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JOURNAL OF SOUTH PACIFIC LAW - Case Notes

Case Note 2 of Volume 2, 1998

SUNDARLAL LALLU v PARVATI MANILAL LALLU RANCHOD

unreported
Court of Appeal, Fiji
CAN ABU0053 of 1995S

FACTS:

On the death of her husband in 1980, the plaintiff became the executor and trustee of his estate and sole beneficiary for life. In these capacities she became equal partner with the defendant, her late husband's brother, in the business of merchants and theatre proprietors. The business also owned certain properties. In 1990 the defendant was convicted of assaulting the plaintiff who was forced to move out of the house she shared with the defendant and his family, into accommodation behind the theatre. From that accommodation, she operated a small grocery business. After various meetings with the defendant and members of the Gujerati Indian Community, the plaintiff and defendant executed a deed providing for the dissolution of the partnership with all assets to be transferred to the defendant and $50,000 to be paid to the plaintiff. After execution of the deed the plaintiff became aware that she would only receive $50,000, and not the money and the theatre as she had thought.

CLAIM:

The following preliminary issues were put to the High Court for determination:

1. Did the plaintiff execute the deed and related documents voluntarily or by virtue of inducement, duress, undue influence and misrepresentation by the defendant?

2. Was the plaintiff given the opportunity to seek independent legal advice and did she receive such advice before signing these documents.

The defendant appealed against the High Court’s determination of these two issues in the plaintiff’s favour.

OUTCOME:

The appeal was dismissed with costs to the plaintiff.

LEGAL PRINCIPLES:

Ratio Decidendi

1. Exercise of dominion and inequality of bargaining power are factors to be taken into account in establishing undue influence.

2. If third parties ‘recruited’ by the dominant party to a contract substantially undermine the ability of a party to make independent decisions this may amount to undue influence.

3. Non-disclosure of:

are all instances of misrepresentation.

4. Partners are in a fiduciary relationship based on good faith and good will.

Obiter Dicta

Capability in trade does not necessarily mean that a person is literate.

COMMENTARY:

1. Silence and Misrepresentation

The common law rule is that silence does not amount to misrepresentation (Keates v Lord Cadogan (1851) 10 CB 591). This rule reflects the general policy of the law that parties must protect their own interests when making a bargain. There are exceptions to this, including the rule that a party must not tell a half-truth (Dimmock v Hallett (1806) LR 2 Ch App 21). In this case the Court of Appeal stated that non-disclosure of matters of importance constituted misrepresentation. However, it is clear that information regarding the value of the business was given to the plaintiff but that this did not include the information considered necessary by the Court of Appeal. Accordingly, this case appears to constitute an example of half-truths amounting to misrepresentation, and fall within the exception to the common law rule.

2. A Doctrine of Inequality of Bargaining Power

The first of the preliminary issues put before the court in this case sought to determine whether the plaintiff executed a deed voluntarily or due to ‘inducement, duress, undue influence and misrepresentation’. Inducement is not a recognised vitiating factor and should have been excluded all together. Whilst the other legal doctrines are bound together by the fact that intervention of the courts is justified on the basis that consent is not ‘real’, they are governed by different considerations. This is particularly the case with misrepresentation. The issue could have been better phrased to allow clearer pronouncements by the court. However, support for dealing with duress and undue influence together can be found in Lloyd’s Bank v Bundy ([1975] QB 326), where Lord Denning suggested that they were both part of a wider doctrine of inequality of bargaining power:

English law gives relief to one who, without independent advice, enters into a contract on terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressure brought to bear on him by or for the benefit of the other.

Lord Denning’s views have been firmly rejected by the House of Lords. In Pao On v Lau Yiu Long ([1980] AC 614) unfair use of a dominant bargaining position was rejected by Lord Scarman as a ground for invalidating a contract where duress was not present (at pp634-635). Similarly in National Westminster Bank v Morgan ([1985] AC 686, at pp707-8) Lord Scarman held that the doctrine of undue influence had been sufficiently developed not to need the support of a general principle of inequality of bargaining power. His Lordship held that any such innovation was a legislative task, a task that had already been undertaken with the passing of, for example, hire purchase and consumer protection legislation.

In the current case, the Court of Appeal approved Scott J’s reference to ‘a marked and distinct inequality of bargaining power’. However, reading this in the context of the judgment as a whole, inequality of bargaining power was only relied on as a factor taken into account in concluding that undue influence was present. It was not advocated as a legal doctrine in its own right.

The paucity of legislation providing relief against inequality of bargaining power could be argued as a distinguishing feature in some countries of the South Pacific region, justifying a more proactive approach by the courts to abuse of a dominant position. In Fiji, however, section 55 of the Fair Trading Decree 1992 provides that a person involved in trade or commerce, and more particularly the supply of goods and services, shall not engage in unconscionable conduct. The Act specifies relevant factors to be taken into account, which include relevant bargaining strengths.

3. Other Remedies

In this case, the plaintiff also had a possible remedy against her advisors. She was advised to sign the deed by an accountant who admitted that he ‘had no figures’ and did not verify any of the figures given to him by the defendant. She was also advised by a solicitor with a conflict of interest (he was acting for both parties) who failed to advise on any of the pertinent issues. Assuming that this advice was given gratuitously, lack of consideration would prevent a contract arising on which to sue for the absence of due care. Since the decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd ([1964] AC 465 a tortious duty of care in making statements has been recognised where there is a special relationship between the parties, even where the only loss is pecuniary. The professional advisors would clearly have had the necessary relationship with the plaintiff. The businessman who gave advice might have escaped liability at common law if he was not in the business of supplying information and had not claimed to possess special skill.

Apart from liability under the principle in Hedley Byrne & Co Ltd v Heller & Partners Ltd, there has long been liability for negligent misstatement in equity where the parties are in a fiduciary relationship (Nocton v Lord Ashburton [1914] AC 932). The solicitor and, probably, the accountant were in such a relationship with the plaintiff, thus giving additional grounds of action. In equity the businessman may have been rendered liable if his advice was sought as a member of the Gujerati Indian Community. If the plaintiff could have established a relationship of trust based on community membership then this might well have amounted to a fiduciary relationship.

4. Procedure - Pre-Trial Conference

The preliminary issues put to the court in this case were agreed on at the pre-trial conference. Pre-trial conference is provided for in O34r2 of the High Court Rules 1988 (Fiji). In proceedings where all parties are represented by solicitors it is a prescribed step prior to setting an action down for trial. It is held with the object of reaching agreement as to possible ways of curtailing the length of the trial. It is also an opportunity to crystalise settlement negotiations. If the matter proceeds to trial, the court may award a portion of the costs against parties who unreasonably refused to agree to matters at the pre-trial conference that would have shortened the trial or saved costs. The compulsory pre-trial conference is a welcome step away from the traditional adversary system, where the conduct of the case is left entirely in the hands of the parties. The Fiji Rules have recently been amended by the High Court (Amendment) Rules 1998, to introduce a ‘wasted hearing fee’ as a further means of reducing delay.

5. Appeals from Findings of Fact

The Court of Appeal referred to the evidence of duress and undue influence having been considered by the trial judge, who ‘had the added advantage of listening to and seeing both the Appellant and the Respondent and their respective witnesses’. This comment reflects the traditional view that the trial judge has an advantage in assessing the evidence as s/he has seen the demeanour of witnesses (Soma Raju v Bhajan Lal (1976) 22 FLR 163 at 167; Khoo Sit Hoh v Lim Thean Tong [1912] AC 323 at 325). Notwithstanding, the court must bear in mind that it its duty to rehear the case. It must reconsider materials before the judge, with such other materials as it has decided to admit, and make up its own mind after carefully weighing and considering the judgment appealed from (Coghlan v Cumberland [1898] 1 Ch 704).

JENNIFER CORRIN CARE
SENIOR LECTURER
SCHOOL OF LAW
UNIVERSITY OF THE SOUTH PACIFIC

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