YS GM Marfin II LLC & Ors v Lakhani & Ors

Actual undue influence requires more than domination, trust, reliance or a failure to understand a transaction. The claimant must show that influence was abused or unfairly exploited, typically by the ascendant party preferring his own interests or acting unconscionably. A transaction will not ordinarily call for an explanation where it is readily explicable by a commercial ownership and financing structure. For a lender to be put on inquiry, the relationship between debtor and guarantor must generally be non-commercial and the transaction must not appear financially advantageous to the guarantor. A worldwide freezing order may properly be notified to persons outside the jurisdiction to assist its practical effectiveness, but its coercive and penal effect must not be misrepresented.

The claimants sought summary judgment against three defendants under personal guarantees securing loans made to special purpose vehicle borrowers in a family-controlled ship-recycling business. The first and second defendants relied on undue influence, asserting that they signed guarantees at their father’s direction without understanding their effect and without legal advice.

Those defendants also sought discharge of a worldwide freezing order granted without notice. They alleged material non-disclosure concerning their involvement in the business, WhatsApp communications and the reasons for the borrowers’ financial difficulties. They further alleged that notices sent to persons outside England and Wales were an abuse of process.

1. Summary judgment. The claimants obtained summary judgment against all three defendants. The third defendant advanced no defence. The first and second defendants’ evidence did not give them a real prospect of establishing undue influence.
2. Undue influence requires both a relationship capable of generating influence and an abuse or unfair exploitation of that influence. Mere domination, obedience, failure to read documents or lack of informed decision-making is insufficient. The relevant conduct must have an impropriety or unconscionable quality. The evidence did not show that the father exploited his influence for his own unfair advantage.
3. No evidential presumption arose. The guarantees were readily explicable: they secured borrowing by companies beneficially owned and controlled by the defendants, formed part of a refinancing, and followed guarantees given to the previous lender. The transactions therefore did not call for an explanation.
4. The claimants were not put on inquiry. The debtor-guarantor relationship was commercial. The defendants were educated adults, beneficial owners and directors of the corporate parent, engaged in an international shipping business. The commercial context, ownership structure and prior guarantees made the transaction appear routine and for their benefit.
5. Freezing order. The applications to discharge the worldwide freezing order failed. The alleged non-disclosures did not materially weaken the evidence of risk of dissipation or the justification for proceeding without notice. Even if material non-disclosure had been established, the order would have been continued or re-granted in the interests of justice, particularly after judgment.
6. It was legitimate to notify overseas third parties of the order in an attempt to make it effective. The original letters went too far by using stark references to contempt and the penal notice without sufficiently explaining the limits of paragraph 19. That error did not justify discharge, but corrective letters were ordered for recipients who had not received them.
7. The existing costs order relating to the freezing order applications was left undisturbed.