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J U D G M E N T
DR.
DATE-BAH, J.S.C:
This is the unanimous judgment
of the Court. This case raises
issues regarding inequality in
bargaining power and the legal
consequences flowing from such
inequality. The second plaintiff
is the widow of the original
owner of the first plaintiff.
She claimed to be currently the
sole shareholder and a director
of the first plaintiff, a
construction company. By April
1986, she was “old and weak” by
the admission of the defendant
(in his counterclaim). The
evidence at the trial showed
that she was 76 years old in
1986. The defendant contended
that he also owned shares in the
first plaintiff and had been
duly appointed, and remained, a
director of the first
plaintiff. The testimony of the
second plaintiff revealed that
she first met the defendant when
he came to visit her husband, a
friend of his, in hospital
during his terminal illness.
After her husband’s death, the
defendant offered his services
as one who could generate
business for the first
plaintiff. This paved the way
to his involvement in the
business of the first plaintiff.
The
plaintiffs commenced this action
on 31st October 1991
with a writ endorsed with claims
for:
1.
“A
Declaration that the Defendant
has been removed as a Director
of the 1st
Plaintiff-Company in accordance
with the Companies Code, 1962
(Act 179).
2.
Another Declaration that the
Defendant is not a shareholder
of the 1st Plaintiff
Company.
3.
An
order upon the Defendant to
account for amounts received by
the Defendant on behalf of the 1st
Plaintiff-Company and all
properties of the 1st
Plaintiff-Company in the
Defendant’s possession.
4.
An
order of perpetual injunction
restraining the Defendant, his
personal representatives or any
person whatsoever claiming
through or under him from
holding himself out to the
general public or acting as a
Director of the 1st
Plaintiff-Company.”
The Statement
of Claim filed with the writ
was, with the leave of the
learned trial judge granted on
25th February, 1993,
amended. The amended Statement
of Claim admitted that the
Defendant was until 13th
September 1991 a director of the
first Plaintiff. It, however,
averred that on or about 31st
July 1991, the second plaintiff
set in motion a process which
led to the convening of an
Extraordinary General Meeting of
all the Directors and members of
the first Plaintiff for 13th
September 1991. The Statement
of Claim asserted that on or
about 13th September
1991, an Extraordinary General
Meeting of the first Plaintiff
took place at which the
Defendant was removed as a
Director of the first
Plaintiff. The Plaintiffs
averred that on or about 30th
September 1991, they instructed
their solicitor to demand from
the Defendant all properties of
the first Plaintiff in his
possession and to warn him to
desist from holding himself out
as a director of the first
Plaintiff. The Defendant, in
response, wrote to the
Plaintiffs’ solicitor
challenging the basis of the
instructions given by the
Plaintiffs and refusing to
comply with the instructions.
Finally, the Plaintiffs pleaded
that the Defendant had exerted
undue influence over the second
plaintiff to sign documents in
his favour and that he had
committed various fraudulent
acts as a director of the first
Plaintiff.
The following
particulars of fraud were
pleaded:
“(1) The
Defendant has forged various
cheques on the account of the 1st
Plaintiff which is the
subject-matter of investigations
by the Police.
(2)
The Defendant has received sums
of money on behalf of the 1st
Plaintiff which he has not
lodged in the 1st
Plaintiff’s account.
(3)
The Defendant has in his
possession Share Certificates
purported to have been signed by
the 2nd Plaintiff.”
In response
to the Plaintiffs’ averments,
the Defendant’s defence was that
he remained a director of the
first Plaintiff and that he had
never been validly removed as a
director in accordance with
section 185(2) of the Companies
Code 1963 (Act 179). He also
averred that share certificates
evidencing his ownership of
shares in the first Plaintiff
had been issued to him. He
counterclaimed that “by a power
of attorney dated 7th
April 1986 he was mandated to
run the affairs of 1st
Plaintiffs as acting Managing
Director since 2nd
Plaintiff is old and weak and
could not manage the 1st
Plaintiffs.” He averred that by
virtue of the powers vested in
him, he managed the affairs of
the first Plaintiff from 1st
June 1986 up to 31st
October 1991, as Managing
Director. As a result of the
services thus rendered to the
first Plaintiff, he claimed that
various sums were owed him by
the Plaintiffs, which he
particularised as follows:
CEDIS
(a)
Director’s allowance from 1/6/86
to 31/10/91 ….
3,350,000.00
(b)
Salary for Acting M D from
1/6/86 to 31/10/91 …
5,100,000.00
(c)
Entertainment Allowance
…………………
180,000
(d)
Compensation for 6 years
services
………
30,000,000.00
(e)
Transport
expenses…………….
510,000.00
39,140,000.00
The second
Plaintiff gave evidence during
the trial. She testified that
she was a pensioner. Her
evidence went on to demonstrate
manifestly that she was a
confused old lady. Admittedly,
she was testifying some three
years after she signed an
agreement purporting to transfer
5% of the shares she had
inherited from her husband to
the Defendant and therefore her
confused mental state may not
have existed at the time of the
transaction. Nevertheless, her
testimony may have given the
learned trial judge a degree of
insight into what her state of
mind might have been at the time
of the transaction. Much of her
evidence showed that she was, at
least as of the time of the
trial, a vulnerable old lady
deserving of the protection of
the courts in her business
dealings with a younger man,
who, on his own showing, was an
astute businessman, in whom she
reposed confidence. For
instance, she flatly
contradicted some of the
assertions in her own
pleadings. At the beginning of
her evidence-in-chief, she
denied, for example, that she
was a shareholder of the
plaintiff company. It has to be
remembered, however, that what
was relevant was her state of
mind as of the time of the
transaction, rather than at the
trial.
During the
trial, evidence was led to
establish that the second
plaintiff had signed a share
transfer agreement, dated 13th
July 1989, by which the second
plaintiff transferred 1,000
ordinary shares and 184
preference shares, representing
5% of the second plaintiff’s
total shareholding, to the
Defendant. The second plaintiff
had also signed the appropriate
share certificates that
implemented this share transfer
agreement. The explanation
offered by the defendant as to
why this transaction was
concluded was that it
represented payment in kind for
services rendered. This is what
he said in cross-examination:
“Q. Did
you pay for the shares?
A.
I
did not pay in cash, I paid in
kind.
Q.
What do you mean by payment in
kind?
A.
I
mean services rendered to CFC
Company.
Q.
Did you acquire the shares from
CFC Construction?
A.
Portion of Mrs. Read’s shares
were assigned to me.
Q.
By
whom?
A.
Mrs. Read.
Q.
You agree with me that Mrs. Read
is not CFC Construction?
A.
That is so.
Q. The
services you rendered for the
shares were not services to Mrs.
Read personally?
A. It
was services I rendered both for
the Company and Mr. and Mrs.
Read.
Q.
What services have you rendered
to Mrs. Read?
A. I
gave her help financially and I
took her out in my car. I also
took both Mr. and Mrs. Read in
my car to the hospital and
helped nurse Mr. Read on his
sick bed at the hospital. I did
several other things.”
The defendant
admitted in his
cross-examination, however,
that, before the share
transaction, the second
plaintiff was completely reliant
on him. This is what he said:
“Q. When
were you appointed as Mrs.
Read’s trustee?
A.
In
1986.
Q.
As
a trustee you managed all her
affairs?
A.
Yes.
Q.
You managed her affairs so well
that she became completely
reliefed (sic) on you?
A.
Yes.
Q.
By
1989 Mrs. Read was completely
reliant on you and you were even
appointed executive (sic) and
trustee of her will?
A.
Yes.
Q.
At
that time you were managing CFC
Construction solely?
A.
I
alone managed the affairs of
Mrs. Read and CFC Construction.
Mrs. Read and I managed the
company affairs.
Q.
You were even a signatory of
Mrs. Read’s personal account?
A.
Yes.
Q.
It
was in July 1989 that you
entered the share transfer
agreement with Mrs. Read?
A.
It
was on 13th July,
1989.
Q.
After share transfer agreement
you were still in control of
Mrs. Read’s affairs?
A.
Yes.”
After
considering the totality of the
evidence adduced at the trial,
the learned trial judge, His
Lordship B.T. Aryeetey J., as he
then was, came to the following
conclusion on the issue of the
defendant’s shareholding, in
addition to dismissing the
defendant’s counterclaim:
“We now turn
to the second leg of the
plaintiffs’ claim which is for
“a declaration that the
defendant is not a shareholder
of the company.” In support of
his stand that he is a
shareholder of the first
plaintiff company the defendant
tendered in evidence two share
certificates signed by the
second plaintiff. As I have
ruled earlier in this judgment I
am of the view that the
signatures on the two documents,
exhibit 9 and 9A belong to the
second plaintiff; what we have
to consider is the effect of the
second plaintiff’s signature on
the two documents in the light
of the contention that the
defendant prevented the second
plaintiff from exercising an
independent judgment in the
matter by exerting an influence
over her. It is the contention
of the plaintiff’s counsel that
the issue of shares to the
defendant was the result of
undue influence since the
defendant was in fiduciary
relationship with the second
plaintiff….
The second
plaintiff was the sole
shareholder of the first
plaintiff company who relied
totally on the defendant who had
been appointed managing director
of the company. Exhibit One
which is a photograph of the
second plaintiff taken on 19th
May, 1990 on her eightieth
birthday has the following
inscription at the back of it.
“To Mr. Ramson Devine Attisogbe
my trustee and Director of
C.F.C. and Power of Attorney, a
good friend of my late husband
Mr. Y.C. Read Managing Director
of C.F.C Ltd. (W.A)”. There is
no doubt that to the second
plaintiff the defendant was not
merely a trustee of C.F.C. Ltd.
but “her trustee” which to me
puts a special emphasis on her
personal relationship with the
Defendant. That to me, quite
apart from the proof of
existence of fiduciary
relationship, her relationship
with the second plaintiff can be
described as one of
confidentiality and therefore
raises a presumption of undue
influence.”
The learned
trial judge’s conclusions above
were endorsed by the Court of
Appeal, where His Lordship
Farkye JA, in the leading
judgment, said:
“The judgment
by the High Court in respect of
claims (b) & (c) above, i.e.
(b)
for a declaration that the
Defendant/Appellant is not a
shareholder of the 1st
Plaintiff/Respondent and
(c)
for an order upon the
Defendant/Appellant to account
for all properties of the 1st
Plaintiff/Respondent in the
possession of the
Defendant/Appellant
will not be
disturbed by this court. I say
this because there was enough
evidence on record upon which
the learned trial judge based
his judgment. In this regard it
will not be prudent for the
Court of Appeal to disturb or
set aside the said judgment in
respect of claims (b) & (c) as
well as the counterclaims by the
Defendant/Appellant.”
In effect,
then, there is a concurrence by
the two lower courts on the
issue of presumption of undue
influence. There was evidence
on record as to the second
plaintiff’s age, infirmity and
the trust that she reposed in
the Defendant, the absence of
independent advice for her, etc.
on which the two lower courts
could found their concurrent
findings. Accordingly, there
is no basis for this Court to
reverse the decisions as to
facts on which the High Court
and Court of Appeal have founded
their conclusions.
What needs to
be considered is whether the
Court of Appeal made any error
of law in reaching its decision
from which the Defendant has
appealed to this Court. The
grounds of appeal filed by the
Defendant/Appellant were as
follows:
i.
”The Court of Appeal with all
due respect, failed to take into
account and did not consider at
all, the merits in the
Appellant’s arguments contained
in his Statement of Case as to
why he was a shareholder of the
Respondent Company.
ii.
The Court of Appeal with all due
respect, failed to consider and
evaluate the merits in the
Appellant’s arguments in
response to the charge that he
exerted undue influence on Mrs.
Rita Read in the allotment of
shares to the Appellant as found
by the trial High Court judge.
If it had done so, the Court of
Appeal would have found that the
Respondents herein did not make
out the said charge of the
exertion of undue influence.”
Accordingly,
before this Court, the only
issue for consideration is
whether the Defendant had been
validly allotted shares in the
first plaintiff. The Court of
Appeal determined that the
Defendant remained a director of
the first Plaintiff and the
Plaintiffs did not cross-appeal
on that determination.
On these
facts, this court has to
consider whether the doctrine of
undue influence was correctly
applied to this case and whether
there was any allied doctrine,
such as the equitable doctrine
of unconscionable bargain, which
should, or could, have been
considered by the lower courts.
In
the old Gold Coast case of
Acquaye & Ors. V Halm (1917)
King-Farlow’s Gold Coast
Judgments 14, King-Farlow J.
said (at pp. 21-22):
“In equity as
is well known an agreement not
proved to be actually fraudulent
may be presumed to be so
unconscionable that it is
tainted with fraud and therefore
voidable. This presumption will
be made for the benefit of the
weaker party, where the parties
to the agreement dealt with each
other on very unequal terms.
What is the presumption in this
case? …On the one hand we have
illiterate and ignorant natives
hard pressed for money; on the
other an astute and educated
moneylender who, despite his
posing to the court as a sort of
eleemosynary institution and as
anxious to confer benefits on
his fellow men and his
financially weaker brethren, and
despite his close connection
with the plaintiffs’ stool, lent
them £200 at 100 per cent annum
interest on the security of
their Korlebu lands, the value
of which he estimates three
years later at £45,000 in a
formal claim upon the public
funds…
Obviously, this was
altogether improper and a gross
abuse of his dominant position
over these illiterate natives.”
This equitable doctrine of
unconscionable bargain, which
was applied by King-Farlow J.,
has a solid foundation from
cases regularly decided by the
Court of Chancery in the
eighteenth century, where
contracts and dispositions which
were unfair were set aside. The
thrust of this line of case law
was summarised thus by the Lord
Chancellor, Lord Selborne, in
Earl of Aylesford v Morris
(1873) 8 Ch. App. 484 at p.
490-1:
“[After referring to the repeal
of usury laws, he continues]
These changes of the law have in
no degree whatever altered the
onus probandi in those
cases, which, according to the
language of Lord Hardwicke,
raise “from the circumstances or
conditions of the parties
contracting – weakness on one
side, usury on the other, or
extortion, or advantage taken of
that weakness” – a presumption
of fraud. Fraud does not here
mean deceit or circumvention; it
means an unconscientious use of
the power arising out of these
circumstances and conditions;
and when the relative position
of the parties is such as
prima facie to raise this
presumption, the transaction
cannot stand unless the person
claiming the benefit of it is
able to repel the presumption by
contrary evidence, proving it to
have been in point of fact fair,
just and reasonable.
This is the rule
applied to the analogous cases
of voluntary donations obtained
for themselves by the donees,
and to all other cases where
influence, however acquired, has
resulted in gain to the person
possessing at the expense of the
person subject to it.”
A modern
application of the doctrine is
to be found in Cresswell v
Potter [1978] 1 WLR 255n.
The facts of the case were that
a wife, after leaving her
husband, conveyed to him her 50%
interest in the matrimonial
home, in exchange for being
released from her liability
under the mortgage for the
home. The home was in fact
worth much more than the debt
secured by the mortgage.
Therefore, when the husband
later sold the property, the
wife claimed 50% of the proceeds
of the sale. Megarry J, as he
then was, set aside the
transaction by which the wife
had conveyed her interest in the
matrimonial home to her husband,
applying the doctrine of
unconscionable bargain. He
said:
“At the end
of the day, my conclusion is
that this transaction cannot
stand. In my judgment the
plaintiff has made out her case,
and so it is for the defendant
to prove that the transaction
was ‘fair, just, and
reasonable.’ This he has not
done.”
Although there have been a few
recent cases applying this
doctrine of unconscionable
bargain in the English
jurisdiction, the English courts
have tended to rely more on the
doctrine of undue influence
rather than on the
unconscionability doctrine.
Australian and Canadian courts
have, on the other hand, applied
the doctrine more often. (See,
for instance, the Canadian cases
of Knupp v Bell (1968) 67
DLR (2d) 256; and Marshall v
Canada Permanent Trust Co. (1968)
69 DLR (2d) 260). The
Australian case of Commercial
Bank of Australia Ltd. v Amadio
(1983) 151 CLR 447 is
vividly illustrative of the
doctrine. The facts of the case
were that the Managing-Director
of a company that was in serious
financial difficulties and had a
large overdraft with the
appellant bank cooperated with
the bank manager in maintaining
an appearance of prosperity for
his company. The
Managing-Director’s parents, who
were Italian immigrants to
Australia with only a limited
knowledge of written English and
were relatively old, were
persuaded by him to execute a
mortgage of their property.
This mortgage in fact secured
all the distressed company’s
debt owed to the bank, though
the Managing-Director had
falsely told his parents that it
was a guarantee for six months
and had an upper limit of
$50,000. The parents received
no independent advice. Soon
after the transaction, the
company went into liquidation
owing the bank nearly $240,000.
On
these facts, the High Court of
Australia (which, it is to be
remembered, is the highest court
in Australia) set aside the
transaction on the grounds that
it was unconscionable. (An
English court may well have
reached the same result, using
the doctrine of undue
influence.) What Deane J said
in the case is instructive (see
paras 12 and 13 of his judgment
as reported on the internet at
www.austlii.edu.au/au/cases/cth/HCA/1983):
“The
jurisdiction of courts of equity
to relieve against
unconscionable dealing developed
from the jurisdiction which the
Court of Chancery assumed, at a
very early period, to set aside
transactions in which expectant
heirs had dealt with their
expectations without being
adequately protected against the
pressure put upon them by their
poverty. …The jurisdiction is
[now] established as extending
generally to circumstances in
which (i) a party to a
transaction was under a special
disability in dealing with the
other party with the
consequences that there was an
absence of any reasonable degree
of equality between them and
(ii) that disability was
sufficiently evident to the
stronger party to make it prima
facie unfair or
‘unconscientious’ that he
procure, or accept, the weaker
party’s assent to the impugned
transaction in the circumstances
in which he procured or accepted
it. Where such circumstances
are shown to have existed, an
onus is cast upon the stronger
party to show that the
transaction was fair, just and
reasonable …
The equitable
principles relating to relief
against unconscionable dealing
and the principles relating to
undue influence are closely
related. The two doctrines are,
however, distinct. Undue
influence, like common law
duress, looks to the quality of
the consent or assent of the
weaker party…Unconscionable
dealing looks to the conduct of
the stronger party in attempting
to enforce, or retain the
benefit of, a dealing with a
person under a special
disability in circumstances
where it is not consistent with
equity or good conscience that
he should do so. The adverse
circumstances which may
constitute a special disability
for the purposes of the
principles relating to relief
against unconscionable dealing
may take a wide variety of forms
and are not susceptible to being
comprehensively catalogued. In
Blomley v Ryan (1956) 99
CLR 362, 405, Fullagar J. listed
some examples of such
disability: ‘poverty or need of
any kind, sickness, age, sex,
infirmity of body or mind,
drunkenness, illiteracy or lack
of education, lack of assistance
or explanation where assistance
or explanation is necessary’.
As Fullagar J remarked, the
common characteristic of such
adverse circumstances ‘seems to
be that they have the effect of
placing one party at a serious
disadvantage vis-à-vis the
other’.”
In our view,
this is a line of precedent
which deserves further
development in the Ghanaian
jurisdiction. It gives an
opportunity to the courts to
protect the vulnerable from
being taken advantage of. It is
to be noted that among the
disabilities listed by Fullagar
J. is age. Thus on the facts of
this case, the second
plaintiff’s old age is a
circumstance that could be
construed as a disability
justifying the invocation of the
doctrine of unconscionable
bargain. Whether, on the
evidence, the invocation of the
doctrine is appropriate is a
question that we will shortly be
addressing. Another of the
circumstances listed by him is
“illiteracy or lack of
education”. This circumstance
affords an opportunity to the
courts to intervene to protect
illiterate parties from being
taken advantage of. It will be
recalled that this was the
circumstance which impelled
King-Farlow J. to invoke the
doctrine in Acquaye & Ors. v
Halm (supra). It is an
unfortunate fact that, close to
a century after the judgment by
King-Farlow J., illiteracy
remains a widespread phenomenon
in Ghana. It is a fact of which
judicial notice may legitimately
be taken. This fact needs to be
taken into account in the
courts’ development of
doctrine. Even though the facts
of the present case do not raise
illiteracy as a special
disability in relation to the
doctrine under discussion, the
fact that the doctrine lays a
foundation that will enable the
courts to remedy serious
disadvantage to illiterate and
other disadvantaged persons
through the application of
equitable principles commends
the doctrine to us.
In our
opinion, therefore, the courts
in Ghana have the right to set
aside as unconscionable any
dealing, whether by contract or
by gift, where on account of the
special disability of one of the
parties, he or she is placed at
a serious disadvantage in
relation to the other. The
categories of special disability
should not be regarded as
closed. Those listed by
Fullagar J. (supra) are a
useful but not necessarily
exhaustive starting point.
Poverty or need of any kind,
sickness, age, sex, infirmity of
body or mind, drunkenness,
illiteracy or lack of education,
lack of assistance or
explanation where assistance or
explanation is necessary: these
are all circumstances which in
the right context can justify
the courts’ intervention on the
basis of the equitable
principles embodied in the
doctrine of unconscionable
bargain. Where a party
successfully makes a case that
he or she has a special
disability, or the facts of a
case lend themselves to an
application of the doctrine, the
onus devolves on to the dominant
party to demonstrate that the
transaction was fair, just and
reasonable. If the dominant
party fails to show that the
transaction was fair, just and
reasonable, the court is
entitled to set the transaction
aside.
The principal
flaw in the transaction between
the second plaintiff and the
defendant was the failure by the
defendant to ensure that the
second plaintiff had adequate
access to independent advice.
Given her age, infirmity and her
dependency on the Defendant in
relation to matters pertaining
to the business of the first
plaintiff, there is little doubt
that a Court of Equity would set
aside the transaction, unless
there was evidence that the
second Plaintiff had received
independent advice in relation
to it and that it was fair, just
and reasonable. There was no
such evidenee on record.
Accordingly, independently of
the doctrine of undue influence,
we would hold that the transfer
of 5% of the second Plaintiff’s
shares in the first Plaintiff to
the Defendant should be set
aside on the ground of
unconscionability. We hold that
the second Plaintiff comes
within the category of special
disability, as discussed above,
on account of her old age,
infirmity and dependency on the
Defendant.
Next, we need
to discuss whether, apart from
unconscionability, the two lower
courts were right to apply the
doctrine of undue influence to
the facts of the present case.
Historically, the Courts of
Equity developed the doctrine of
undue influence to supplement
the rather narrow reach of the
common law doctrine of duress,
whose scope is limited to the
application, or the threat of
the application, of force to
induce consent to a contract or
gift. The more comprehensive
doctrine of undue influence
enables a court to set aside any
benefit obtained, whether under
a contract or as a gift, by the
exertion of an influence which
in the opinion of the court
prevents one party from
exercising an independent
judgment on the matter in
question. Traditionally, the
courts have grouped contracts
that are voidable for undue
influence into two categories:
those where there is no special
relationship between the parties
and those where such a special
relationship exists. Thus in
Allcard v Skinner (1887) 36
Ch.D 145 at p.171, Cotton LJ
formulated the two categories as
follows:
“First, where
the court has been satisfied
that the gift was the result of
influence expressly used by the
donee for the purpose; second,
where the relations between the
donor and donee have at or
shortly before the execution of
the gift been such as to raise a
presumption that the donee had
influence over the donor. In
such a case the court sets aside
the voluntary gift, unless it is
proved that in fact the gift was
the spontaneous act of the donor
acting under circumstances which
enabled him to exercise an
independent will and which
justify the court in holding
that the gift was the result of
a free exercise of the donor’s
will. The first class of case
may be considered as depending
on the principle that no one
shall be allowed to retain any
benefit arising from his own
fraud or wrongful act. In the
second class of cases the court
interferes, not on the ground
that any wrongful act has in
fact been committed by the
donee, but on the ground of
public policy, and to prevent
the relations which existed
between the parties and the
influence arising therefrom
being abused.”
Allcard v
Skinner
was followed by the Court of
Appeal in Ayarna & Anor v
Agyemang & Ors. [1976] 1 GLR
306. This was a case in which
solicitors had brought an action
to enforce a promissory note
given by their client and his
son. The solicitors had applied
for summary judgment against
their client and his son, who in
turn had applied to the High
Court for leave to defend the
action.. Apaloo J. (as he then
was), delivering the judgment of
the Court of Appeal, took the
view that leave to defend the
action should not have been
refused by the High Court before
the issue of undue influence had
been investigated. He said (at
p. 319 of the Report):
“In
considering this type of case,
the principle is that where the
circumstances show that one
party is in a position to take
advantage of his own knowledge
and the other party's ignorance,
the burden falls on the stronger
party to rebut the presumption
of undue influence. We do not
suggest that the plaintiffs may
not be able to show that the
transaction was scrupulously
fair and that a court of equity,
after examining all the
circumstances, would exonerate
them from any suspicion of
unfairness. At the stage where
the matter reached, there was
evidence which if not answered,
lent itself to the inference of
undue influence and we think
leave should not have been
refused: see Allcard v. Skinner
(1887) 36 Ch.D. 145, C.A. and
McMaster v. Byrne [1952] 1 All
E.R. 1362 at pp. 1368-1369, P.C.
“
The two
categories described by Cotton
LJ have been refined recently in
a new locus classicus on
the classification of cases of
undue influence. The
classification was approved and
adopted by Lord Browne-Wilkinson
in the House of Lords case of
Barclays Bank plc v O’Brien.
[1994] A.C. 180, at pp.
189-190. It was originally
formulated by the Court of
Appeal in Bank of Credit and
Commerce International SA v
Aboody [1990] 1 Q.B. 923 at
p. 953. The classification is
in the following terms:
“Class
1: Actual undue
influence
In these cases it is necessary
for the claimant to prove
affirmatively that the wrongdoer
exerted undue influence on the
complainant to enter into the
particular transaction which is
impugned.
Class
2: Presumed undue
influence
In these cases the complainant
only has to show, in the first
instance, that there was a
relationship of trust and
confidence between the
complainant and the wrongdoer of
such a nature that it is fair to
presume that the wrongdoer
abused that relationship in
procuring the complainant to
enter into the impugned
transaction. In Class 2 cases
therefore there is no need to
produce evidence that actual
undue influence was exerted in
relation to the particular
transaction impugned; once a
confidential relatioship has
been proved, the burden then
shifts to the wrongdoer to prove
that the complainant entered
into the impugned transaction
freely, for example by showing
that the complainant had
independent advice. Such a
confidential relationship can be
established in two ways,
viz.:
Class 2(A)
Certain relationships (for
example solicitor and client,
medical adviser and patient) as
a matter of law raise the
presumption that undue influence
has been exercised.
Class 2
(B)
Even if there is no relationship
falling within Class 2(A), if
the complainant proves the de
facto existence of a
relationship under which the
complainant generally reposed
trust and confidence in the
wrongdoer, the existence of such
relationship raises the
presumption of undue influence.
In a Class 2(B) case therefore,
in the absence of evidence
disproving due influence, the
complainant will succeed in
setting aside the impugned
transaction merely by proof that
the complainant reposed trust
and confidence in the wrongdoer
without having to prove that the
wrongdoer exerted actual undue
influence or otherwise abused
such trust and confidence in
relation to the particular
transaction impugned.”
In the light
of the principles expounded in
this locus classicus, let
us consider whether the lower
courts were right in setting
aside the transfer of shares
from the second plaintiff to the
defendant, on the ground of
undue influence. The
defendant’s Statement of Case
before this court does not seem
to appreciate sufficiently that
this was the net effect of the
learned trial judge’s holding.
The trial judge did not hold
that there was no evidence that
the defendant was a
shareholder. The share transfer
agreement was admitted into
evidence and, with the share
certificates, would have made
the defendant a shareholder, but
for the operation of the
doctrine of undue influence.
The learned trial judge said (at
p. 135 of the Record):
“According to
Chitty paragraph 511 in order to
rebut the presumption of undue
influence evidence must be
adduced to satisfy the court
“that the donor was acting
independently of any influence
from the donee and with full
appreciation of what he was
doing.” In this case no such
evidence has been adduced by the
defendant to rebut the
presumption of undue influence
raised by the fiduciary
relationship between him and the
second plaintiff which in the
circumstances would be described
as one of confidentiality. I
therefore agree that the
defendant should not be allowed
to retain the advantage.”
In the light
of this view of the learned
trial judge, the following
argument in the defendant’s
Statement of Case misses the
point of the learned trial
judge:
“Indeed the
grounds of appeal filed amply
demonstrate the Appellant’s
grievance – that his appeal
regarding the holding of the
High Court that he was not a
shareholder was not considered
at all. Regarding this
complaint of the Appellant, all
that the Court of Appeal (per
Farkye JA) said on page 265 was
that “there was enough evidence
on the record upon which the
learned trial judge based his
judgment” (Please see page 256
lines 14-15). With the greatest
respect, it is our submission
that the Court of Appeal only
made this bare statement without
demonstrating or indicating the
evidence that was on the record
and the sufficiency of such
evidence, to have warranted the
finding by the trial judge. We
say so because in our humble
view since the Appellant’s
posture has always been that no
evidence existed on the record
to show that he was not a
shareholder, if the Court of
Appeal found such evidence to
the contrary, it ought to have
shown such evidence in its
judgment.”
Unless the
Statement of Case was being
deliberately elliptical, it
would appear that it was not
addressing the issue on which it
needed to focus. The issue was
not whether there was evidence
that the defendant was not a
shareholder, as the Statement of
Case affirms. Rather the main
issue was one of mixed law and
fact: namely, whether a
presumption of undue influence
was to be raised against the
defendant and, if so, whether
the defendant had adduced
sufficient evidence to rebut
it. That issue related to the
fact that, in spite of the
evidence on record that the
second plaintiff had signed a
share transfer agreement and
share certificates in favour of
the defendant, the trial judge
had relied on the doctrine of
undue influence to invalidate
that transaction. The issue
that the defendant needed to
address was whether he had
adduced sufficient evidence to
rebut the presumption of undue
influence and whether the trial
judge was right, in the first
instance, to have raised that
presumption. Thus what he
should have been focussing on
was whether the facts on record
were sufficient to establish the
fiduciary relationship that the
learned trial judge had found
and whether the old widow had
reposed trust and confidence in
him or not. There was certainly
evidence on record, as our
statement of the facts of this
case above has shown, to justify
the learned trial judge reaching
the conclusion that he did. His
Lordship Farkye JA was also
within his rights to affirm that
enough evidence existed on the
record to justify the trial
judge’s holding. It was not
juridically essential, though
desirable from the point of view
of the defendant/appellant, for
the learned judge to quote
chapter and verse regarding
where that evidence was to be
found on the record.
From the
facts of this case, as we have
narrated them above and as
analysed in relation to the
doctrine of unconscionability
discussed above, it is clear
that the relationship between
the second plaintiff and the
defendant fell within Class 2(B)
of the classification of Lord
Browne-Wilkinson (supra).
It will be recalled that under
that category, a complainant, in
the absence of evidence
disproving undue influence, will
succeed in setting aside a
contested transaction merely by
proof that the complainant
reposed trust and confidence in
the wrongdoer without having to
prove that the wrongdoer exerted
actual undue influence or
otherwise abused the trust and
confidence in relation to the
transaction impugned.
Accordingly, it is to no avail
that the defendant despairingly
poses in his Statement of Claim
the following question:
“Where
therefore was the evidence that
the Appellant was not a
shareholder? Where was the
evidence led to show that the
appellant exerted any form of
undue influence over the 2nd
Plaintiff/Respondent? There was
none whatsoever!”
There was no
need for the second plaintiff to
prove any form of actual undue
influence. Rather, the
defendant needed to rebut the
presumption of undue influence
raised by the nature of the
relationship between him and the
second plaintiff. This he could
have done by adducing evidence
to satisfy the court that the
second plaintiff acted
independently of any influence
that he had over her. Evidence
of the second plaintiff’s access
to independent advice would have
been helpful in this regard.
He, however, failed to lead any
such evidence.
The
importance of independent advice
in a situation of inequality of
bargaining power and of presumed
undue influence is illustrated
by Lloyds Bank Ltd. v Bundy
[1975] QB 326. In this case, a
farmer, whose only main asset
was his farmhouse, worth about
£10,000, was persuaded by the
assistant manager of the branch
of the plaintiff bank, where he
and his son and his son’s
company banked, to execute a
further guarantee and charge
over his farmhouse to cover the
company’s indebtedness to the
bank up to a figure of £11,000.
He had, however, earlier been
advised by his solicitor, when
he had executed a charge for
£6,000 in favour of his son’s
business, that that was the
maximum he should commit to his
son’s business, because of the
value of his farmhouse. The
assistant manager had, however,
told him that the bank could
only continue to support his
son’s company if he executed the
further guarantee and charge.
Subsequently, after a receiving
order was made against the son
and the company ceased to trade,
the bank took steps to enforce
the guarantee and charge. The
English Court of Appeal set
aside the guarantee and charge.
It took the view that the father
looked to the bank for financial
advice and reposed confidence in
it. Since it was in the bank’s
interest for the father to
execute the additional guarantee
and charge, it had a duty to
ensure that the father received
independent advice on the
transaction. This it had failed
to do. This was the ratio
decidendi of the case and it
was well within the orthodox
formulation of the undue
influence doctrine. Sir Eric
Sachs, for instance, said (at p.
342 of the Report):
“Undue
influence is a phrase which is
commonly regarded – even in the
eyes of a number of lawyers – as
relating solely to occasions
when the will of one person has
become so dominated by that of
another that, to use the county
court judge’s words, “the person
acts as the mere puppet of the
dominator.” Such occasions, of
course, fall within what Cotton
LJ in Allcard v Skinner,
36 Ch. D. 145,171 described as
the first class of cases to
which the doctrine of undue
influence applies. There is,
however, a second class of such
cases. This is referred to by
Cotton LJ as follows:
“In the
second class of cases the court
interferes, not on the ground
that any wrongful act has in
fact been committed by the
donee, but on the ground of
public policy, and to prevent
the relations which existed
between the parties and the
influence arising therefrom
being abused.”
It is thus to be emphasised that
as regards the second class the
exercise of the court’s
jurisdiction to set aside the
relevant transaction does not
depend on proof of one party
being “able to dominate the
other as though a puppet” (to
use the words again adopted by
the county court judge when
testing whether the defence was
established) nor any wrongful
intention on the part of the
person who gains a benefit from
it; but on the concept that once
the special relationship has
been shown to exist, no benefit
can be retained from the
transaction unless it has been
positively established that the
duty of fiduciary care has been
entirely fulfilled. To this
second class, however, the judge
never adverted and plainly never
directed his mind.
It is also to be noted that what
constitutes fulfilment of that
duty (the second issue in the
case now under consideration)
depends again on the facts
before the court. It may in the
particular circumstances entail
that the person in whom
confidence has been reposed
should insist on independent
advice being obtained or
ensuring in one way or another
that the person being asked to
execute a document is not
insufficiently informed of some
factor which could affect his
judgment. The duty has been
well stated as being one to
ensure that the person liable to
be influenced has formed “an
independent and informed
judgment” or, to use the
phraseology of Lord Evershed MR
in Zamet v Hyman [[1961]
1 WLR 1442, 1446, “after full,
free and informed thought.””
Lord Denning
MR, however, sought to go a
little further than his brothers
Cairns LJ and Sir Eric Sachs. He
surveyed the existing law and
concluded as follows [1975] QB
326 at p. 339:
“Gathering
all together, I would suggest
that through all these instances
there runs a single thread.
They rest on ‘inequality of
bargaining power’. By virtue of
it, the English law gives relief
to one who, without independent
advice, enters into a contract
upon terms which are very unfair
or transfers property for a
consideration which is grossly
inadequate, when his bargaining
power is grievously impaired by
reason of his own needs or
desires, or by his own ignorance
or infirmity, coupled with undue
influences or pressures brought
to bear on him by or for the
benefit of the other. When I
use the word ‘undue’ I do not
mean to suggest that the
principle depends on proof of
any wrongdoing. The one who
stipulates for an unfair
advantage may be moved solely by
his own self-interest,
unconscious of the distress he
is bringing to the other. I
have also avoided any reference
to the will of the one being
‘dominated’ or ‘overcome’ by the
other. One who is in extreme
need may knowingly consent to a
most improvident bargain, solely
to relieve the straits in which
he finds himself. Again, I do
not mean to suggest that every
transaction is saved by
independent advice. But the
absence of it may be fatal.
With these explanations, I hope
this principle will be found to
reconcile the cases.”
This view was
neither endorsed, nor
disapproved of, by the two other
members of the court and is
therefore not to be regarded as
part of the ratio decidendi
of the case. Nevertheless, this
Court is persuaded by it and is
attracted to the emphasis that
it lays on the need for
independent advice and its
extrapolation of ‘inequality of
bargaining power’ as the golden
strand uniting this area of the
law. The absence of independent
advice to the second plaintiff
is therefore a crucial
consideration which has weighed
on our minds. It is a
consideration that the Court has
taken into account in applying
both the doctrine of
unconscionable bargain and that
of undue influence to the facts
of the present case. Where
there is inequality of
bargaining power coupled with an
absence of independent advice,
Lord Denning’s analysis of
English law shows that the law
will often offer a relief. On
the facts the present case, the
Court has no doubt that under
Ghanaian law also the second
plaintiff deserves such relief.
For the
reasons set out above, this
Court would dismiss the appeal
of the defendant.
DR. S. K. DATE-BAH
JUSTICE OF THE SUPREME COURT
S.A.B. AKUFFO, (MS)
JUSTICE OF THE SUPREME COURT
DR. S. TWUM
JUSTICE OF THE SUPREME COURT
PROF. T. M. OCRAN
JUSTICE OF THE SUPREME COURT
R. T. ANINAKWA
JUSTICE OF THE SUPREME COURT
COUNSEL:
No
appearance for Respondent.
Mr. Hukportie for the Appellant
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