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Held The defendant's appeal was allowed on the basis that Mr Head had breached the duty of fiduciary care he owed the defendant by using their special and confidential relationship to apply undue influence, and not advising him or giving him the opportunity to seek independent advice despite the conflict of interest existing in the circumstances.
Analysis of reasons Existence of duty to provide fiduciary care Lords Denning, Cairns and Sachs agree that the bank was bound by this duty due to the elements of trust and confidence present in its relationship with Mr Bundy. Lord Sachs makes further mention of the idea of confidentiality, which imports some quality beyond that inherent in the confidence that can well exist between trustworthy persons who in business affairs deal with each other at arm's length. It is agreed that the trust and confidence/confidentiality gives the bank influence over Mr Bundy, thus producing the obligation of fiduciary care. Breach of duty The three Lords agree that said duty has been breached with the bank's exercise of undue influence by abuse of its relationship with Mr Bundy in a situation of conflict of interest. They also concur that intention of wrongdoing is immaterial, as one who stipulates for an unfair advantage may be moved solely by his own selfinterest, unconscious of the distress he is bringing to the other, but still be guilty of a breach of duty; and that there need not be a domination of will as (strained) consent may not guarantee a fair contract. However they differ in their approach to determining when a breach occurs. While the general consensus is that in the vast majority of cases a customer who signs a bank guarantee/charge cannot get out of it, Lord Denning proposes that the identification of voidable contracts can be achieved by deciding whether a case falls under any of the 5 categories of situations in which inequality of bargaining power occurs, whereas Lords Sachs and Cairns prefer a meticulous examination of the facts of each case on its own. *Lord Sachs suggested that it was neither feasible nor desirable to closely define how a breach of duty occurs, possibly expressing his dissent with Lord Denning's proposed system of classification. Voidability of contract Under Lord Denning's system of classification, the present case clearly falls under the third category of undue influence, where the stronger party (the bank) abuses its special relationship with the weaker party (Mr Bundy) to gain an unfair advantage for itself, thus rendering the resultant contract voidable. Under Lords Sachs and Cairns' meticulous examination, Mr Head's position as last in a chain of those who had over the years earned the trust of the Bundy's and the bank's knowledge of Mr Bundy's assets and solicitor made Mr Head's failure to explain the company's affairs very fully and the lack of opportunity/advice for Mr Bundy to seek independent counsel factors which rendered the contract voidable.
Nevertheless, all judges agree that there is clear precedent for voiding the contract from the second type of undue influence cases referred to by Cotton L.J. in Allcard v. Skinner [1887] 36 Ch.D. 145, 171 undue influence using a special relationship.
Case note by Toh Jia Jun, 14 Oct 2011 Denning Duress of goods: Stronger demands more than is justly due of the weaker, who pays it as he is in urgent need of the goods as in payment of tolls unlawfully demanded under threat of seizure of goods in Maskell v. Horner [1915] 3 K.B. 106 Unconscionable transaction: A man in need of special care and protection (e.g. Being ignorant) is exploited by another, who buys his goods at a gross undervalue as in selling of lands at grossly inadequate price to neighbour by senile woman in Knupp v. Bell (1968) 67 D.L.R. (2d)256 Undue influence: Stronger, either through fraud / wrongful act or by abusing special relationship with weaker, gains special advantage for himself as in abuse of fiduciary relationship in Tate v. Williamson (1866) 2 Ch.App. 55, 61 Undue pressure: Stronger exerts pressure upon the free and voluntary agency of the weaker as in pressure exerted by bank on guarantor in Williams v. Bayley (1866) L.R. 1 H.L. 200 Salvage agreements: Rescuer makes agreement on manifestly unfair and unjust terms with person in distress as in demand of 1000 for tow of vessel in distress in The Port Caledonia and The Anna [1903] P. 184