Vitiating factors: abuse of power

Question 1

What is duress?

Answer 1

• Concerned with whether one party has exercised illegitimate pressure on the other to convince them to enter a contract or agree to a variation to an existing contract

Question 2

What are the two types of duress?

Answer 2

○ Duress of the person:
§ Actual or physical violence or imprisonment of someone
§ Illegitimate threat: to hurt you - which overrides your will and forces you to do that thing
○ Economic duress
§ Pressure exerted is financial: e.g. threat over business
§ Fine line between hard commercial dealing and economic duress: courts don’t want to discourage firm commercial negotiations
§ Very high standard

Question 3

What is duress of the person?

Answer 3

§ Actual or physical violence or imprisonment of someone

§ Illegitimate threat: to hurt you - which overrides your will and forces you to do that thing

Question 4

What is economic duress?

Answer 4

§ Pressure exerted is financial: e.g. threat over business
§ Fine line between hard commercial dealing and economic duress: courts don’t want to discourage firm commercial negotiations
§ Very high standard

Question 5

What is the standard of pressure which must be exerted for there to be duress?

Answer 5

○ Pressure must be 'illegitimate'
§ Legality
§ Nature of pressure or
§ Nature of demand
(Universal Tankships of Monrovia)

Question 6

What are the two elements of duress?

Answer 6

Pressure that amounts to ‘compulsion of will’

Pressure which is illegitimate

Question 7

Universe Tankships of Monrovia v ITWF 1983 principle

Answer 7

Duress

• pressure that amounts to compulsion of will
• pressure which is illegitimate
  
  • consider nature of pressure and nature of demand

Compulsion can exist even when the victim has intentionally submitted, where that submission arises that there is no other course of conduct open to them

Question 8

Universe Tankships of Monrovia v ITWF 1983 facts

Answer 8

• Case about shipping: Universe Tankships were flying a flag of convenience (used to describe situations where the ships owner lives in a different country than the one in which the ship is registered)
  
  • Flying Liberian flag - practise of using a flag of convenience is frowned upon by workers federations (such as ITWF)
  • It was ITWF’s policy to not service ships with flag of convenience unless they complied with certain conditions (rates of pay etc.)
  • The ship was crewed by Asian workers with lower wages than ITWF conditions
  • Union controlled tugboats necessary to tow boats out of port
  • Union said they won’t service ship until the conditions are agreed with
  • Only way of leaving port - they were forced to comply
  • Shipowners sued for return of money - claimed it had been obtained under duress
  • Union conceded it had participated in economic duress but claimed protected by Trade Unions and Corporations Act

Question 9

Universe Tankships of Monrovia v ITWF 1983 decision

Answer 9

Provisions didn’t protect in the circumstances
• They had conceded they had participated in duress - no defence
• Court considered whether duress would have been found if it had not been conceded
• Lord __ decided will had been overborn - acted under compulsion
• Compulsion can exist even when the victim has intentionally submitted, where that submission arises that there is no other course of conduct open to them
Lord Scarman
• Was pressure illegitimate?
• In many commercial and financial contract there are many contracts made under pressure without necessarily being made under duress
• Deciding if it is illegitimate two matters to consider:
○ Nature of the pressure (this will usually be decisive)
○ Sometimes the nature of the pressure is not problematic (e.g. threatening to report something to the police) but the nature of the demand renders it illegitimate (e.g. I will tell the police about your hit and run unless you pay me $10000)

Question 10

Crescendo Management v Westpac Banking Corp (1988) NSWLR principle

Answer 10

§ Was there applied pressure which induced victim to enter into the contract?
§ Did the pressure go beyond what the law determine to be legitimate?
□ Unlawful threats
□ Unconscionable conduct
□ Possibility of other categories
§ If the pressure is overwhelming but it is not illegitimate it is not economic pressure
§ Unnecessary to prove that the illegitimate pressure was the sole reason for entering into the contract
§ Once it is determined the pressure is illegitimate onus on person exerting pressure to prove it made no contribution to the person entering into the agreement

*Must be a causal connection between illegitimate pressure and complaint (execution of mortgage)

Question 11

Crescendo Management v Westpac Banking Corp (1988) NSWLR facts

Answer 11

• Arose from mortgage with Westpac
  
  • Mr and Mrs Hillbrinks sold house in Oyster Bay
  • Companies there were heavily indebted to the bank
  • When the bank received money from house they refused to release it until the Hillbrinks executed a new mortgage in it’s favour
  • Hillbrinks argued that mortgage was obtained as a matter of duress

Question 12

Crescendo Management v Westpac Banking Corp (1988) NSWLR decision

Answer 12

• Detention of money was improper
• Westpac would be entitled to use money to reduce debt because Mr Hillbrinks was a personal guarantor but not for the purpose it had
• But it simply refused to hand over the money
• Not entitled to withhold Mrs Hillbrinks money at all because she wasn’t a personal guarantor
• But it didn’t amount to economic duress because there was no causal connection between illegitimate pressure and execution of mortgage
○ Mortgage granted before threat by the bank
• Disagreed with comments in Universe Management - about economic duress being about compulsion
○ Person chooses to submit to pressure rather than take alternative action
○ Set out new approach:
§ Was there applied pressure which induced victim to enter into the contract?
§ Did the pressure go beyond what the law determine to be legitimate?
□ Unlawful threats
□ Unconscionable conduct
□ Possibility of other categories
§ If the pressure is overwhelming but it is not illegitimate it is not economic pressure
§ Unnecessary to prove that the illegitimate pressure was the sole reason for entering into the contract
§ Once it is determined the pressure is illegitimate onus on person exerting pressure to prove it made no contribution to the person entering into the agreement

Question 13

What is UNDUE INFLUENCE?

Answer 13

• Exploitation by a stronger party of a weaker one
  
  • A contract can be set aside where the stronger party exerts undue influence on the weaker party which affects their mind and judgement n entering the contract

Question 14

What are the three categories of undue influence?

Answer 14

1. Actual undue influence
2. Presumed undue influence as a matter of law
3. Presumed undue influence as a matter of fact

Question 15

What is actual undue influence?

Answer 15

§ Weaker party has to show the stronger one actually implemented a controlling influence over them so as to influence their consent to the transaction
§ In practise overlaps with duress
§ Rarely successful: very difficult to prove

Question 16

What is a presumed relationship as a matter of law?

Answer 16

If any of the following relationships are proven there will be a presumption of a relationship of influence
□ Parent and child
□ Guardian and ward
□ Religious adviser and disciple (priest and sheep)
□ Solicitor and client
□ Doctor and patient
□ All one directional: influence of first named party over second-named party

Question 17

What is a presumed relationship as a matter of fact?

Answer 17

□ Proved in any number of ways or fact scenarios □ Bringing evidence they placed confidence and trust □ Burden goes onto defendant to show they entered the agreement in their own free will

Question 18

What happens when a relationship of influence is established?

Answer 18

§ Once a presumption arises , undue influence will be made out unless the presumption has been rebutted by the stronger party
§ Can be rebutted by proving that the plaintiff entered with freewill and informed judgement
§ Professional advice will be relevant in determining this, but not necessarily decisive (Westmelton v Archer and Schulman)

Question 19

Johnson v Butress 1936 principle

Answer 19

• If undue influence is an issue the court will take into account the adequacy of consideration (If Mrs Johnson had bought the cottage then she may have been able to rebut the presumption by showing she paid the fair market price)

There will be a relationship of influence if the person holds trust and confidence in them and relies upon them for guidance

Question 20

Johnson v Butress 1936 facts

Answer 20

• Plaintiff executor of will of Mr Buttress who had worked as a labourer and was illiterate
  
  • Defendant (Mrs Johnson) was a distant relative of Mr Buttress’ wife and came from a professional family
  • Mr Buttress was an unusual person - evidence was that his mental state was subnormal and deteriorating - broke out into fits of hysteria and rage. Difficult relationships. Relied on wife during her lifetime and afterwards he cast around for other people to rely on. His son and daughter in law lived with him for some time but then the relationship broke down.
  • He stayed in his cottage by himself and ate form his sisters house
  • Moved out, rented cottage
  • Moved back in with tenants
  • Had few assets other than cottage but was preoccupied with what should happen with belongings
  • Several wills - all different
  • Argued with his tenants.
  • Mrs Johnson had looked after his wife when she was sick. He visited her several times and then said he wanted to leave her his property. They went to her solicitor and altered the will to leave the property to her. Mr Buttress visited the Johnson’s more often. Decided he wanted to give them the property now. In exchange she would give him a home and look after him for the rest of his life.
  • Went to solicitor and agreed to transfer property. Claimed it was because she was good to him and he was fond of her.
  • Evicted tenants and cleaned and renovated and found new tenant.
  • Mr Buttress lived with Johnsons then went out and lived in a tent that Miss Johnson owned. A shack was built there and he happily lived there for 3 years. Mrs Johnson visited him and provided him with clothes and income from cottage.
  • At the end of his life he made a final will leaving his belongings to his niece
  • She gave them to his son - who tried to claim the cottage on a matter of undue influence.

Question 21

Johnson v Butress 1936 decision

Answer 21

• Relationship as to fact
• So close it was determined by burden of proof
• Mrs Johnson would have burden of proof if relationship of influence existed. Executor would have it if there was no relationship.
• Presumption against a voluntary disposition in his favour
• Majority held that Mrs Johnson did have a relationship of influence
○ Illiterate
○ Unintelligent
○ Strangeness overall
○ Relied on wife and cast around trying to rely on everyone else
○ Reliance on Johnson to deal with problems
○ Circumstances showed that the Johnson’s came to take over business affairs
• Burden on Mrs Johnson to show that cottage had been transferred of Mr Buttress’ own free will
• Not able to make out/rebut
• Therefore the is undue influence

Question 22

Westmelton v Archer and Schulman 1982 principle

Answer 22

Presumption can be rebutted by showing that they entered with free will and informed judgement. This can be indicated by obtaining professional advice, having time to consider, having equal knowledge/expertise

Question 23

Westmelton v Archer and Schulman 1982 facts

Answer 23

• Solicitor who did work for a property development company who wanted to develop an area of Westmelton
  
  • Founders of company were a real estate agent and a ___. Solicitor (Mr Archer) became board member and director during the project. $25 million bill for solicitor services.
  • Proposed that this should be reduced in exchange for a share.
  • Discussed at board meeting - where Mr Archer left the room. When he returned the board proposed that in exchange for the bill being reduced by $10000 he would receive 7.5% of the company’s before tax profits. But actually they paid the reduced bill but refused to pay the profits.

Question 24

Westmelton v Archer and Schulman 1982 decision

Answer 24

• Relationship of influence: yes - deemed relationship between solicitor and client
  
  • Presumption of influence: solicitor can only reverse the finding of undue influence by rebutting the presumption
  • Company argued that since Archer hadn’t advised them to get independent advise the presumption couldn’t be rebutted
  • Court claimed there were so many ways it could be rebutted the one reason couldn’t eliminate that
  • Archer successful rebutted by showing that the company members were sophisticated entrepreneurs - solicitors had dealt openly and honestly
  • Parties acting at arms length - no obligation of Mr Archer or his partner to advise them to get independent advise

Question 25

What is unconscionable dealing?

Answer 25

“Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so…”
– Per Deane J, CBA v Amadio.

Question 26

What are the two requirements for unconscionable dealings?

Answer 26

1. One party must be under a special disability in dealing with the other party, with the consequences that there was an absence of any reasonable degree of equality between them
   
   2. That special disability must have been sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it.

Question 27

What happens when the first two requirements of unconscionable dealings are made out?

Answer 27

• Presumption that there was unconscionable dealing

* Onus on the stronger party to show that the transaction was ‘fair, just and reasonable’

Question 28

What constitutes a special disability?

Answer 28

• A disadvantage in bargaining does not necessarily mean there is a special disability
• Unclosed category: any new fact scenario could fit
○ Drunkenness
○ Lack of education
○ Emotional dependence
○ Compulsive gambling

Question 29

Difference between undue influence and unconscionable dealing

Answer 29

“Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. 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.” – per Mason J in Amadio

Question 30

Blomley v Ryan 1956 CLR principle

Answer 30

Alcohol will be a special disability when it should have been apparent to the other party and especially when the court is satisfied that the other party encouraged them to drink in order to induce them into signing the contract

Question 31

Blomley v Ryan 1956 CLR facts

Answer 31

• Contract for sale of grazing property in NSW £25000
• Self admitted elderly, uneducated, drunk seller
- Offered man rum at signing of the contract
• Particularly favourable terms to the purchaser
○ £5 deposit
○ Payment of full price over 4 years
○ Interest of only 4% (even less than bank interest rate)
○ Purchase price - £9000 less than market price at the time

ISSUE: Was there a special disability?

Question 32

Blomley v Ryan 1956 CLR decision

Answer 32

• Mere drunkenness is not enough to have a contract overturned
  
  • If it should have been apparent to the other party that the parties judgement was seriously effected by drink it is generally enough for there to be a special disability
  • If the court is satisfied the other party encouraged them to drink in order to induce the party into an unfair contract

On the facts:
• Court satisfied that his health had been effected from his long term alcohol abuse and that he was in the midst of a prolonged binge and was incapable of forming any rational judgement for a business transaction therefore was a special disability
• Evidence that seller’s condition must have been patently obvious to all parties involved. The estate agent brought a bottle of rum and opened it then asked how much he wanted.
• Seller did have an agent but he did nothing which protected seller’s interests - just wanted commission.

Was the contract fair just and reasonable? (onus on purchaser)
• No - due to severely unfair terms of deposit, interest etc.

Question 33

Commercial Bank of Australia v Amadio 1983 CLR principle

Answer 33

1. Lack of knowledge resulting in a lack of understanding of a contract can be indicative of a special relationship
2. Knowledge of the lack of education and understanding can be indicative of unconscionability
3. Wilful ignorance of the fact that someone doesn’t understand can be taken as knowledge
4. To rebut the presumption the party must show that the transaction was ‘fair, just and reasonable’ - including adequate consideration and independent advice

Question 34

Commercial Bank of Australia v Amadio 1983 CLR facts

Answer 34

• Arose from business dealings of a land develop and builder in 1970’s
  
  • Outwardly appeared very successful . His parents though he was doing very well. But his business was having severe cash flow problems
  • His overdraft was $190,000 instead of $80,000 (as was allowed)
  • In 1977 the bank froze the overdrawn account
  • He opened new account but the account was overdrawn after several days
  • He said his parents would guarantee his loan by using a property - bank said they would unfreeze account and increase overdraft.
  • He asked for a limited guarantee for $50,000 for 6 months. It was actually unlimited as to amount and duration. Parents also remained unaware that he was in a bad business situation.
  • Parents had little formal education, limited business experience and little knowledge of English.
  • Businesses came crashing down - litigation ensued. Parents were required to pay $1.4 million

Issue: Had the bank taken advantage of the Amadio’s (parents)?

Question 35

Commercial Bank of Australia v Amadio 1983 CLR decision

Answer 35

1. Where the Amadio’s under a special disability?
   ○ The common characteristic of adverse circumstances is that they have the effect of placing one party at a disadvantage
   ○ Considering all the relevant circumstances there was a special disability
   ○ Combination of factors
   § Age
   § Limited grasp of English
   § Circumstances where the documents were presented
   § Lack of understand of document
2. Was the special disability unconscionable?
   ○ Clear that bank new Vincent was dominant member of family and that parents had little knowledge
   ○ Knew that the business was insolvent and that the parents were unaware
   ○ Vince said that he had fully explained the deal to his parents - Bank argued that he was just taking that statement into account when dealing with the parents
   § Bank knew Vince hadn’t read the documents - he couldn’t have fully explained them
   § Parents didn’t try to read documents
   § Mr Amadio made a statement about it being six months - (but it wasn’t) showing they didn’t understand
   ○ Wilful ignorance will be treated the same as knowledge
   ○ Awareness of possibility is sufficient for knowledge
3. Onus on bank to show the transaction was fair, just and reasonable
   ○ If the Amadio’s had known that it was an unlimited guarantee and the company was insolvent they wouldn’t have entered the contract
   ○ It was unfair, unjust and unreasonable

Question 36

Louth v Diprose 1992 CLR principle

Answer 36

Extreme emotional dependance can be a special relationship.

Question 37

Louth v Diprose 1992 CLR facts

Answer 37

• Louis met Mary at a party
  
  • Both single parents
  • Had a sexual encounter
  • Louis became infatuated but Mary was not so keen
  • She moved to Adelaide with sister and brother in law
  • Later he moved as well
  • He wrote poetry which was ‘
  • Mary caught for shoplifting, Louis helped her out
  • Sister and brother in law got divorced and
  • Mary said she had to move house and if she couldn’t find somewhere she would kill herself
  • Louis offered to buy house and rent to her. She said she didn’t want to.
  • Louis bought house and gave it to her.

Question 38

Louth v Diprose 1992 CLR decision

Answer 38

Deane J:
Mary had set out on a planned course of conduct to provide money to enable her to purchase house. Created a false level of crisis - by saying she urgently needed to leave house and threatening suicide. Made it seem like the only option for him.
Forced Louis by refusing offers of assistance, because she knew his infatuation was such that he would eventually give him the purchase price of the house.

1. Louis was under a special disability in dealing with Mary arising not merely from the infatuation but the extraordinary influence of the false atmosphere of crisis 
2. Mary was aware of special disability - she had intentionally created it
3. Rebut by showing the transaction was fair and reasonable: giving away a house is not fair/reasonable.

Question 39

Louth v Diprose alternative factual interpretation

Answer 39

• 2 sexual encounters
• Infatuation
• He proposed marriage in exchange for finance several times
• She refused many times despite having very little money and moving house
• Louis didn’t move on and eventually moved to Adelaide and sent her a volume of poetry
• Mary was a troubled women - depression, suicide, brutally raped in 1968, suffered marriage breakdown (also controlling man), suffered unsettlement and insecurity through marriage, suffered from cancer and had complete hysterectomy, now living as single women
• Poems:
○ Your cunt is like a barley field in Summer/…I long to kiss your flesh, my dry tongue grieves/ To taste the moisture and perfume of your beautiful thighs…my hungry mouth moves/across your golden breasts
○ I haven’t talked to you, or forced you for sex/ Your kisses, your breasts, you thighs - their

• Both of their evidence shows she was only willing to show that she was willing to be friends but nothing more
• She thought he would be controlling- and that's why she didn't want to rent the house from him
• Louis have evidence that house would only go into her name but the house would go back to him. She argued this wasn't a condition. Other evidence made it improbable he was being truthful (he didn't mentioned house in his will). Accepted Louis' evidence over Mary's evidence even though he was proved to lie on this element.  Was Louis under a special disability in dealing with Mary such that there was an absence of any reasonable degree of equality between them?
• Fight: physical violence and name calling - fear
• Offer of house in Tasmania - shows track record before he offered 
• Louis knew surrounding circumstances
• 3 years after the house their relationship stays the same

Question 40

Louth v Diprose dissent

Answer 40

Toohey
	• Mary didn't lie about her feelings
	• Louis' idea to buy house
	• Louis knew there wasn't immediate pressure
Louis did not have special disability

Question 41

Bridgewater v Leahy 1998 CLR principle

Answer 41

If a person is aware and capable of making their own decisions and they have clearly thought them through they will not be under a relationship of influence - because they haven’t been influenced - regardless of emotional ties/dependance

Question 42

Bridgewater v Leahy 1998 CLR facts

Answer 42

• Bill, farmer, had accrued farmland in Queensland and had 4 daughters who were disappointing and not much help
  
  • He looked after them, bought them houses etc.
  • Neil, nephew, worked on the farm
  • Bill was heavily reliant on Neil for farmwork. Neil had farm but sold to help on Bill’s farm
  • Bill didn’t want property broken up and sold. Left house, car etc. to widow and land and everything else to daughters split evenly but with an option of purchasing the land from the daughters for $200,000 (land was worth $700,000)
  • Neil suggested Bill sold some of the land mentioned in the will for $150,000. No suggestion that will would be changed - so in the end $350000 would be paid.
  • Bill thought it was a good idea. Daughters challenged Bill about the arrangement but he defended his decision.
  • Bill went to doctor who determined he was capable of sound mind and of making decisions for his own affairs.
  • Solicitor drew up deed of forgiveness - stating there would be no claim between the difference between the value of the land and what had been paid
  • Daughter’s wanted to set aside deed of forgiveness

Question 43

Bridgewater v Leahy 1998 CLR decision

Answer 43

• Essence of special disability - leaves party in a situation where they cannot make their own decisions
  
  • Bill could make his own decisions and had put thought into it
  • Bill had long and firmly held view that Neil should take over the land and everything went to
  • Neil is not guilty of any unconscionable conduct
  • Would be unfair to just set aside the deed of forgiveness and treat that separately - it would produce practical injustice

Question 44

Mackintosh v Johnson 2013 VSCA principle

Answer 44

For emotional dependence to be satisfied there can’t merely be infatuation and clouded judgement - there must be an element of inequality between the parties

Question 45

Mackintosh v Johnson 2013 VSCA facts

Answer 45

• Contract between businessman and divorcee
  
  • Mr Johnson and Miss Mackintosh had a relationship -
  • Large sum of money to her business. $480 000 for a house in her name. Letter suggests that it was to make her happy. Evidence suggests it was
  • Relationship broke down, less than 2 years after it started.
  • Mr Johnson sought refund of the money and the house. His sons took over.
  • Mr Johnson argued that his special disability was that he was old, retired, wanted
  • She argued Mr Johnson knew what she was doing and made some improvident gifts. If there was a special disability, it was not sufficiently evident to her at the time to make it prima facie unfair or unconscionable for her to accept the gifts.

Question 46

Mackintosh v Johnson 2013 VSCA decision

Answer 46

First instance: Guilty of unconscionable conduct
Appeal:
The trial judges conclusion was not supported by the evidence
Reasoning suggested that anyone who becomes infatuated and has clouded judgement is suffering from a special disability. But that is not enough. It must result in absence of any reasonable degree of equality between the parties. The relative size of the gifts was small in regards to his wealth. He was able to make decisions, he just did so

Even if Miss Mackintosh had acted deceitfully, hiding her feelings, wouldn’t amount to unconscionable conduct

Question 47

Kakavas v Crown Melbourne 2013 HCA principle

Answer 47

Equity intervenes to protect victimisation - not inadvertence

Gambling can be a special disability in more serious circumstances e.g. Widow pensioner is invited to cash pension then use it gambling

Question 48

Kakavas v Crown Melbourne 2013 HCA facts

Answer 48

Mr Kakavas lost $20 million? Gambling
Argued he had a pathological urge to gamble which gave rise to an unconscionable dealing
History:
• Spent $27 000 of Dad’s money gambling
• 1990 self excluded himself from the casino
• Excluded by casino later
At time he lost money he was subject to interstate order by police so that if he won any money he would have forfeited the money anyway

Crown:
• Despite the finding that he was pathologically effected he wasn’t under a special disability and
• Crown had allowed him back in on a psychological report that said he had his gambling under control
• Lured him in by offering food, drink, guest at Australian Open etc.
• They didn’t know of it/didn’t have sufficient knowledge

Question 49

Kakavas v Crown Melbourne 2013 HCA decision

Answer 49

• High court doubted his gambling problem was enough to form a special disability because it was his choice to go there and he could leave if he wanted to.
• Crown didn’t know of it/didn’t have sufficient knowledge
○ He presented himself as a successful businessman
○ Seemed to be making his own choices
○ Provided with psychologist report
• Did Crown have constructive knowledge?
○ Rejected by High Court : Crown must have actual knowledge or wilful ignorance
○ Equity intervenes to protect victimisation - not inadvertence

Examples were gambling could be a special disability
• Widow pensioner is invited to cash pension then use it gambling

Question 50

Yerkey v Jones 1939 CLR principle

Answer 50

Dixon: “If a married women’s consent to become a surety of her husband’s debt is procured by the husband and without understanding its effect in essential respects she executes an instrument of suretyship which the creditor accepts without dealing with her personally she has a prima facie right to have it set aside”

Question 51

Yerkey v Jones 1939 CLR facts

Answer 51

Mortgage that had been taken out on a piece of land. Owned by Mrs Jones. Mr and Mrs Jones equally liable for the repayment.
Mr Jones had convinced Mrs Jones to join so that he could
Defaulted.
Mrs Jones argued she shouldn’t be liable for the repayments.

Question 52

Yerkey v Jones 1939 CLR decision

Answer 52

Wife not liable for debt because she was induced by her husband and she didn’t understand.

Question 53

Garcia v NAB 1998 CLR principle

Answer 53

• The rule in Yerkey v Jones was re-affirmed
• Majority judgement: McHugh, Gaudron, Deane
○ Amadio does not cover the field in unconscionable contract. There might be some overlap but they have different scope to impropriety by third parties. Difference is in knowledge - Yerkey only requires that third party realise the parties are married and the consent must be voluntary.

• Modern statement of the rule in Yerkey v Jones
• Threshold elements:
	○ the financier must know, or ought to know, that the guarantor is married to the borrower; and
	○ The guarantor must be a volunteer.
• If these threshold elements are satisfied, then:
	○ If the wife’s consent is procured by the husband’s undue influence, the wife will be entitled as against the financier to have the mortgage or guarantee set aside unless the financier can show that she received independent advice;
	○ If the wife fails to understand the effect of the document and the significance of giving a guarantee, she may be entitled as against the financier to have the transaction set aside unless the financier took steps to inform her about the transaction and reasonably supposed she understood.

Question 54

Garcia v NAB 1998 CLR facts

Answer 54

• Mr Garcia ran a business subject to mortgage held by NAB
  
  • In order to expand business he convinced his wife to grant guarantees
  • He joined because he said they would always either have the gold or the money - no risk
  • Husband said she was an idiot in commercial matters while he was experienced
  • She wanted to save marriage
  • Signed transaction. She understood she was guaranteeing money but did not realise that the guarantee was secured by mortgage on home.
  • Business fell apart and divorce
  • Mrs Garcia received house but it was claimed by bank

Question 55

Garcia v NAB 1998 CLR decision

Answer 55

On facts the contract could be set aside. Consent had been procured. No undue influence but she had misunderstood the transaction in a number of material ways. The bank had not made sure she got independent advice or tried to give information to help her understand.
She gained no real benefit from the transaction despite the fact that she was a shareholder etc. therefore she was a volunteer.
Majority said the reason for the law is because of the trust and confidence that exists between the parties to a marriage. Not based on notions that women have
Left it open as to whether it would apply to other situation - maybe extended to where husband acted as surety to wife or in other relationships - but it wasn’t necessary to apply so they didn’t answer.

Callinan J:
‘I do not doubt … that there are likely today to be many married women still in need of the special protection thatYerkeyoffers. Furthermore I do not think that there is any injustice to a lender in requiring it to be diligent in the way in whichYerkeyprescribes in the case of married women who enter into transactions advantageous to husbands or legal personalities controlled by them, but which are disadvantageous or potentially so to the wife.’

Question 56

Kirby’s argument in Garcia v NAB

Answer 56

• Argued it was too narrow and too broad
• Insulting to suggest all married women are in need of protection
• “Where a person has entered into an obligation to stand as surety for the debts of another and the credit provider knows, or ought to know, that there is a relationship involving emotional dependence on the part of the surety towards the debtor:
○ (1) the surety obligation will be valid and enforceable by the credit provider unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor;
○ (2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the credit provider has taken reasonable steps to satisfy itself that the surety entered into the obligation freely and in knowledge of the true facts, the credit provider will be unable to enforce the surety obligation because it will be fixed with notice of the surety’s right to set aside the transaction;
○ (3) unless there are special exceptional circumstances or the risks are large, a credit provider will have taken such reasonable steps to avoid being fixed with constructive notice if it warns the surety (at a meeting not attended by the principal debtor) of the amount of the surety’s potential liability, of the risks involved to the surety’s own interests and advises the surety to take independent legal advice. Out of respect for economic freedom, the duty of the credit provider will be limited to taking reasonable steps only.” (Footnotes omitted)

Question 57

What is the modern Yerkey v Jones test?

Answer 57

• Threshold elements:
○ the financier must know, or ought to know, that the guarantor is married to the borrower; and
○ The guarantor must be a volunteer.
• If these threshold elements are satisfied, then:
○ If the wife’s consent is procured by the husband’s undue influence, the wife will be entitled as against the financier to have the mortgage or guarantee set aside unless the financier can show that she received independent advice;
○ If the wife fails to understand the effect of the document and the significance of giving a guarantee, she may be entitled as against the financier to have the transaction set aside unless the financier took steps to inform her about the transaction and reasonably supposed she understood.

Question 58

Where is unconscionability defined in statute?

Answer 58

s20 Australian Consumer Law

Question 59

S20 AUSTRALIAN CONSUMER LAW

Answer 59

(1) A person must not, in trade or commerce, engage in conduct that is unconscionable, within the meaning of the unwritten law from time to time.

Question 60

What does ‘unwritten law’ mean for the purposes of statutory unconscionability in s 20 of the Australian Consumer Law?

Answer 60

‘Unwritten law’

- Common law
- 'Living' law: it will change as the common law changes
- It gives victim's of unconscionable conduct statutory remedies, rather than the limited remedies under common law

Question 61

ACCC v Berbatis Holdings 2003 CLR principle

Answer 61

Statutory unconscionability covers legal unconscionable conduct, rather than ordinary unconscionability.

• Includes case law: Amadio etc.
• Does not include definition
• Unclear as to how far it extends: Yerkey?
• Must be a special disadvantage

Question 62

ACCC v Berbatis Holdings 2003 CLR facts

Answer 62

• Lesseee’s and a number of other tenants thought they had been overcharged.
  
  • Before they took action they decided to sell their business.
  • Entered into contract to sell their business subject to their claiming a new lease.
  • The landlord knew why they wanted to lease (to sell the business) and refused to grant lease unless they gave up their legal action against the landlord.
  • If they hadn’t withdrawn they would have been entitled to $128000
  • Claimed that they engaged in unconscionable conduct by forcing them to drop allegations.
  • Case was used as a test case to tease out section 20.
  • Argued using Amadio principle. Clear that section 20 covered Amadio.
  • Argued unconscionability in the broader sense in the later stages - high court didn’t give leave to raise.

Question 63

ACCC v Berbatis Holdings 2003 CLR decision

Answer 63

• Unconscionable may merely be an expressive
• Everyday unconscionability and legal unconscionability is not the same thing. You can act unconscionably and not violate section 20.
• Restricted to legal categories - like Amadio and Blomley v Ryan.
• Unclear how far s20 extends
○ Not to dictionary
○ Extends to Amadio, Blomley
○ Not clear on things in the middle - Yerkey etc.
• Didn’t think the lessee’s were under any special disadvantage. The disadvantage was that they weren’t entitled to renewal of the lease. This was a disadvantage but wasn’t special - they had a lack of ability to get their own way but they had knowledge, independence and ability to reason.

Kirby (dissent)
• Reason they wanted to sell was to have more time to look after their sick daughter
• High vacancy rate in shopping centre - if they hadn’t wanted to sell the landlord would have renewed with easier terms