The courts of equity have for centuries been called upon to set aside transactions in circumstances where one person has allegedly been induced to act in a way that does not represent the exercise of his own free will. The transactions involved have ranged from making a lifetime gift of assets, to signing over title to property, to entering into a mortgage, changing bank accounts from a sole name into joint names and to personally guaranteeing a debt.
For practitioners in the private client field, allegations of “undue influence” arise most commonly in respect of gifts made by will or lifetime transfers of assets that do not come to light until after the donor has died. A disappointed beneficiary, in an attempt to set aside the will or a lifetime gift, alleges undue influence was brought to bear upon the donor/testator to persuade him to write his will or make a gift to benefit one person to the detriment of others.
Proving undue influence in circumstances where the principal witness is no longer available to testify to any pressure that may have been brought to bear on him is a heavy evidential burden for the disappointed beneficiary to discharge. To prove actual undue influence, one has to be able to point to a specific act or acts of persuasion; such acts can take a number of forms, from physical threats (which may be more accurately characterised as duress), to the promise of untold riches. In order to prove presumed undue influence, the evidential question is more complex.
There are two main evidential requirements. The first is that there must be a relationship between two people where one has acquired over the other a measure of influence or ascendancy, typically where one person has placed trust and confidence in the other. To paraphrase the words of Lord Justice Alan Ward in Daniel v Drew without evidence of such a relationship “a case of presumed undue influence simply would not get off the ground.” It is not a requirement that the relationship of trust and confidence has arisen in the context of looking after a person’s financial affairs. While Lord Donald Nicholls in Royal Bank of Scotland plc v Etridge (cited with approval in several cases by the courts of the Cayman Islands) did describe it as the “paradigm” example in which influence can be presumed, he did also go on to say that “there is no single touchstone for determining whether the principle is applicable”; relationships of reliance, dependence and vulnerability can also require the scrutiny of the courts.
The second requirement is that the transaction in question must excite suspicion or call for an explanation. That being the case, the concept of undue influence is not designed as a “get out of jail free card”; it is not designed to protect individuals from the consequences of a failure in judgment. As Lord Justice Nathaniel Lindley observed in Allcard v Skinner “the Courts of Equity have never set aside gifts on the ground of the folly, imprudence or want of foresight on the part of donors.” The transaction must be one which cannot “be reasonably accounted for on the grounds of friendship, relations, charity or the ordinary motives on which ordinary men act.”
If a claimant can prove both requirements, then the inference may be drawn that the relationship was abused and the evidential burden shifts to the recipient of the benefit to demonstrate why it was not.
The pressures applied on the donor must amount to “unacceptable forms of persuasion’ such that ‘the consent thus procured ought not fairly to be treated as the expression of a person’s free will” . While we may be comfortable with the “legitimate give and take of argument between adults” the problems arise when the influence has “invaded the free volition of the donor to accept or reject the persuasion or advice or withstand the influence. The donor may be led but she must not be driven and her will must be the offspring of her own volition, not the record of someone else’s.”
Plainly a great deal will rest of the nature of the relationship between the two parties, their relative ages, characters and bargaining power, position in life, state of health and any vulnerabilities from which the weaker party suffers at the time or shortly before the impugned transaction. In Prendergast v Joyce for example, the transaction in question had taken place soon after the funeral of the donor’s husband. She was mentally fragile, elderly and lonely and, as it transpired later, in the early stages of Alzheimer’s. As it was described by the judge, the donor “had not been equal to protecting herself.” In Daniel v Drew it was the character of the person in the ascendant which came under scrutiny, as the judge described him, he had “a keen appreciation of his own interests and scant regard for those of others.”
Advice from a solicitor before entering into a transaction can assist in ensuring everything has been done to explain the implications of a transaction to a donor; the donor can still however be acting under the undue influence of another. It is particularly important therefore that professionals understand the steps they must take to ensure their duties to individual clients are discharged properly by advising them independently with full knowledge of all relevant circumstances and with their best interests in mind. In Watler v Solomon the written instructions that the deceased had given his attorney “most conclusively proved … that [the donor] acted independently upon independent legal advice.” As it was put by the Judge in Thompson v Foy, “whether it will be proper to infer that outside advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue influence, is a question of fact to be decided having regard to all the evidence in the case.”
Many of the features set out above played their part in a recent case in the Jersey Royal Court, In re Jasmine Trustees, re Piedmont Trust and Riviera Trust. Unusually this case involved allegations of undue influence in the context of a trust and specifically, in the context of the exercise of a power of revocation.
The trusts had been established by relatives of the family concerned, while the patriarch of the family, his three children and their respective issue were the beneficiaries. The patriarch’s relationship with his daughter deteriorated over a number of years, this being the principal factor behind family litigation in both Jersey and the USA. In this particular chapter in the litigation, the daughter claimed that notices of revocation provided by the settlors of the trusts should be set aside on grounds of undue influence and mistake.
The case is interesting for a number of reasons: Firstly, the court held that in Jersey law there was no obstacle to a beneficiary to bring a claim in undue influence in relation to a challenge to the exercise of a power of revocation: a discretionary beneficiary has the necessary standing to do so. Although a power of revocation is a power personal to the holder and as such, can be exercised as the holder of the power thinks fit, if the power would not have been exercised but for the undue influence, it can be set aside. Secondly, there was compelling evidence that the patriarch of the family had pressurised the settlors into issuing the notices, notices which had actually been delivered to the trustees by the patriarch. The court concluded: “there is strong evidence that the father pressurised the settlors by means of threats inter alia of ‘consequences’ and an injunction and that each of them only executed the relevant revocation notice because of those threats.” Thirdly, the court held that this evidence was supported by the absence of any denials from either the settlors or the father that these threats had been administered and that they had acted as a consequence of them. The court concluded that “the will of the settlors was overborne by the threats and pressure exerted by the father” and ordered the notices of revocation to be set aside.
In this article, I have not dealt with the aspects of the decision which relate to mistake as they are governed in the main by Jersey statute. The doctrine of undue influence in Jersey is, however, similar to that applied in the Cayman Islands and in England and so the case is of particular interest to practitioners here, given its extension of the recognised principles in relation to undue influence to the exercise of a power in a trust.