No gun to the head

Photo by Max Kleinen on Unsplash

A contract will seldom be formed as a result of actual violence but threats of violence are more probable. Violence or the threat of violence must be of such a nature that they are enough to overwhelm a mind of ordinary firmness. Colloquially, one might say that there should be no literal gun placed to the head of another person in order to get them to enter a contract. Force and fear will have the effect of making the putative contract void. Threats to take legitimate legal action against someone do not fall into the category of force and fear.

I was reminded of this area of contract law today when reading a report of the activities of the Sicilian Mafia which is responsible for a €10 million agricultural fraud involving European Union subsidies. The Mafia has become particularly adept at creaming off these subsidies over many decades.

One of the features of the most recent fraud to be exposed is the time honoured Mafia practices of extortion and intimidation: law abiding Sicilian landowners are pressurised to sell their land to criminal enterprises which then go on to ‘milk’ the seemingly bottomless pit of EU subsidies. In the parlance of The Godfather, these law abiding citizens are made an offer they can’t refuse and, in the absence of effective law enforcement combined with the traditional weakness of the Italian State, what else are they supposed to do? It would take an extremely brave person (perhaps foolhardy) to stand up to such threats.

A link to the story about the activities of the Sicilian Mafia as reported in The Independent can be found below:

https://edition.independent.co.uk/editions/uk.co.independent.issue.160120/data/9285206/index.html

When introducing students to the law of contract, one of the first Scottish cases that I discuss with them is several hundred years old – Earl of Orkney v Vinfra (1606) Mor 16481.

It tends to stick in their minds – possibly – because of its particularly lurid details. I often say to the students that the story reads like something from either The Godfather Trilogy or The Sopranos TV series.

Andrew Vinfra was summoned to the Earl’s castle. He was presented with a deed (a formal document) by the Earl, the feudal overlord of the Islands, and he was ordered to sign it. The document was an agreement that Vinfra was to pay the Earl the sum of 2,000 Merks. Vinfra had no intention of agreeing to this proposition, whereupon the Earl started to curse and swear at him. The Earl then bluntly declared to Vinfra that he would drive his whinger (dagger or dirk) into Vinfra’s skull. The terrified Vinfra’s resolve completely crumbled at this point and he signed the document. He was wise to do so: the Earl had a notorious reputation for thuggery and violence. Murder was well within his capabilities.

Later, when at a safe distance from the Earl, Vinfra took steps to have the contract declared void on the grounds that he had signed the document because the Earl had used force and fear. The Earl attempted to pass off the incident as high jinks, but Vinfra was able to prove that his fear of being murdered was genuine. The court declared that the agreement was void: it had not been entered into voluntarily by Vinfra. It could not be enforced by the Earl against Vinfra. It was treated as if it had never existed.

The students, of course, love the drama of Vinfra’s ordeal and they naively scoff that this situation wouldn’t happen today …

My riposte to that attitude is to remind them that there are places not too far from Scotland where organised crime is a feature of daily life. The latest report of events from Sicily tends to bear this out.

Further reading about the Italian Mafia organisations and its ‘business’ activities can be found below:

  • Mafia Business: The Mafia Ethic and the Spirit of Capitalism by Pino Arlacchi (1986: Verso Books)
  • Cosa Nostra: A History of the Sicilian Mafia by John Dickie (Hodder: 2007)
  • Mafia Republic: Italy’s Criminal Curse. Cosa Nostra, ‘Ndrangheta and Camorra from 1946 to the Present by John Dickie (Sceptre: 2014)
  • The Sicilian Mafia: the Business of Private Protection by Diego Gambetta (Harvard University Press: 1996)
  • Gomorrah: Italy’s Other Mafia by Roberto Saviano (Picador Classic: 2012)

Copyright Seán J Crossan, 17 January 2020

I’m a climate activist, don’t fire me!

Photo by Stock Photography on Unsplash

Today seems to be something of a red letter day for the Blog with regard to the issue of protected philosophical beliefs in terms of the Equality Act 2010.

We have already heard the news that Jordi Casamitjana has won the part of his Employment Tribunal claim that his ethical veganism is a philosophical belief in terms of Sections 4 and 10 of the 2010 Act (see Casamitjana v League Against Cruel Sports [2020]).

It was some interest that another news item popped up today concerning allegations that Amazon stands accused of threatening to dismiss those of its employees who become involved in climate protests. I would hazard a guess that Amazon is making a statement of intent that it may dismiss employees who perhaps break the law when they are involved in climate protests such as those organised by Extinction Rebellion and other similarly minded groups.

Criminal acts by employees committed outside the workplace could be regarded as gross misconduct in terms of Section 98 of the Employment Rights Act 1996. In other words, such behaviour by employees could result in the employer suffering reputational damage and, consequently, any dismissal for misconduct could be potentially fair. That said, employers should always carry out the proper disciplinary procedures when contemplating dismissal as the ultimate sanction for employee misbehaviour.

The real gripe – according to Amazon Employees for Climate Justice – is that the tech company allegedly objects to employees speaking critically about its failure to be more environmentally responsible.

Yet, there are potential dangers here for Amazon in the UK. In Grainger plc v Nicholson (2010) IRLR 4, the Employment Appeal Tribunal established that an employee’s belief in climate change could constitute discrimination on the grounds of a philosophical belief.

So, we could have situation where Amazon employees who are taking part in quite peaceful and lawful climate change protests end up being dismissed. This would open up the possibility that employees of Amazon UK might have the right to bring claims for direct discrimination (Section 13: Equality Act 2010) in respect of their philosophical beliefs (Sections 4 and 10 of the Act).

In the USA, there could be even more serious legal implications – infringing the right to free speech which is protected under the Constitution.

Perhaps Amazon needs to go back to the drawing board …

A link to an article on the BBC News App can be found below:

Amazon ‘threatens to fire’ climate change activists

The company said employees “may receive a notification” from HR if rules were “not being followed”.

Related Blog article:

https://seancrossansscotslaw.com/2019/06/05/im-a-political-activist-dont-sack-me/

Copyright Seán J Crossan, 3 January 2020

Termination of contract

Photo by Craig Whitehead on Unsplash

It has just been announced that the well known UK construction company Balfour Beatty has just had a contract terminated by one of its clients.

The client in question is MI6 or the UK Special Intelligence Service, the equivalent of the CIA and the employer of Britain’s best known (but fictional) spy – James Bond. The Service is based at Vauxhall Cross on the River Thames.

Termination of contract can be a pretty dry area, but mix it in with the world of secret intelligence services and you have a story that will be of interest to a potentially large audience.

Who cares?

The company’s shareholders will almost certainly care about this and a large part of the public will be keenly interested to know the facts behind this development.

What went wrong?

Balfour Beatty had been contracted to refurbish the HQ of MI6. In order to carry out the job, the company had in its possession floor plans of the building. Somehow these plans went missing – although they were later recovered – but too late the damage had been done.

Mindful of the mind boggling ramifications of this huge security breach, the UK Foreign Office, which has overall responsibility for the work of MI6, promptly removed Balfour Beatty from further involvement in the middle of the refurbishment project.

A link to the story as reported in The Financial Times can be found below:

https://www.ft.com/content/81d4ac8c-28d9-11ea-9a4f-963f0ec7e134

I would assume that the Foreign Office is on pretty safe legal ground when it made the decision to terminate Balfour Beatty’s contract. The loss of highly confidential documents by the company could represent nothing less than a material breach of contract. This arises in situations where one of the parties acts in such a way that it completely undermines the contract. The breach, in other words, is so serious because it goes to the very roots of the contract.

The victim of the breach can then potentially use the remedy of rescission i.e. terminate the agreement. The remedy of damages is also available to the victim.

Rescission is actually a much more common remedy than you otherwise might think. In terms of both the Sale of Goods Act 1979 and the Consumer Rights Act 2015, a buyer may choose to terminate a contract of sale in situations where the trader supplies goods that fail to comply with, for example, the implied duty of satisfactory quality.

In employment contracts, an employer is entitled to dismiss an employee in circumstances where the individual commits an act of gross misconduct (theft, violence, gross negligence or failure to follow lawful orders). The Employment Rights Act 1996 recognises that there will be situations where the employer is entitled to terminate the contract of employment and there will be nothing unfair or wrongful about the dismissal (presuming, of course, that proper disciplinary procedures have been followed).

In the well known Scottish employment law decision of Macari v Celtic Football & Athletic Club [1999] IRLR 787 SC, a football manager had his contract terminated quite legally by his employer owing to the fact that he had repeatedly failed to follow lawful and reasonable orders. This failure by the employee to honour the terms of his contract was nothing less than a material breach of the agreement.

Conversely, an employee may choose to regard the employment contract as terminated in situations where the employer has breached the implied duty of trust and good faith. This could occur where the employee was subjected to bullying and harassment by colleagues and the employer (being aware of this) does nothing meaningful or concrete to deal with this. In the face of the employer’s indifference (or collusion), the employee could regard him/herself as constructively dismissed.

Particularly serious for the employer could be situations where the bullying or harassment are motivated by hostility towards an individual’s protected characteristic in terms of the Equality Act 2010 e.g. age, disability, gender reassignment, race, religion or belief, sex, sexual orientation.

Back to Balfour Beatty: it looks as the company has no one to blame for this mess, but themselves. MI6 or the Foreign Office obviously felt that the loss of sensitive (Top Secret?) documents was such a serious development that there was no choice to terminate the contract with immediate effect.

Copyright – Seán J Crossan, 29 December 2019

Hitman (or woman) for hire

Photo by Dimitri Houtteman on Unsplash

Implausible or unlikely as the above Blog title may sound, you can apparently hire people to carry out murders on your behalf – quite easily.

How did I find this out? Simply by chancing upon another Blog article on WordPress. This article exposed one chilling aspect of modern life: the reality of the so called ‘dark web’. This is an unregulated part of the internet where all sorts of criminal activities (arms dealing, drugs, human trafficking, prostitution – and even murder for hire) can be accessed.

The article in question (see the link below) discussed a situation where someone arranged the murder (or a ‘hit’) on their stepmother for $5:

https://wordpress.com/read/feeds/22973954/posts/2522423606

We often think of contract killings as being something straight out of Hollywood. After all, one of the most popular movies currently being aired on Netflix is ‘The Irishman‘ (directed by Martin Scorsese) which depicts the life and times of Frank Sheeran, an enforcer for the Mafia. In one of the scenes, an enquiry is put to Sheeran by Russell Bufalino, a Mafia boss: ‘I hear you paint houses?’ Painting houses has nothing to do with interior decoration, but rather that Sheeran is a gun for hire.

Going back a few years, a terrific (and underrated) Hollywood movie starring Brad Pitt and the late, great James Gandolfini (‘Killing Them Softly’) had scenes with the main character, Jackie Cogan (played by Pitt) negotiating contract killings with a Mafia lawyer – as if this was a normal business transaction (in certain worlds/sub-cultures it will be).

It so happened this morning, that I was discussing the law of contract with a group of students. In particular, I had planned to talk to them about void contracts. The above article was, therefore, something of a fortunate discovery in that arranging the murder of another person (for a fee) is a really graphic example of a void agreement. In other words, such an agreement is a criminal conspiracy.

I also have to add that I was pretty shocked at the very low value placed on the potential act of taking of another human life.

If an agreement (or part of it) is deemed to be void, it can have no legal force – it is as if it never existed. Neither party to the agreement can enforce it. So, if the person who hired the killer was unhappy that the murder had not in fact been carried out or had been botched in some way, would they have any legal redress?

I hope you answered absolutely not! The law would be a complete ass if participants in criminal conspiracies were able to enforce their agreements in the civil courts on the basis of contract law. Such a situation would positively encourage people to enter into all sorts of questionable activities.

It reminds me of the case recounted to my first year law class by Professor John Huntley many years ago (Everet v Williams [1725] 2 Pothier on Obligations 3 9 LQR 197). He told the story of the two highway robbers who agreed to split the proceeds of their crimes on a 50/50 basis. One of the robbers made off with the stash leaving his partner in crime with nothing. This unfortunate individual took legal action to recover his share. As Professor Huntley concluded, when the judge discovered the background to the legal action, he was very fair: he ordered that the two highwaymen should be put to death by hanging.

That is the moral of the story: if you get involved in a criminal conspiracy, the law does not offer you any protection if you are cheated by your partners in crime. Furthermore, silence (on your part) is probably a sensible option because to attempt to recover your share of the ill gotten gains would amount to a confession of guilt on your part. Don’t be naive and think you could be vague about the background to the legal action; the judge will almost certainly want to know why you are raising an action to recover a debt or items of property.

Copyright Seán J Crossan, 18 December 2019

Dieselgate (or truth through engineering or vorsprung durch teknik …)

Photo by Cesar Salazar on Unsplash

Readers may recall a previous blog – “If only everything in life was as reliable as a VW …” in which I discussed the legal problems the Audi/VW motor corporation was facing as a result of the emissions scandal which affected the corporation’s diesel vehicles:

https://seancrossansscotslaw.com/2019/03/16/if-only-everything-in-life-was-as-reliable-as-a-vw/

A link from the The Guardian’s website can be found below which discusses the background to the emissions scandal:

https://www.theguardian.com/business/ng-interactive/2015/sep/23/volkswagen-emissions-scandal-explained-diesel-cars

Misrepresentation?

Essentially, it is alleged that Audi/VW Group deliberately misrepresented data about the environmental impact of its vehicles (principally in relation to its diesel models) in a cynical attempt to increase sales. Environmentally minded consumers may well have been heavily influenced by the favourable presentation of emissions data when considering whether to purchase a new diesel vehicle.

The issue of misrepresentation is a factor which can invalidate a contractual agreement. The Audi/VW scandal is an excellent discussion point for this area of contract law as I often remark to my students.

If one party (e.g. a seller of goods) makes exaggerated or false claims (the misrepresentation) about a product in order to encourage or induce a buyer to enter the contract, the buyer may be decide to treat the agreement as voidable. This will mean that the buyer may have the right to the following remedies:

  • Rescission (or cancellation) of the contract; and/or
  • An award of damages

Critically, the innocent parties must be able to demonstrate to the courts that the misrepresentation actively encouraged them to enter contracts. It is not enough to say that a false statement has been made therefore the contract should be cancelled or there is an automatic entitlement to damages. The false statement must have influenced the decision of the innocent parties to enter into a legally enforceable agreement.

In Scotland, three types of misrepresentation have been recognised by the courts since the decision of the House of Lords in Hedley Byrne & Co Ltd Heller and Partners Ltd [1964] AC 365:

  • Innocent (no intention to deceive/an honest mistake)
  • Negligent (a statement carelessly made)
  • Fraudulent (a deliberate intention to deceive)

In the United States of America, the Group has had to pay out a huge amount of money in the form of fines to the regulatory authorities and compensation to consumers who bought the offending motor vehicles.

Well, Dieselgate (which is the moniker which seems to have stuck to this particular scandal) has at last come to the United Kingdom.

Class action

Today, in the English High Court in London, lawyers representing approximating 90,000 customers of Audi/VW have initiated the UK largest class action for damages against the Group.

Audi/VW are countering this action by stating that the claims are essentially misconceived because none of the litigants has suffered a loss.

Interestingly, the English High Court action presents me with the opportunity to highlight a key difference between Scotland and England in relation to misrepresentation. South of the border, the Misrepresentation Act 1967 applies and victims of a false statement (even one innocently made) are entitled to claim damages.

This is a case which is set to keep on running for the foreseeable future …

… we await developments with interest.

Links to the story from the BBC’s and The Guardian’s websites can be found below:

Volkswagen: UK drivers fight for ‘dieselgate’ compensation

Tens of thousands of UK car buyers start a compensation claim over the Volkswagen emissions scandal.

https://www.theguardian.com/business/2019/dec/02/vw-accused-of-using-innovative-defences-in-high-court-battle

Copyright Seán J Crossan, 2 December 2019

Pay up! (or Frustration of Contract Part 3)

Photo by Alex on Unsplash

In a number of previous blogs (Stormy Weather, I’m at the end of my tether! Locking Horns; and Frustration of Contract?), I discussed the issue of termination of contract when unforeseen factors outwith the control of the parties intervene.

It might be the destruction of the subject matter of the contract; death of one of the parties in an agreement involving the provision of personal services; or even particularly bad weather or unforeseen events.

Potentially, these factors may frustrate the contract in the sense that it can no longer be carried out or performed in the manner which the parties originally intended. In such cases of genuine frustration, the contract or agreement is terminated and the parties are discharged from their obligations.

There have been some famous cases over the years with frustration of contract at their heart:

  • Taylor v Caldwell [1863] EWHC QB J1; 122 ER 309;3 B. & S. 826
  • Krell v Henry [1903] 2 KB 740
  • Herne Bay Steam Boat v Hutton [1903] 2 KB 683
  • Vitol S.A. v Esso Australia Ltd. (The Wise) [1989] 1 Lloyd’s Rep. 451

A contract is not frustrated if it becomes more expensive or difficult to perform or if the alleged frustrating event could have been foreseen (and presumably dealt with) (see Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 and Tsakiroglou & Co Ltd v Noblee Thorl GmbH [1962] AC 93).

The Emiliano Sala Affair

This leads me back to a story which I have been following with interest over the last few months: the tragic death of the Argentinian footballer, Emiliano Sala in a plane crash over the English Channel in January 2019.

It will be recalled that Sala’s former Football Club, the French side FC Nantes had just agreed to him transferring to the English Premier League side, Cardiff City FC. The transfer fee was £15 million, but shortly after the accident, Cardiff City claimed that the transfer had not gone through and it had no obligation to pay the first part of this figure. In other words, Sala was never an employee of Cardiff City according to this argument because the paperwork had not been finalised.

In normal circumstances, where a contract involves the provision of personal services (and a contract of employment certainly fits into this category), the death of a new or prospective employee would tend to terminate the agreement. Death is pretty much the ultimate frustrating factor – especially in cases involving unforeseen deaths.

The world of top flight football, however, would seem to be different and does not seem to be bound by the considerations that govern us mere mortals.

FIFA, the governing body, has now spoken and determined that Cardiff City will have to pay the first part of the transfer fee (£5 million in case you’re asking) to FC Nantes. Failure to do so may result in FIFA sanctions being imposed on Cardiff (a signing ban).

Please find a link below to the FIFA press release:

https://www.fifa.com/about-fifa/who-we-are/news/fifa-players-status-committee-renders-decision-on-transfer-of-late-emiliano-sala

It would seem that FIFA rules transcend events such as death which ordinarily would throw a spanner in the works in the context of an ordinary employment contract situation.

Cardiff City can appeal against the decision of FIFA by going to the Court of Arbitration for Sport and, in October 2019, the Club indicated that it would so:

https://www.theguardian.com/football/2019/oct/02/cardiff-appeal-cas-court-of-arbitration-sport-emiliano-sala-transfer-fee-fifa

Ultimately, whatever way this tragic story ends, I can’t help but wonder whether FC Nantes or Cardiff FC had the foresight to insure Sala’s life in the event of untimely and unforeseen death. Sadly, the fact that a young man with a promising future died in a horrible accident seems to have got lost along the way while Nantes and Cardiff polish up their legal arguments.

Links to the story can be found below:

Emiliano Sala: Fifa rules Cardiff must pay first instalment of £5.3m to Nantes

Cardiff City have been told to pay the first instalment of £5.3m to Nantes for striker Emiliano Sala, who died in a plane crash.

https://news.sky.com/story/cardiff-city-face-signing-ban-if-they-dont-pay-emiliano-sala-transfer-fee-11854081

Copyright Seán J Crossan, 23 November 2019

Undue influence?

Photo by Simon Rae on Unsplash

A recent case in the Outer House of the Court of Session dealt with the issue of undue influence between a mother and her daughter, but don’t jump to conclusions – yet.

We often think of parents exercising a huge amount of influence over their children – especially when they are younger. This is a necessary condition of life. We trust and hope that our parents and guardians will use this influence for our benefit.

As the years go by, children naturally enough want to take control and make their own decisions – good or bad – in spite of parental opinions. Making your own decisions can be an example of youthful rebellion or a sign of growing maturity and confidence – depending on the type of relationship that we have with our parents.

I want to flip this discussion around and change focus. What if the influence in the relationship is going in a different direction? What if it is the child rather than the parent who is the influencer (to use a fashionable term)?

This is not a particularly unusual situation: many people with older parents (and we do live in what seems to be a rapidly ageing society in Scotland and the rest of the UK) will be acting in a very sound legal fashion if they set up a power of attorney to make decisions on behalf of their parents.

We all hope that our parents will remain healthy in old age and will continue to enjoy their independence, but what if the day comes when parents can no longer exercise their autonomy in decision making. The power of attorney facility in Scots Law allows children (or other relatives) to make vital decisions on behalf of their ailing parents. In short order, the power of attorney is something most of us would rather not use; it’s an insurance policy when the worst happens allowing us to make those vital decisions about parental healthcare and the management of family assets.

The case in question was Adeline Margaret Wilson v Peter Watkins & Another [2019] CSOH 44 where Lord Brodie concluded in his Opinion that there was no evidence of undue influence which would have rendered the course of dealings (the transfer of ownership of the parental home) between mother and daughter suspect or dubious in any meaningful way.

In this case, the mother (Mrs Wilson) had invited her daughter and her son-in-law (Mr Watkins) in 2012 to come and live with her. Mrs Wilson had gained title to her home following the death of her husband some years before. The Watkins sold their property in order to move in with Mrs Wilson.  The trio enjoyed a good relationship at first and, some time later (2013), Mrs Wilson transferred the ownership of the property to her daughter by way of a disposition (although she reserved a liferent to herself permitting her to remain living in the house). There appears to have been a falling out in 2015 and Mrs Wilson left the home to move in with her other daughter.

A legal challenge was lodged by Mrs Wilson at the Court of Session in order to have the disposition (the conveyance of title) set aside i.e. made voidable on the grounds that Mrs Watkins (and her husband) had exercised undue influence by persuading her to transfer the ownership of the property to them.

As Lord Brodie emphasised, the relevant judicial precedent in Scotland is Gray v Binny (1879) 7 R 332 which contains Lord Shand’s four part  test addressing the issue of undue influence.

In the essence, the key elements of this test are as follows:

(1) that there was a relationship which created a dominant and ascendant influence,

(2) that the relationship was one of confidence and trust,

(3) that a material and gratuitous benefit had been given to the
prejudice of the granter, and

(4) that the granter had been without the benefit of any independent advice at the material time.

Critically, Lord Brodie was of the view that Mrs Wilson’s case failed to satisfy elements 2-4 of the Shand criteria. Put simply, the mere existence of the relationship of parent and child did not of itself prove that undue influence had affected the transaction or legal dealings between the parties to the dispute. Mrs Wilson’s case was therefore without merit and was not permitted to proceed to trial or proof.

As a point of interest, the Watkins had submitted a counter-claim of £45,000 in respect of an allegation of unjust enrichment against Mrs Wilson had the issue of undue influence been permitted to proceed to proof. This figure represented the sum which the Watkins had used from the sale of their own house to make improvements to Mrs Wilson’s home prior to the falling out of the trio.

A link to Lord Brodie’s Opinion can be found below:

https://www.scotcourts.gov.uk/docs/default-source/cos-general-docs/pdf-docs-for-opinions/2019csoh44.pdf?sfvrsn=0

The effect of undue influence

Undue influence potentially renders a contract or legal transaction voidable so that it may be rescinded or cancelled. It is therefore a factor which can undermine the validity of contracts or legal transactions.

If rescission, however, is being sought as a remedy by one of the parties to the contract as a remedy, there must be no delay in claiming relief after the influence has ceased to have an effect. Delay in claiming relief in these circumstances may bar the claim since delay can be used as evidence of affirmation or agreement.

Undue influence can perhaps occur particularly in the following types of relationship: parent and child; and husband and wife.

There will, of course, be other relationships where a stronger party may exert a particularly negative influence on the weaker party, for example, members of a religious cult who unquestionably obey the orders of their spiritual leader (see both the English decision of Allcard v Skinner (1887) 36 Ch D 145 and the Scottish decision of Anderson v The Beacon Fellowship (1992) S.L.T. 111 which I discuss in Chapter 2 of Introductory Scots Law: Theory & Practice )(3rd Edition)).

During the 1990s, the issue of undue influence in connection with the relationship of husband and wife was given much needed judicial clarity Several cases were brought before the Scottish and English courts regarding the issue of undue influence in the marital relationship and all of these cases had remarkably similar facts, whereby the pursuers, a number of wives, alleged that they had agreed to re-mortgage the marital home so that a bank would lend money to their husbands (usually, but not always, for business purposes).

These wives claimed that they had not been given sufficient information by their husbands when they had agreed to approve what later turned out to be very risky transactions. Some of the pursuers had not sought independent legal advice before agreeing to take out the second mortgage.

Initially, the House of Lords, in Barclays Bank plc v O’Brien [1993] UKHL 6, stated that a married woman (or cohabitee) must be regarded as a special, protected class of guarantor when agreeing to guarantee her husband’s (or partner’s) debts because of the nature of the relationship. The bank should be on alert for signs of undue influence which would undermine the validity of the transaction. Their Lordships were of the opinion that the bank should be placed under a duty of care to ensure that the wife or the cohabitee had had the benefit of independent advice.

Their Lordships, however, rowed backed slightly from this position in a subsequent English case: CIBC Mortgages v Pitt [1994] 1 AC 200. In other words, the legal position on undue influence as factor which might undermine a legal transaction was evolving. In Pitt, a wife was not allowed to succeed in her claim of undue influence because the mortgage was in the names of both husband and wife and, therefore, she was benefiting from the transaction.

The decision of their Lordships in Barclays Bank plc v O’Brien was, however, not followed by the Inner House of the Court of Session in Mumford v Bank of Scotland 1996 SLT 392 where it was held that banks are not under a general duty to explain all the material circumstances of a loan to someone who has guaranteed it.

In Smith v Bank of Scotland [1997] UKHL 26, the House of Lords attempted to bring Scots law into line with English law. Lord Clyde stated that there were a number of sound reasons for attempting to harmonise the laws of Scotland and England:

“I am not persuaded that there are any social or economic considerations which would justify a difference in the law between the two jurisdictions in the particular point here under consideration. Indeed when similar transactions with similar institutions or indeed branches of the same institutions may be taking place in both countries there is a clear practical advantage in the preservation of corresponding legal provisions.”

In a further English case, Royal Bank of Scotland PLC v Ettridge (No. 2) [2001] UKHL 44 the House of Lords appeared to retreat from the position that it had originally laid out in Barclays Bank v O’Brien (1993) whereby that married women or cohabitees should be regarded as a special, protected class of guarantor. The House of Lords in Ettridge has stated that undue influence will not be automatically presumed merely because the parties to a transaction are husband and wife.

In a series of of subsequent cases (Forsyth v Royal Bank of Scotland PLC (2000) SLT 1295, Clydesdale Bank Ltd v Black (2002) SLT 764 and Royal Bank of Scotland PLC v Wilson & Ors (2003) ScotCS 396), the Inner House of the Court of Session refused to accept the automatic presumption that wives were unduly influenced by their husbands. Misrepresentations by the husband were more likely to have induced the wives to agree to become guarantors rather than any hint of undue influence. Misrepresentation, of course, a completely separate factor which can potentially render a legal transaction voidable.

In Mumford v Bank of Scotland (1996), Lord Hope made the following statement which (I think) sensibly sums up the approach taken by the Scottish courts in these types of cases between husbands and wives:

There is no indication in this passage that a presumption of undue influence can arise merely from the nature of the transaction and the fact of the relationship. What is important is the effect of that relationship in the particular case, with the result that each case must be examined upon its own facts.” [my emphasis].

In conclusion, I think that Lord Hope hit the nail on the head: the mere existence of a relationship where influence could be abused does not of itself mean that anything underhand has occurred and, therefore, each case will have to be approached on its own merits.

Copyright Seán J Crossan, 26 October 2019