University of Queensland Law of Contract B

Actual Undue Influence

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  Bank of Credit and Commerce International SA v Abody per Slade LJ: Person relying on actual undue influence must show that:
  
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    1. other party (or someone who induced the transaction for his own benefit) had the capacity to influence
    
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    2. the influence was exercised
    
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    3. its exercise was undue
    
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    4. its exercise brought about the transaction.
    
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  Eg Williams v Bayley – threat of prosecution of son for forgery. Would have been different if father had gotten legal advice.
  
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  Actual undue influence can happen in a marriage: Farmer’s Co-operative Executors v Perks (SA).
  

Presumed Undue Influence

Special relationship

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  1. parent and child (Bainbridge v. Browne);
  
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  2. guardian and ward (Powell v. Powell);
  
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  3. solicitor and client (Westmelton (Vic) Pty Ltd v. Archer and Shulman);
  
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  4. trustee and beneficiary (Wheeler v. Sargeant);
  
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  5. doctor and patient (Dent v. Bennett);
  
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  6. religious adviser and advisee (Allcard v. Skinner; Hartigan v. International Society for Krishna Consciousness Incorporated).
  
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  Not between spouses (Yerkey v Jones).
  
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  The categories are not closed: Louth v Diprose.
  

Relationship of influence

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  Johnson v Buttress - where relationship of influence shown, burden on other party to show that no influence on contract.
  
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  Lloyds Bank v Bundy - CA presumed undue influence and bank were unable to show that the transaction was not the product of undue influence.
  
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    Denning set aside on inequality of bargaining power- now rejected.
    
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    Majority said that while he had independent advice, that was a factor.
    
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  Shows presumption can arise on any facts, and secondly on once-off transactions (see also Tufton v Sperni).
  

Disadvantageous

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  English case law (Morgan, Pitt, Etridge)- show transaction manifestly disadvantageous in cases of presumed undue influence.
  
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  Australian position unclear, but unlikely Dixon CJ omitted to mention this in Johnson v Buttress.
  
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  Barburin v Barburin- QSC- there is no requirement of manifest disadvantage. Cf one judge in Farmers’ Co-operative.
  
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  Watkins v Combes - only Isaacs J says it is required.
  

Rebutting the presumption

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  Westmelon v Archer & Schulman - VSC- there is no set rule; depends on facts. Acknowledged independent legal advice relevant.
  
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  Badman v Drake - D befriended old woman; she bought house for him. D failed to rebut presumption. Acknowledged that things might have been different if there had been safeguards.
  

Third Party Transactions

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  P (wife) is guarantor of third party’s debts (husband), seeking to get transaction set aside against D (bank) because of improper conduct by third party: Yerkey v Jones.
  
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  Reaffirmed and applied by the HCA in Garcia v NAB.
  
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  Yerkey principle does not require creditor to have notice of husband-wife unconscionable dealing.
  
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  Two arms of Yerkey doctrine. Will be unconscionable to enforce such a contract where:
  
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    1. Actual undue influence by husband- nothing but independent legal advice will suffice here.
    
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    2. Wife fails to understand the purport and effect of the transaction- the creditor needs to take steps to explain the transaction to her, or has discovered that a stranger (competent, independent and disinterested) has done this.
    
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  In the second type of case, what makes it unconscionable is the combination of circumstances that:
  
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    (a) in fact the surety did not understand the purport and effect of the transaction;
    
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    (b) the transaction was voluntary (surety obtained no gain from contract the performance of which was guaranteed);
    
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    (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet
    
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    (d) lender did not itself take steps to explain transaction to the wife or find out that a stranger had explained it to her.
    
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  HC stressed rule was not based on notions of female subservience, but on relationship of real trust and confidence between spouses. Expressly left open question of whether doctrine could apply in reverse/same-sex relationships. Kirby J unhappy.
  
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  Alirezai - per McMurdo P: Not a closed category. Could potentially arise for parent-child, disabled-carer, others.
  
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  In England- Royal Bank of Scotland - treated as undue influence.
  

Unconscionable Dealing

Difference from Undue Influence

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  Amadio per Deane J: UI (like duress) looks to quality of consent/assent of weaker party; UD looks to conduct of stronger party in attempting to enforce/retain benefit of a dealing with person under a special disability where it is unconscionable to do so.