(iii) The Question of Manifest and Unfair Disadvantage

A requirement that the transaction was manifestly and unfairly disadvantageous to the claimant, as recognized in Aboody, involves consideration of whether the transaction itself was unfair, so-called substantive unfairness or contractual imbalance, rather than that the means by which the transaction was procured were unfair, so-called procedural unfair- ness.^[1] This requirement of manifest disadvantage was subsequently rejected by the House of Lords in CIBC Mortgages plc v Pitt.^[2] It might be thought that a requirement of manifest disadvantage is necessary before undue influence can be established since, without it, there is insufficient evidence of unacceptable exploitation of the claimant by the defendant. It is true that the fact that the transaction itself was manifestly disadvantageous may be of some evidential significance in establishing undue influence, since the terms of the transaction might assist the court in determining whether there was procedural unfairness. For example, the more unreasonable the terms of the agreement the less likely it is that the claimant would have freely agreed to them.^[3] But there could still be cases where the terms of the particular transaction are perfectly reasonable but the defendant will still have unacceptably taken advantage of the claimant’s weaker position. This is illustrated by the facts of CIBC Mortgages plc v Pitt itself, where a husband obtained his wife’s consent to using their home, which was registered in their joint names, as security for a loan from a mortgage company. The House of Lords accepted that the husband had actually used undue influence to procure his wife’s consent and so, as against him, the transaction was invalid.^[4] It made no difference that the terms of the transaction itself were perfectly fair. The transaction was in principle invalid simply because of the methods to which the husband had resorted to procure the consent of his wife. The House of Lords was therefore correct to reject a requirement that the claimant must show that the transaction itself was manifestly disadvantageous before it is possible to conclude that there had been undue influence.

This rejection of manifest disadvantage as a distinct requirement of undue influence means that the true nature of this ground of restitution becomes apparent. This ground is invoked, not because the terms of the transaction are unfair, but rather because the means by which the defendant procured the claimant’s consent to the transaction is regarded as unfair. Consequently, undue influence is concerned with the procedure by which the claimant consented to the transaction and not with the substance of the transaction itself. The essence of actual undue influence was encapsulated in an important dictum of Lord Browne-Wilkinson in the Pitt case:

Actual undue influence is a species of fraud. Like any other victim of fraud, a person who has been induced by undue influence to carry out a transaction which he did not freely and knowingly enter into is entitled to have that transaction set aside as of right... The effect of the wrongdoer’s conduct is to prevent the wronged party from bringing a free will and properly informed mind to bear on the proposed transaction which accordingly must be set aside in equity as a matter of justice.^[5]

Drawing an analogy with fraud also supports the argument that it should be sufficient that the undue influence was a contributory cause of the claimant transferring a benefit to the defendant, since that is the test of causation which applies when the defendant fraudulently induced the claimant to transfer a benefit by mistake.^[6]

• [1] 55 [1994] 1 AC 200.
• [2] 56 See Royal Bank of Scotland plc vEtridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, 796 (Lord Nicholls of
• [3] Birkenhead).
• [4] Whether the husband’s undue influence affected the mortgage company was a separate question. Seep 269, below.
• [5] CIBC Mortgages pic v Pitt [1994] 1 AC 200, 209. 59 See p 187, above.
• [6] 60 National Westminster Bank pic v Morgan [1985] AC 686, 704 (Lord Scarman).