Undue Influence And The Unconscionable Bargain

In a rare case, Mrs Justice Rose considered in detail the relationship between bankers and commercial investors and whether certain banking transactions should be rescinded, on the basis they were procured by the exercise of undue influence or further to an unconscionable bargain.

Mrs Justice Rose's judgment in The Libyan Investment Authority v Goldman Sachs International [2016] EWHC 2530 (Ch) sets out a helpful summary of how the law in these areas operates with regards commercial investors, and highlights that the courts are reluctant to be prescriptive with regard to when it will be appropriate to hold that there has been undue influence, such that the outcome in a particular case will necessarily be heavily dependent on the facts. The starting point remains that the courts will seek to uphold freedom of contract and commercial certainty unless it is clearly demonstrated in a particular case that it would not be fair to do so.

The English courts have, in recent years, considered a variety of arguments on behalf of investors involved in disputes with their bankers concerning the enforceability of rights and obligations in investments where those investors have suffered often very significant losses following the market disruption of the 2007/ 2008 financial crisis, or have otherwise not made the returns for which they had hoped. The starting point for the court in all such cases is to consider whether grounds have been made out by the investor to justify deviating from the general public policy that contractual terms should be upheld and commercial certainty should be protected.

Arguments relying on undue influence are more commonly seen in the context of dealings with individuals and alleged exploitation in a family setting rather than a commercial setting (e.g. bank transactions where a spouse alleges undue influence by their partner or where a child alleges undue influence by their parent or the other way around). This case is by no means the first time an investor has sought to rely on undue influence or analogous arguments outside that context, including arguments concerning breach of fiduciary obligations, abuse of confidence, breach of the fair dealing rule, or exploitation of vulnerability arising from the trust and confidence placed by an investor in his or her banker - see for instance JP Morgan Chase Bank and Others v Springwell Navigation Corporation [2008] EWHC 1186 (Comm). However, it has been some time since such points have been dealt with by the courts in such detail in the context of commercial investors.

The arguments raised by The Libyan Investment Authority (LIA, a sovereign wealth fund)...