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Equity - Undue Influence. JGB Collateral v. Rochon
In JGB Collateral v. Rochon (Ont CA, 2020) the Court of Appeal considers the 'presumption of undue influence' when a spousal couple put up their real property to guarantee the debts of their corporation:Presumed undue influence
[7] The doctrine of undue influence and its evidentiary companion, the presumption of undue influence, is set out in Geffen v. Goodman Estate, 1991 CanLII 69 (SCC), [1991] 2 S.C.R. 353; Bank of Montreal v. Duguid (2000), 2000 CanLII 5710 (ON CA), 185 D.L.R. (4th) 458 (Ont. C.A.), leave to appeal allowed, [2000] S.C.C.A. No 298, appeal discontinued August 2, 2001; and CIBC Mortgage Corp. v. Rowatt (2002), 2002 CanLII 45110 (ON CA), 220 D.L.R. (4th) 139 (Ont. C.A.), leave to appeal refused, [2002] S.C.C.A. No. 526. Rowatt draws heavily on the House of Lords’ decision in Royal Bank of Scotland v. Etridge (No. 2), [2001] 4 All E.R. 449., which clarified and modified Barclays Bank plc v. O’Brien, [1993] 4 All E.R. 417 (H.L.).
[8] To summarize, the presumption of undue influence is a rebuttable evidential presumption.
[9] It arises if the nature of the relationship between the debtor and the surety coupled with the nature of the transaction between them justifies, without any other evidence, an inference that the transaction was the result of the undue influence of one party over the other: Geffen, at p. 378; Rowatt, at para. 20.
[10] When the presumption arises, there are two results.
[11] First, a lender is put on notice and inquiry. In order to protect itself from a claim that the guarantee provided to it was obtained by undue influence by the benefitting spouse or party, the lender must take reasonable steps to try to ensure that the proposed guarantor understands the transaction and is entering into it voluntarily by encouraging the guarantor to seek and obtain independent legal advice and a full explanation of the transaction: Rowatt, at para. 16; Bank of Montreal, at paras. 17-18.
[12] Second, if the lender has not taken the reasonable steps and the guarantor seeks to avoid liability on the guarantee or security by claiming that it was obtained by undue influence, the evidential onus is on the lender to adduce sufficient evidence to rebut the presumption: Rowatt, at para. 20.
[13] The judge must decide on the totality of the evidence whether the allegation of undue influence has been proved. The nature and ingredients of the impugned transaction between the benefitting spouse or party and the other party are essential factors in deciding both whether the evidential presumption has arisen and whether the lender has rebutted it. If the judge concludes that there was no undue influence, the presumption is rebutted and does not apply: Rowatt, at para. 20.
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