2. UNCONSCIENTIOUS DEALING

Transcription

1 2. UNCONSCIENTIOUS DEALING Undue Influence v Uncnscinable Cnduct What is the distinctin? Undue influence fcuses n an absence f cnsent- it fcuses n the weaker party. UD fcuses n the strnger party. The strnger party has explited a recgnised vulnerability Equity acknwledges real inequality v - frmal equality in law Special disability utlined: CBA v Amadi: the jurisdictin (extends) generally t circumstances in which (i) a party t a transactin was under a special disability (special disadvantage arguable whether the same) in dealing with the ther party with the cnsequence that there was an absence f any reasnable degree f equality between them, and (ii) that disability was sufficiently evident t the strnger party t make it prima facie unfair r uncnscientius that he prcure r accept the weaker party s assent t the impugned transactin in the circumstances in which he prcured r accepted it. Where such circumstances existed an nus is cast upn the strnger party t shw that the transactin was fair, just and reasnable. Reverse nus nce P has shwn the transactin was the prduct f disadvantage / inequality. Althugh uncnscinable cnduct in this narrw sense bears sme resemblance t the dctrine f undue influence, there is a difference between the tw. In the latter the will f the inncent party is nt independent and vluntary because it is verbrne, in the frmer the will f the inncent party, even if independent and vluntary, is the result f the disadvantageus psitin in which he is placed and f the ther uncnscientiusly taking advantage f that psitin. Undue influence, like cmmn law duress, lks t the quality f the cnsent r assent f the weaker party (willingly, infrmed vluntary cnsent?)... Uncnscinable dealing lks t the cnduct f the strnger party in attempting t enfrce, r retain the benefit f, a dealing with a persn under a special disability in circumstances where it is nt cnsistent with equity r gd cnscience that he shuld d s. S, UI prvides relief because f the impaired vlitin (will) f the party But explitatin f a special disadvantage f a party prvides relief because f the impaired judgment f the party when he entered the transactin Essential elements: A. special disability (f weaker party) B. knew r likely t have knwn f disability (active r cnstructive knwledge by strnger party) C. using disability uncnscinably (strnger party uncnscinably takes advantage f disability) A persn is nt in a psitin f relevant disadvantage, cnstitutinal, situatinal, r therwise, simply because f inequality f bargaining pwer. Many, perhaps even mst, cntracts are made between parties f unequal bargaining pwer, and gd cnscience des nt require parties t cntractual negtiatin t frfeit their disadvantages, r neglect their wn interests.

2 Uncnscientius explitatin f anther s inability r diminished ability t cnserve his r her wn interests is nt t be cnfused with taking advantage f a superir bargaining psitin. There may be cases where bth elements are invlved, but, in such cases, it is the first, nt the secnd, element that is f legal cnsequence. Taking advantage f superirity = nt the same as expliting / taking advantage f special disability. The underlying equitable principle may be invked 'whenever ne party by reasn f sme cnditin r circumstance' is placed at a special disadvantage f which unfair and uncnscientius advantage is taken by the ther party: Cmmercial Bank f Australia v Amadi (462). The special disadvantage will be sufficiently evident t the ther party if the ther party knws facts which wuld raise the pssibility f the special disadvantage in the mind f a reasnable persn: Cmmercial Bank f Australia v Amadi ( , 479). Where such circumstances are shwn t exist, the nus is n the ther party t establish that the transactin was fair, just and reasnable: Cmmercial Bank f Australia v Amadi (474).- there is a defence t it 1. Did ne party take advantage f a bargaining psitin that was superir t anther party s?*; and 2. If Yes : did the taking f that advantage, in all the circumstances f the transactin, cnstitute an uncnscientius explitatin f the ther party s diminished ability t preserve their wn interests? Was the weaker bargaining psitin f the ther party the result f a diminished ability t cnserve their wn interests? If N, there is n culpable (ie uncnscientius) explitatin f the weaker party. If Yes : did the strnger party t the transactin knw, r ught the strnger party have knwn, that the party in the weaker bargaining psitin was weaker because they suffered frm a diminished ability t cnserve their wn interests? If N, there was n uncnscientius explitatin f the weaker party. If Yes, and the strnger party cntinued t the cnclusin f the transactin, they have uncnscientiusly explited the weaker party, and the weaker party will be entitled t have the transactin set aside. 1. SPECIAL DISABILITY The circumstances adversely affecting a party, which may induce a curt f equity either t refuse its aid r t set a transactin aside, are f great variety and can hardly be satisfactrily classified. Amng them are pverty r need f any kind, sickness, age, sex, infirmity f bdy r mind, drunkenness, illiteracy r lack f educatin, lack f assistance r explanatin where assistance r explanatin is necessary. The cmmn characteristic seems t be that they have the effect f placing ne party at a serius disadvantage vis-a-vis the ther. It des nt appear t be essential in all cases that the party at a disadvantage shuld suffer lss r detriment by the bargain. Blmley v Ryan (1956) 99 CLR 362 Fullagar J (at 405) Presence f characteristics relevant but nt sufficient Must amunt t a disadvantage relative t the ther party

3 The special disadvantage need nt have been created by the party taking the benefit f the transactin: Luth v Diprse (629). The special disadvantage alleged must be ne 'which seriusly affects the ability f the inncent party t make a judgment as t his wn best interests'; mere difference in bargaining pwer is insufficient: Cmmercial Bank f Australia v Amadi (462). The 'essence f such weakness is that the party is unable t judge fr himself. It shuld affect their capacity, in that it is an impairment. Cmmercial Bank f Australia v Amadi elderly parents cmpany was heavily, and chrnically indebted (despite sn assuring them therwise) sn sught lan, but bank wuldn t allw withut guarantee. He cnvinced parents fr bank t put charge n their prperty fr their lan... in exchange fr an unlimited (in amunt and duratin) guarantee as t bth the present and future indebtedness f the cmpany, t greatly, but nly benefit t cmpany = temprarily, increase the cmpany s verdraft limit. What is the disability: infrmatin imbalance- they didn t knw what the bank knew, dependency n the sn as they culdn t speak English and cmmunicate independently with the bank. The bank knew the disability (actual r cnstructive) They went ahead with it- that was expliting it. Maybe wuldn t have been explitative had independent advice been given The Decisin The inevitable cnclusin is that the plaintiff was guilty f uncnscinable cnduct by entering int the transactin withut disclsing such facts as may have enabled the plaintiffs t frm a judgment fr themselves and withut ensuring that they btained independent advice. Bank didn t explain came ver t huse in a scial way didn t discharge duty f prviding full advice. The circumstances required that the plaintiffs be acquainted with the true financial psitin f the cmpany and thereby enabled t make an infrmed decisin... [the defendant s representative] was bliged either t ensure that the plaintiffs understd what they were ding r t advise them t seek independent advice and allw them the pprtunity t d s. Deane J: The result f the cmbinatin f the plaintiff s age, their limited grasp f written English, the circumstances in which the defendant presented the dcument t them fr their signature and, mst imprtantly, their lack f knwledge and understanding f the cntents f the dcument was that... they lacked assistance and advice were plainly necessary if there were t be any reasnable degree f equality between themselves and the defendant. Gibbs CJ The agreement between the defendant and the debtr cmpany that upn the plaintiff s giving the guarantee t the defendant fr the cmpany s debts, the cmpany s verdraft limit wuld be raised instantaneusly and then reduced three weeks later (this was nt disclsed t the plaintiffs); and The defendant and debtr cmpany were regularly engaged in selective dishnur f the debtr cmpany s cheques s as t create a facade f prsperity fr the cmpany despite its

4 actual inslvency which the defendant ught t have knwn r suspected wuld have deceived the plaintiffs (this, als, was nt disclsed t the plaintiffs) Masn J: special disadvantage created by reliance n and cnfidence in their sn But fr this cnfidence they wuld nt have prvided guarantees The inevitable cnclusin is that the plaintiff was guilty f uncnscinable cnduct by entering int the transactin withut disclsing such facts as may have enabled the plaintiffs t frm a judgment fr themselves and withut ensuring that they btained independent advice (at 468) Wilsn J: The circumstances required that the plaintiffs be acquainted with the true financial psitin f the cmpany and thereby enabled t make an infrmed decisin [the defendant s representative] was bliged either t ensure that the plaintiffs understd what they were ding r t advise them t seek independent advice and allw them the pprtunity t d s (at 469) Desn t extend t advising whether they shuld enter int the transactin just the cnsequences if they d. Deane J: The result f the cmbinatin f the plaintiff s age, their limited grasp f written English, the circumstances in which the defendants presented the dcuments t them fr their signature, and, mst imprtantly, their lack f knwledge and understanding f the cntents f the dcument was that assistance and advice were plainly necessary if there were t be any reasnable degree f equality between themselves and the defendant (at 477) Nt just inequality Explited disadvantage Cmpare HL in Llyds Bank v Bundy [1975] QB 326 per Lrd Denning MR Similarly rejected in Natinal Westminster Bank plc v Mrgan [1985][ 1 AC 686 in England Luth v Diprse What s the special disability? Diprse was infatuated with Luth. male slicitr infatuated with the female defendant wh by cntrast was quite indifferent t him atmsphere f crisis (wife faced evictin, s husband prvided mney fr the huse. She als cntemplated suisice) Trial: King CJ: rdered transfer f title t the plaintiff (husband had made gift t the wife) Appeal t Full Curt SASC dismissed The HCA (6:1) dismissed the appeal. It held that the purprted gift f mney t the plaintiff had t be set aside because the plaintiff was in a psitin f special disadvantage in relatin t her, and the defendant had explited the plaintiff s emtinal dependence n her. HCA: emtinal attachment cnstituted special disadvantage in that it impaired his judgment Deane J: special disability was created by absence f equality but inequality nt in itself a special disadvantage They J (diss.):

5 It was the respndent [Diprse] wh cntinued t seek her ut. She did nt mislead him in regard t her psitin; she did nt hld ut any false hpes t him. They were bth adults; each had been married befre (the respndent twice) and the respndent was a practicing slicitr wh must have appreciated fully the cnsequences that the law wuld rdinarily attach t the gifts he made t the appellant, including the mney invlved in the purchase f the Tranmere huse. It was the respndent s idea t buy the huse, nt the appellant s (at 651) it is apparent frm the evidence generally, he bught the huse fr her in the clear realisatin that she wuld never marry him the respndent did nt cmmit himself by ne impulsive and hasty act, he had plenty f time t cnsider what he was ding and what he did tk place ver a mnth (at 653) Deane J: the special disability arse nt merely frm the respndent s infatuatin. It extended t the extrardinary vulnerability f the respndent in the false atmsphere f crisis in which he believed that the wman with whm he was cmpletely in lve and upn whm he was emtinally dependent was facing evictin frm her hme and suicide unless he prvided the mney fr the purchase f the huse. The appellant was aware f that special disability. Indeed t a significant extent she had deliberately created it. She manipulated it t her advantage t influence the respndent t make the gift f the mney t purchase the huse (at 638) 1. a relatinship can be a surce f special disadvantage nt just emtinal dependence but manipulatin f the situatin 2. difficult t assess when the relatinship is a surce f special disadvantage what is nrmal (what is the baseline)? 2. Knwledge Actual r cnstructive knwledge Amadi cnstructive knwledge Luth actual knwledge Blmley v Ryan Elderly sheep farmer sld prperty at significant undervalue t grazier thrugh stre manager as agent Ryan drank heavily, drank prir t and during negtiatins f sale Held: actual knwledge fund (sn knew f drunkenness and tk advantage f it). Drunkenness caused disadvantage (nt incapacity) Highly imprvident sale was evidence f explitatin 3. Uncnscinable explitatin Explitatin requires taking advantage Unfavurable des nt mean inherently unfair Basis fr setting aside: btaining cnsent CBA v Amadi guarantee Luth v Diprse - $58,000 gift Blmley v Ryan landhlding sld at price strikingly disprprtinate t market value

6 DEFENCES A. Was there a special disadvantage? May discunt special disadvantage. Luth v Diprse infatuatin as special disadvantage B. Did the strnger party have knwledge f the special disadvantage? Actual r cnstructive knwledge C. Did the strnger party uncnscinably explit the special disadvantage? Independent advice depends n quality eg Blmley v Ryan: same slicitr fr purchaser and vendr Imprvidence itself nt uncnscinable (but my guide) was there any benefit (was there anything in it fr the guarantrs)? Judged against ttal interest. CBA v Amadi, Luth v Diprse: parties culd nt affrd benefit transferred Did they act uncnscinably r was it just a cmmercial advantage? Remedies Avidance (f the cntract) Resist actin fr specific perfrmance (if strnger party is seeking t enfrce the cntract specifically) Rescissin (f the cntract) Ultimately returning t the psitin befre the transactin. Statutry Uncnscinability Australia Cnsumer Law S 20: a persn must nt in trade r cmmerce engage in cnduct that is uncnscinable within the meaning f the unwritten law (CL) frm time t time. Refer t Amadi: special disability; knwledge; taking advantage ACCC v Berbatis Shp lease increased. D knew Ps needed mney fr sick daughter. Curt fund = just cmmercial. Gleesn CJ: A persn is nt in a psitin f relevant disadvantage, cnstitutinal, situatinal r therwise, simply because f inequality f bargaining pwer. Many perhaps even mst cntracts are made between parties f unequal bargaining pwer, and gd cnscience des nt require parties t a cntractual negtiatin t frfeit their advantages r neglect their wn interests. Cmpare: ACCC v Samptn Hldings FFC: The disadvantage under which Rinaldi and Executive Bldstck labured had arisen frm a cmbinatin f cnsidered cmmercial judgment (the decisin t brrw heavily in rder t purchase the business) and Mr Rbert s versight in neglecting t exercise the ptin in gd time. These factrs did nt impair the Rinaldi s ability t make a decisin abut the best curse f actin in the circumstances. At least in the case f an experienced business persn, there must, in ur pinin, be smething mre than cmmercial vulnerability (hwever extreme) t elevate disadvantage int special disadvantage.