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Week 8 Undue Influence; Unconscionable Transactions / Conduct - Coggle…
Week 8 Undue Influence; Unconscionable Transactions / Conduct
Undue influence
(Equitable doctrine so equitable remedies apply)
Actual Undue Influence Class 1
No special relationship between the parties
• Transaction under coercion: William v Bayley
• Found on the facts:
Desir v Alcide
[2015] UKPC 24
Class 2A: Presumed Relationships
Certain relationships are presumed to be affected by undue influence
Parent/child: Lancashire Loans v Black
– Guardian/ward: Hylton
– Solicitor/client: Archer & Shulman
– Doctor/patient: Bar-Mordecai v Hillston
– Religious leader/disciple: Allcard v Skinner – large congregation: McCulloch v Fern; Hartigan v Int Society Hare Krishna
NO presumption
Husband and wife:
Yerkey v Jones
Fiancé and Fiancée:
Thorne v Kennedy
Thorne v Kennedy [2017] HCA 49 [36] the majority clarified that a relationship of fiancé and fiancée does not ‘give rise to a presumption that either person substantially subordinates his or her free will to the other’.
Class 2B: Particular Relationships
Focus is on the nature of relationship
Johnson v Buttress
(1936) 56 CLR 113
Janson v Janson
[2007] NSWSC 1344
Class 2B relationships ' where it is proved that the party benefiting from the transaction occupies or assumes towards another a position naturally involving an asendance or influence over that other, or a dependency or trust on the latter's part'.
[11.25]
Look at dominion and dependence
Factors considered in terms of how they colour the relationship
Age difference: extreme youth and old age
– Mental disability
– Physical disability
– Poor education
– Lack of business experience: Bester v Perpetual Trustees
Rebuttal of Presumption
Not rebutting the existence of the relationship
The stronger party must show that the applicant (aggrieved party) was acting independently and exercised free judgement
– Full knowledge and not ‘mere understanding’: Johnson v Buttress
– Independent advice – may assist: Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773
–
Lack of Improvidence
: Bester v Perpetual Trustee.
Improvidence (from text); The stronger party can show that the transaction does not cause excessive loss to the other, then it is plausible that it was entered into freely
Rebuttal of Undue Influence: lack of improvidence
improvidence - lack of foresight by the aggrieved party, so it was not independent act of person exercising free judgement
Rebuttal of Improvidence (from text); The stronger party can show that the transaction does not cause excessive loss to the other, then it is plausible that it was entered into freely
Stronger party must show the transaction did not cause excessive loss.
Different tests apply to gifts & contracts
Gifts
Examine the gift vis-à-vis the total holdings/wealth to assess providence:
Bester v Perpetual Trustee.
Lee v Chai
Contracts
Look at consideration for purpose of examining whether the transaction was made in good conscience.
Third parties:
• Guarantees through marriage: Yerkey v Jones principle.
creditors are responsible for undue influence in the situation where the husband gets the wife to become the guarantor
reaffirmed in the
Garcia v National Australian Bank Ltd
3 more items...
only applies to guarantees
- does not apply to other instruments or transactions.
Defences
Laches
Delay defeats equity
It is the delay after the applicant is freed from the influence and is aware that she could seek to set aside the contract that matters: B
ester v Perpetual Trustee Co Ltd
[1970] 3 NSWR 30
Effect
Successful defence = interests defeated & lost:
Hourigan
Remedies
Rescission
Takes parties back to their original position:
McDonald v Dennys
Lascelles.
The innocent party needs to clearly & unequivocally communicate
with the stronger party:
Immer v Uniting Church.
The role of the court
Confirms the rescinding act on the part of the weaker, rescinding
party:
Gutnick v Indian Farmers Fertilizer Cooperative
Determines whether the act of rescinding is valid :
Brown v Smitt
two types
Common Law
decsion to recind is made by the innocent party to the contract not the court
at common law it is essentially confined to contract where
the defendant has only pad money
property transfer consist of chattels that have not been used and remain in the same condition
defendants obligations are purely executory
Equity [33.31]
P must seek a court order setting aside the transaction and obtaining any consequential relief that is necessary to bring about
restitutio in integrum
(restoration of an injured party to the situation which would have prevailed had no injury been sustained; restoration to the original or pre-contractual position.)
Alati v Kruger
available in the case of
non-fraudulent misrepresentation,
certain unilateral mistakes,
unconscionable transactions and undue influence
Equitable Compensation
Equity recognises two forms of undue influence: ‘
presumed
’ undue influence and ‘
actual
’ undue influence
Thorne v Kennedy
[40] difference between Unconscionable Conduct and Unconscionable Conduct -
'A further difference between the doctrines is that although undue influence cases will often arise from the assertion of pressure by the other party which might amount to victimisation or exploitation, this is not always required.
In
Commercial Bank of Australia Ltd v Amadio
, Mason J emphasised the difference between unconscionable conduct and undue influence as follows:
"In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position."
Unconscionable Transactions / conduct
The Doctrine of Unconscionable Transactions
A stronger party takes advantage of a weakness of the other
• The weaker party must be under a special disadvantage: v Radio Rentals Ltd
• Leading case: Commercial Bank of Australia v Amadio [1983]
• Equitable relief granted where there is exploitation by one party of a special disadvantage of another.
• Prevention of victimisation: Louth v Disprose
• The stronger party must know of and exploit the special disadvantage
Unconscionable Transaction v Undue Influence
• Unconscionable transactions focus on the conduct of the stronger party
• Undue influence examines the relationship that existed between parties when they negotiated an agreement.
Elements
In CBA v Amadio, Deane J identified the essential elements:
Party A (weaker party) is under a special disadvantage;
Party B (stronger party) knew, or is likely to have known, about the disadvantage; and
Party B uses that disadvantage unconscientiously in order to obtain Party A’s consent to the transaction.
Unconscionability is assessed at the time the transaction was
entered into: Gustav & Co Ltd v Macfield Limited
Special Disadvantage
Special disadvantage exists where the party’s circumstances seriously affect his/her capacity to make an informed judgementas to her interest in a transaction.
In
ACCC v Samton Holdings Pty Ltd
, it was held that factors
establishing a special disadvantage fell into two categories
Constitutional
(arising from personal characteristics): age, illness, poverty, inexperience or lack of education
Situational
(based on circumstances surrounding the transaction): emotional dependence.
Knowledge:
Amadio
Defendant:
actual knowledge
or ought to have known of the
disadvantage
Amadio: bank manager was aware of the significant risks involved and
was put on notice of their disadvantage.
The bank manager knew that:
Respondents = two elderly migrants who were not familiar with written English;
Son had procured their agreement and had no reason to believe they had received independent advice and guidance; and
Respondents’ guarantee was vital for the son’s company to continue in business.
See also
Thorne v Kennedy
at [64 - 65], with reference to
Amadio
-
Note this is saved in file and highlighted on file
Case examples of exploitation of special
disadvantage
Blomley v Ryan (1954) 99 CLR 362
Louth v Diprose (1992) 175 CLR 621
Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413
Australian Consumer Law
Section 131 of the CCA confines the operation of the CCA,as a law of the Commonwealth, to the activities of corporations