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3 Undue Influence & Unconscionable Bargains

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III U NDUE INFLUENCE & U NCONSCIONABILITY Distinguishing the Doctrines The doctrines aren’t mutually exclusive and sometimes they will co-exist and overlap within the facts of a particular case. Undue Influence • Will of person overborne – haven’t entered into K with a freely consenting mind • Focus on quality of their consent: Amadio • Does not require a special disadvantage as unconscionable conduct does Unconscionable Bargains • Person has exercised their will but it is underdeveloped due to special disadvantage  Someone has made a decision but it could never been a good decision because they have been taken advantage of. • Focus on the conduct of the stronger party acting unconscionably – looks to mind of dominant party to see if they have taken advantage of their position - Commercial Bank of Aust v Amadio Consider • Unconscionable dealings (estoppel?) • Joint venture A UNDUE INFLUENCE = the improper use of ascendancy of one party over the other, for the benefit of the ascendant party, such that the person influenced is not acting voluntarily: Union Bank v Whitelaw. Undue influence can be divided into two classes: Johnson v Buttress. • Actual Undue Influence • Presumed Undue Influence First class: Actual undue influence • Burden of proof with party seeking to set transaction aside • Plaintiff must prove: Johnson v Buttress o Existence of actual influence o Improper use of influence o Transaction occurred as a result of this influence • Includes economic and physical pressure: Williams v Bailey • Undue influence need not be unlawful: Williams v Bailey (son forged father’s signature on cheques | father asked to give security to cover son’s indebtedness through cheques | Bank threatened criminal prosecution of father → use of legal action not unlawful but was used to extract promise from father = undue influence) Andrew Trotter LWB240 Principles of Equity Second class: Presumed undue influence Presumption of undue influence may arise as a result of a relationship of authority or influence of one party over another: Johnson v Buttress o Either:  Relationship is one that equity presumes to be a relationship of influence as a matter of law; or  Relationship of influence in fact 1. Presumed Relationships of Influence in Equity (Q of Law) • Parent and Child: Savery v King - Also where acting as parent to the child: Bank of NSW v Rogers (eg uncle-niece) - Generally must still be emotionally and/or financially dependent on parent - May apply even if older & living separately if dependent in some respect: Phillips v Hutchinson per Gavan Duffy J (plaintiff was 35—married—lived years apart from her 83 yr old father | unreservedly trusted her father and leant on his advice → attitude to the business of everyday life to be that of children → remained under parental influence → presumed relationship established) Cth Bank v Ridout Nominees Pty Ltd (2 sons in their 30s—of average intelligence and firmness | employed by father on the family farm—in the habit of deferring to him in matters of importance to the business—depended upon the father ‘in a way which is rarely found outside farming families’ → remained under influence → presumed relationship established) • Guardian and Ward: Hatch v Hatch - Similar to Parents and Children (see above) • Spiritual Advisor and devotee: Huguenin v Basely - Scrutinised heavily: Allcard v Skinner (Nun donating all property to the church case) - Applies also to fringe & unorthodox faiths - A spiritual adviser has the power to “work on passions, excite superstitious fears or inspire pious hopes” and that’s why courts will scrutinise them carefully (Lindley J in Allcard v Skinner) • Solicitor and client: Wright v Carter - Because client is usually reposing trust in legal adviser and seeking guidance: Wright v Carter - Burden of proof lies on solicitor to show that transaction was at arm’s length: Hatch v Hatch - Does not apply to contractual dealings but the fiduciary position of the solicitor is such that a solicitor is required to show that the bargain is as good as any that could have been obtained due to diligence from any other purchaser: Gibson v Jeyes, Cane v Allen. • Fiduciary relationships such as o trustee and beneficiary: Union Fidelity Trustee v Gibson Andrew Trotter LWB240 Principles of Equity - Perhaps limited to particular types of trusts where there is some sort of influence (e.g. family trust) - Not definite relationship—depends on the facts o Principal and Agent: O’ Sullivan v Management Agency • Doctor and patient: Williams v Johnson - established because people can be a little over-grateful of the doctors’ saving of their or their child’s life - extends to the managers of the mental hospitals and its patients - dentist does not fall in this category (Canadian case law) • Man and fiancée: Lovesey v Smith (Woman was so desperate to get married that the man was capable of exercising undue influence they got engaged)—→X - No longer presumed—changed social conditions: Zamet v Hiyman - Women not in presumed relationship over man: Lloyds Bank, Re Bomze and Bomze - A husband is not presumed to have influence over his wife but this can be proven: Howes v Bishop & Wife 2. Proof of Relationship of Influence (Q of Fact) Elements o Reliance upon guidance and advice o Awareness of the reliance by the defendant o A benefit being received by the defendant o Confidentiality in the relationship: Lloyd’s Bank v Bundy Factors o Old age o Senility o Eccentricity o Physical or Mental Infirmity o Financial Distress o Illiteracy o Ignorance of business o Lack of education/intelligence Union Fidelity Trustee Co of Australia Ltd v Gibson per Gillard J • Habitual reliance on other people and social humility of donor Johnson v Buttress—Widower → (house in will) → Niece of deceased wife  • 67yrs old. • Illiterate • low intelligence • No business experience • Habitually relied on others for advice and guidance • Had become attached to his wife’s niece. Andrew Trotter LWB240 Principles of Equity • No independent advice Lloyds Bank v Bundy—Elderly farmer → (security for son’s company) → Bank  • Elderly • Longstanding relationship • Trust placed in the bank • Bank knew of reliance • Bank acting as customer’s advisor Credit Lyonnais Bank Nederland NV v Burch—Employee → Employer  • Trust & confidence • Employer gaining advantage through work of employee to employee’s disadvantage Brusewitz v Brown—Elderly man → (most property for annuity) → Def  • Old • Poor health due to alcoholism (4 mths prior to death) (visible to all) • Def acting as agent • Nature of transaction Wardley Australian v McPharlin—Debtor & Creditor  James v ANZ—Banker over customer  Evidence of Influence: Substantial Detriment • Gift—Must show that was of such a substantial nature that it cannot be reasonably accounted for on ordinary motives (friendship or charity) Brocklehurst • Contract—not necessary to show manifest disadvantage: Baburin. Rebutting the Presumption of Influence / Refuting Presence of Actual Influence • Presumption influence may be rebutted o Defendant must show that the plaintiff entered into the agreement after free and fully informed thought: Zamet v Hyman Considerations • Independent advice o Factors: Inche Noriah v Shaik Allie Bin Omar (Malaysian lady transfers property to nephew | old—illiterate—nephew had been managing affairs | independent advice from solicitor—not dishonest— but didn’t know it was everything she owned—didn’t advise about other ways of benefiting nephew (eg trust, will)  prima facie undue influence | no rebuttal ← not m
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