Undue Influence and Unconscionability

Question 1

What is undue influence?

Answer 1

Allcard v Skinner - It’s always been a bit difficult to define undue influence. So he said it’s in some situations:

1. Some unfair and improper conduct;
2. Some coercion from outside;
3. Some overreaching;
4. Some form of cheating; and
5. Generally, though not always some personal advantage obtained by a donee placed in some close and confidential relation to the donor.

Question 1

What are the elements of undue influence?

Answer 1

1. Relationship between certain parties
2. Some sort of improper conduct.
3. Some infuence

Allcard v Skinner- Influence in itself is not objectionable per se. But there has to be influence anyway. It’s just a matter of degree.

Question 2

What is improper or unconscionable use of influence?

Answer 2

Royal Bank v Etridge:
Equity identified broadly two forms of unacceptable conduct:
1. First comprises overt acts of improper pressure or coercion such as unlawful threats.
2. Second arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage.

Hence there are two categories of undue influence:

1. Actual undue influence where the basis of the claim is that the other party actually exercised undue influence.
2. Presumed undue influence where the basis of the claim is that the parties were in a relationship of influence.

Question 3

What are the two sub categories within the category of Presumed undue influence?

Answer 3

In these cases (unless the presumption can be rebutted), it is presumed that as a result of the relationship between the parties, that one exercises undue influence over the other.

1. There are certain classes of relationship where it is automatically presumed. All that needs to be shown is that the parties is in one of the relationship where there is that presumed influence.
2. Where it is proved that there is a relationship of influence. Note that here, you’re just trying to prove the presumption of influence, unlike actual undue influence. Once you show there is a relationship of influence, undue influence is presumed.

You must also, in both of these cases show that the transaction is disadvantageous.

Johnson v Buttress as authority for ALL in this card.

Question 3

Actual Undue Influence

Answer 3

No presumptions here, one has to prove that the actual undue influence.

Question 4

What do you have to show for actual undue influence?

Answer 4

1. There was influence by one over the other
2. The influence exercised was undue. Not enough to just show influence.
3. Exercise of influence bought about the transaction.

Question 5

What is the leading authority? Williams v Bayley

Answer 5

A father had a son. Son forges father’s signature on various notes drawn to a bank.
He then spent money on living.
Bank not happy and father was summoned to see bank manager.
Bank wanted their money back and said to the father will you take over responsibility for your son’s debt. Father does and debt is secured over father’s business. Was this a result of undue influence ?

Held: On the facts, there was undue influence by the bank on the father.
The only motive to induce the father into paying the debt would be so that h could relieve the son from the consequences of his crime. Bank said if you pay we won’t go to the police. So the bank had insinuated the son would face charges unless father paid debt.
It was said if the father had independent legal advice, that would’ve allowed the transaction to stand, but he didn’t.
Transaction set aside.

Question 6

Can undue influence exist between husband and wife

Answer 6

Yes. Provided you can show that there is a contractual relationship and one exercised influence over the other and that the exercise of that influence brought about the contract

Question 7

What’s the first category of Presumed Undue Influence?

Answer 7

Where you fall into a special category where one person exercised influence over the other, then UNDUE influence is presumed.

Question 8

What are the special relationships categories?

Parent and child

Answer 8

Bainbridge v Browne

Question 9

What are the special relationships categories?

Guardian and ward

Answer 9

Powell v Powell

Question 10

What are the special relationships categories?

Solicitor and client

Answer 10

Westmelton v Archer

Question 11

What are the special relationships categories?

Trustee and beneficiary

Answer 11

Wheeler v Sargeant

Question 12

What are the special relationships categories?

Doctor and patient

Answer 12

Dent v Bennett

Question 13

What are the special relationships categories?

Religious adviser and advisee

Answer 13

Allcard v Skinner

Question 14

What are the special relationships categories?

Husband and wife

Answer 14

THIS IS NOT A CATEGORY! There is NO presumption of undue influence in this relationship. Yerkey v Jones

Question 15

Louth v Diprose

Answer 15

These categories are not closed.

Question 16

What is category 2 of Presumed Undue Influence?

Answer 16

Where it isn’t an automatic special relationship, but show that there is a relationship of influence and if you can prove this on the facts, then UNDUE influence is presumed : Johnson v Buttress.

Question 17

Lloyds Bank v Bundy

Answer 17

A presumption arose that influence was undue and as a result the transaction could be set aside.
Relationship of influence which Bundy was able to establish.
The presumption could not be rebutted by the bank that they had e exercised undue influence over him.

Question 18

Watkins v Combes

Answer 18

HC said you must show that the transaction is disadvantageous.

Question 19

How can the presumption be rebutted for Presumption of Undue Influence category?

Answer 19

Westmelton v Archer

Badman v Drake

Question 20

Westmelton v Archer

Answer 20

Points out some:
1. Independent legal advice was sought. Is a factor, but not a requirement. Essentially it depends on what one is looking to show to rebut the presumption.

Question 21

Badman v Drake

Answer 21

D had befriended 87 yo woman.
They entered into financial difficulties and she purchased a house for them in return for which they were to look after her.
Solicitors acting for both parties feared influence so asked to take steps to protect P. D refused to take steps because they’re in a hurry to get the house.
IT was a category where the transaction was derived from the influence. So there was presumed undue influence. Now onto D to rebut. D failed to do so.
Question was whether transaction for the house could be set aside.
Court conceded that had the D’s taken advice of solicitor, it may have been different.

Question 22

What about Third Party Transactions?

Answer 22

In a relationship of husband and wife, if the wife acts as a surety for the husband’s debt and the creditor accepts her as such, without dealing with her personally i.e deals through the husband, she has a prima facie right to have the agreement set aside.

Yerkey Jones was this situation, except the transaction wasn’t set aside because the bank (Creditor) believed that the wife understood the transaction and the transaction had been explained to her by a solicitor in a way, it was said that a person of average intelligence would understand.

Yerkey Jones can also apply to unconscionable conduct

Question 23

Garcia v National Australia Bank IMPORTANT

Answer 23

Similar arrangement, wife guaranteeing husband’s debt.
Question in this case is whether we still need rule in Yerkey v Jones?
According to this case, Yerkey v Jones was still a separate category. So still apply Yerkey v Jones to third party transactions.

It was stressed that what mattered was whether the wife UNDERSTOOD THE TRANSACTION. Another factor in allowing the transaction not be set aside is that a wife makes no gain.
So if the wife understands the transaction, it still stands.

So basically, lays down rules about when we apply Yerky v Jones:

1. Bank did not havev to notice any unconscioabnle dealing between ife
2. Not confined to personal debt

Factors to determine whether the transaction under Garcia was unconscionable:

1. Look at whether surety/wife understood transaction
2. Surety obtained no benefit from transaction
3. Lender taken to understand wife will place trust and confidence in her husband.
4. Lender did not itself take steps to explain transaction to wife.

Question 24

What is unconscionable conduct?

Answer 24

A good example of this is in Commercial bank of Australia v Amadio
Unconscionable conduct is a third category which courts will set aside transactions. Where the contract is a product of unconscionable conduct.

Question 25

What’s the difference between Undue influence and Unconscionability?

Answer 25

Undue influence looks to the consent or assent of the weaker party.
Unconscionable dealing however, looks to the conduct of the stronger party.
Commercial bank of Australia v Amadio.

Question 26

Blomley v Ryan

Answer 26

P sought specific performance on D who agreed to sell agricultural land but now refused to perform.
Sale was at a significant undervalue, the terms were unfavourable to the P including a low deposit.
Why did P agree to transaction? He was described as an old man and an alcoholic who, when entered into the contract, was drunk.
He as disadvantaged on that basis and the transaction was said to be unconscionable.
Not necessary to show loss unless it’s involving land. The fact that the land was at a significant undervalue was a good indication that P was at a disadvantage.
The courts would look at the following factors to see whether there’s a disability:
1. Age
2. Poverty
3. Mindset
4. Education
5. Drunkenness
6. Sex
7. Illiteracy

Question 27

What are the elements of unconscionability?

Answer 27

1. The party seeking relief must at the time of entering the transaction suffer a special disability vis-a-vis the other party. The disability (What is it? Bromley v Ryan factors)
2. The disability seriously affects the party’s capacity to judge or protect their own interests
3. The other party must know of the disability
4. The other party must take advantage of the disability
5. Taking advantage must be unconscionable.

Need to show these to get the contract set aside. Once you successfully prove the facts, the is a PRESUMPTION that rises that the contract is unconscionable.

Question 28

How can the presumption for unconscionable conduct be rebutted?

Answer 28

1. If D can show any steps taken to negative the special disability or unconscious taking of advantage. OR
2. Showing the transaction was otherwise fair, just and reasonable.

Question 29

Commonwealth banking of Australia v Amadio

Answer 29

It was a husband and wife situation.
Parents gave a guarantee for their son’s debt.
The question was whether, as against the bank, the transaction could be set aside as unconscionable?
Any disabilities of the parents?
1. Disability of limited knowledge of English of the P’s.
2. They were totally reliant on the son, he was telling them what to do.
3. The language barrier did affect their interests because they didn’t know what they were signing

The bank knew about their disability because the bank met with the P’s. It was stressed that the bank knew the transaction was unwise. They understood that P’s had limited comprehension and were reliant on their son.
The bank took advantage of their disability because it needed a guarantee.

Held: Presumption that the transaction was unconscionable.

The onus then lay on the bank to rebut the presumption
They could’ve shown parents had legal advice or that the transaction was fair, just and reasonable.
However it was held that the presumption was not rebutted.

Question 30

Louth v Diprose

Answer 30

Man Diprose who gave $58,000 to a woman who was named Louth.
He was infatuated with her and gave her that money to buy a house.
She led him on in order to get his money.
His infatuation lifts and he wants the house back/transferred to him.

Conscionable?
It was a gift, and majority HC said it was unconscionable.
The special disadvantage was infatuation. She knew full well that he was infatuated and manipulated him. She kept threatening to suicide .
There was hence a presumption of Unconscionability, the presumption was not rebutted.

Question 31

Are there any statutes regarding Unconscionability?

Answer 31

Yes ACL ss20-22.