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Equity and commerce have never been comfortable bed-fellows. The former demanded flexibility and latter certainty. One of the areas where this clash has become apparent with unfortunate consequences for the cohesion of the law of Restitution is the doctrine of undue influence. A new and disappointingly consistent chapter has been added to this story.

The facts of Barclays Bank v. Caplan are depressingly familiar. Entrepreneur husband influences his wife to give security over the family home. The business fails and the security is called in. The twist in Caplan is that Pauline Caplan had executed four security agreements. In the first the bank saw that she had independent legal advice. Thus, notwithstanding the fact that she was unduly influenced, the security was set aside. However, notwithstanding this antecedent legal advice, when the subsequent security was executed, no separate advice was given and those guarantees were set aside for undue influence.

Disappointingly the Court of Appeal seemingly continued in the vein of the previous House of Lords decisions (Barclays Bank v. O'Brien, CIBC Mortgages v. Pitt) and chose to see undue influence as a defendant sided unjust factor. To force this into the framework they were dealing with, i.e. an essentially innocent third party, they had to fix banks with a strikingly suspect "constructive notice." Therefore, provided they comply with the necessary formalities there will be no basis for setting aside the security.

Surely far more preferable and consistent is the approach of the High Court of Australia in CAB v. Amadio where Mason J (as he then was) distinguished between setting aside agreements for undue influence, a PLAINTIFF sided factor, and setting aside agreements for unconscionability, a defendant sided factor with a particularly high threshold. There have been hints of confusion in the English cases, particularly where the Lords refer to "wrongful or improper conduct" or "a species of fraud", but not on behalf of the defendant, but the third party.

The real reason for this, one suspects, is that Lord Browne-Wilkinson, as he unashamedly confessed, was keen to preserve the value of the family home as security. This agenda has received black and white endorsement by the Court of Appeal in Caplan. However, it does so at the risk of doctrinal impurity, and with the attendant risk of driving up the transaction cost of security. One suspects that there are few cases of undue influence that could not be dealt with by a sterner examination of the facts and less squeamish County Court judges. Where there are genuine cases of undue influence (and I would suggest the word "undue" has a hegemony of understatement), and the assets cannot be recovered under section 423 of the Insolvency Act (transactions defrauding creditors), well then those are the people whom equity should properly assist.

COLIN RIEGELS, LL.B., B.C.L. (Axon)
Barrister
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