Undue influence applies where one individual (B) uses unfair pressure to persuade another person (A) to enter into a transaction (perhaps a mortgage, a loan or agreement for sale of property) which is disadvantageous to A. If that happens A can ask the court to set aside the transaction.
There a three main areas of undue influence:
1. Actual undue influence: where improper pressure by B is actually proved (eg coercion by unlawful threats).
2. Undue influence presumed from relationship: certain relationships (solicitor and client; parent and dependent child) imply undue influence where the person who is treated as reposing trust (A) in the other (B) who then abuses his position. The relationship creates an assumption which judges will draw from that fact; so B will have to show that in fact there was no actual undue influence.
3. Trust and confidence; transaction requires explanation: for example, where a lender (a bank: C) knows that it is lending to one spouse (B) and the bank knows that B’s wife (A) trusts B and he enjoys her confidence; but C knows the transaction (a proposed loan) may be to A’s disadvantage. It needs full explanation to A by someone independent from B. In that situation C should ensure they discuss the loan with A privately to ensure she understands what is proposed by B if they are to avoid the charge of undue influence by B, and they being implicated in any set-aside.