This advice will consider whether Mrs Tan can set aside the transfer of her house to her nephew, Kevin. The validity of the agreement will be examined under Malaysian contract law, focusing on the doctrine of undue influence.
Undue Influence
The central issue is whether the agreement can be rendered voidable on the grounds of undue influence. In Malaysia, the law on undue influence is governed by section 16 of the Contracts Act 1950. For undue influence to be established, two elements must be proven: first, that one party was in a position to dominate the will of the other, and second, that this position was used to obtain an unfair advantage (Contracts Act 1950, s 16(1)).
Position to Dominate the Will
Section 16(2) of the Contracts Act 1950 provides situations where a person is deemed to be in a position to dominate another's will. This includes where a person "stands in a fiduciary relation to the other" or where they make a contract with a person "whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress".
On the facts, a relationship of trust and confidence exists between Mrs Tan and Kevin. Mrs Tan, a 72-year-old widow, "relies heavily" on Kevin to manage her financial affairs. This dependency likely places Kevin in a fiduciary-like position, where he has a duty to act in her best interests. The facts are similar to the influential case of Inche Noriah v Shaik Allie Bin Omar [1929] AC 127, where an elderly woman who was dependent on her nephew transferred property to him. The court held that the nephew was in a position to exert undue influence due to their relationship of trust. Similarly, Kevin's role as Mrs Tan’s financial manager establishes a position of dominance. Mrs Tan’s age and reliance on Kevin further support this conclusion under section 16(2).
Unfair Advantage and Presumed Undue Influence
Once a position of dominance is established, the burden of proof may shift to the dominant party to prove that the contract was not induced by undue influence, particularly if the transaction appears unconscionable. The sale of a house valued at RM900,000 for only RM250,000 is a transaction at a significant undervalue. This represents a clear and unfair advantage for Kevin.
Given the relationship of trust and the manifest disadvantage to Mrs Tan, a presumption of undue influence arises. Kevin would then have the burden of rebutting this presumption by showing that Mrs Tan exercised free and informed judgment. He would typically need to prove that she received independent legal advice before signing the agreement (Inche Noriah). Although a lawyer prepared the agreement, it was brought by Kevin, and there is no evidence that the lawyer advised Mrs Tan independently or acted in her interests. She only received independent advice several months after the transaction. Kevin’s statement, “If you refuse to sign, I will no longer help you with your daily affairs,” further demonstrates that he used his position to pressure her into signing, rather than ensuring she acted freely. Therefore, Kevin is unlikely to rebut the presumption of undue influence.
Conclusion and Advice
Mrs Tan has a strong claim to set aside the transaction based on undue influence under section 16 of the Contracts Act 1950. The relationship of trust and confidence, combined with the transaction at a gross undervalue, creates a presumption of undue influence that Kevin is unlikely to rebut.
The effect of undue influence is that the contract is voidable at the option of the innocent party (Contracts Act 1950, s 20). Mrs Tan can therefore take legal action to rescind the contract. If successful, the court will order the contract to be set aside. Mrs Tan would be required to return the RM250,000 she received from Kevin, and in return, the court would order that the house be transferred back into her name.
References
Inche Noriah v Shaik Allie Bin Omar [1929] AC 127.
Contracts Act 1950 (Act 136) (Malaysia).
