Nature Resorts Ltd v First Citizens Bank Ltd (Trinidad and Tobago)

Undue influence is a single doctrine. Actual and presumed undue influence are different methods of proof. A presumption requires a relationship of influence and a transaction not readily explicable on ordinary motives. Once established, the burden shifts to the party supporting the transaction, although independent legal advice is neither essential nor conclusive. An ordinary commercial mortgage entered into by a business person will rarely be unexplained merely because it is disadvantageous, especially where the transaction substantially benefits the person controlling the company. The appeal was dismissed and the cross-appeal succeeded. The Board declined to determine alleged contraventions of Companies Act of Trinidad and Tobago sections 56–57 because the legal and factual issues had not been properly developed.

Nature Resorts Ltd mortgaged the Culloden Estate, its principal asset, to secure a loan made by First Citizens Bank Ltd to purchasers of 75% of Nature Resorts’ shares. The mortgage was prepared by a solicitor instructed by the Bank, who had previously acted for Nature Resorts and Patrick Dankou, its controlling shareholder.

The High Court dismissed the undue influence claim. The Court of Appeal dismissed Nature Resorts’ appeal, holding that a presumption of undue influence arose but had been rebutted. Nature Resorts appealed to the Board, while the Bank cross-appealed on the existence of the presumption. The Board also invited submissions on alleged financial assistance under sections 56–57, although that issue had not been pleaded. The central issues were whether the presumption was rebutted and whether the Board should determine the statutory illegality issue for the first time on appeal.

1. Disposition. The majority dismissed Nature Resorts’ appeal. The Court of Appeal was entitled to conclude that, assuming a presumption of undue influence arose, the Bank had shown that Mr Dankou exercised free and independent judgment. The Bank’s cross-appeal should succeed because the mortgage was readily explicable on ordinary commercial motives and therefore no presumption arose.
2. Undue influence. The Board followed the analysis in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44. Undue influence is a single concept. Actual and presumed undue influence describe different methods of proof. A rebuttable presumption requires a relationship of influence and a transaction which is not readily explicable on ordinary motives. If the presumption arises, the burden shifts to the party supporting the transaction. Fully informed and competent independent legal advice is the usual method of rebuttal, but it is neither necessary nor conclusive.
3. Application. A business person will generally be capable of understanding the risks of commercial security. The mortgage enabled the share sale and thereby substantially benefited Mr Dankou as sole shareholder. It was therefore wrong to consider only whether Nature Resorts itself received a benefit. The uncertain all-moneys clause was not treated as a significant factor because its scope was uncertain and neither court below had relied on it.
4. Financial assistance. The majority declined to determine whether the mortgage contravened sections 56–57 of the Companies Act of Trinidad and Tobago. The provisions raised unresolved questions about the amount to be excluded under section 56(2)(b), the meaning of lender for value under section 57, and the interaction with the common-law illegality doctrine in Patel v Mirza [2016] UKSC 42. The factual record had not been developed for those issues, and deciding them at that stage would be procedurally unfair to the Bank.
5. Dissent. Lady Arden would have allowed the appeal. She considered that the mortgage was unlawful financial assistance, that the whole charged asset fell to be deducted under section 56(2)(b), and that the Bank was not a lender within section 57 entitled to enforce the mortgage.

• Privy Council. The majority dismissed Nature Resorts’ appeal and held that the Bank’s cross-appeal should succeed. The Board declined to determine the financial-assistance issue under sections 56–57.
• Court of Appeal of the Republic of Trinidad and Tobago. Dismissed Nature Resorts’ appeal. It held that a presumption of undue influence arose but was rebutted on the facts.
• High Court of Justice of Trinidad and Tobago. Dismissed the undue influence and misrepresentation claims. No appeal was brought against the misrepresentation ruling.