Undue Influence

Can a court make a finding of actual undue influence even if this is not pleaded? Even where a finding of undue influence is made, if one part of the transaction is not affected by the undue influence, can the part not affected by the undue influence be severed from the rest of the transaction?

Mr Cowey and Ms Cowlam charged their property in favour of the claimant, Annulment Funding Company Ltd. The claimant provided funds to bankrupts to obtain, as their name suggests, an annulment of their bankruptcy. Following annulment, the intention was that the former bankrupt would obtain a mortgage from another lender to pay off any prior charges on the property. The funds advanced by the claimant were short term at a level of interest to reflect the fact that the borrower was bankrupt and not in a position to borrow elsewhere.

In August 2007, Mr Cowey and Ms Cowlam signed a mortgage deed in favour of the claimant over their house in order to obtain an annulment of Mr Cowey's bankruptcy. The annulment was obtained. Efforts were made to find a mortgage lender to repay the claimant, but those efforts were unsuccessful. As a result, the loan from claimant, which was meant to be short term was not repaid and claimant called in the loan.

At first instance, the court decided that Ms Cowlam entered into the charge as a result of the actual undue influence of Mr Cowey and the claimant was bound by that. Mr Cowey had taken advantage of Ms Cowlam and caused her to enter into a transaction which was very much against her interests. They had both misunderstood the position and had not realised that they had agreed to enter into a charge over their house.

The claimant appealed on the basis that the original defence had relied upon an inference of undue influence or presumed undue influence and it was not open to the judge to make a finding...