• In the case of Lloyds Bank v Bundy [1975] QB 326, Lord Denning MR established the doctrine of an inequality of bargaining power. Here, the parties stood on unequal footing upon heading into a contractual agreement; it combines undue influence, duress, and unconscionability. However, the House of Lords in National Westminster v Morgan [1985] later said undue influence could be established without proof of inequality of bargaining power.

Facts of Lloyds Bank v Bundy [1975] QB 326

  • D (Bundy) and his son were customers of C (Lloyds Bank), the son later established a company who became customers of C too
  • D was an elderly farmer who had given a charge and personal guarantee over his home to the C to secure an overdraft for his son’s company
  • Bank manager with who the D entered the agreement on behalf of C knew he was being relied upon for advice
  • After the son’s company fell further into debt, C sought to enforce the charge and personal guarantee
  • D argued there was undue influence present at the time of the contractual agreement

Issues in Lloyds Bank v Bundy [1975] QB 326

  • Was undue influence present?

Held by the Court of Appeal

Appeal allowed. The charge and personal guarantee were set aside due to undue influence, as held by the majority; Lord Denning MR allowed the appeal on the ground of inequality of bargaining power.

Lord Denning MR

Denning L believed that undue influence, duress, and unconscionability were gathered together, and a single thread ran through them – inequality of bargaining power. [339]

“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.” [339]

In the present case [339 – 400]:

  1. “The consideration from the bank was grossly inadequate … All that the company gained was a short respite from impending doom”
  2. There was a relationship present of “trust and confidence … The bank knew that the father relied on it implicitly to advise him about the transaction”
  3. The D’s “natural affection had much influence” on his son, D trusted him
  4. There was a conflict of interest between the D and the C, which the C did not realise it nor suggest the D to seek independent advice “If the father had gone to his solicitor – or to any man of business – there is no doubt that any one of them would say … “You are giving up your house, your sole remaining asset, for no benefit to you””

Sir Eric Sachs, with whom Lord Justice Cairns agreed

Undue influence [342]:

  • “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.”” These fall within the first class of cases Cotton LJ in Allcard v Skinner presented
  • The second class of cases means “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”

The judgement here does not affect the duties of a bank to an ordinary case of personal guarantee. However, when the bank goes further in their advice, establishing a relationship as seen here, they may “be crossing the line into the area of confidentiality so that the court may then have to examine all the facts including, of course, the history leading up to the transaction, to ascertain whether or not that line has, as here, been crossed.” [347]