Last week, we considered the recent case of Islam v Islam [2024] EWHC 1082 (Ch), with a particular emphasis on the truth behind sham property trusts. You can find that earlier article here.
In this second article, we:
- examine the subject of undue influence and how these principles came to be applied in Islam v Islam
- consider the validity of trust deeds or transactions obtained through such means
- review the approach of the courts to disputes involving undue influence.
Introduction
Islam v Islam was a family dispute concerning multiple properties and land in the East of England. The court was primarily asked to determine the beneficial shares in the various properties as between different members of the family, under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA).
We will not rehearse the facts of the case here, but further details on the background to the case can be found in our first article.
One of the issues that arose in the case was an allegation of undue influence by Tajleena. It was claimed by Tajleena that her signatures to various declarations of trust, declaring the beneficial interests in the properties, as well as a transfer of some of the properties, were obtained by undue influence and should, therefore, be set aside. The declarations of trust and transfers in question had the effect of reducing Tajleena’s beneficial interest in the properties. Tajleena did not wish to be bound by those documents and sought a declaration from the court that she remained a 50% owner of the properties.
What is undue influence?
The objective of the doctrine of undue influence is to ensure that the influence of one person over another is not abused. It can apply to a wide variety of transactions, such as gifts, transfers of property (especially those at an undervalue), loans, guarantees, and so on.
If a person intends to enter into a transaction, but that intention was produced by means which lead to the conclusion that it ought not fairly be treated as the expression of the person’s free will, the law will not permit the transaction to stand.
Broadly, there are two forms of unacceptable conduct.
- The first comprises overt acts of improper pressure or coercion, such as unlawful threats or the deliberate concealment of information. This form of undue influence is referred to as actual undue influence.
- The second arises out of a relationship between two people where one has acquired a measure of influence or ascendancy over the other, which is then taken advantage of by the dominant party. In certain relationships (e.g. parent and child, guardian and ward, trustee and beneficiary, solicitor and client, medical and spiritual advisers and their followers or patients) the law presumes that one party has influence over another. Where a relationship of influence is found to exist, the court will then examine whether a disadvantageous transaction between the parties calls for an explanation. This form of undue influence is referred to as presumed undue influence.
How much influence is too much influence?
The leading authority on undue influence remains the decision of the then House of Lords in Royal Bank of Scotland v Etridge. Lord Nicholls described the principles of the doctrine as follows:
“Undue influence is one of the grounds of relief developed by courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life, people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose”.
Importantly, the boundary between proper persuasion and undue influence is crossed when the intention to enter into a transaction has been procured by the exercise of influence in circumstances where the consent thereby procured “ought not fairly to be treated as the express of a person’s free will”.
Was there undue influence in Islam v Islam?
Tajleena pleaded both forms of undue influence in her attempt to set aside the disadvantageous transactions.
In relation to presumed under influence, she relied on a relationship of trust and confidence as well as the presumption of influence of her parents over her as their child. How long such a presumption continues is a question of fact and degree as to whether a child is emancipated and not under the dominion of the parent, but it normally lasts only a short time after the child has attained majority.
In relation to one of the transactions, Tajleena was 26 years old and a medical student living independently in the Czech Republic. It was held that any presumption of influence by reason of her relationship with her father had ended. However, Tajleena reposed trust and confidence in her father in relation to dealings with the properties, such that there was the required relationship of influence.
Nevertheless, the transaction was not regarded as being one which called for an explanation: it was not so disadvantageous to Tajleena that it could only be explained on the basis that improper influence was used to procure it. Rather, the document was simply one of many documents that Tajleena had willingly signed at the behest of her parents.
Taken together, those transactions were hugely advantageous for Tajleena, as she was thereby gifted a substantial interest in the properties by her parents. The legal effect of the particular deed in question may have been to return some of that gift to her father, but it was at this stage still intended that Tajleena should inherit the properties on the death of her parents, and the transaction was merely intended as inheritance tax planning.
In relation to the subsequent deeds in question, by this time, the relationship between Tajleena and her parents had been damaged. Nevertheless, the court was satisfied that there was “no improper pressure exerted on Tajleena to sign the 2016 deeds. By this stage, Tajleena was a 36-year-old lady, educated, married with two children and, as I have previously described, a tough lady. I accept that she still reposed trust and confidence in her father to look after her interests in many respects, for example to give effect to what they agreed in respect of the properties, but not in relation to what she should do in respect of her interest in them”.
In relation to these transactions, Tajleena accordingly failed to establish undue influence and remained bound by those documents. She was, however, able to succeed in respect of one transaction: a transfer of a property in 2017.
The court found that the 2017 transfer failed to reflect Tajleena’s understanding of what had been agreed within the family, namely, that the properties would be transferred out of Tajleena’s name, with the intention that she would inherit her father’s interest in the properties upon his death. However, the wording of 2017 transfer provided for the properties to be held by her mother and father as beneficial joint tenants and not as tenants in common. The consequence of that was that nothing would pass under her father’s will, because of the doctrine of survivorship in a beneficial joint tenancy. Rather, her father’s interest would automatically pass to Tajleena’s mother.
As a result, it was held that the 2017 transfer was a transaction which called for an explanation. In the context of what had been agreed, it was clearly disadvantageous to Tajleena to sign the 2017 transfer, and she cannot have understood its legal effect.
The 2017 transfer was accordingly set aside on grounds of presumed undue influence.
The Birketts view
If undue influence is established, the transaction affected can be set aside and the parties restored to their original positions.
It is pertinent to add that this may not be possible in a situation where a third party has acquired rights or interests in good faith. In such cases, the person who suffered undue influence may seek other remedies, like damages (compensation). In the case of Islam v Islam, the 2017 transfer was set aside, which effectively reversed that transaction.
If you would like further advice on undue influence, TOLATA or property disputes generally, please contact the Home Ownership Disputes Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at October 2024.