Undue Influence

Introduction:
Pressured to enter into contract by the influence of the other. ( indirect force, there is no violence
act, no one put guns on head, someone with position or authority relationship to manipulate you
to enter into contract, being induced to enter into contract, abuse the relationship, abuse of
power.
Undue influence is provided under S.16(1) of CA 1950.
S.16(1) provided that A contract is said to be induced by that one of the partied in a position to
dominate the will of other and uses that position to obtain an unfair advantage over the other.

Undue
Influence
(S.16(1))
Dominant
Position
Actual
(S.16(1))

Use of
Position

Unfair
Advantag
e

Presum
ed
(s.16(2))

First Element: Dominant Position

Raghunath Prasad v Sarju Prasad
Facts: D took a loan from P upon the security of a mortgage. The interest rate for the loan was
very high, namely 2% per mensem (or 24% annually). D contended that the mortgage was
entered into under undue influence, in view of the high interest rate and the fact that he was
desperately in need of money at the time.
The Privy Council held that the defendant had not brought himself within s 16 of the Indian
Contract Act (in pari materia with s 16 of the Contracts Act). In this case, the Privy Council held
that the relation between the parties was simply that of lender and borrower.
Lord Shaw stated though the bargain had been unconscionable (and it has the appearance of
being so) a remedy does not arise until the initial fact of a position to dominate the will has been
established. After that fact is established, then the unconscionable nature of the bargain and the
burden of proof on the issue of undue influence comes into operation.

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Hong Kong Shanghai Bank Corp v Syarikat United Leong Enterprise Sdn Bhd & Anor
In this case, the second defendant had signed a guarantee in favour of the plaintiffs for loans
given to the company in which he was a director. His allegation that he signed under undue
influence was rejected by the High Court.
The Court held that PW1 (an advocate of the law firm acting as solicitors for the bank) was not
in a position to dominate the will of the second defendant as alleged by the second defendant. On
the contrary, the forcefulness of the second defendant's character was demonstrated when the
second defendant got PW1 to meet him at a coffee house instead of going to PW1's office
himself. Further, the lack of independent legal advice did not necessarily point to undue
influence, as the second defendant, being a man wise of the world, had not said that he wanted
legal advice or had asked for it.
2nd Element: Use of Position
Poosathurai v Kannappa Chettiar & Ors
In this case, the appellant alleged that his maternal uncles influenced him to execute a deed of
sale and he sought to cancel the deed.
On the facts, the Privy Council held that it was not proved that the sale was unconscionable or
constituted an advantage unfair to the plaintiff, that is, it was not a sale for undervalue. It is not
sufficient to have mere influence, the influence must be undue in that dominant person has used
his position to obtain an unfair advantage.
Lord Shaw stated:
It is a mistake ... to treat undue influence as having been established by a proof of the relations
of the parties having been such that the one naturally relied upon the other for advice, and the
other was in a position to dominate the will of the first in giving it. Up to that point 'influence'
alone has been made out. Such influence may be used wisely, judiciously and helpfully.
Ibrahim bin Musa v Bahari bin Nciyan (Sued as Administrator of the estate of Chin @ Husin bin
Derwnbang

The plaintiff sought specific performance of an alleged sale and purchase agreement he entered
into with Tok Chin (the deceased). The defendant, as administrator of Tok Chin's estate,
contended, inter alia, that the agreement was brought about by the undue influence of the
plaintiff as the deceased was an illiterate, elderly and feeble man who was subject to the
influence of the plaintiff being in a position of trust and confidence.
The court held that Undue Influence had not been made out and no unfair advantage obtained.
KC Vohrah J stated that:
The evidence of Tok Chin being under the influence of the plaintiff was far from clear. The
plaintiff was his nephew and lived near him but not with him as the defendant tried to make
out ... the plaintiff and his wife did provide food for Tok Chin and his wife but I cannot see from
this relationship the plaintiff's dominance over Tok Chin.
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But even assuming in the context of s 16 of the Contracts Act 1950 the plaintiff was in a position
to dominate the will of Tok Chin it must be shown that the plaintiff used that position to obtain
an unfair advantage over Tok Chin (see Poosathurai v Kanappa Chettiar & Ors [19191 47 IA 1;
Raghunath Prasad v Sarju Prasad AIR 1924 PC 60). But what was unfair? There was no gift by
Tok Chin to the plaintiff of Tok Chin's shares in the 3 pieces of land. There was a sale of those
shares and the price was $3,000.00 and no evidence was adduced to show that the $3,000.00
was an under valuation of the shares in the said pieces of land. I fail to see undue influence.
3rd Element: Unfair Advantage
Saw Gaik Beow v Cheong Yew Weng & Ors
Facts: In this case, the plaintiff sued for specific performance of a sale and purchase agreement
entered into between herself and the first defendant. The first defendant alleged that he had not
given free consent to the agreement as he had been exposed to influence from the plaintiff as his
spiritual advisor.
The Court held that there was no undue influence. The first defendant was an educated,
intelligent and mentally alert man with a strong personality. The agreement was in his clear
handwriting. He also took no steps to repudiate the agreement over the course of six years. The
Court also held that the said transaction was not unfair to the defendants and there was no
evidence that the transaction itself was "wrongful" in that it constituted an advantage taken of the
person subjected to the influence.
The High Court emphasised the requirement that an unfair advantage was obtained and in
this case, referred to it as "manifest advantage".

quite apart from the question of manifest disadvantage, a party relying on the plea of
undue influence would have to show that (a) the other party had the capacity to
influence him, (b) the influence was exercised, (c) its exercise was undue and (d) that
its exercise brought about the transaction (see Bank of Credit & Commerce & Anor v
Aboody [1989] 2 WLR 759, Ibid, at 308.
3 Categories
S.16(2)

Fiduciary

Real/Apparent
Authority

Relationship
(trust &
confidence)

Person with
Defective Mental
Capacity

Real/ Apparent Authority

Khaw Cheng Bok & Ors v Khaw Cheng Poon & Ors ( Father and Son)
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In this case, the deceased was a man of great wealth and the plaintiffs and defendants were his
children and grandchildren, respectively. An issue arose whether the deceased had been unduly
influenced by his third son, Cheng Poon, into making certain gifts. Cheng Poon was the only son
who lived with the deceased and was the deceased's favourite son.
Jeffrey Tan J held that a presumption of undue influence was raised and that it had not
been discharged.
The proved or admitted facts showed that the relationship between the donor and donee at or
shortly before the execution of the gifts had been such as to raise a presumption that the donee
had great influence over the donor - a natural consequence of the condition of the parties.
Fiduciary Relationship (Trust and Confidence)
Tara Rajaratnam v Datuk Jagindar Singh & Ors
The plaintiff agreed to transfer her land as security for an advance of $220,000 to the plaintiff.
The money was to be used to pay off a charge as well as to the first defendant an amount payable
by the plaintiff's brother-in-law for whom the first defendant stood as surety for a loan obtained.
The first and second defendants were advocates and solicitors who prepared the necessary
documents. The plaintiff's land was transferred to the second defendant who bought the land on
behalf of the first defendant. The second defendant had assured the plaintiff that although it was
in the form of a sale, it would remain a security and will be transferred back to her after one year.
Through the collusion of the defendants, the land was eventually transferred to the third
defendant, who was also an advocate and solicitor. In the third defendant's action for possession
of the land, the plaintiff pleaded, inter alia, undue influence.
Abdul Razak J referred to the presumption under s 16(2) of the Contracts Act in relation to
solicitors and applied it to the facts of this case as follows:
But once a person acts as a solicitor then the presumption of undue influence arises, and unless
they can rebut it the property they acquired from their client cannot be allowed to remain in their
hands. Acting as a solicitor intrinsically creates a fiduciary relationship between a solicitor and
his client which the solicitor cannot take advantage of since it imposes an obligation on its part
to act with strict-fairness and openness towards them (Haisbury's, Vol. 26 Para. 131). But a
person need not be having fiduciary relationship with another for undue influence to arise if the
relation between the parties are such that one of the parties is in a position to dominate the will
of the other (s 16(2) Contracts Act).
The evidence led showed that the plaintiff had been asked to sign [the agreement] in
circumstances, if not in terms clearly unfavourable to her when between her, a lay person and
the defendants, very senior lawyers and State Dato', position of respect and dignity in the State,
they were clearly in a position to dominate her will to their advantage.
Tengku Abdullah ibni Sultan Abu Bakar & Ors v Mohd Latiff bin Shah Mohd & Ors and
other

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In this case, the first and second appellants, together with the Ayala Group of Companies from
the Philippines, planned to incorporate..a. proprietary club in Malaysia. They acquired all the
shares in a company called Raintree Development Sdn Bhd (RDB) which owned a piece of land
that was identified as the proposed site of the clubhouse.
Allied Capital Sdn Bhd was incorporated to build the club's premises. The preponderance of the
shares in RDB and Allied were held by the first and second appellants. Later, the shareholders of
RDB sold their shares to Allied. A protem committee of the club was elected and passed a
resolution which authorised the first and second appellants to enter into a share acquisition
agreement on behalf of the club under which the entire capital of RDB was to be purchased by
the club from Allied for RM47 million. The purpose was to acquire the building and the facilities
for the club.
In this case, the Court of Appeal stated that "the categories of fiduciary relations are never
closed" and held that the fiduciary doctrine applied to promoters of a club
Rosli bin Darus v Mansor @ Harun bin Hj Saad & Anor.90 90 [2001] 4 MLJ 206.
In this case, the defendants who were the uncles of the plaintiff failed to rebut the presumption
that undue influence was exercised in the conveyance of the plaintiff's land to them. The plaintiff
had inherited land from his adoptive mother after her death and had subsequently transferred it to
his uncles, the defendants, in equal shares. He later applied for a declaration that the transfer was
null and void on the ground that it was induced by the undue influence of the defendants.
The High Court agreed and set aside the conveyance. The court held that a relationship of
dominion of the uncle towards P could be presumed and D had not rebutted this
presumption.
In Tong Seng Din Bon & Anor v Ban Chap Ah Seng [1987] 2 CLJ 269
The evidence showed that the defendant had fully won over the love and trust of both the
plaintiffs, who were an elderly childless couple, to such as extent that the defendant was treated
like their son. The defendant who was in a position of active confidence of the plaintiffs had
subtly exerted undue influence over them.
The Court set aside the transfer of property from the first and second plaintiffs to the defendant
on grounds of undue influence.
Saiwath Haneem v Hadjee Abdullah(1894)
The parties involved were family members. The plaintiff was the sister in law of the two
defendants, Abdullah and Daud, who were the younger brothers of Arshad, the plaintiff's
husband. During Arshad's absence from Singapore from 1878 to 1889, his property was managed
by Abdullah, who collected his rents, paid for his expenses, and supplied the plaintiff with
money.
The parties were on intimate terms: Abdullah and Daud were frequently in their brother Arshad's
house and had access to the women's quarters. Arshad's sons went to school in Abdullah's house
and frequently went there to play with their relatives. Abdullah was trustee of a house for one of
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the sons. After some negotiations over a family dispute, the plaintiff signed a conveyance of
some properties to the defendants. She sought to set aside the conveyance and the issue of undue
influence was raised. D failed to prove that P had acted of her own volition in executing the
agreement and the conveyance.
Held: the Defendants proved that the transactions challenged by the Plaintiff were right and
proper transactions, that she understood fully what she was doing, and further that she acted
freely and without being subject to undue influence or pressure...
Person with Defective Mental Capacity
In Chemsource (M) Sdn Bhd v Udanis bin Mohammad Nor, 121 the High Court applied the
doctrine of undue influence to a case of a defendant afflicted with Parkinson's disease.
Abdul Malik Ishak J stated:
in my judgment, the doctrine of undue influence can be extended to the situation where
the defendant was so afflicted with the Parkinson's disease that he was unduly influenced to
sign the said agreement. The doctrine must be extended to the situation at hand. Of course, the
defendant must affirmatively prove, at the trial, that the plaintiff had in fact exerted influence
over him and, in consequent thereof, the plaintiff had procured a contract that would otherwise
not have been made by the defendant. [2001] 6 CLJ 79 at 99.
Husband and Wife
Following English cases, the Malaysian courts have held that a mere relationship bet husband &
wife does not give rise to a presumption of UI.
Public Finance Bhd v Lee Bee Rubber Factory S/B
The High Court held that no presumption of undue influence arose by reason of the husband and
wife relationship alone.
Edgar Joseph Jr SCJ stated:
There is ample authority to show that certain classes of relationship by themselves and nothing
more do give rise to a presumption of undue influence; examples are: parent and child (see
Phillips v Hutchinson [1946] VLR 270),
Mayban Finance Bhd v Liew Ek Chiu & Ors [1998] 1 CLJ 56
Steve Shim J stated:
the onus of proof generally lies on the party alleging undue influence. There are however
certain relationships which can give rise to a presumption of undue influence but the case
authorities appear to establish that the relationship of husband and wife is not one of them: see
Public Finance Bhd v Lee Bee Rubber Factory Sdn Bhd & Ors [1994] 1 MLJ 495 on p 505. That
being the position, in the instant case, the 2nd defendant, having alleged undue influence on the
part of the plaintiff and the 1st defendant, the onus would be on her to prove it. Ibid,at 6l.

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The latest statement of the law on this issue at common law as decided in Royal Bank of
Scotland v Etridge (No 2)
HOL held: A wife's guarantee of her husband's business debts is not to be regarded as prima
facie evidence of the exercise of undue influence by husband, though there will be cases which
call for an explanation.
Burden of Proof

S.16(3)(a)

When the exercise of UI has been established/presumed, the burden of proof then shifts to the
person accused of exerting UI to prove that the transaction was right and proper and that the
other party acted freely without any undue influence on his part.
Raghunath Prasad v Sarju Prasad
Salwath Haneem v Hadjee Abdullah
Disprove of UI or Rebutting the Presumption

One of the common ways to prove that a party has acted of his own free will is to show
that independent legal advice had been obtained before the complainant signed the
alleged document.

However, the fact that legal advice had been obtained will not, in itself, necessarily rebut
any presumption of undue influence.

Inche Noriah v Shaik Allie bin Omar

Royal Bank of Scotland plc v Etridge (No 2)

Undue Influence by 3rd Parties

It has been established that a contract resulting from UI exerted by a 3rd party (i.e. person not a
party to the contract) is voidable.
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Malaysian French Bank Bhd v Abdullah bin Mohd Yusof

By a letter of guarantee executed by the first and second defendants and by a second letter of
guarantee executed by the third and fourth defendants, the four defendants agreed to guarantee
payment of all moneys due and payable by Syarikat Samaria Supply. The third and fourth
defendants later alleged that the first defendant had exercised undue influence to induce them to
execute the guarantee agreement.
The High Court, while holding that a person not a party to the contract can commit undue
influence, found on the facts that the mere allegations of the third and fourth defendants
were not sufficient to raise the issue of undue influence.

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