(D) UNDUE INFLUENCE AND THIRD PARTIES
It has been assumed so far that the claimant has entered into a transaction or transferred a valuable benefit as a result of the defendant’s undue influence, but this is not always the case. The claimant may, instead, have entered into a transaction with the defendant or transferred a benefit to the defendant as a result of the undue influence of a third party.  In such circumstances the claimant’s weakness is exploited by the third party and it is necessary to determine which of two innocent parties, the claimant or the defendant, should suffer from this exploitation.1 2 Typically this problem has arisen where a husband has induced his wife to act as surety for his debts, or those of his business, by unduly influencing her to execute a charge over the matrimonial home in which she has a proprietary interest and, when the creditor wishes to enforce the charge, the wife argues that it was not valid because of undue influence. Although the third-party problem could arise in all cases where undue influence has been established, regardless of the nature of the relationship between the parties, the case of the husband unduly influencing the wife to enter into a transaction with a bank will be used as the typical model to analyse the law. These were essentially the facts of one of the leading cases in this area, the decision of the House of Lords in Barclays Bank plc v O’Brien, save that the wife had been induced to consent to a second mortgage on the family home not because of undue influence, but by reason of the husband’s misrepresentation as to the extent and duration of the charge. The fact that the case was concerned with an induced mistake does not make any difference to its application to cases of undue influence. This is because misrepresentation, like undue influence, constitutes behaviour which can vitiate the claimant’s intention to transfer a benefit and consequently the effect of both grounds of restitution is the same.
The main difficulty for the analysis of the O’Brien principle in a book on the law of restitution is whether the principle has anything to do with the law of restitution generally, and the law of unjust enrichment specifically. The key problem concerns the identification of an enrichment. It is the essence of the law of unjust enrichment that the defendant must have obtained a benefit which has to be restored to the claimant. Where a bank has acquired a security interest in the matrimonial home, or the wife has simply provided a personal guarantee to the bank, as a result of the husband’s undue influence, it is possible to conclude that the bank has been enriched by the security interest or the right to sue the wife on the guarantee. But, if the transaction is rescinded for undue influence, the consequence of the rescission is that the bank’s rights are eliminated and no tangible benefit is restored to the wife. It has consequently been assumed that the effect of rescission in such circumstances cannot be characterized as restitutionary. Despite this, Lodder has argued that the bank’s rights are a legal enrichment and, following the rescission of the transaction for undue influence, restitution occurs, since the bank is deprived of its rights against the matrimonial home and the wife benefits because the matrimonial home is restored to her without the burden of the charge. This is a persuasive analysis.
But, if the wife’s claim against the bank is analysed with reference to the law of restitution, it follows that the bank should be able to plead change of position as a defence.
The fact that the bank has lent money to the husband as a result of the wife agreeing to the charge over the matrimonial home certainly looks like a change of position. But none of the cases which have examined this scenario have considered the change of position defence. Instead, whether the bank is able to enforce the charge against the wife depends on whether it has notice of the wife’s equity 7 to set the transaction aside and had taken reasonable steps to ensure that the wife fully appreciated the consequences of the particular transaction.  If the bank does have such notice and has not acted reasonably to check that the wife is free of undue influence or an induced mistake, the bank cannot be considered to have acted reasonably and so the defence of change of position will not be available to it. If the bank had no notice of the wife’s equity, it is able to enforce the transaction despite the undue influence or induced mistake, and this can be rationalized with reference to the fact that, in lending money to the husband, the bank has changed its position so restitution of the right to the wife should be denied.
-  See J O’Sullivan, ‘Undue Influence and Misrepresentation after O’Brien: Making Security Secure’ inF Rose (ed), Restitution and Banking Law (Oxford: Mansfield Press, 1998), ch 3.
-  Barclays Bank plc v O’Brien  1 AC 180, 195 (Lord Browne-Wilkinson).
-   1 AC 180. 124 See p 199, above.
-  125 See National Commercial Bank (Jamaica) Ltd v Hew  UKPC 51.
-  126 AVM Lodder, Enrichment in the Law of Unjust Enrichment and Restitution (Oxford: Hart Publishing,
-  2012), 60. See p 6, above. See also NY Nahan, ‘Rescission: A Case for Rejecting the Classical Model?’ (1997)Univ WALR 66, 72-3; R Chambers, ‘Two Kinds of Enrichment’ in R Chambers, C Mitchell, and J Penner (eds),Philosophical Foundations of the Law of Unjust Enrichment (Oxford: Oxford University Press, 2009), 259. CfJ O’Sullivan, ‘Rescission as a Self-help Remedy: A Critical Analysis’ (2000) 59 CLJ 509.
-  Where the relationship between the person who has been unduly influenced and the third party isa standard contractual relationship rather than a suretyship, actual knowledge of the undue influence on thepart of the third party is required to deprive that party of their contractual rights: Darjan Estate Co plc v Huxley(No 2)  EWHC 189 (Ch),  1 WLR 1782.
-  Royal Bank of Scotland plc v Etridge (No 2)  2 AC 773; Padden v Bevan Ashford (a firm) 1 WLR 1759,  EWCA Civ 1616.
-  See E Bant, The Change of Position Defence (Oxford: Hart Publishing, 2009), 155.