Presumed Undue Influence

Undue Influence

Undue influence involves one person who has a relationship of ascendancy or influence over another improperly using that position for the benefit of himself or herself or someone else, so that the acts of the person influences cannot be said to be his or her voluntary acts: Johnson v Butress.

Presumed Undue Influence

Where there is a ‘special or confidential relationship’ the court will presume that a contract or gift made between them is a result of undue influence: Johnson v Buttress.

Special Relationship

In the following categories, the party need only show the existence of such a relationship whereupon the onus shifts to the other to rebut the presumption:

· Parent or person in loco parentis and child: Phillips v Hutchinson - There is no presumption where the child is emancipated from parental influence: Lamotte v Lamotte.

· Solicitor and client: McPherson v Watt – Proof that the client has received independent legal advice about the subject matter of the gift is a strong indication the presumption has been rebutted: Westmelton v Archer and Schulman.

· Doctor and Patient: Mitchell v Homfray

· Trustee and beneficiary: Dougan v MacPherson

· Guardian and ward: Taylor v Johnston

· Religious advisor and disciple: Allerd v Skinner – Whether a relationship in a religious context will be sufficient to found the presumption will depend upon whether the evidence establishes a reliance, dependence, or trust on the party of the claimant leading to a corresponding ascendancy on the party of the donee capable of influencing the making of the gift or transaction in question: Quek v Beggs.

Other relationships

As the categories are not closed, a relationship in a particular case may not be recognized but can nevertheless give rise to the presumption of undue influence if it exhibits fiduciary characteristics - where one party has undertaken to act in the interest of another and has been entrusted with the power to affect the interests of the other in a legal and practical sense: Hospital Products Ltd v US Surgical Corp. Some considerations include:

· Emotional dependence and trust by one party on the other;

· The need for a reliance upon guidance and support by one party, especially in relation to business and financial matters;

· The relationship between the parties: whether they lived together, were close relatives, and the length of the relationship

· The level of intelligence and education and business sense of one party;

· The character and personality of one party together with his or her age and state of health;

· Whether there was any independent advice, legal or otherwise, obtained by the weaker party; and

· Whether the transaction was particularly advantageous to the other party.

Actual Undue Influence

Where there is no special relationship, a party must affirmatively establish that the other exerted actual undue influence to such an extent that the first party could not exercise an independent judgment in relation to the transaction (elements of duress): Johnson v Buttress.

Rebutting the Presumption

To rebut the presumption, it must be shown that the weaker party entered into the transaction voluntarily, that is, the transaction was the independent and well understood act of a person in a position to exercise free judgment: Johnson v Buttress.

The easiest way to rebut is to prove the weaker party obtained advice about the transaction at the time of formation. The advice must be informed, truly independent and be that which a competent advisor, with knowledge all relevant circumstances, would give if acting solely in the interests of the other party, explaining the real effect of the transaction: Union Fidelity Trustee Co of Australia v Gibson.

However, advice is not an absolute requirement. Other factors include:

· Whether the weaker party has been disadvantaged by the transaction

· If a contract was entered into, whether the consideration was adequate or fair and reasonable

· Whether there was full disclosure of all circumstances to the ‘weaker’ party made by the other, enabling the weaker party to make an informed decision as to whether to enter the transaction; and

· Whether, even though the parties were in a relationship of trust and confidence, there was no abuse of that relationship.

Undue Influence and Third Parties

The actual or presumed influence may result form the conduct of a third party. Beneficiaries who have notice of the circumstances of the relationship may have the onus cast upon them of proving that the transaction was a free, voluntary and well understood act of the trusting party eg a creditor inducing a debtor to obtain further security from their near relatives: Bank of NSW v Rogers.

The rule in Yerkey v Jones sates that a security given by a wife to her husband’s creditor may be invalidated against the creditor where:

· The husband procures his wife’s execution of a guarantee;

· The guarantee is for the immediate economic benefit not of the wife but of the husband;

· There are grounds to set aside the guarantee as against the husband (a failure to explain a security accurately and adequately);

· The creditor relied upon the husband to obtain it from his wife; and

· The creditor has no independent grounds for reasonably believing that she fully comprehended the transaction and freely entered into it.

Remedies

A contract entered into as a result of the undue influence of one party over the other renders the contract voidable, entitling the party subject to the influence to a right to rescission.