Sale of property – Undue influence – Unconscionable bargain – Respondent transferring property to appellant for inadequate consideration – Appellant transferring property to son as gift – Respondent seeking to set aside transfers for fraud and undue influence – County court finding undue influence – Appellant appealing – Whether judge misdirecting himself on principles to establish presumption of undue influence – Whether evidential burden satisfied – Whether judge making unreasonable findings of fact – Appeal allowed
The respondent owned a house at 236 Odessa Road, London, E7, which was subject to a charge of around £41,000 in favour of the local housing authority. On 7 October 2019, the respondent transferred the property to the appellant on the basis that the appellant would repay the local authority charge.
The appellant carried out works to repair fire damage to the property and, on 9 April 2020, she transferred the property to one of her sons, by way of a gift.
The respondent sought an order that the transfers of October 2019 and April 2020 be set aside on the ground that the 2019 transfer was the result of fraud and undue influence practised on him by the appellant.
The county court rejected the respondent’s argument on fraud but held that the appellant was a person of power and influence within the community and, as such, she had exploited the respondent’s financial vulnerability and health issues. Therefore, undue influence was to be presumed and the respondent was entitled to have the 2019 transfer set aside. It followed that the later transfer by way of gift should also be set aside.
The appellant appealed, contending that the judge: (i) misdirected himself as to principles required to establish a presumption of undue influence; (ii) wrongly concluded the evidential burden had been met to establish a presumption of undue influence; and (iii) erred in making findings of fact to which no reasonable judge could have come.
Held: The appeal was allowed.
(1) Whether a transaction was brought about by undue influence was a question of fact. The general principle was that the burden of proving an allegation of undue influence rested upon the person who claimed to have been wronged. The evidence required to discharge the burden of proof depended on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction could not readily be accounted for by ordinary motives in that relationship, and all the circumstances of the case.
Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant’s financial affairs, coupled with a transaction which called for explanation, would normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. The evidential burden then shifted to the other party to produce evidence to counter the inference which otherwise should be drawn: Royal Bank of Scotland plc v Etridge (No 2) [2001] PLSCS 216; [2002] AC 773 applied.
(2) A relationship of influence extended to cases where one party had ascendancy, domination or control over the other party due to reliance, dependence or vulnerability of the other party. In determining whether there was a relationship of influence, the relevant question was whether there was a relationship of influence by reason of the other party’s vulnerability. It was not enough simply to point to the existence of vulnerability where there was no resulting relationship of influence: Perwaz v Perwaz [2018] UKUT 325 (TCC), Malik v Sheikh [2018] EWHC 973 (Ch) and Etridge considered.
The presumption of undue influence was a rebuttable evidential presumption which arose if the nature of the relationship between two parties coupled with the nature of the transaction between them justified, in the absence of any other evidence, an inference that the transaction was procured by the undue influence of one party over the other. That evidential presumption shifted the onus to the dominant party, who was required to adduce some sufficient additional evidence to rebut the presumption, if he was to avoid a finding of undue influence.
(3) The focus on the position of vulnerable persons in this appeal led to a discussion about the principles as to unconscionable bargains in dealing with vulnerable persons.
The doctrine of unconscionable bargains was limited in three ways: (i) the bargain had to be oppressive to the complainant overall; (ii) it might only apply when the complainant was suffering from certain types of bargaining weakness; and (iii) the other party had to have acted unconscionably by knowingly taken advantage of the complainant.
A contract would not be set aside merely because the aggrieved party did not have independent advice and the consideration was inadequate; it had to be shown that the other party engaged in unconscionable conduct or an unconscientious use of power. It was not enough for a claimant to show that he was vulnerable, that the transaction was at a considerable undervalue and that the defendant entered the transaction with knowledge of those facts. The claimant had to show some further fact by reference to the conduct or behaviour of the defendant which the court regarded as unconscionable. On the evidence, the appellant’s conduct in this case was not unconscionable.
(4) In order to hold that there was an evidential presumption of undue influence, there had to be a position of ascendancy or dependency or influence on the part of the appellant in relation to the respondent and the transaction had to call for an explanation.
Even if there were a presumption of undue influence, such a presumption was evidential. Where the party who allegedly practised the undue influence had given evidence and was available to be cross-examined, the ultimate question was whether the complainant had succeeded in establishing that the transaction was brought about by the use of undue influence. On the evidence, the judge was entitled to find that the respondent was vulnerable both financially and for health reasons. However, this was not a case where a presumption of undue influence arose.
The judge was right that the appellant entered into a transaction which was very advantageous to her and disadvantageous to the respondent. However, the fact the transaction, albeit one entered into by a vulnerable person, would not be regarded as an unconscionable bargain, suggested that the law of undue influence would not produce a different result where the respondent acted of his own free will and not as a result of any influence, direct or indirect, from the appellant.
Charles Sinclair (instructed by Arcadian Law) appeared for the appellant; J G Mendus Edwards (instructed by Link Solicitors) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read a transcript of Azam v Molazam
