Stu Doc - Equity & Trusts Question on Undue Influence and Unconscionable Dealings PDF

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Equity & Trusts Question on Undue Influence and Unconscionable Dealings...

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INTRODUCTION

Advice will be provided to Glenn’s customers on their position in equity based on the doctrines of undue influence, unconscionable conduct, and if there are remedies available at common law or statute.

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UNDUE INFLUENCE

To seek equity under undue influence, it is necessary to establish they were not acting voluntarily or independently but were overborne by Glenn. 1 A

Presumed and Actual Undue Influence

Under presumed undue influence Glenn’s customers need to establish a relationship of trust and confidence existed with Glenn and he abused this relationship so they would enter the contract which automatically creates the required presumption.2 To substantiate a presumption of actual undue influence Glenn’s customers need to demonstrate Glenn used pressure or coercion to unduly influence them to enter the contract.3 B

Establishing the Presumption

Glenn’s customers need to establish a relationship presumption with Glenn as certain relationship categories are presumed to be able to exercise undue influence, e.g., husband and wife.4 A relationship between a bar owner and customer is not a recognised category. To overcome this the customers would need to prove presumptive relationship categories are not closed as he supplied them alcohol to satisfy their addiction and due to them being on welfare and their lack of education he exerted significant influence and a presumption should arise from it.5 Glenn could argue as a merchant it is up to potential customers whether they buy from him or shop elsewhere which is a strong argument that such a presumptive relationship does not existed.

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Rebutting the Presumption

1 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. 2 Barclays Bank plc v O’Brien [1994] 1 AC 180. 3 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923. 4 Yerkey v Jones (1939) 63 CLR 649. 5 Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573.

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If a presumptive relationship is established the onus falls on Glenn to rebut the presumption on the basis the transaction, as stated by Dixon J in Johnson,6 was “the independent and wellunderstood act of a man in a position to exercise a free judgement based on information as full as that of the donee.” Rebuttal would be difficult as while the use of independent legal advice is not required at law it is the typical method and it was not obtained,7 Glenn did not answer the customers questions or recommend they seek independent legal advice and while the alcohol was purchased at bar prices, the magnitude of the overall transaction is excessive when contract default provisions activated.8 Glenn’s most viable argument is that if his customers paid their account when due they would not enter a manifestly improvident transaction voluntarily,9 and as buy now pay later schemes are well-known, they knew they would need to pay interest if they entered contract default. D

Remedies for Undue Influence

While remedies such as a grant of specific performance are available, the remedy would most likely be rescission under common law to restore them, as far as possible, to their precontractual position10 as the remedy must be proportional to the benefit which was obtained because of the transaction. E

Likelihood of Successful Action

The likelihood of success is negligible as their argument to establish a presumptive relationship outside of a recognised category is too remote.

III

UNCONSCIONABLE DEALING

The doctrine of unconscionable conduct during the bargaining process,11 … 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 disadvantage in circumstances where it is inconsistent with good conscience that he or she should do so.12 Glenn’s customers need to establish he knew they had a special disadvantage and used this knowledge to exploit their disadvantage.13

6 Johnson v Buttress (1936) 56 CLR 113 [134]. 7 Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30. 8 Union Fidelity Trustee Co of Australia v Gibson [1971] VR 573. 9 Garcia v National Australia Bank Ltd (1998) 194 CLR 395. 10 Cheese v Thomas [1994] 1 All ER 35. 11 G E Dal Pont, Equity and Trusts in Australia, (Thomson Reuters, 7th ed, 2019) 296. 12 Ibid 297. 13 Ibid 295.

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A

Special Disadvantage

Special disadvantage is the serious inability14of a weaker party to make informed decisions during the bargaining process that leads them to a disadvantageous position once a transaction has been made. It does not involve any notion a transaction should be set aside due to unequal bargaining power between the party’s or the need to be aware of something that is in their interest to be so informed.15 Glenn’s customers need to establish they suffered a special disadvantage which prohibited them from making informed decisions that were in their own best interest. B

Factors Suggestive of Special Disadvantage

Due to the varying factors which may constitute special disadvantage the courts have not established a definitive list but identified circumstances where one can be inferred; “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary”16 or the inability to read and write English or a lack of knowledge and experience in business.17 Glenn’s customers clearly have a special disadvantage; the majority live in poverty or in need due to unemployment and receiving welfare, their educational standard is negligible, the majority cannot read or write English and are addicted to alcohol so drunkenness is a part of everyday life, and due to their educational standards they lacked knowledge or experience in business. C

Knowledge of Special Disadvantage

Relief may be provided if it is established the weaker party suffered a special disadvantage and the stronger party knew or ought to have known of the disadvantage and during the bargaining process took advantage of the disadvantage.18 Glenn had actual knowledge of his customers special disadvantages that was gained from their longstanding relationship;19 he knew their financial circumstances, they lacked knowledge and experience in business, had a low standard of education with the majority 14 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 [462]. 15 G E Dal Pont, Equity and Trusts in Australia, (Thomson Reuters, 7th ed, 2019) 298. 16 Blomley v Ryan (1956) 99 CLR 362 [405]. 17 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. 18 Ibid. 19 National Australia Bank Ltd v Nobile (1988) 100 ALR 227.

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having great difficulty in reading and writing English, and suffered drunkenness due to alcoholism. D

Exploitation of Special Advantage

Exploitation must be the behaviour of the stronger party that shocks the consciousness and the bargain was unfair.20 Exploitation does not need to be the result of deliberate actions by the stronger party but can be passive acceptance of the benefit.21 In Bridgewater22 the court held the transaction outcome was unfair and not the result of unconscionable conduct. The court in Asia Pacific23 found the capitalisation of interest rate read in conjunction with the high interest rate which astronomically increased the size of the debt was oppressive and constituted unconscionable conduct. Based on Bridgewater24 and Asia Pacific,25 Glenn’s customers could argue the contracts 29% interest rate, one-off $500 processing fee, and $20 daily default fee was oppressive and unconscionable as Glenn knew their special disadvantages, specifically their financial circumstances, when the contract was drafted and exploited their special disadvantages to make a profit. E

Onus of Proof

The customers must prove they suffered a special disadvantage and Glenn must prove the contract was fair, just and reasonable.26 F

Defences of Unconscionable Conduct

While some customers chose not to read the contract which does not itself lead to special disadvantage27 some customers did state they could not understand it so Glenn could have assisted them which would have been indicative of conscionable conduct however by not assisting them his conduct appears unconscionable and does not provide a strong defence. Glenn could argue his customers were free to seek independent legal advice and not seeking that advice does not itself constitute a special disadvantage.28 This is a strong defence.

20 Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1. 21 O’Connor v Hart [1985] AC 1000. 22 Bridgewater v Leahy (1998) 194 CLR 457. 23 Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229. 24 Bridgewater v Leahy (1998) 194 CLR 457. 25 Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229. 26 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. 27 Swift v Westpac Banking Corporation (1995) ATPR 41-228. 28 State Bank of New South Wales Ltd v Watt [2002] ACTSC 74.

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Glenn could argue that all his customers had to do was only drink what they could pay for and the financial penalties would only activate if they drank more than they could pay so it was up to them how much to drink. In Kakavas29 the court held that as the plaintiff was free to make a rational decision on whether or not it was in their best interest to gamble any loss incurred by continuing to gamble was their own to bear just as Glenn’s customers must bear the cost of their decision to continue to drink which is a strong defence. Glenn could argue he did not have a predatory state of mind30 when implementing his scheme, however, any objective analysis of his action establishes he always possessed the required state of mind as he knew the majority of his customers were alcoholics and was counting on them to drink to satisfy their addiction regardless of the financial penalties in order to increase his profits, he knew the majority lived on welfare which is why they predominately drank in the week of receiving their welfare and knowing they did not have money to purchase alcohol in the off-week knew it was highly probable they would enter into contract default.31 G

Remedies for Unconscionable Conduct

While remedies such as injunctive relief are available rescission would be the most likely form of remedy at common law as it must be proportional to the benefit which was obtained because of the transaction32 therefore the court could, as far as possible, return Glenn’s customers to their pre-contract positions as he who seeks equity does equity and are not unjustly enriched.33 Statutory remedies are available under the Contracts Review Act34 as a contract is ‘unjust’ if it is unconscionable, harsh, or oppressive. As the contract is clearly unconscionable, harsh and oppressive it is reviewable so a court may refuse to enforce the contract,35 declare it void, whole or in part,36 or vary the whole or any part of a provision.37 Under the Competition and Consumer Act,38 Glenn, as a business owner engaged in commerce, has acted unconscionably within the meaning of the unwritten law and comes 29 Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392. 30 Ibid. 31 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447. 32 Wilby v St George Bank (2001) 80 SASR 404. 33 G E Dal Pont, Equity and Trusts in Australia, (Thomson Reuters, 7th ed, 2019) 316. 34 Contracts Review Act 1980 (NSW) s 4. 35 Ibid s 7(1)(a). 36 Ibid s 7(1)(b). 37 Ibid s 7(1)(c). 38 Competition and Consumer Act 2010 (Cth) s 20.

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within the meaning of s 20 of the Act39 as his customers are not experienced in making commercial decisions or being aware of their own best interests. As his employment is connected to the supply of goods and services, he has offended s 21 of the Act40 and is liable to a pecuniary penalty.41 H

Likelihood of Successful Action

The likelihood of success is high as Glenn’s conduct based on any objective analysis is unconscionable.

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CONCLUSION

The likelihood of a successful action under undue influence is minimal. The strongest course of action available is unconscionable conduct and any relief provided would most probably be rescission that returns Glenn’s customers to their pre-contact positions.

BIBLIOGRAPHY A

Articles/Books/Reports

Dal Pont, G E, Equity and Trusts in Australia (Thomson Reuters, 7th ed, 2019)

B

Cases

39 Ibid s 20. 40 Ibid s 21. 41 Ibid s 20.

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Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229 Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923 Barclays Bank plc v O’Brien [1994] 1 AC 180 Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 Blomley v Ryan (1956) 99 CLR 362 Bridgewater v Leahy (1998) 194 CLR 457 Cheese v Thomas [1994] 1 All ER 35 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Commonwealth v Verwayen (1990) 170 CLR 394 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 Johnson v Buttress (1936) 56 CLR 113 Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392 Micarone v Perpetual Trustees Australia Ltd (1999) 75 SASR 1 Murphy v Overton Investments Pty Ltd (2001) 182 ALR 138 National Australia Bank Ltd v Nobile (1988) 100 ALR 227 Nocton v Lord Ashburton [1914] AC 932 O’Connor v Hart [1985] AC 1000 Official Trustee in Bankruptcy v Tooheys Ltd (1993) 29 NSWLR 641 State Bank of New South Wales Ltd v Watt [2002] ACTSC 74 Swift v Westpac Banking Corporation (1995) 41-401 Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VR 573 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 Wilby v St George Bank (2001) 80 SASR 404 Yerkey v Jones (1939) 63 CLR 649

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Legislation 7

Competition and Consumer Act 2010 (Cth) Contracts Review Act 1980 (NSW)

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E

Treaties

Other

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