money was used to buy a house. Title was in F’s name (O’s son) but he held it on trust for her. The result was that P lost over 90% of his assets and became prospectively liable for a large tax bill which he would not have been able to meet out of his remaining assets. O did not explain this to P, she merely asked him whether he was sure he wanted to make the gift. P later died intestate. The gift to O was challenged by H, the administratrix of P’s estate.

The relationship and the transaction were such as to give rise to the presumption of undue influence. The question was whether the presumption could be rebutted by showing that the transaction was the result of  the exercise of independent exercise of P’s free will. Had the gift been made only after full, free and informed thought about it? ([25]).

P had not received advice as to the nature and effect of the transaction from an independent, qualified person. In fact, he had not received any advice at all, even from O.

‘Even if it is correct to say that Mrs Osborn’s conduct was unimpeachable and that there was nothing sinister in it, that would be no answer to an application of the presumption …  the court does not interfere on the ground that any wrongful act has in fact been committed by the donee but on the ground of public policy, which requires it to be affirmatively established that the donor’s trust and confidence in the donee has not been betrayed or abused.’  (per Sir Martin Nourse at  32).

Ward LJ emphasised that in cases of presumed undue influence, the courts interefere on the grounds of public policy and not because there is any finding that there has been actual undue influence. The next stage of the inquiry, once the presumption has arisen, is to consider whether  the party to whom the burden has shifted can show that the transaction was the result of full, free and informed thought. This will usually be done by showing that the necessary independent advice was given. Here there was a total absence of independent advice ([50]).

A survey of the circumstances in which the decison was made and of its consequences for P did nothing to rebut the presumption of undue influence. The presumption had not been rebutted and the gift was set aside.

Michael Lower

Presumption of undue influence requires disadvantage

March 17, 2014

In National Westminster Bank plc v Morgan ([1985] AC 686, HL) a husband and wife signed a charge over their jointly-owned property in favour of the bank. This was a condition attached to a bridging loan made by the bank. Without the loan, another lender would have enforced a possession order in respect of the property. The wife was hesitant about signing the charge but realised that otherwise she would lose her home. The manager of the local branch had brought the charge to her home and explained it to her. When, later, the couple were unable to repay the bridging loan, the bank sought an order for possession. The wife’s defence was that she had signed as a result of the bank’s undue influence.

Lord Scarman held that there was no undue influence. First, the relationship was simply that of banker and customer and there was no relationship of trust and confidence. Second, there is no presumption of undue influence unless there is something disadvantageous about the transaction (at 704). There was nothing disadvantageous to the wife about this transaction.

This ‘was an ordinary banking transaction whereby Mrs. Morgan sought to save her home’ (at 709).

Michael Lower