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Week 6 Undue Influence (Equitable doctrine that allows an agreement to be…

- - - - presumed
        Two classes
        
        Class 2A undue influence - special relationships
        
        Recognised relationships
        
        • Parent and Child: Lancashire Loans Ltd v Black [1934] 1 KB 380;
        
        • Guardian and Ward: Hylton v Hylton (1754) 2 Ves Sen 547;
        
        • Solicitor and Client: West Melton (Vic) Pty Ltd v Archer & Shulman [1982] VR 305;
        
        • Doctor and Patient: Bar-Mordecai v Hillston [2004] NSWSC 65; and
        
        • Religious Leader and Follower: Allcard v Skinner (1887) 36 Ch D 145.
        
        Where a person is influenced by a religious leader they may be only one of a large congregation and it will not be possible to identify one person as exerting undue influence: Hartigan v International Society for Krishna Consciousness Inc [2002] NSWSC 810.
        
        Generally the relationship in such cases will be individual, on a one to one basis: McCulloch v Fern [2001] NSWSC 406.
        
        Class 2B - arise where it is proved that the party benefiting from the transaction occupies or assumes towards another a position naturally involving an asendancy or influence over that other, or a dependecny or trust on the latters part. - Janson v Janson [2007] NSWSC 1344 at [72].
        
        ‘[i]f the parties to the transaction do not fall within a Class 2A relationship, a special relationship can nevertheless be established on the particular facts and circumstances of their relationship’.
        
        Courts look at the relationship generally and the nature of the relationship rather than the transaction, though the transaction will be important evidence of the nature of such relationship.
        
        Factors showing influence include
        
        1) differences in age (i.e. extreme youth and extreme age);
        
        2) mental disability;
        
        3) physical disability;
        
        4) poor education; and
        
        5) lack of business experience. See Bester v Perpetual Trustees Co Ltd [1970] 3 NSWLR 30.
        
        The presumption is rebuttable: Janson v Janson [2007] NSWSC 1344, [93]. However, the presumption may be difficult to rebut: See Radan and Stewart [11.19].
        
        There is no presumption of undue influence in cases involving husband and wife: Yerkey v Jones (1939) 63 CLR 649.
        
        Rebuttal
        Once the transaction is shown to have been effected by undue influence, the respondent (i.e. the person who has allegedly exerted undue influence) has the opportunity to rebut the presumption.
        
        To do so he or she will have to prove that ‘the gift was the independent and well-understood act of a [person] in a position to exercise free judgement based on information as full as that of the donee’ [ie. the respondent or the person who gave the gift or made the agreement with the weaker party)]: Bar-Mordecai v Hillston [2004] NSWCA 65 [167], [183].
        
        In addition, the aggrieved party must have as much knowledge about the transaction as the donee: Johnson v Buttress (1936) 56 CLR 113.
        This requires more than ‘mere understanding’ (i.e. he or she must understand the nature of the transaction and its effects particularly the effect on the donee).
        
        Other elements considered
        
        Lack of Improvidence
        
        Lack of improvidence is an indicator that undue influence has not been exerted by the respondent. In this case, the stronger party will have to show that the transaction did not cause excessive loss to the aggrieved party.
        
        Contracts
        
        With regard to contracts, the courts examine consideration asking whether the transaction was made in good conscience rather than whether it is sufficient
        
        Independent Advice
        
        if the weaker party obtains independent legal advice it may demonstrate that he or she understood the transaction. The advice must be thorough and look at all aspects of the transaction particularly at the “propriety” and “prudence” of the transaction. Such advice must include all the material facts of the transaction: Brusewitz v Brown [1923] NZLR 1106.
        
        Third Parties
        
        Guarantees are problematic. Here the lender obtains a benefit (security) on the basis of a relationship between two other people. The creditor will be tainted by undue influence of any third party of which it has actual or constructive notice: Bank of New South Wales v Rogers (1941) 65 CLR 42.
        
        In the decision of Garcia v NAB (1994) 194 CLR 395 a majority of the High Court of Australia recognised that the principle in Yerkey v Jones, which relates to the enforcement of a guarantee by a husband against the wife (and vice versa) where the lender had notice ‘at the time of taking the guarantee that the surety was then married to the creditor’, could extend to other close relationships, such as ‘to long term and publicly declared relationships short of marriage between members of the same or of opposite sex’
      - Class 1: Actual Undue influence - no existing special relationship. Looks at the facts of the transaction itself. The evidence may also be situational arising for the particular circumstances in which the parties were then placed.
        dominant party acts in such a way as to effectively deprive the other of their free will
        
        Typically uncommon
        
        actual undue influence, ‘once actual undue influence has been established, the onus is upon the party exerting the influence to rebut the presumption that the transaction was entered into by the other party as a result of influence’:
- - - - In circumstances of alleged undue influence, mere delay is not enough: Lamshed v Lamshed (1963) 109 CLR 440, 453.
        The delay relates to the person who has been released from the influence and is aware of his or her right to have the contract set aside.
      - The respondent must be able to show that their rights have been prejudiced by the delay: Eastern Services Ltd v No 68 Ltd [2006] 3 NZLR 335, 347.
      - If the defence of laches succeeds the claim in equity will fail.
        However, the legal rights remain undisturbed (i.e. enforceable). Equitable interests are defeated and lost entirely: Hourigan v Trustee Executors & Agency Co Ltd (1934) 51 CLR 619, 650.