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FIONA R BURNS[*]
[This article seeks to fill a significant gap in the legal literature concerning undue influence inter vivos. It considers the modern meaning and application of the doctrine from the perspective of the elderly claimant in Australia. In order to do so, there is an investigation of recent cases where elders have sought to have a variety of transactions set aside and have relied on undue influence inter vivos. The survey shows that where elders are concerned, courts generally apply high thresholds before relief is granted. Various possible reforms are canvassed. It is contended that a broad-based legislative reform of undue influence inter vivos is necessary, both to protect elders and to allow them the freedom to deal confidently with their own assets.]
CONTENTS
Prompted by the unprecedented ageing of the population in Western countries such as Australia and the United States,[1] the effectiveness of legal systems is being reassessed from the perspective of the elderly. In particular, increasing attention is being paid to the plight of elderly people who have become the subject of various forms of abuse,[2] including financial abuse.[3] One significant form of financial abuse has been the improper acquisition of the elder’s assets. Sometimes the acquisition will take place within formal legal relationships,[4] such as guardianships, where guardians have been appointed to protect the interests of disabled or incompetent adults.[5] However, it is becoming increasingly evident that even apparently capable and healthy elders may be vulnerable as well. The phenomenon of what commentators have broadly described as ‘undue influence’ perpetrated on the elderly has been identified in the last decade as a serious problem.[6] One writer has observed:
We have marveled at the actions of seemingly competent and capable elders who have given away major assets under dumbfounding circumstances. We have puzzled over situations in which elders have given valuable personal items or money to caregivers or to only one family member.[7]
It is submitted that the doctrine of undue influence inter vivos, which could be used to redress elder financial abuse, is ripe for reconsideration.[8] Although the doctrine has been used to set aside gifts and contracts for nearly two centuries and some of the seminal cases have involved elders,[9] in recent times commentators have generally neglected its application and relevance from the perspective of the elderly.[10] Therefore, this article seeks to fill a significant and neglected gap in the legal literature about undue influence inter vivos.
The article considers the modern application of the doctrine in Australia for the elderly claimant. Where appropriate, cases in New Zealand will also be referred to. In order to understand the modern relevance of the doctrine and contemporary trends in its application, there will be an investigation of recent cases rather than old authorities. The cases considered have mainly been decided in the State Supreme Courts because these courts primarily and predominantly deal with this kind of equitable claim. It must be emphasised that the focus of the article will be on the meaning and application of the doctrine of undue influence inter vivos rather than a specific analysis of the law of guarantees. Two important consequences flow from this. Firstly, the article will not deal with the specific analysis of the law of guarantees. As the following discussion will show, elders have raised undue influence inter vivos in a wide variety of factual situations and not simply third party guarantee cases. Moreover, where an elder has entered into a third party guarantee, he or she has been required to prove actual undue influence or present evidence raising a presumption of undue influence before having any prospect of convincing a court to set the guarantee aside. Secondly, the article does not deal with various other doctrines or legislation open to elders to set aside gifts, contracts and guarantees. The focus upon undue influence to the exclusion of these other doctrines[11] or legislative provisions[12] does not suggest that these do not have a role to play in assisting elders. Rather, it is contended that as undue influence has a specific doctrinal basis,[13] and as it continues to be raised by elders, it deserves to be considered as a ground for relief in its own right.
Part II explains the basic elements of undue influence inter vivos, examines the historical background underpinning the treatment of elders in the context of the present doctrine and briefly highlights relevant debates about the nature of undue influence. Part III surveys recent cases from the various Australian State jurisdictions in order to determine the kinds of factual situations involving elders which may be considered under the doctrine and the general attitude of the courts to the application of undue influence to elders. It is argued that there are clear trends which indicate overall that it is difficult for elders to have transactions set aside on this basis. These trends may also reflect upon the application of the doctrine generally. In Part IV, the treatment of the elderly is compared to other vulnerable groups and possible avenues of reform are posited. In Part V, some concluding remarks are made.
In order to understand the doctrine of undue influence inter vivos, it is necessary to set out briefly the elements or structure of undue influence, examine its historical background and note some relevant interpretations which were proffered in the 20th century to explain its main focus.
Traditionally, two classes of undue influence have been recognised: actual undue influence and presumed relational undue influence.[14]
Actual undue influence requires proof that undue influence has been exerted in relation to the disputed transaction. In Johnson v Buttress,[15] Dixon J stated:
The source of power to practise such a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienor that it cannot be considered his free act.[16]
The burden of proof remains on the party alleging undue influence to show that the transaction was made due to the wrongful act or threat of the defendant.[17] Actual undue influence has been particularly successful where a transaction has been obtained by threats to prosecute the claimant which fall short of common law duress,[18] and where there has been clear evidence that there has been actual abuse of a position of influence, such as where it is proved that vital information has been deliberately concealed from the claimant.[19]
In order to further define actual undue influence, the test for actual undue influence has been framed in terms of the defendant’s conduct, including whether it constituted illegitimate pressure,[20] coercion contrary to public policy,[21] taking advantage of weakness and necessity,[22] inequality of bargaining power,[23] or deliberate concealment of material facts.[24] This process of redefinition has provided a helpful insight into the kinds of conduct which may attract actual undue influence. However, it has also had the effect of emphasising the improper conduct of the defendant as the pre-eminent determinant[25] without observing that a transaction will be set aside not only because of improper conduct by the defendant, but also because the ability of the plaintiff to act independently and freely has been undermined.[26]
The nexus between common law duress[27] and undue influence has also been highlighted. There have been opposing attitudes as to how the potential overlap between the doctrines ought to be resolved. Cope has argued that most examples of actual undue influence occurred before the implementation of the judicature system and that the development of an alternative theory of duress is based on equitable principles. Accordingly, he argues that duress should be absorbed within the doctrine of actual undue influence.[28] In contrast, Birks and Chin have contended that actual undue influence is concerned with pressure, and situations involving illegitimate pressure should now be determined as duress.[29] They point out that duress is plaintiff-sided in the sense that it is not incumbent on the plaintiff to show that he or she has suffered manifest disadvantage.[30] Therefore, the fact that the plaintiff’s consent has been impaired by the illegitimate pressure, rather than the wrongdoing by the defendant, is determinative.
Presumed relational undue influence does not require proof that improper influence was exercised. Instead, it is incumbent on the claimant to show that there existed a ‘relationship of trust and confidence’[31] or a special antecedent relationship so that it is reasonable to presume that the transaction was the result of influence exercised within that special relationship.[32] When such a relationship has been demonstrated, there is a rebuttable presumption that undue influence has been exercised without the need for actual proof that improper influence was exercised.[33] The burden of proof will shift to the defendant to show that influence was not exercised and that the transaction was the independent and well-understood act of the claimant who was as fully informed as the defendant.[34] There are a variety of factors which will assist in determining whether the presumption has been rebutted, the most important being whether the transaction was not improvident[35] and whether the claimant was independently advised.[36] However, the existence of independent advice is not necessary to set aside the presumption.[37] Traditionally, proof of manifest disadvantage to the claimant was required,[38] but in Australia it has been suggested that it is likely that this is no longer a precondition.[39]
Special antecedent relationships of trust and confidence are established in two ways. Firstly, there are certain special relationships of influence which automatically raise the presumption that undue influence has been exercised where a party has received a substantive gift or entered into a contract to their advantage. Once the existence of the relationship is proved, the burden to justify the contract or gift shifts to the defendant.[40] Relationships which are deemed to constitute relationships of influence[41] are parent and (young and dependent) child,[42] guardian and ward,[43] religious adviser and devotee,[44] solicitor and client,[45] and doctor and patient.[46] In contrast, the relationship between an adult child and an elderly parent has not been deemed to be an automatic special relationship. Secondly, the categories of special relationships are not closed.[47] It is possible to prove as a matter of fact that a special relationship existed between two parties and accordingly raise a presumption of undue influence. Therefore, a claimant may be able to set aside a transaction by convincing the court of the existence of a special relationship of influence without proving that undue influence was actually exercised.[48]
There has been an ongoing debate as to whether presumed relational influence is proved by reference to plaintiff-based conduct or defendant-based conduct. In a seminal article on undue influence, Birks and Chin have argued that cases of presumed relational undue influence are determined by reference to plaintiff-sided conduct because relief for relational influence is not based on the actual proved wrongdoing of the defendant.[49] Indeed, the presumption arises without the need to prove that the defendant is guilty of any wrongdoing whatsoever. Rather, the central issue is the plaintiff’s lack of capacity for self-management by reason of their excessive dependence on the other person in the relationship.[50] The role of independent advice is to prove that, contrary to the rebuttable presumption, the transaction was the free, voluntary and well-informed act of the plaintiff. This interpretation is based, in part, on valuable statements by the High Court differentiating undue influence from unconscionable dealing.[51] In Commercial Bank of Australia Ltd v Amadio,[52] Deane J pointed out:
The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party ... 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.[53]
This approach was later approved by a majority of the High Court in Bridgewater v Leahy,[54] where the Court again took the opportunity to highlight the difference between undue influence and unconscionable dealing in order to preserve the separate operation and focus of the doctrines.[55] However, as Birks and Chin acknowledge, not all recent case law supports the plaintiff-conduct approach.[56] It appears that, in England, courts have sometimes taken the opposite path, defining relational undue influence exclusively in terms of the wrongdoing of the defendant.[57]
Bigwood has argued that relational undue influence is based on the defendant’s conduct.[58] The focus of relational undue influence remains the ‘conscience’ and exploitative conduct of the stronger party. Such exploitation may be active or passive. Therefore, there will be exploitative behaviour even where the plaintiff willingly enters into the transaction and where there is no evidence that there has been domination, deception or bullying because steps have not been taken to ensure that the plaintiff has acted independently. Independent advice is evidence which both rebuts presumed wrongdoing on the part of the defendant and affirms that the plaintiff acted freely and understood the effect of the transaction on his or her affairs.[59]
The adoption of a test of excessive dependency on the one hand, or exploitative conduct on the other, can have a significant effect on the success of a claimant. Generally speaking, excessive dependency is more difficult to prove. In Royal Bank of Scotland plc v Etridge [No 2][60] the House of Lords appeared to avoid making a clear decision in favour of either approach.[61]
Legal historians have drawn attention to the fact that, in the 19th century, old age did not confer a special legal status on the elderly.[62] The lack of special legal status for the elderly had an important formative impact upon the modern doctrine of undue influence. Firstly, it was made clear that old age in itself was not a sufficient ground for setting aside a contract or gift because the ability to make a valid transaction was not necessarily impaired with age.[63]
Secondly, elderly parents were unable to rely on an automatic or established relationship of influence to set aside inter vivos contracts and gifts made for the benefit of children, even adult children. There was a strong expectation that parents would make gifts of property to their children because it was incumbent on parents to care for them and advance their interests. Therefore, the relationship of parent and child would justify transfers of property from a parent to a child. This situation was treated in the same way as spousal relationships because it was also assumed that a spouse would intend to make substantial gifts to his or her partner.[64] The assumption that parents make gifts to their children has become deeply entrenched in the legal system so that property transactions in favour of children, whether inter vivos or testamentary, are considered to be ‘natural’ and ‘normal’.[65] In Hoghton v Hoghton,[66] a case concerning a father’s administration of family property, counsel for the father outlined the special nature of parent–child relationships compared to the automatic relationships of influence:
The cases of fiduciary relation are widely different from the present. The different fiduciary relations alluded to are voluntarily accepted, and may be terminated at pleasure; but as between parent and child, there is a lasting, natural and moral obligation on the part of the parent to support and advance his child, and a co-relative obligation on the part of the child where he is able, to advance and support his parent. Gifts, therefore, flowing either from parental or filial affection, are not to be watched too narrowly ... Parties to such arrangements are not governed by mere sordid motives of personal interest, but are actuated by high motives and honourable principles and feelings; their common object being to preserve the estate in the family, and assist and advance the various members.[67]
Whilst counsel may have understated the legal attitude towards a parent’s exercise of control over property belonging to children, this statement demonstrates the attitude that parental gifts to children were explicable by the relationship. Accordingly, elderly people generally and parents specifically were required to prove either actual undue influence or a relationship of influence in order to raise a presumption of undue influence.[68]
In contrast, it was considered appropriate to deem parental control over a child worthy of characterisation as an automatic or established relationship of influence. The parent and child relationship was one of the early instances when a presumptive relationship arose.[69] Courts were acutely aware that parents could exercise considerable control over children, obtaining valuable property settlements.[70] The courts justified the automatic presumption on the basis that there was an opportunity to abuse a relationship of influence and the benefit could not be explained or justified on that relationship alone.[71] The only transaction which was not presumed to be the result of undue influence was the family arrangement which was for the purpose of securing the peace and honour of the family, preventing litigation or preserving family property.[72]
It is impossible to list definitively the kinds of situations in modern times where undue influence may occur. However, there appear to be several recurrent situations where elders have brought an action based on undue influence inter vivos:
Notions concerning the elderly generally and the relationship of adult children to their parents evident in the 19th century have continued to the present. There are two common attitudes displayed. Firstly, courts have not considered that the advanced age of the person entitles him or her to any special protection or treatment under the doctrine of undue influence. Indeed, as will be shown below, courts have made it clear that they maintain a healthy scepticism about the frailty of the elderly. This has had a significant impact on the application of the doctrine of undue influence inter vivos because illness and feebleness will not necessarily be sufficient to persuade a court that a transaction ought to be set aside. It has been pointed out that ‘[e]xperience teaches us to be astute to vulnerability and inequality’[78] and in some cases elders have been considered to be quite shrewd.[79]
Secondly, courts have not been persuaded that, where elders and their relatives are involved, transactions should be subject to special scrutiny or that adult relatives (or third parties acting through them) should automatically be subject to specific obligations. In Ryan v Tooth,[80] Bryson J commented in a claim based on undue influence:
The fact that a call is made upon a blood relationship in support of a request that a party enter into a substantial gift or a transaction which is otherwise improvident or diseconomic should not have any great effect on a judgment on the subject of unconscionability. In the absence of evidence proving unusual susceptibility, there is no reason to think of calls on blood relationships as blinding persons to their interests, or conferring on them unusually ready access to equitable relief against transactions which they decide to enter into. Calls on blood relationships are features found in people’s decisions to enter into transactions into which they would not be led by ordinary commercial motivations, and when persons yield to them their conduct should usually be interpreted as an expression of their economic liberty and not as a ground for them to escape their obligations.[81]
Therefore, not surprisingly, most courts have consistently failed to extend the notion of automatic relational undue influence to include natural relationships of trust and confidence between parents and their adult children. Courts have not explicitly refused to extend automatic relational influence. It has simply been assumed that the automatic relationships cannot and ought not be extended. The consequence has been that, unlike patients, religious devotees or clients of solicitors,[82] it is still incumbent on the plaintiff to prove actual undue influence or relational undue influence in order to set aside a transaction.[83] This situation also stands in sharp relief to the treatment of spouses, particularly wives, which will be noted below.[84]
Yet it must be appreciated that whilst elderly people may indicate that they wish to enter into such transactions, their desire to do so may be subtly affected by two separate but overlapping problems. In many cases, emotional or family ties may become more important to them than the commercial realities of the transaction. A wide gamut of emotions ranging from love and loyalty on the one hand, to anxiety and fear on the other, could lead elders to enter into transactions which could prove injurious to their economic well-being. This has been evident in cases concerning elders providing guarantees to secure the liability of their child or their child’s business where there is clearly no benefit to them. However, these factors will also be present when elders transfer substantial assets to relatives or caregivers on whom they rely, to whom they feel they owe an obligation, or as a way of placating the demands of younger generations for an early distribution of assets.[85]
There is also strong medical evidence which indicates that increasing age leads to mental decline. It is not the purpose of this article to discuss this evidence. However, it is essential to observe not only that a person’s mental ability declines with age,[86] but that the elderly are more susceptible to diseases which directly or indirectly affect brain function.[87] Accordingly, elders suffer from a variety of medical and psychological conditions which may not necessarily lead to complete mental incapacity, but may impair their ability to consider what is in their best interests. Their mental powers may be permanently, temporarily or mildly impaired, and evidence of such conditions as poor eyesight,[88] alcoholism,[89] depression,[90] Alzheimer’s disease,[91] or physical conditions which lead to reduced concentration and poor memory[92] may be raised in undue influence litigation. It is submitted that judges need to be sympathetic to the unusual effect which these conditions may have on a person’s overall well-being and susceptibility to undue influence.[93]
As noted above, courts have held that actual undue influence may be pleaded where the claimant’s consent to a transaction was procured by threats to prosecute the claimant or where there was an abuse of a position of influence. In addition, the concept of actual undue influence has been defined by a variety of conduct generally associated with pressure and coercion.[94]
There have been several cases where actual undue influence has been pleaded on behalf of elderly persons who have sought to have transactions set aside. Three trends may be discerned. Firstly, if an elder can show that a transaction was procured by threats to prosecute the elder then it is likely that the transaction will be set aside. In Public Service Employees Credit Union Co-operative Ltd v Campion,[95] the elder’s son illegally obtained funds from the plaintiff. The plaintiff told the elder and his son that unless a written guarantee and a loan agreement were respectively signed by the parties, the police would be notified. The elder signed the guarantee and the plaintiff sued him. The Court held that that there was undue pressure constituting actual undue influence. The guarantee was set aside.[96]
Secondly, in several important cases, the courts have considered situations which did not involve a threat to prosecute and have simply asked whether there was proof that the claimant’s will was overborne by the adult child or caregiver. In these cases proof of actual undue influence has been difficult to establish. Unless there was clear evidence of complete domination and ascendancy over the elder,[97] so that the transaction was not the result of the exercise of an independent free will,[98] courts have concluded that there was no actual undue influence. For example, in Micarone v Perpetual Trustees Australia Ltd,[99] a majority of the Full Court of the South Australian Supreme Court held that although there was evidence of strong pressure exerted by family members on the father to sign a guarantee for the loan to purchase a business, ‘[a]n isolated act of family pressure of this kind does not indicate undue influence.’[100] In addition, evidence that the elder may have been reluctant to enter into a particular transaction will not establish actual undue influence.[101] For example, in Urane v Whipper,[102] a 69 year old plaintiff and his daughter used the proceeds of sale of their respective properties to purchase property in the daughter’s name alone. The plaintiff had been ill for some time and was seeking care and assistance from his daughter. She had insisted that it was impossible to care for him at his old residence and that it was necessary to find accommodation which was appropriate for both their needs. Prior to the purchase of the new property, the plaintiff reluctantly signed a deed of family arrangement whereby the daughter agreed to permit her father to reside there ‘peaceably and without expense for as long as he may wish or his health permits.’[103] The deed also stated that the plaintiff had no interest in the property whatsoever. He did not obtain independent advice.[104] Whilst the accommodation was suitable for the plaintiff, there were arguments between him, the daughter and her family. The plaintiff suffered further illness and was admitted to a nursing home. He claimed, inter alia, that the purchase in favour of his daughter was tainted by actual undue influence. Windeyer J disagreed. He held that there was no evidence that the claimant’s will had been overborne.[105] His Honour was satisfied that the actions of the daughter had been motivated by a concern to assist her father and that the arrangement had been the best possible in the circumstances. The father’s actions were a necessary compromise which he understood and accepted.[106]
Thirdly, despite the fact that most courts have required indisputable evidence that the will of the elder has been overborne, it has been recognised in a few judgments that actual undue influence may be based on abuse of a position of influence resulting from a deliberate concealment of crucial financial information. Financial institutions which have entrusted a debtor with the task of obtaining the execution of documents by an elder are imputed with actual
or constructive notice of the concealment of information.[107] This approach
is consistent with the decision of the English Court of Appeal in Bank of Credit & Commerce International SA v Aboody,[108] where a wife signed a security over the matrimonial home guaranteeing her husband’s business. The wife had little commercial experience and she was not informed of the financial risks involved. Significant information had been deliberately concealed from her and the Court found that the financial institution had notice of the wrongdoing. Noting the decision in Aboody, Olsson J commented in Micarone v Perpetual Trustees Australia Ltd:
the question is not whether, in the literal sense, there was the exercise of an independent and voluntary will, but whether the exercise took place in an environment in which the actors were able to form a proper judgment, untainted by factors resulting from deliberate disinformation and misrepresentation.[109]
In Couper Holdings Pty Ltd (in liq) v Bell,[110] a 69 year old mother executed a mortgage over her domestic residence to secure all moneys owing by her son and his business associates for the purchase of a business. The Supreme Court of Western Australia found that the son had proposed the mortgage to the financiers before he had discussed it with his mother. When the son did propose the transaction to the mother, he did not explain the details of the purchase. He assured her that he would be a millionaire within 12 months and that he would sell some of his properties to cover the purchase should there be any shortfall. She was unaware how many properties he had or that he had borrowed heavily from banks to acquire them. She had not previously mortgaged her property to secure borrowings for her children. She was advised to obtain independent advice by her son’s solicitor but declined to do so because she trusted her son and, as a pensioner, was concerned about the costs of legal advice. Owen J held that the mortgage was procured by the exercise of actual undue influence and that the execution of the mortgage was not the exercise of her independent free will. The mother’s lack of business experience and the son’s failure to disclose important financial information influenced his Honour’s decision. The financier entrusted to the son the task of procuring the mother’s signature and ought to have known that the son was in a position to influence the mother.[111] However, the approaches of the courts are not consistent. In Wilkinson v ASB Bank Ltd,[112] the New Zealand Court of Appeal held that a bank was aware that a son may exert undue influence on his elderly mother to ensure that she signed a guarantee. Nevertheless, the Court held that the guarantee should not be set aside because the bank had advised the mother to seek independent advice (even though she had not done so, relying on the family solicitor instead).[113]
It has been held that, unlike relational undue influence, actual undue influence does not require proof of manifest disadvantage[114] and commentators have argued that it is doubtful whether proof of manifest disadvantage was ever a requirement in Australia.[115] This appears to be borne out by several cases on actual undue influence and elders where the courts have effectively omitted manifest disadvantage from consideration.[116] However, in Couper Holdings Pty Ltd (in liq) v Bell,[117] the Supreme Court of Western Australia considered the law uncertain and held that manifest disadvantage was proved because there was a risk of enforcement of the mortgage and the absence of self-interest. The elder had nothing to gain from the execution of the mortgage to support her son’s business dealings.[118]
The discussion above indicates that overall it has been difficult for elders to prove that actual undue influence has been exercised. Not only does the elder bear the onus of establishing that he or she was subject to actual undue influence, but the standard which the elder has had to satisfy has been high. Strong evidence is required to show that the will of the elder had been completely overborne. Only where there has been a threat to prosecute or evidence of deliberate concealment of information has the claimant been successful.
Although the relationship between an elder and his or her adult child does not result in an automatic presumption of undue influence, it is open to an elder to prove that as a matter of fact there was a relationship of trust and confidence between himself or herself and the relative or caregiver. Courts have made it clear that the ‘normal’ or commonplace relationship between elderly parents and adult children will not be sufficient evidence for a presumption of relational undue influence.[119] In order to activate a rebuttable presumption of relational undue influence, elders have to fulfil two requirements. Firstly, elders (or persons acting on their behalf) must satisfy the court that there was such a strong relationship of trust and confidence that the court should be compelled to presume that the transaction was not the result of the free and independent will of the elder. Secondly, in a number of cases an elder has also had to demonstrate either that the transaction was manifestly disadvantageous to him or her or that it was for the substantial benefit of the defendant. It is important to emphasise that these two matters are the vital thresholds which must be successfully crossed before an elder has any real chance of having the transaction set aside. In particular, without proof of a relationship of trust and confidence, any guarantee in favour of a third party will not be set aside. Therefore, it is crucial to understand what kind of evidence has satisfied modern courts.
In Johnson v Buttress, Dixon J pointed out that parties must stand in an antecedent relationship which gives one person an authority or influence over the other so that the weaker party must be protected from the possibility of abuse.[120] In practice, courts in Australia and New Zealand have set a high standard for proof of an antecedent relationship of trust and confidence where elders are concerned. Generally elders have had to demonstrate a physical, emotional and/or financial dependence on the defendant. An elder will be dependent upon a relative or caregiver if the elder relies on that person for the basic necessities of life, leaves the management of their financial affairs in that person’s hands and/or is incapable of looking after himself or herself without the intervention of the relative or caregiver. Severe physical or mental impairment can be an important factor leading to the conclusion that the elder is dependent.[121]
For example, in Federov v Yakimov,[122] the plaintiff was an 81 year old woman of Russian birth who had no close relatives. For some years she had been dependent on the defendant for the basic necessities of living, including her shopping and housework. Although the Court concluded that the defendant displayed ‘a selfless dedication to [the plaintiff’s] well-being’,[123] it held that the defendant was in a position to influence the plaintiff because of the plaintiff’s clear dependence on her. The plaintiff’s conveyance of her only asset (her home) to the defendant was improvident and the plaintiff had not been given independent advice. The conveyance was set aside.
In Stivactas v Michaletos [No 2],[124] an elderly, sick and mentally impaired aunt transferred property to her nephew. The NSW Court of Appeal held that the aunt was dependent upon her nephew and entrusted him with the management of her affairs and her everyday necessities. Although she initiated the transfer of the property and insisted that the nephew take steps to give effect to her wishes, the Court accepted the view of the trial judge that the nephew was in a position to exercise influence over her. There was no suggestion that the nephew had acted in any way except in the best interests of his aunt. He had sought to have her legally advised, but the Court found that she was not adequately informed of the effect of the transaction on her present and future needs. The aunt’s utter dependence upon the nephew convinced the Court that a presumption of relational undue influence arose in her favour and could not be rebutted without clear evidence that the aunt exercised her free and independent will.[125]
However, where an elder is unable to show the level of dependence illustrated above, it has been difficult to raise a presumption of relational undue influence, notwithstanding the strong antecedent relationship between the parties. Indeed it could be said that where the elder lives independently and is self-reliant, courts are reluctant to find a presumption of undue influence at all. This was illustrated in a helpful New Zealand case, ASB Bank Ltd v Harlick.[126] In that case the parents who were aged in their mid-50s (‘the Harlicks’) guaranteed a bank loan in support of their daughter and son-in-law’s (‘the Lawsons’) business. At the time, the Harlicks believed correctly that the Lawsons’ financial position was sound and they relied on the Lawsons’ business judgment. The Harlicks had no business experience and mortgaged their only major asset, the matrimonial home, to secure their relatives’ indebtedness. They signed a guarantee which secured NZ$30 000 and then a mortgage which secured NZ$55 000. Gault J, who delivered the judgment of the New Zealand Court of Appeal, held that the Harlicks unhesitatingly agreed to provide the security over their home. He commented:
There was no evidence that the Harlicks lived other than independently, making their own decisions and relating quite normally to their children. The assessment of them as naive and vulnerable may have been assisted by the manner in which they gave their evidence but they were not asked and did not say that their relationship with their daughter and son-in-law was such that they did not feel they could refuse the request or that they relied totally upon them in the handling of their affairs. We are unable to find in the evidence any greater element of trust and confidence or reliance than is to be expected between parents and adult children and that is not sufficient to raise the presumption of undue influence.[127]
As there was no evidence that the Harlicks relied totally or excessively on the Lawsons, a presumption of undue influence did not arise (even though it was a close-knit family and the Harlicks had little or no business experience). The mortgage could not be set aside.
Courts will pay special attention to evidence which indicates that the elder can manage their own affairs in order to determine whether the elder has acted independently. If it can be established that the older parent or elder had previous business experience and had previously mortgaged their own home, courts are less likely to set aside a gift or guarantee.[128] Where business experience has been proved, the fact that the elder may have had a limited education or a limited knowledge of the English language has not swayed the courts. Indeed, in Sinclair v Galluzzo,[129] these factors were swiftly dismissed by the Court, which clearly considered the parents to be shrewd businesspeople capable of understanding the basic effect of a mortgage and managing their own affairs.
Courts have also considered that an elder has acted independently and with free will where the elder was offered independent advice and refused to avail himself or herself of it, particularly when the transaction benefited the elder (even indirectly). For example, in Mitchell v 700 Young Street Pty Ltd,[130] a son became concerned about the welfare of his 79 year old mother who lived alone and suffered from depression. The mother agreed to reside with the son so long as she was able to retain her entitlement to the aged pension which she regarded as significant security. If she retained her home and changed her principal place of residence, her aged pension entitlement would have been jeopardised. Therefore, she sold the property to a company of which she and her son were sole directors. Through her directorship of the company she retained an indirect control over her former residence.[131] In the meantime, land was purchased for the purpose of constructing a residence in which the elder and the son’s family could reside. In order to finance this arrangement, the son and his companies borrowed from a financial institution and the mother, as a director of the company, executed mortgages and personal guarantees in favour of the financial institution. The relationship between the mother and the son’s family soured and the mother sought to have the sale, mortgages and guarantees set aside. The Court found that the mother had previous experience entering into mortgages, understood the effect of the documentation and had refused independent advice because she regarded it as unnecessarily expensive. The arrangement between the son and the mother was not, as the mother had alleged, solely for the benefit of the son. The transactions preserved the mother’s entitlement to the aged pension and at the same time enabled the son to borrow the necessary funds to construct a new residence in which it was contemplated that the mother would reside until her death. Notwithstanding the elderly mother’s medical condition which led to the complex arrangement, the Court considered that she acted independently and with a free will.[132]
However, the insistence upon actual dependence on the defendant can sometimes lead to an unusual result where it is clear that the elder is frail and debilitated. In Mollross v Post,[133] the Supreme Court of Tasmania decided that there was no evidence of actual undue influence and also insufficient material upon which to raise a presumption of relational undue influence. In this case, a 78 year old mother (and grandmother) was in poor physical health. She was illiterate, blind, partially deaf and suffered from diabetes and, at the time of the trial, clearly suffered from poor memory and intellectual impairment. Indeed, the Court decided that, due to her mental impairment, her testimony was unreliable.[134] For a number of years she had been incapable of caring for herself and had lived with her daughters on a rotational basis. She had been residing with one daughter for approximately two months before she transferred her home to two of the daughter’s children. The Court held that, notwithstanding her dependence upon the daughter with whom she was residing, she was not dependent upon the grandchildren to whom she gave her realty. Accordingly, the Court held that there was no basis upon which to raise a presumption of relational undue influence. It did not consider whether the mother’s dependency upon the daughter could create a presumption of undue influence which could be imputed to the grandchildren. Instead, the Court found that there was bitterness and acrimony between family members. The transfer had been challenged due to the efforts of other family members who had not benefited from the transaction and the Court was determined to uphold the decision of the elder. It considered that, despite her considerable disabilities, the elder had at the time of the transaction known what she wanted to do and sufficiently understood the effect of the documents. The Court relied on the evidence of the lawyer who advised the elder and a medical practitioner who examined the elder at the time of the transaction.
In order to set aside guarantees, elders have been required to show that there was a relationship of dependency of which a third party financier was aware or ought to have been aware.[135] Accordingly, elders have failed to have a guarantee set aside because there was insufficient evidence of dependency to raise a presumption of undue influence[136] and/or the third party lacked knowledge of any undue influence.[137] Indeed, in some cases, having found that there was no relationship of dependency, courts have been content to find that third parties have acted properly despite the fact that the elder did not receive any independent advice[138] or had inadequate English language skills.[139]
However, there have been a few decisions which have challenged this trend on the basis of some kind of transactional reliance. For example, in ASB Bank Ltd v Harlick referred to above,[140] the trial judge held that there was no evidence of actual undue influence and that an automatic presumption of undue influence did not arise.[141] However, special circumstances gave rise to relational undue influence. It was a close-knit family. The Harlicks lacked business acumen and were naive. They reposed trust and confidence in the Lawsons and ‘not surprisingly considered them as having knowledge, and skills upon which they could implicitly rely.’[142] The bank had notice of the situation, in particular the uneven relationship between the Harlicks and the Lawsons. When the bank sought security, the Lawsons informed the bank that the Harlicks’ home would be available, even before the Harlicks had been consulted.[143] It was incumbent on the bank to take steps to ensure that the Harlicks appreciated what they were doing, and this had not been done because there had been no independent advice provided.[144] The Court declared the security void and unenforceable.
In Burke v State Bank of New South Wales,[145] the Supreme Court of New South Wales applied the general principle that a guarantee will not be enforced where a creditor entrusts procurement of the execution of the documents to a debtor who is in a position to influence the guarantor.[146] In this case, elderly parents mortgaged their home as security for their son’s bank loan. Some years later, the parents signed further documents, which they believed were related to the roll-over of the original loan. In fact, the loan accommodation had been substantially increased and the son was close to bankruptcy. The son sought his parents’ execution of the documentation on behalf of the financial institution. The documents were placed on the kitchen bench for the parents to sign, but the son held them in such a way that the parents could not read them. The only part which was visible was the part where they were required to sign.[147] Clearly they had no independent advice and relied on the son’s assurances that his business was going well. They were unaware that the loan was for the purpose of consolidating the son’s business debts. The son’s business failed and the parents were left in a disastrous financial position, being responsible for an increased principal and interest charges. Although they accepted that they were liable for the original loan and interest charges, they argued that they were not responsible for the additional amounts on the basis, inter alia, that the financial institution was or ought to have been aware that there was a relationship of trust and confidence between them and the son.
Santow J held that a relationship of trust and confidence would not self-evidently exist between parents and children, so that creditors would not be expected to act on the basis that undue influence could be exercised.[148] However, the bank had used the son to procure the execution of the documents and explain their effect. Noting that financial institutions which relied on husbands to procure the wife’s execution of guarantees ran the risk that the transaction was procured by wrongdoing, his Honour concluded that
where a guarantee is procured by a son (or child) from a parent which ex facie is not for the benefit of the parent and where in addition the creditor would be aware that the parent reposed trust and confidence in the child, then there will be the same ‘substantial risk’ that it may be obtained by wrongdoing. While the emotional ties of parent to child reinforce this risk, that is not sufficient to give rise to such constructive notice by itself, without those other elements. I am satisfied that all those elements were present here.[149]
Whilst this statement suggests that the relationship of an adult child and elderly parent will not in itself raise a presumption of relational undue influence, it equally implies that it is not necessary for the elder to prove absolute dependency before a transaction will be set aside. Transactional reliance will suffice. In this case, the elderly parents relied on the son in the execution and explanation of the documentation. The financial institution was constructively aware of the parents’ reliance and the possibility of the son’s undue influence. Interestingly, it appears that the parents did not contend that the son had exercised actual undue influence, although it was arguable on the facts that the son had concealed important information. Indeed, the Court did not specifically discuss the presumption of undue influence. Nevertheless, at least where third parties are involved, the decision shows that transactional reliance rather than proof of total dependence will suffice.[150]
It must be emphasised that there have been other cases involving elders and third party financial institutions where guarantees have not been set aside on the basis of transactional reliance. For example, in Contractors Bonding Ltd v Snee,[151] a mother was mentally impaired and her son (as a shareholder of the debtor) procured the execution of the documents on behalf of the financial institution. The New Zealand Court of Appeal did not set aside the elderly mother’s guarantee and mortgage. The Court pointed out that the fact that the son had been entrusted to procure the execution of the documents would be a relevant factor, but alone it will not be sufficient to set them aside. In this case, the financier had not expressly or implicitly appointed the son as its agent and the financier lacked any actual knowledge of and had no reason to expect the son’s undue influence over the mother.[152]
Traditionally, a second threshold factor has been that the claimant must show that the transaction is manifestly disadvantageous. In National Westminster Bank plc v Morgan,[153] Lord Scarman pointed out:
Whatever the legal character of the transaction, the authorities show that it must constitute a disadvantage sufficiently serious to require evidence to rebut the presumption that in the circumstances of the relationship between the parties it was procured by the exercise of undue influence.[154]
Manifest disadvantage has been assumed where the transaction is a gift, but has had to be proved where the party claiming relief based on undue influence received consideration under a contract.[155] Inadequate consideration has been considered evidence of manifest disadvantage.[156] In recent years, commentators have argued that the old requirement that the transaction be manifestly disadvantageous was waning in Australian cases concerned with the presumption of undue influence.[157] In particular, in the Queensland Supreme Court decision of Baburin v Baburin,[158] Kelly SPJ held that, contrary to English authority, a transaction could be set aside on the basis of a presumption of undue influence without the need for manifest disadvantage.[159] Instead, the ‘improvidence’ of a transaction (whether a contract or a gift) is important where the defendant attempts to rebut the presumption. If the defendant is able to show that the transaction was not improvident, for example by demonstrating that the consideration was adequate, then this would be evidence upon which it could be inferred that the claimant exercised free will and independent judgment.[160] Therefore, disproving improvidence is one basis upon which the defendant is able to justify the transaction in his or her favour.
If the view of Kelly SPJ in Baburin v Baburin were generally adopted, it would reduce the burden on elders claiming under relational undue influence. The elder would only have to prove a relationship of influence or, as shown above, dependence. However, it is still unclear whether this view reflects the approach of the courts in cases concerned with elders.
There have been some cases where the doctrinal issue of manifest disadvantage was not raised, let alone applied to the facts of the case.[161] Therefore, it remains unclear whether the issue was not considered by the court because it did not find a dependency relationship[162] or because the disadvantage suffered was indisputably obvious.[163]
There have also been other cases where the court has not demanded proof of manifest disadvantage but has been content to point out that the transaction was not disadvantageous to the elder. Courts have held that there is no manifest disadvantage where there are refinancing arrangements under which an earlier mortgage or guarantee is discharged and replaced by another mortgage or guarantee in favour of another financial institution, thereby averting action being taken against the elder’s property.[164] In other cases, courts have found an indirect but real benefit to the elder. In Mitchell v 700 Young Street Pty Ltd,[165] the Court found that a complex arrangement by which the mother sold her property to a company of which she was a co-director and guaranteed its liabilities was for her benefit as well. The company borrowed funds in order to build a residence where the mother and the son’s family could reside. The arrangement also protected the mother’s pension entitlements. In Mollross v Post,[166] the Court noted, somewhat dubiously, that although the elder no longer held an interest in her former home, she had not occupied it for several years anyway.[167] The Court did not consider the fact that although the elder had not resided in the house for some time, she had also lost a substantial asset, the proceeds of the sale of which could have been used to improve her quality of life.
Finally, at least in New South Wales[168] and Western Australia,[169] courts have recently required that for a gift to be set aside for undue influence, the gift must be substantial or improvident. McLelland J in Quek v Beggs[170] stated:
A presumption of undue influence arises if it is proved ... the gift is so substantial, or so improvident, as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary persons act.[171]
In the Western Australian decision of Nattrass v Nattrass,[172] Commissioner Buss referred to and applied Quek v Beggs.[173] He differentiated between relatively small gifts of money made by the dependent elder to the family member or caregiver and large amounts enabling the caregiver to pay out a mortgage over her own residence. He held that the former gifts were not improvident and could be explained by ordinary motives.[174] On the other hand, the substantial payment of A$53 000 was improvident and could not be accounted for by friendship or gratitude. Accordingly, a presumption of undue influence arose.[175]
This requirement has some support in old authorities,[176] but has also been criticised.[177] It is unclear whether there is an overlap between manifest disadvantage and the notion of substantial benefit. Bryan suggests that the requirement that the transaction substantially benefit a recipient was a different requirement to manifest disadvantage.[178] In contrast, Cope’s discussion of substantial benefit appears to incorporate the notion of manifest disadvantage.[179]
In short, despite the comments of Kelly SPJ in Baburin v Baburin, it is possible that an elder will be required to provide evidence of the manifest disadvantage of the transaction to them or the substantial benefit of the transaction to the defendant.
In light of the previous discussion, Part IV evaluates the modern application of undue influence to elders and offers some suggestions for reform of this area.
An examination of recent cases where elders have claimed undue influence may reflect on the general nature and application of the doctrine of undue influence inter vivos. These cases suggest that unless there is a threat to prosecute the elder, deliberate concealment of important information, or evidence of absolute dependence of the claimant, the action will generally be unsuccessful. Whilst it would be premature to argue that cases involving elders necessarily represent an overall tendency in the application of actual undue influence and relational undue influence, it appears that courts are applying high thresholds and this may ultimately affect the doctrine’s overall utility. However, the preceding discussion indicates that there have been a significant number of recent cases in which undue influence inter vivos has been raised. This suggests that parties will continue to plead it, but with varying success.
In relation to actual undue influence, it has been shown that there must be a wrongdoer who, for example, exerted illegitimate pressure or deliberately concealed material facts. On the other hand, other commentators have emphasised that it is the impairment of the consent of the claimant, rather than the wrongdoing of a defendant, which is the major issue.[180] A perusal of recent cases where elders have relied on actual undue influence indicates that the courts may blend plaintiff-based approaches and defendant-based approaches. Where there is an allegation of threats of prosecution or deliberate concealment of critical information, the court will investigate the conduct of the defendant because such conduct may have seriously hindered the exercise of the claimant’s independent and free will. However, in other situations where actual undue influence has been alleged, it has been necessary to prove the defendant’s complete domination and this has been difficult.
In relational undue influence cases, it is clear that actual dependency, rather than some looser standard (like transactional reliance or passive exploitation), is the overwhelming factor. Therefore, at least where elders are concerned, Birks and Chin have rightly identified that relational undue influence is based on plaintiff-sided dependency rather than wrongdoing (or potential wrongdoing) by the defendant.[181] Whilst it is true that in such cases as Federov v Yakimov[182] and Stivactas v Michaletos [No 2][183] the courts recognised that the elder was vulnerable to the passive exploitation by the defendant, even in these cases the most important factor determining the litigation in favour of the elder was the utter dependence of the elder on the defendant.[184] Indeed, the New Zealand Court of Appeal recently confirmed in Carey v Norton,[185] a case concerning testamentary undue influence, that both actual and presumed undue influence inter vivos were determined by reference to plaintiff-sided conduct. The Court pointed out that ‘undue’ referred to the ‘impairment of judgment rather than to improper conduct on the part of the person possessing influence.’[186] In the transactional reliance cases considered above,[187] the courts embarked in the opposite direction, emphasising the misconduct of the wrongdoer or the conduct of the financial institution. However, it appears that transactional reliance has been successfully argued in only a small number of cases concerning elders.
The application of such high thresholds for relief have had disturbing consequences for elders seeking to plead undue influence inter vivos. Elders find it more difficult than other vulnerable groups to rely on the presumption of relational undue influence. Whilst it is arguable that elders have to prove a similar standard of dependency to that of other vulnerable parties, there are certain relationships where proof of dependency is unnecessary. As noted above,[188] there are traditional antecedent relationships which automatically raise the presumption of relational undue influence. No doubt they were recognised in response to common situations which arose in the 19th century. These were traditionally justified on the basis that the transaction was not explicable by the relationship of the parties without suspicion of abuse (rather than proof of dependency).[189] Therefore, there are several relationships, notably religious adviser and devotee, solicitor and client and doctor and patient, where the claimant may not be utterly dependent on the defendant, but will be able to have the transaction set aside simply because the relationship has been proved. Yet elders who are unable to show a high level of dependence on an adult child or caregiver are unlikely to succeed in having a transaction set aside, even where they were transactionally reliant.
Parent and adult child relationships and spousal relationships were the two categories which did not attract automatic relational undue influence. The traditional exclusion of spouses was based on the view that gifts in favour of husbands from wives were explained by the close relationship and the general emancipation of women.[190] However, in Australia it has been clear that whilst there was no automatic presumption, there was a presumption of an invalidating tendency. A guarantee would not be enforceable against a wife acting as guarantor when the financial institution was aware that the debtor and guarantor were married and took no steps to inform the wife about the transaction, particularly where a wife guaranteed her husband’s debts without receipt of consideration.[191] In the well-known case of Garcia v National Australia Bank Ltd,[192] a wife gave a bank security over the matrimonial home for the purpose of securing the liability of her husband’s company. Mrs Garcia was a physiotherapist who had some previous business experience. She successfully argued that at the time she did not understand the transaction, the bank had not taken steps to explain the transaction to her and the transaction was voluntary, in the sense that she derived no benefit from the transaction (although in fact she was a director and shareholder of the company). The Court held that the transaction could be set aside. Even if a husband has not exercised actual undue influence to procure execution of the guarantee or security, a wife who is a volunteer will be entitled to have the guarantee or security set aside unless the creditor took steps to inform the wife about the transaction or ascertain that it had been explained to her. A financial institution is taken to understand that a wife would repose trust and confidence in a husband and that a husband may not accurately or fully explain the transaction.[193]
In comparison, the invalidating tendency in Garcia has generally not been available to older parents and elders, notwithstanding that they may be even less capable of protecting their interest than wives.[194] For example, in Australian Guarantee Corporation v McClelland,[195] Mrs McClelland (who was in her 50s) provided her home as security for the liabilities of her son’s company. She had previous business experience and was a director, shareholder and secretary of the company. The guarantee was not set aside. However, the fact that the financial institution did not offer to provide general advice to the mother and that she did not acquire independent advice was not considered important by the Court. Yet Mrs McClelland was arguably no more educated and commercially experienced than Mrs Garcia and it was questionable whether Mrs McClelland would gain in real terms from the transaction which she had guaranteed. She had simply become involved with the company and provided the guarantee in order to assist her son set up a business.[196] In Micarone v Perpetual Trustees Australia Ltd,[197] a majority of the Full Court of the Supreme Court of South Australia held that
Mr and Mrs Micarone (who were 72 and 65 respectively at the time of the litigation concerning a complex series of transactions) had sufficient business experience and had not been subject to undue influence.[198] However, the trial judge took the view that they had limited language capacity and ‘lacked assistance by way of proper advice’.[199] If this couple had been able to rely on the Garcia special equity, then the transaction would have been set aside.[200]
Both the traditional automatic presumption of relational undue influence and the invalidating tendency endorsed in Garcia have required both direct recipients of the benefit of the transaction and third parties to take steps to ensure that the vulnerable party is given independent advice. Although the presumption of undue influence may be rebutted without the need for independent advice, it is the clearest method for proving that the transaction was made freely and independently.[201] Therefore, the legal recognition of classes of vulnerable persons ensures that interested parties are encouraged to take steps to arrange or strongly recommend independent advice. In contrast, because elders as a cohort are not recognised as having a special vulnerability, parties who benefit from a transaction are not encouraged to ensure that the elder obtains independent advice prior to executing the documentation. Although there are cases where adult children or caregivers have taken steps to ensure that advice is given,[202] it has not been necessarily incumbent on them to do so. Naturally, where the court has found that there has been a relationship of dependence or a deliberate concealment of information, the issue of independent advice has then been raised. However, there are a number of cases where elders have made substantial gifts or guaranteed significant liabilities without any independent advice. The unfortunate outcome has been that an elder may not be able to have a transaction set aside, in relation to which they have received no independent advice, because he or she has not proved actual or relational undue influence.[203]
Finally, sometimes there has been insufficient appreciation by courts that elders have been forced by circumstances to enter into arrangements and transactions which they would otherwise have avoided. Whilst the elder apparently exercises independence and free will entering into a transaction which appears to be for his or her benefit, old age and increasingly frailty often means that there is little choice but to do so. Whilst the elder is not utterly dependent, he or she may be in a transition period in which he or she foresees that they are becoming more dependent upon relatives or friends. Therefore, the line between independence and dependence has become blurred.
An important example is where elders make arrangements for alternative accommodation and care with relatives as they become more enfeebled and frail. It will be recalled that in Urane v Whipper[204] and Mitchell v 700 Young Street Pty Ltd,[205] the medical condition of the claimants required them to arrange to live with relatives. The elders had little choice but to agree to the well-intentioned demands of their adult children. Complex commercial arrangements were made to purchase alternative accommodation for the elder and the adult child’s family. In both cases, the elder’s home became an important financial feature in the arrangement. In Urane v Whipper, the elder sold his home and gave the proceeds to his daughter to use towards the acquisition of a new residence. He signed a family settlement, without the benefit of any independent advice, in which he agreed that he had no interest in the new residence. In Mitchell v 700 Young Street Pty Ltd, the Court found that a complex arrangement by which the mother sold her property to a company of which she was a co-director and guaranteed its liabilities was for her benefit as well. When the unhappy relationship between the elder and the adult child’s family became intractable, the elder was caught between the independent exercise of free will which created the arrangement and the onset of dependency which necessitated the transaction. In both cases, the courts held that there was no actual or relational undue influence because the elder had displayed an independent will and had entered the transaction voluntarily. Furthermore, in Mitchell v 700 Young Street Pty Ltd, the Court found that the transaction was for the benefit of the mother. The onset of the elder’s dependency was not adequately taken into account. Indeed, in comparison, it is arguable that elders who are simply requested to assist a family member by providing a guarantee[206] are under less pressing personal circumstances. They may be able to avoid the transaction because they are not in transition from independence to dependence on a family member.
When the doctrine of undue influence inter vivos was formulated in the 19th century, it responded to what were perceived to be common abuses of relationships of trust and confidence. In comparison to other kinds of undue influence at the time, the incidents of undue influence perpetrated upon the elderly were probably small because fewer people reached old age. Therefore, neither courts nor legislatures considered that old age warranted any special protection. However, the unprecedented ageing of the population in recent times and the frequency with which undue influence inter vivos has been pleaded by elders has made the anomalies of the doctrine apparent. There are several possible responses to the operation of the doctrine in relation to elders.
Firstly, it is arguable that the nature and application of undue influence inter vivos should remain unchanged. In support of this approach is the view that elders are adults and old age should not confer any special treatment or protection. Therefore, like other vulnerable parties, elders must fulfil the criteria for the doctrine before obtaining relief. Moreover, it could be contended that undue influence is not the only doctrine which provides relief. For example, there have been cases where an elder has been able to claim relief under unconscionable dealing, even though the elder’s claim under undue influence has been unsuccessful.[207] The problem with this approach is that it does not address the uneven treatment of elders. Furthermore, it does not take into account the fact that elders may endanger their financial security by transferring substantial assets or entering into significant guarantees where there is no threat to prosecute, deliberate misconcealment of facts, or evident dependency on the defendant. To make matters worse, elders sometimes enter into such transactions without the benefit of independent advice outlining the risks involved. Whilst elders may plead unconscionable dealing or other doctrines in order to have the transaction set aside, there have been cases where they have been unable to rely on other doctrines and have been left without any redress.[208]
Secondly, it could be contended that the traditional special treatment of certain relationships and the invalidating tendency in favour of wives endorsed in Garcia ought to be removed. The nature of the relationship and the conduct of the parties, rather than the categorisation of the relationship, ought to determine whether a transaction should be set aside.[209] The clear advantage of this approach would be that, at least theoretically speaking, all vulnerable relationships would be given equal treatment. However, as far as elders are concerned, it would do nothing to redress the high thresholds presently applied to them.
Thirdly, it would be possible to extend the same kind of protection afforded to wives giving guarantees for their husband’s debts to elders guaranteeing the debts of relatives or caregivers. In Garcia, a majority of the High Court suggested that the invalidating tendency may be applied to de facto and same-sex relationships in the future.[210] The Court did not broach guarantees given by elders, but there is authority showing that in respect of the giving of guarantees elders ought to be treated the same as spouses and de factos. In Burke v State Bank of New South Wales,[211] Santow J held that where adult children procured the execution of a guarantee by a parent in favour of a financial institution, the financial institution should be required to meet the same kind of high standards of advice and disclosure applied in cases where spouses and de facto partners procure the execution of documentation. The advantage of applying the Garcia approach is that it would be incumbent upon the financial institution to take action to have the transaction explained to the elder. Nevertheless, it remains unclear whether explanation by an employee of the financial institution would suffice. A recent study[212] of mandated procedural protections (such as those outlined in Garcia)[213] found that whilst explanations by employees of financial institutions were an improvement over earlier practice (where there was little or no description of the transaction), it did not prevent misunderstanding or ensure autonomy. It has been found that the advice given by an independent lawyer in relaxed surroundings was more likely to prevent information failure and enhance the independence of advisees.[214] Therefore, it is submitted that in the case of elders, the action which a financial institution would need to take to dispel the invalidating tendency would include ensuring that the elder obtains independent professional advice in an interview which is not attended by the debtor and allows the elder a ‘cooling-off period’ before execution of the documents.[215]
Some commentators have suggested that it may be necessary to restrict or circumscribe the use of the family home as security for third party guarantees, particularly when an elder’s home is his or her only major asset.[216] The clear advantage of such a proposal is that it would ensure that any possible exercise of undue influence could not result in the potential loss of the elder’s family home. However, the downside is that a competent elder may be precluded from dealing with the asset as he or she wishes. In order to avoid undue influence, the freedom to deal with the asset is restricted or removed altogether.[217] A valuable asset, which could be used to enhance the family’s business dealings, would be ‘locked up’.
Despite the merits of an ‘enhanced’ Garcia approach or restrictions on the use of the family home as security for a third party guarantee, such proposals do not cover the transfer of assets or the making of substantial gifts. Therefore, in the long term, it may be practical to take a broad-based legislative approach and require that certain steps are taken before any transaction is enforceable. For example, there has been legislative action in the State of Maine in the United States specifically dealing with undue influence inter vivos and dependent elders. Under the Maine Revised Statutes, a presumption of undue influence arises where an elderly dependent person has transferred real estate or undertaken a major transfer of personal property or money[218] for less than full consideration.[219] The transfer may be set aside or other remedies made available to the elder[220] unless that person was represented in the transfer by an attorney retained by the person to represent only their interests in the transfer.[221] The legislation covers dependent elders 60 years or older[222] and sets out the kind of relationships which would automatically attract the presumption, including family and fiduciary relationships.[223] A significant limitation is that the elder must be dependent on others. However, the concept of dependency is arguably wider than the kind of relationship of dependency required in the relational undue influence cases described above, because it covers an elder who is ‘wholly or partially dependent upon one or more other persons for care or support’.[224] Therefore, partial dependence would satisfy the legislation. Moreover, it is not necessary for the transfer of the property to have been made to the person on whom the transferee was dependent. It is sufficient that a dependent elder makes a transfer to a person falling within a specified relationship.[225] The effect of the legislation has been to widen the scope of relational undue influence without undermining its fundamental features.
It is arguable that the outcome of several cases discussed above would have been different under the Maine scheme. For example, in Urane v Whipper,[226] an elderly man had been ill for some time and gave the proceeds from the sale of his home to his daughter for the purpose of purchasing new accommodation suitable for mutual requirements. The father signed a deed of family settlement acknowledging that he had no interest in the new property. Therefore, it could be said that he received less than full consideration for the money he paid over. He did not receive any independent advice. Under the Maine scheme, the major transfer of money to the daughter, without the benefit of the advice of independent counsel, would be deemed to have been the result of undue influence. The transfer of money and the deed of settlement would have been set aside. In Mollross v Post,[227] the Court held that there was no relational undue influence because the grandmother was not dependent upon the grandchildren to whom she gave her only major asset, her home. There was no evidence of independent advice, in the sense that she was advised by a solicitor acting for the defendants. Under the Maine scheme, the transfer of real estate by an elder who is dependent on others to a person with whom the elderly dependent person has a confidential or fiduciary relationship, such as a family member, can be set aside where there has been no advice given by independent counsel. On the face of the legislation it is unclear whether gifts without any consideration may be set aside, but it is arguable that the care of the daughter after the transfer would not have sufficed as consideration to support the transfer. Nevertheless, the Maine scheme does show that it is possible to move beyond the confines of the present doctrine of undue influence inter vivos to structure a system which is more responsive to modern conditions, but still allows competent elders the freedom to deal with their assets.
As the population is ageing to an unprecedented degree, the vulnerabilities of the aged are becoming more apparent. The present doctrine of undue influence inter vivos is the product of historical factors and 19th century assumptions. It reflects the view that old age does not warrant any special protection or treatment, even in relation to undertaking huge liabilities or the transfer of substantial assets. The problem is that this view does not accord with the new reality. The present doctrine as applied in Australia operates in a piecemeal fashion and elders have found it more difficult to obtain relief than other recognised vulnerable groups. An elder has to satisfy high thresholds before obtaining relief under the doctrine. In order to establish actual undue influence, the elder will need to show that there has been a threat to prosecute him or her or deliberate concealment of important information. Generally, an elder will only successfully claim relational undue influence where he or she can prove total or excessive dependence on the defendant. It appears that proof of manifest disadvantage to the elder or substantial benefit to the defendant is also required in cases of relational undue influence. At the time the transaction is entered into, it is not incumbent on recipients of assets or third parties to arrange independent advice or even to advise the elder to obtain independent advice. Independent advice only becomes important when a defendant argues that there is insufficient evidence supporting a claim based on actual undue influence or as a means of rebutting a presumption of relational undue influence. In short, the doctrine of undue influence inter vivos fails to protect a significant portion of elders who willingly transfer large assets, such as their home, or guarantee substantial liabilities of relatives and caregivers, to the detriment of their financial security.
Accordingly, a comprehensive approach to undue influence inter vivos and elders has been advocated. It is not suggested that the Maine scheme is perfect or that a similar scheme ought necessarily be implemented. However, what can be said is that well-structured and broad-based legislative procedural protections could begin to redress the uneven treatment of elders in comparison to other vulnerable groups. In particular, the requirement of independent professional advice in relation to a wide range of inter vivos transactions could lead to elders having a better understanding of financial risk and greater autonomy.
[*] BA (Hons), LLB (Hons), LLM (Syd), LLM (Cantab), PhD (ANU); Senior Lecturer, Faculty of Law, University of Sydney. I would like to thank Professor Patrick Parkinson and the two anonymous referees for their comments on earlier drafts of this article. My thanks also to Professor Terry Carney for his encouragement and Ms Myra Chen for her research assistance under the University of Sydney Faculty of Law Legal Scholarship Support Fund 2001–02. A preliminary and shorter version of this paper was presented to the XXVIIth International Congress on Law and Mental Health, Amsterdam, 8–12 July 2002.
[1] See Peter Laslett, ‘The Demographic Scene — An Overview’ in John Eekelaar and David Pearl (eds), An Aging World: Dilemmas and Challenges for Law and Social Policy (1989) 1. The demographic scene in relation to Australia is quite remarkable. The Australian Bureau of Statistics (‘ABS’) found that in 2001, 12.4 per cent of the Australian population was aged 65 years or older and that 3 per cent were 80 years or older: ABS, Australian Social Trends 2002, ABS Catalogue No 4102.0 (2002) 2. However, this is set to change radically by the middle of the 21st century and it is projected that by 2051, 26.1 per cent of the population will be 65 years or older and 9.4 per cent of the population will be 80 years or older. The trend of longevity is projected to continue to 2101 when 27 per cent of the adult population will be 65 years or older whilst 10.1 per cent of the population will be 80 years or older: ABS, Australian Social Trends 2002, ABS Catalogue No 4102.0 (2002) 2. It is important to observe that women clearly outstrip men in terms of longevity. This is particularly evident in the 85 years and older age group, where in the 12 months to June 2001 there were more than twice as many women (180 400) than men (82 200): ABS, Population by Age and Sex: Australian States and Territories, ABS Catalogue No 3201.0 (2001) 7. Therefore, ageing also has a gender dimension and it has been argued that it is necessary to integrate age and gender in order to understand the implications of ageing for men and women: Jay Ginn and Sara Arber, ‘“Only Connect”: Gender Relations and Ageing’ in Sara Arber and Jay Ginn (eds), Connecting Gender and Ageing: A Sociological Approach (1995) 1, 13. Moreover, it has been argued that gender needs to be a category used in analysis rather than simply a variable when considering elder abuse: Terri Whittaker, ‘Gender and Elder Abuse’ in Sara Arber and Jay Ginn (eds), Connecting Gender and Ageing: A Sociological Approach (1995) 144.
Generally, the age of 65 years has been used as a benchmark for defining elders because this has been the age of retirement and at which people are able to apply for the aged pension: see Juliet Cummins, Guaranteeing Someone Else’s Debts: Submission by the Centre for Elder Law, University of Western Sydney (2001) 1 fn 1, submission to the New South Wales Law Reform Commission, Guaranteeing Someone Else’s Debts, Issues Paper No 17 (2000). Generally, for the purpose of this discussion ‘elder’ will indicate a person over 65 years of age. However, it would be artificial to neglect the discussion of cases where the individual involved had not reached that age, particularly older parents who have retired (but who are not 65 years of age) or who are nearing retirement and have entered into guarantees to secure the liabilities of adult children. In the case of married couples, sometimes one parent has reached 65 years or over, whilst the other is a number of years younger. Indeed, some reforms have contemplated that a lower age is appropriate to define a dependent elder: see below Part IV(C). It also appears that the transition from employment to retirement commences much earlier than the age of 65 years. According to the ABS, in the year 2001, 72.4 per cent of men in the 55–9 years age bracket were in employment whilst only 46.9 per cent in the 60–4 age group were employed. In relation to women, the contrast between the two age groups for the same period is equally stark: 48.1 per cent of women in the 55–9 age bracket were employed and this dropped to 21.5 per cent for women between the ages 60–4 years: ABS, Australian Social Trends 2002, ABS Catalogue No 4102.0 (2002) 125. This may indicate that the older age bracket was more affluent. However, it may also indicate that older people who may not have reached 65 years are less likely to be employed. Therefore, they may not be able to bear the substantial losses suffered as a result of undue influence inter vivos without erosion of their living standards.
[2] See, eg, David Cripps et al, ‘Abuse of Older People: Issues for Lawyers’ [2002] ElderLawRw 8; (2002) 1 Elder Law Review 14 <http://www.uws.edu.au/law/elderlaw/cripps.pdf> at 16 October 2002.
[3] In a significant recent study, this was defined as ‘the illegal or improper use of an elder’s funds, property or assets’: National Center on Elder Abuse at the American Public Human Services Association, The National Elder Abuse Incidence Study: Final Report September 1998 (1998) pt 3.1 <http://www.aoa.gov/abuse/report/default.htm> at 16 October 2002. See also Carolyn Dessin, ‘Financial Abuse of the Elderly’ (2000) 36 Idaho Law Review 203, 206; Cheryl Tilse et al, ‘Legal Practitioners and Older Clients: Challenges and Opportunities for Effective Practice’ [2002] ElderLawRw 11; (2002) 1 Elder Law Review 34, 34 <http://www.uws.edu.au/law/elderlaw/setterlund.pdf> at 16 October 2002. There is also a diversity of conduct which may constitute elder financial abuse including theft, capital investment fraud, telemarketing scams and negligent handling of an elder’s assets: Russell Smith, ‘Fraud and Financial Abuse of Older Persons’ (2000) 11 Current Issues in Criminal Justice 273, 278–83; Office of the Public Advocate (WA), Safeguarding the Financial Interests of Vulnerable Seniors (1999).
[5] See, eg, Terry Carney and David Tait, ‘Guardianship Dilemmas in the Care of the Aged’ [1991] SydLawRw 5; (1991) 13 Sydney Law Review 61; Terry Carney and David Tait, The Adult Guardianship Experiment: Tribunals and Popular Justice (1997); Terry Carney, ‘Abuse of Enduring Powers of Attorney — Lessons from the Australian Tribunal Experiment?’ (1999) 18 New Zealand Universities Law Review 481; Peter Bartlett, ‘The Consequences of Incapacity’ (1997) 4 Web Journal of Current Legal Issues <http://webjcli.ncl.ac.uk/1997/issue4/bartle4.html> at 16 October 2002; W Rossiter, ‘No Protection of the Elderly: The Inadequacy of the Capacity Doctrine in Avoiding Unfair Contracts Involving Seniors’ (1999) 78 Oregon Law Review 807.
[6] This has been particularly the case in the United States: Ann Penners Wrosch, ‘Undue Influence, Involuntary Servitude and Brainwashing: A More Consistent, Interests-Based Approach’ (1992) 25 Loyola of Los Angeles Law Review 499; Mary Joy Quinn, ‘Undue Influence: An Emotional Con Game’ (November–December 1998) Aging Today <http://www.asaging.org/at/at-196/
quinn.html> at 16 October 2002; Mary Joy Quinn, ‘Undoing Undue Influence’ (2000) 24(2) Generations 65; Lori Stiegel, ‘The Changing Role of the Courts in Elder-Abuse Cases’ (2000) 24(2) Generations 59; J Edward Spar, ‘Attorney’s Guide to Competency and Undue Influence’ (2000) 13(3) NAELA Quarterly 7. For an English perspective, see Jill Martin, ‘Elderly Relatives, Estoppel and Undue Influence’ (1994) 144 New Law Journal 264.
[7] Quinn, ‘Undoing Undue Influence’, above n 6, 65. Tilse et al, above n 3, 38, have pointed out that ‘[p]ractitioners reported considerable difficulty in negotiating complex family dynamics and raised issues of undue influence’.
[8] Testamentary undue influence has already been reviewed from the perspective of the elderly and there has been some important work re-examining the impact of testamentary undue influence in the context of elder parent and adult children relationships: see Lawrence Frolik, ‘The Biological Roots of the Undue Influence Doctrine: What’s Love Got to Do with It?’ (1996) 57 University of Pittsburgh Law Review 841; Lawrence Frolik, ‘The Strange Interplay of Testamentary Capacity and the Doctrine of Undue Influence: Are We Protecting Older Testators or Overriding Individual Preferences?’ (2001) 24 International Journal of Law and Psychiatry 253.
[9] In relation to Australia, see Spong v Spong [1914] HCA 52; (1914) 18 CLR 544; Watkins v Combes [1922] HCA 3; (1922) 30 CLR 180; Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113; Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VicRp 69; [1971] VR 573; Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42. In relation to the United Kingdom, see Williams v Bayley [1866] UKLawRpHL 11; (1866) LR 1 HL 200; Noriah v Bin Omar [1929] AC 127; Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8; [1975] 1 QB 326; Avon Finance Co Ltd v Bridger [1985] 2 All ER 281; Goldsworthy v Brickell [1987] 1 Ch 378; Re the Estate of Brocklehurst [1978] 1 Ch 14; Cheese v Thomas [1994] 1 All ER 35. In relation to New Zealand, see Brusewitz v Brown [1923] NZGazLawRp 219; [1923] NZLR 1106.
[10] There have been a few exceptions where aged adults have been touched upon: see, eg, Peter Birks and Chin Nyuk Yin, ‘On the Nature of Undue Influence’ in Jack Beatson and Daniel Friedman (eds), Good Faith and Fault in Contract Law (1995) 57, 91; Megan Richardson, ‘Protecting Women Who Provide Security for a Husband’s, Partner’s or Child’s Debts: The Value and Limits of an Economic Perspective’ (1996) 16 Legal Studies 368; Michael Trebilcock and Steven Elliott, ‘The Scope and Limits of Legal Paternalism: Altruism and Coercion in Family Financial Arrangements’ in Peter Benson (ed), The Theory of Contract Law: New Essays (2001) 45; G E Dal Pont and D R C Chalmers, Equity and Trusts in Australia and New Zealand (2nd ed, 2000) 201–2; Juliet Cummins, ‘Relationship Debt and the Aged: Welfare vs Commerce in the Law of Guarantees’ (2002) 27 Alternative Law Journal 63.
[11] In particular, unconscionable dealing has been pleaded by elders who have argued that due to their age they suffered a special disadvantage from which other persons have obtained a benefit. However, it cannot be assumed that courts have automatically decided that an older age was sufficient evidence of disadvantage, that the transaction was improvident or that the mere knowledge that a person was elderly was adequate for setting aside a contract or gift as unconscionable: see, eg, Commonwealth Bank of Australia v McGlynn [1995] ANZ ConvR 81; Younan v Beneficial Finance Corporation Ltd [1995] ANZ ConvR 213; Tarzia v National Australia Bank [1996] ANZ ConvR 380; Bruinsma v Menczer (Unreported, Supreme Court of NSW, Santow J, 16 November 1995); Bayne v Karaliamis [2001] ANZ ConvR 181.
[12] See, eg, Contracts Review Act 1980 (NSW) s 9; Credit Act 1984 (Vic) s 147(2).
[13] Although there is an overlap between undue influence inter vivos and unconscionable dealing in Australia, they are still separate doctrines which are based on different justifications: see, eg, Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457, 477–8 (Gaudron, Gummow and Kirby JJ). See also Michael Bryan, ‘Undue Influence’ (Seminar paper in Update on Amadio: When the Guarantee Is Not Enough, Leo Cussen Institute, 1997) 2.18.
[14] Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 134–6 (Dixon J). See also Spong v Spong [1914] HCA 52; (1914) 18 CLR 544; Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42; Whereat v Duff [1972] 2 NSWLR 147; aff’d (1973) 1 ALR 363; Goldsworthy v Brickell [1987] 1 Ch 378, 400 (Nourse LJ); Bank of Credit & Commerce International SA v Aboody [1990] 1 QB 923, 953 (Slade J); Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189–90 (Lord Browne-Wilkinson); Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, 1029–30 (Lord Nicholls), cf Lord Clyde (at 1050) who questioned the wisdom of classifying cases of undue influence; Jill Martin, Hanbury and Martin: Modern Equity (15th ed, 1997) 829–30; R P Meagher, W M C Gummow and J R F Lehane, Equity: Doctrines and Remedies (3rd ed, 1992) [1521]; M Cope, Duress, Undue Influence and Unconscientious Bargains (1985) [137]–[140]; Tony Duggan, ‘Undue Influence’ in Patrick Parkinson (ed), The Principles of Equity (1996) 379, [1101]; Dal Pont and Chalmers, above n 10, 186–90.
[15] [1936] HCA 41; (1936) 56 CLR 113.
[16] Ibid 134. In Bank of Credit & Commerce International SA v Aboody [1990] 1 QB 923, 967, Slade J set out the relevant elements as follows: ‘(a) the other party to the transaction (or someone who induced the transaction for his own benefit) had the capacity to influence the complainant; (b) the influence was exercised; (c) its exercise was undue; (d) its exercise brought about the transaction.’ See also Farmers’ Co-operative Executors & Trustees Ltd v Perks [1989] SASC 1932; (1989) 52 SASR 399, 404 (Duggan J); ASB Bank Ltd v Harlick [1996] 1 NZLR 655, 659 (Gault J); Carey v Norton [1997] NZCA 312; [1998] 1 NZLR 661, 673 (Keith and Williams JJ).
[18] Williams v Bayley [1866] UKLawRpHL 11; (1866) LR 1 HL 200; Sercombe v Sanders [1865] EngR 258; (1865) 34 Beav 382; 55 ER 682; Davies v London and Provincial Marine Insurance Co [1878] UKLawRpCh 92; (1878) 8 Ch D 469; Ormes v Beadel [1860] EngR 646; (1860) 2 Giff 166; 66 ER 70; Cope, above n 14, [139], [146]–[155]; Duggan, above n 14, [1109]; Dal Pont and Chalmers, above n 10, 189–90.
[19] Bank of Credit & Commerce International SA v Aboody [1990] 1 QB 923.
[20] Barton v Alexander [1976] AC 104, 118 (Lord Cross). See also Ford v Oldon [1867] UKLawRpEq 13; (1867) LR 3 Eq 461; Clegg v Wilson [1932] NSWStRp 6; (1932) 32 SR (NSW) 109; Public Service Employees Credit Union Co-operative Ltd v Campion (1984) 56 ACTR 39; Meagher, Gummow and Lehane, above n 14, [1214].
[21] Mutual Finance Ltd v John Wetton & Sons Ltd [1937] 2 KB 389, 394–5 (Porter J).
[22] L A Sheridan, Fraud in Equity: A Study in English and Irish Law (1957) 84–6.
[23] Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8; [1975] 1 QB 326. Lord Denning’s classification of actual undue influence appears to define it as both the strong gaining an advantage from the weak by some fraud and deliberate act and, alternatively, undue pressure.
[24] Bank of Credit & Commerce International SA v Aboody [1990] 1 QB 923.
[25] Matthew Conaglen, ‘Duress, Undue Influence and Unconscionable Bargains — The Theoretical Mesh’ (1999) 18 New Zealand Universities Law Review 509, 515: ‘The heart of the inquiry, and the justification for relief, is always the impropriety of the ascendant party’s conduct.’
[26] Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180 is representative of this attitude. Lord Browne-Wilkinson insisted that the general test for actual undue influence required that the claimant prove that ‘the wrongdoer exerted undue influence on the complainant to enter into the particular transaction which is impugned’: at 189. The definition did not specifically refer to the transaction being impugned because the plaintiff had not been able to exercise independent judgment, although in the case itself this was clearly an important consideration.
[27] Common law duress traditionally dealt with actual or threatened violence to the person, or their parent, spouse or child, which induced fear that paralysed the will so that, but for the threat, the plaintiff would have acted otherwise: see Meagher, Gummow and Lehane, above n 14, [1215], [1510]; Dal Pont and Chalmers, above n 10, 224–5; Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, 1029 (Lord Nicholls).
[29] Birks and Chin, above n 10, 63–7. See also I J Hardingham, ‘Unconscionable Dealing’ in
P D Finn (ed), Essays in Equity (1985) 1, 19–24.
[30] Birks and Chin, above n 10, 62.
[31] Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189 (Lord Browne-Wilkinson).
[32] Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 134–5 (Dixon J); Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189–90 (Lord Browne-Wilkinson); Whereat v Duff [1972] 2 NSWLR 147, 167 (Asprey J); Martin, above n 14, 829–30; Duggan, above n 14, [1101]; Cope, above n 14, [140], [161].
[33] Allcard v Skinner [1887] UKLawRpCh 151; (1887) 36 Ch D 145, 171 (Cotton LJ); Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8; [1975] 1 QB 326, 341–2 (Sachs LJ).
[34] Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 134 (Dixon J); Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189–90 (Lord Browne-Wilkinson); Meagher, Gummow and Lehane, above n 14, [1525]; Duggan, above n 14, [1117]; Cope, above n 14, [201].
[35] See Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30; Duggan, above n 14, [1118]; Cope, above n 14, [204]–[206].
[36] Meagher, Gummow and Lehane, above n 14, [1529]; Duggan, above n 14, [1119], [1121]; Cope, above n 14, [207]–[220]; Dal Pont and Chalmers, above n 10, 191–4.
[37] Linderstam v Barnett [1915] HCA 5; (1915) 19 CLR 528; Haskew v Equity Trustees Executors & Agency Co Ltd [1919] HCA 53; (1919) 27 CLR 231; Watkins v Combes [1922] HCA 3; (1922) 30 CLR 180, 195–6 (Isaacs J); Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VicRp 69; [1971] VR 573, 577–8 (Gillard J); Meagher, Gummow and Lehane, above n 14, [1528]; Dal Pont and Chalmers, above n 10, 191.
[38] Watkins v Combes [1922] HCA 3; (1922) 30 CLR 180, 194 (Isaacs J); Wright v Carter [1902] UKLawRpCh 180; [1903] 1 Ch 27, 50 (Vaughan Williams LJ); Harris v Jenkins [1922] HCA 54; (1922) 31 CLR 341, 367–8 (Starke J); National Westminster Bank plc v Morgan [1985] UKHL 2; [1985] AC 686, 704 (Lord Scarman); James v Australia & New Zealand Banking Group Ltd [1986] FCA 41; (1986) 64 ALR 347; Farmers’ Co-operative Executors & Trustees Ltd v Perks [1989] SASC 1932; (1989) 52 SASR 399; Budget Nominees Pty Ltd v Registrar of Titles [1988] V ConvR 54-311. In Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, 1032–3, Lord Nicholls re-emphasised the importance of manifest disadvantage as an element of undue influence inter vivos.
[39] See Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 135–6 where Dixon J stated that adequacy of consideration was not a factor in raising the presumption but may be important in determining whether sufficient evidence has been adduced to rebut the presumption. See also Meagher, Gummow and Lehane, above n 14, [1524]; P D Finn, Fiduciary Obligations (1977) [179]; Cope, above n 14, [197], [221]; Duggan, above n 14, [1116]. However, it will be suggested in below Part III(C)(2)(c) that this is not necessarily the case in undue influence litigation involving elders.
[40] Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189–90 (Lord Browne-Wilkinson); Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 134–6 (Dixon J); Meagher, Gummow and Lehane, above n 14, [1512]; Duggan, above n 14, [1111].
[41] See generally Meagher, Gummow and Lehane, above n 14, [1511]; Finn, above n 39, [176];
Dal Pont and Chalmers, above n 10, 187.
[42] See, eg, Hatch v Hatch [1804] EngR 105; (1804) 9 Ves Jr 292; 32 ER 615; Archer v Hudson [1844] EngR 759; (1844) 7 Beav 551; 49 ER 1180; Allfrey v Allfrey [1847] EngR 545; (1847) 10 Beav 353; 50 ER 618; Wright v Vanderplank (1855) 2
Kay & J 1; [1856] EngR 331; 69 ER 669; Bainbrigge v Browne [1881] UKLawRpCh 148; (1881) 18 Ch D 188; Kerr v West Australian Trustee Executor & Agency Co Ltd [1937] WALawRp 6; (1937) 39 WALR 34; Lamotte v Lamotte [1942] NSWStRp 11; (1942) 42 SR (NSW) 99; West v Public Trustee [1942] SAStRp 34; [1942] SASR 109; Phillips v Hutchinson [1946] VicLawRp 5; [1946] VLR 270; Cope, above n 14, [169]–[174].
[43] See, eg, Hatch v Hatch [1804] EngR 105; (1804) 9 Ves Jr 292; 32 ER 615; Taylor v Johnston [1882] UKLawRpCh 64; (1882) 19 Ch D 603; Cope, above n 14, [175].
[44] See, eg, Huguenin v Baseley (1807) 14 Ves Jr 273; 33 ER 526; Nottidge v Prince [1860] EngR 1048; (1860) 2 Giff 246; 66 ER 103; Allcard v Skinner [1887] UKLawRpCh 151; (1887) 36 Ch D 145; Morley v Loughnan [1893] UKLawRpCh 15; [1893] 1 Ch 736; Cope, above n 14, [176]–[178].
[45] See, eg, Gibson v Jeyes [1801] EngR 379; (1801) 6 Ves Jr 266; 31 ER 1044; Wood v Downes [1811] EngR 429; (1811) 18 Ves Jr 120; 34 ER 263; Rhodes v Bate [1866] UKLawRpCh 9; (1865) LR 1 Ch App 252; Wright v Carter [1902] UKLawRpCh 180; [1903] 1 Ch 27; Dowsett v Reid [1912] HCA 75; (1912) 15 CLR 695, 707 (Barton J); Haywood v Roadknight [1927] ArgusLawRp 41; [1927] VLR 512, 520 (Lowe J); Cope, above n 14, [179]–[180].
[46] See, eg, Dent v Bennett [1839] EngR 434; (1839) 4 My & Cr 269; 41 ER 105; Gibson v Russell (1842) 2 Y C Ch 104; [1843] EngR 353; 63 ER 46; Cope, above n 14, [186].
[47] Meagher, Gummow and Lehane, above n 14, [1521]; Cope, above n 14, [188].
[48] Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189–90 (Lord Browne-Wilkinson); Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 134–5 (Dixon J). Important decisions under this class of undue influence include: Spong v Spong [1914] HCA 52; (1914) 18 CLR 544; Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113; Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42; Bester v Perpetual Trustee Co Ltd [1970] 3 NSWLR 30; Union Fidelity Trustee Co of Australia Ltd v Gibson [1971] VicRp 69; [1971] VR 573; Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8; [1975] QB 326.
[49] Birks and Chin, above n 10.
[50] Ibid 67–74.
[51] For discussions of unconscionable dealing in Australia, see Tony Duggan, ‘Unconscientious Dealing’ in Patrick Parkinson (ed), The Principles of Equity (1996) 121; Dal Pont and Chalmers, above n 10, ch 9.
[52] [1983] HCA 14; (1983) 151 CLR 447.
[53] Ibid 474. In the same case, Mason J noted that undue influence responded to situations where there was no exercise of an independent and free will because the innocent party was overborne, whereas in unconscionable dealings the innocent party may act independently, but unconscientious advantage is taken of their position: at 461. Writing extra-curially some years later, Sir Anthony Mason again emphasised the difference between the doctrines and apparently approved the interpretation of Birks and Chin that undue influence is based on impairment of consent when he stated:
My understanding of undue influence ... is that it denotes an ascendancy by the stronger party over the weaker party such that the relevant transaction is not the free, voluntary and independent act of the weaker party. In other words, it is the actual or presumed impairment of the judgment of the weaker party that is the critical element in the grant of the relief on the ground of undue influence ... Unconscionable conduct as the term suggests, focuses more on the unconscientious conduct of the defendant.
Sir Anthony Mason, ‘The Impact of Equitable Doctrine on the Law of Contract’ (1998) 27 Anglo-American Law Review 1, 6–7 (citations omitted).
[54] [1998] HCA 66; (1998) 194 CLR 457, 478 (Gaudron, Gummow and Kirby JJ).
[55] Note in this regard the comments of Bryan, above n 13, 2.1, 2.18–2.19. Cf Hardingham, above n 29, 17–19.
[56] Birks and Chin, above n 10, 58–9, 61–2.
[57] For example, in Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189, Lord Browne-Wilkinson stated that
the complainant only has to show ... that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused the relationship in procuring the complainant to enter into the impugned transaction.
The importance of this statement is that relational undue influence rests on a presumption of wrongdoing rather than the impaired consent of the plaintiff. Indeed, there is no mention of the important fact that the transaction is impugned because it is assumed that the plaintiff has been unable to act freely and voluntarily. In several subsequent cases, courts have confirmed the significance of wrongdoing and highlighted the improper and exploitative nature of transactions (Credit Lyonnais Bank Nederland NV v Burch [1996] EWCA Civ 1292; [1997] 1 All ER 144) and, in the case of third parties, ‘constructive notice of some alleged impropriety’ (Banco Exterior Internacional SA v Thomas [1997] 1 All ER 46, 55 (Scott V-C)). In Royal Bank of Scotland plc v Etridge [No 2] [1998] 4 All ER 705, 712, the Court of Appeal stated that undue influence was not limited to relationships of trust and confidence, but also extended to protecting ‘the vulnerable from exploitation’ in relationships of ‘ascendancy and dependency’.
[58] Rick Bigwood, ‘Undue Influence: “Impaired Consent” or “Wicked Exploitation”?’ (1996) 16 Oxford Journal of Legal Studies 503. See also Conaglen, above n 25, 518–19.
[59] Bigwood, above n 58, 512, has commented:
The real complaint in any given instance of relational undue influence is twofold: first, that the fiduciary-like expectation held by or ascribed to the dependent party has been breached; and second, that on account of such a breach, the transaction entered into lacked the quality of ‘independence’ on the part of the beneficiary — that independence being considered the hallmark of genuine personal consent — which has been eroded by the fiduciary’s influence.
[60] [2001] UKHL 44; [2001] 3 WLR 1021.
[61] Lord Nicholls focused on an inclusive definition when he stated (ibid 1030):
The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.
Lord Hobhouse (at 1055) criticised the description of a party accused of Class 2(B) undue influence as a ‘wrongdoer’: ‘It describes the other party as a “wrongdoer” without saying why when it is expressly postulated that no wrongdoing may have occurred.’ (Class 2(B) undue influence has referred to situations where the plaintiff establishes, as a matter of fact, that there is a relationship of trust and confidence upon which a presumption of undue influence may be based: see Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 189–90.) Lord Scott stated that ‘[t]he transaction will not be “wrongful” unless it was procured by undue influence. Its “wrongful” character is a conclusion, not a tool by which to detect the presence of undue influence’: Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, 1075.
[62] For a discussion of the lack of a special legal status for the elderly, see L Bonfield, ‘Was There a “Third Age” in the Preindustrial English Past? Some Evidence from the Law’ in John Eekelaar and David Pearl (eds), An Aging World: Dilemmas and Challenges for Law and Social Policy (1989) 37; Linda Whitton, ‘Ageism: Paternalism and Prejudice’ (1997) 46 DePaul Law Review 453, 458–9.
[63] Lewis v Pead [1789] EngR 2420; (1789) 1 Ves Jr 19; 30 ER 210. See also Grahn v Litwin (1911) 4 Sask LR 270, 279 where Wetmore CJ held that a transaction will not be set aside on the basis that the transferor was advanced in years. However, there have been several cases in relation to raising a presumption of undue influence where age was considered as part of all the circumstances of the case: Cooke v Lamotte [1851] EngR 905; (1851) 15 Beav 234; 51 ER 527; Elgie v Campbell (1865) 12 Gr 132; Symons v Williams (1875) 1 VLR 199, 215 (Barry J).
[64] Yerkey v Jones [1939] HCA 3; (1940) 63 CLR 649, 675 (Dixon J). Cope, above n 14, [185]; Sheridan, above n 22, 96; Meagher, Gummow and Lehane, above n 14, [1517]. For a modern expostulation of this approach see Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, 1034 (Lord Nicholls).
[65] Frolik, ‘The Biological Roots of the Undue Influence Doctrine’, above n 8; Frolik, ‘Testamentary Capacity and the Doctrine of Undue Influence’, above n 8, 261. A striking example of the assumption of parental beneficence being elevated to the status of a legal rule has been the presumption of advancement. Where a person pays the price for the purchase of property it is assumed that the person intended to obtain the beneficial interest in that property. Accordingly, a resulting trust operates in favour of the person unless the recipient of the property is a spouse or the child of the donor, where a rebuttable presumption of advancement arises: see R P Meagher and W M C Gummow, Jacobs’ Law of Trusts in Australia (6th ed, 1997) [1212]; H A J Ford and W A Lee (eds), Principles of the Law of Trusts (3rd ed, 1996) [21 170]. It has been held that the advancement in favour of a child may be made by a mother as well as a father (Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538, 601 (McHugh J)) and may include an adult child: Nelson v Nelson (1994) 33 NSWLR 740. However, the usefulness of the presumptions of resulting trust and of advancement in modern society has also been questioned: Nelson v Nelson [1995] HCA 25; (1995) 184 CLR 538, 602 (McHugh J).
[66] [1852] EngR 446; (1852) 15 Beav 278; 51 ER 545.
[67] Ibid 288; 549.
[68] In extreme cases of undue influence, elderly persons or their representative were able to set aside improvident contracts (Filmer v Gott [1774] EngR 40; (1774) 4 Bro Parl Cas 230; 2 ER 156), gifts (Bridgeman v Green (1755) Wilmot 58; [1757] EngR 92; 97 ER 22; Taylor v Obee (1816) 3 Price 83; 146 ER 198; Griffiths v Robins [1818] EngR 331; (1818) 3 Madd 191; 56 ER 480; Cooke v Lamotte [1851] EngR 905; (1851) 15 Beav 234; 51 ER 527; Symons v Williams (1875) 1 VLR 199) and securities (Williams v Bayley [1866] UKLawRpHL 11; (1866) LR 1 HL 200).
[70] See, eg, Archer v Hudson [1844] EngR 759; (1844) 7 Beav 551, 559; [1844] EngR 759; 49 ER 1180, 1183 (Lord Langdale); Savery v King [1856] EngR 534; (1856) 5 HL Cas 627, 654; [1856] EngR 534; 10 ER 1046, 1058; Chambers v Crabbe [1865] EngR 261; (1865) 34 Beav 457; 55 ER 712; Sheridan, above n 22, 93–4 fn 7.
[71] For a helpful explanation, see Yerkey v Jones [1939] HCA 3; (1940) 63 CLR 649, 675 (Dixon J); Finn, above n 39, [176]; Cope, above n 14, [168].
[72] Sheridan, above n 22, 94.
[73] Federov v Yakimov (Unreported, Supreme Court of NSW, Needham J, 5 December 199l); Michaletos v Stivactas [1992] ANZ ConvR 90; Stivactas v Michaletos [No 2] [1993] Aust Contract Reports 90-031; Nattrass v Nattrass [1999] WASC 77 (Unreported, Commissioner Buss, 25 June 1999).
[74] See, eg, Australian Guarantee Corporation v McClelland [1993] ASC 56-230; Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994); Jacobs v Shugg (Unreported, Supreme Court of Victoria, O’Bryan J, 24 May 1996); IOOF Australia Trustees Ltd v Oxenham [1997] SADC 3740 (Unreported, Judge Allan, 19 December 1997); Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1; Wilby v St George Bank Ltd [2001] SASC 138 (Unreported, Lander J, 2 May 2001); (2001) 80 SASR 404; Couper Holdings Pty Ltd (in liq) v Bell [1999] WASC 232 (Unreported, Owen J, 24 November 1999).
[75] Ryan v Tooth (Unreported, Supreme Court of NSW, Bryson J, 24 September 1993); Urane v Whipper [2001] NSWSC 796; [2002] NSW ConvR 55-992; Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001).
[76] Chapman v Trajan [1987] ANZ ConvR 264; Briggs v Scott (1990) 14 Fam LR 31; Scott v Briggs (1991) 14 Fam LR 661; Le Boursicot v Coulthard [1997] Aust Contract Reports 90-082.
[77] For example the long saga of the Archer litigation: Archer v Archer [1999] NSWCA 24 (Unreported, Priestley, Meagher and Powell JJA, 23 February 1999); Archer v Archer [1999] NSWCA 286 (Unreported, Mason P, 20 July 1999); Archer v Archer [No 2] [1999] NSWSC 500 (Unreported, Windeyer J, 27 May 1999); Archer v Archer [2000] NSWCA 314 (Unreported, Handley, Beazley and Fitzgerald JJA, 7 November 2000); Archer v Archer [No 2] [2000] NSWCA 315 (Unreported, Windeyer J, 9 November 2000).
[78] Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001) [26]. His Honour did acknowledge (at [26]) that ‘[e]xperience also teaches us to be astute to children or relatives who are opportunistic or vulture-like.’
[79] See, eg, Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994) [14]; Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001).
[80] (Unreported, Supreme Court of NSW, Bryson J, 24 September 1993).
[81] Ibid [45]. See also Tessmann v Costello [1987] 1 Qd R 283, 293, where Williams J pointed out in the context of a claim based on both undue influence and unconscionable dealing that
the fact that parents are motivated to guarantee a son’s financial transactions by high hopes of the latter’s business expectations does not mean that a bargain so entered into is ‘unconscionable’. All too frequently the aspirations of parents are not fulfilled by the achievements of their children. The familial bond will frequently lead parents into transactions involving obligations which they would not ordinarily undertake. Not surprisingly the law does not put such transactions into any special category; contracts so entered into are binding on the parents unless the facts of a particular case call into play the principles discussed ...
[82] See above Part II(A)(2).
[83] See, eg, Quek v Beggs (1990) 5 BPR 11 761, 11 764 (McLelland J); Stivactas v Michaletos [No 2] [1993] Aust Contract Reports 90-031, 89 662 (Kirby P), 89 676 (Sheller JA); Smith v Smith (Unreported, Supreme Court of NSW, Bryson J, 12 July 1996) 25–6; Mollross v Post (Unreported, Supreme Court of Tasmania, Zeeman J, 23 December 1992) 18–19; Baburin v Baburin [1990] 2 Qd R 101, 109 (Kelly SPJ); Nattrass v Nattrass [1999] WASC 77 (Unreported, Commissioner Buss, 25 June 1999) [99]. In contrast, in Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1, 52 Olsson J suggested obiter that parent and adult child relationships fell within the automatic presumption of undue influence. In Couper Holdings Pty Ltd (in liq) v Bell [1999] WASC 232 (Unreported, Owen J, 24 November 1999) Owen J noted that although a special relationship will often be presumed where the parties are parent and child, it is less likely when both parties are adults: at [114].
[84] See below Part IV(B).
[85] See generally Cummins, Guaranteeing Someone Else’s Debts, above n 1, 6–7.
[86] See, eg, Lawrence Whalley, The Aging Brain (2001) ch 4, who considers the issue of the slowing of mental speed, particularly after the age of 70, which can affect memory and language; Ian Stuart-Hamilton, ‘Intellectual Changes in Late Life’ in Robert Woods (ed), Handbook of the Clinical Psychology of Ageing (1996) 23.
[87] Dementia and Alzheimer’s disease are strongly associated with mental impairment and the ageing of the brain: see, eg, Whalley, above n 86, ch 8; Robert Woods, ‘Mental Health Problems in Late Life’ in Robert Woods (ed), Handbook of the Clinical Psychology of Ageing (1996) 197.
[88] Australia & New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 (Unreported, McLure J, 9 November 2001).
[89] See, eg, Adenan v Buise [1984] WAR 61.
[90] See, eg, Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001).
[91] See, eg, Nattrass v Nattrass [1999] WASC 77 (Unreported, Commissioner Buss, 25 June 1999); Australia & New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 (Unreported, McLure J, 9 November 2001).
[92] See, eg, Tessmann v Costello [1987] 1 Qd R 283; Mollross v Post (Unreported, Supreme Court of Tasmania, Zeeman J, 23 December 1992).
[93] There are several cases in which undue influence has been raised where courts appeared to be satisfied that the elder had exercised a free and independent will, notwithstanding proof of these conditions: Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001); Australia & New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 (Unreported, McLure J, 9 November 2001); Tessmann v Costello [1987] 1 Qd R 283; Mollross v Post (Unreported, Supreme Court of Tasmania, Zeeman J, 23 December 1992). In relation to the tension between individual autonomy and the protection of vulnerable persons, see Cummins, Guaranteeing Someone Else’s Debts, above n 1, 7–9.
[94] See above Part II(A)(1).
[96] Ibid 46–7 (Kelly J).
[97] See, eg, Heming v Heming [2000] NSWSC 250 (Unreported, Hodgson CJ, 16 March 2000); Baburin v Baburin [1990] 2 Qd R 101; Baburin v Baburin [No 2] [1991] 2 Qd R 240; Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1.
[98] Couper Holdings Pty Ltd (in liq) v Bell [1999] WASC 232 (Unreported, Owen J, 24 November 1999).
[99] [1999] SASC 265; (1999) 75 SASR 1.
[100] Ibid 135 (Debelle and Wicks JJ; Olsson J dissenting).
[101] Archer v Archer [2000] NSWCA 314 (Unreported, Handley, Beazley and Fitzgerald JJA, 7 November 2000); Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1.
[102] Urane v Whipper [2001] NSWSC 796; [2002] NSW ConvR 55-992.
[103] Ibid [16] (Windeyer J). For a discussion of the kinds of problems which inherently arise in relation to family agreements, see Rosslyn Monro, ‘Family Agreements: All with the Best of Intentions’ (2002) 27 Alternative Law Journal 68; Brian Herd, ‘The Family Agreement: Legal Good Sense or Social Bad Taste for the Aged?’ (2002) 27 Alternative Law Journal 72.
[104] Urane v Whipper [2001] NSWSC 796; [2002] NSW ConvR 55-992, [24] (Windeyer J).
[105] Ibid.
[106] However, Windeyer J found that the bargain between the parties was an unconscionable dealing because the plaintiff, in a state of weakness, had little choice: ibid [27].
[107] For a discussion of the general principle that a court will not enforce a guarantee where the financier entrusts a debtor to obtain execution of the guarantee, see below Part III(C)(2)(b).
[108] [1990] 1 QB 923 (‘Aboody’).
[109] [1999] SASC 265; (1999) 75 SASR 1, 51.
[110] [1999] WASC 232 (Unreported, Owen J, 24 November 1999).
[111] Ibid [120]. See also the decision in IOOF Australia Trustees Ltd v Oxenham [1997] SADC 3740 (Unreported, Judge Allan, 19 December 1997).
[113] Ibid 693–4 (Blanchard J).
[114] CIBC Mortgages plc v Pitt [1993] UKHL 7; [1994] 1 AC 200, 207–9 (Lord Browne-Wilkinson).
[115] Meagher, Gummow and Lehane, above n 14, [1524]; Duggan, above n 14, [1110]. Cope, above n 14, [146]–[158] does not state that this is a requirement.
[116] See, eg, Urane v Whipper [2001] NSWSC 796; [2002] NSW ConvR 55-992; Archer v Archer [2000] NSWCA 314 (Unreported, Handley, Beazley and Fitzgerald JJA, 7 November 2000); IOOF Australia Trustees Ltd v Oxenham [1997] SADC 3740 (Unreported, Judge Allan, 19 December 1997); Wil-
by v St George Bank Ltd [2001] SASC 138 (Unreported, Lander J, 2 May 2001); Wil-
by v St George Bank (2001) 80 SASR 404.
[117] [1999] WASC 232 (Unreported, Owen J, 24 November 1999).
[118] Ibid [119].
[119] See, eg, Burke v State Bank of New South Wales (1994) 37 NSWLR 53, 77 (Santow J); ASB Bank Ltd v Harlick [1996] 1 NZLR 655, 662 (Gault J); Wilby v St George Bank (2001) 80 SASR 404, 414 (Full Court of the Supreme Court of South Australia affirming the view of the trial judge, Lander J).
[120] [1936] HCA 41; (1936) 56 CLR 113, 134.
[121] For example, in Briggs v Scott (1990) 14 Fam LR 31, Bryson J held that a widow aged 59 who had suffered brain damage and consequent short-term memory loss was dependent on her de facto partner. In Le Boursicot v Coulthard [1997] Aust Contract Reports 90-082, an elderly man suffered significant mental impairment and was unable to care for himself. He was befriended by a young woman upon whom he became reliant. In Grineff v Chusov [1999] NSWSC 652 (Unreported, Davies AJ, 16 June 1999), an elderly woman suffered from severe dementia and was reliant upon her deceased brother’s wife.
[122] (Unreported, Supreme Court of NSW, Needham J, 5 December 199l).
[123] Ibid 2.
[124] [1993] Aust Contract Reports 90-031.
[125] Ibid 89 662 (Kirby P), 89 667–8 (Mahoney JA), 89 677–8 (Sheller JA). A similar level of dependency arose in Nattrass v Nattrass [1999] WASC 77 (Unreported, Commissioner Buss, 25 June 1999) [134], where the Court held that the elder, who was suffering dementia, was significantly dependent on her daughter-in-law for ordinary day-to-day personal and domestic needs and for the management of her financial affairs.
[127] Ibid 662.
[128] Australian Guarantee Corporation v McClelland [1993] ASC 56-230; Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994); Ryan v Tooth (Unreported, Supreme Court of NSW, Bryson J, 24 September 1993).
[129] (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994).
[130] [2001] VSC 116 (Unreported, Cummins J, 23 April 2001).
[131] Ibid [7], [15]. In relation to indirect benefits to the elder, see also Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1.
[132] Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001) [34]. Consistent with this decision, courts have held that refinancing arrangements under which an earlier mortgage or guarantee to a financial institution supporting an adult child is released and replaced by another mortgage or guarantee in favour of another financial institution are advantageous to an elder, particularly when the transaction postpones possible action against the elder’s property: see, eg, Australian Guarantee Corporation Ltd v McClelland [1993] ASC 56-230; Jacobs v Shugg (Unreported, Supreme Court of Victoria, O’Bryan J, 24 May 1996).
[133] (Unreported, Supreme Court of Tasmania, Zeeman J, 23 December 1992).
[134] This appears to have been a problem in several cases concerning elders seeking to have transactions set aside: see Cummins, Guaranteeing Someone Else’s Debts, above n 1, 5.
[135] The cases concerning elders appear to contemplate that not only actual notice of the undue influence perpetrated, but also constructive notice, will be sufficient: Australian Guarantee Corporation Ltd v McClelland [1993] ASC 56-230; Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994). Cf Jacobs v Shugg (Unreported, Supreme Court of Victoria, O’Bryan J, 24 May 1996) 17–19 where O’Bryan J appears to apply the actual knowledge standard only, although he refers to constructive notice. According to Duggan, above n 14, [1120], the decision in Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180 indicated that constructive as well as actual notice by a third party would generally be sufficient to set aside guarantees for undue influence. Although the use of the term ‘constructive notice’ has been criticised by the House of Lords in Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, 1036 (Lord Nicholls), 1057 (Lord Hobhouse), 1072 (Lord Scott), it remains clear that third parties will be bound by notice of undue influence when the circumstances of the relationship of the debtor and guarantor put them on inquiry.
[136] See, eg, Australian Guarantee Corporation Ltd v McClelland [1993] ASC 56-230; Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994); Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1; Wilby v St George Bank (2001) 80 SASR 404.
[137] See, eg, Jacobs v Shugg (Unreported, Supreme Court of Victoria, O’Bryan J, 24 May 1996).
[138] Australian Guarantee Corporation Ltd v McClelland [1993] ASC 56-230.
[139] Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994).
[140] See above Part III(C)(2)(a).
[141] Harlick v ASB Bank Ltd (Unreported, High Court of New Zealand, Robertson J, 1 February 1995) 4–5.
[142] Ibid 7.
[143] Ibid 8.
[144] Ibid 8–10.
[146] In this case, the debtor is in effect considered to act as the financier’s agent for the purpose of obtaining the execution and delivery of the guarantee: see, eg, the earlier decisions in Avon Finance Co Ltd v Bridger [1985] 2 All ER 281; Challenge Bank Ltd v Pandya [1993] SASC 3803; (1993) 60 SASR 330.
[147] Burke v State Bank of New South Wales (1994) 37 NSWLR 53, 60.
[148] Ibid 77.
[149] Ibid.
[150] See also Couper Holdings Pty Ltd (in liq) v Bell [1999] WASC 232 (Unreported, Owen J, 24 November 1999).
[152] Ibid 171–2 (Richardson J), 175–6 (Gault J), 183 (McKay J). In Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1, a majority of the Full Court of the Supreme Court of South Australia acknowledged the general principle that a court will not enforce a guarantee where a creditor entrusts procurement of the execution of the guarantee to a debtor able to influence the guarantor: at 133–4 (Debelle and Wicks JJ). However, the majority indicated that it was not an absolute principle and the facts of the case before it did not support its application. The fact that a person directly interested in having the guarantee executed had simply collected the documents and delivered them to the potential guarantor was insufficient to impute the alleged undue influence to the third party. In Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001) [19], the Court found that the son was provided with the documentation for execution by the mother. The Court held that the mother fully understood what she was executing and that the son presented himself as an honest and reliable witness. Therefore, the fact that the son explained the documents to the mother and procured the execution of them was not a basis upon which the guarantees could be set aside.
[153] [1985] UKHL 2; [1985] AC 686.
[154] Ibid 704. See also Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, 1032–3 (Lord Nicholls).
[155] See, eg, the facts of National Westminster Bank plc v Morgan [1985] UKHL 2; [1985] AC 686.
[156] Meagher, Gummow and Lehane, above n 14, [1524]; Duggan, above n 14, [1116].
[157] Meagher, Gummow and Lehane, above n 14, [1524]; Duggan, above n 14, [1116]; Dal Pont and Chalmers, above n 10, 195–7.
[158] [1990] 2 Qd R 101, 109.
[159] See also Duggan, above n 14, [1116]. Therefore, in Baburin v Baburin, the adequacy or inadequacy of consideration paid for shares did not determine whether or not a presumption arose in favour of the elder. Rather, the issue was whether the will of the plaintiff had been overborne: [1990] 2 Qd R 101, 110.
[160] See Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113, 135–6 (Dixon J). See also McKeering v Rattle (Unreported, Supreme Court of Queensland, White J, 5 May 1995) 24.
[161] See, eg, Burke v State Bank of New South Wales (1994) 37 NSWLR 53; Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994); Wilby v St George Bank Ltd [2001] SASC 138 (Unreported, Lander J, 2 May 2001); Wilby v St George Bank (2001) 80 SASR 404.
[162] Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994).
[163] Burke v State Bank of New South Wales (1994) 37 NSWLR 53.
[164] See, eg, Australian Guarantee Corporation Ltd v McClelland [1993] ASC 56-230; Jacobs v Shugg (Unreported, Supreme Court of Victoria, O’Bryan J, 24 May 1996).
[165] [2001] VSC 116 (Unreported, Cummins J, 23 April 2001).
[166] (Unreported, Supreme Court of Tasmania, Zeeman J, 23 December 1992).
[167] Ibid 20.
[168] Ryan v Tooth (Unreported, Supreme Court of NSW, Bryson J, 24 September 1993) 5, 49; Le Boursicot v Coulthard [1997] Aust Contract Reports 90-082, 90 608, in which the Court of Appeal of the Supreme Court of NSW upheld the approach of McLelland CJ at first instance in Coulthard v Le Boursicot (Unreported, Supreme Court of NSW, McLelland CJ, 18 October 1996).
[169] Nattrass v Nattrass [1999] WASC 77 (Unreported, Commissioner Buss, 25 June 1999).
[170] (1990) 5 BPR 11 761.
[171] Ibid 11 764.
[172] [1999] WASC 77 (Unreported, Commissioner Buss, 25 June 1999).
[173] Ibid [100].
[174] Ibid [109].
[175] Ibid [112].
[176] See, eg, Spong v Spong [1914] HCA 52; (1914) 18 CLR 544, 550 (Isaacs J); Bank of Victoria Ltd v Mueller [1925] VLR 642, 648–50 (Cussen J).
[177] Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180, 193 (Lord Browne-Wilkinson).
[179] Cope, above n 14, [196]–[197]. In Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, Lord Nicholls also appeared to overlap manifest disadvantage and the concept of substantial benefit. Under the heading ‘Manifest disadvantage’ he referred to a second requirement that the ‘transaction is not readily explicable by the relationship of the parties’: at 1032. This would be the case where a gift or an undervalued sale was so large that it would not be explicable by the relationship and would constitute a disadvantage to the vulnerable person.
[180] See above Part II(A)(1).
[181] Birks and Chin, above n 10, 67–74.
[182] (Unreported, Supreme Court of NSW, Needham J, 5 December 199l).
[183] [1993] Aust Contract Reports 90-031.
[184] It is questionable whether the parties who received the gifts in these cases could have been accused of taking advantage of the old age of the women donors. Therefore it is debatable whether the doctrine of unconscionable dealing would have been available to set aside the gifts.
[185] [1997] NZCA 312; [1998] 1 NZLR 661.
[186] Ibid 670 (Keith and Williams JJ) quoting the trial judge, Elias J. The case has been cited as support for plaintiff-sided conduct: Dal Pont and Chalmers, above n 10, 185.
[187] See above Part III(C)(2)(b).
[188] See above Part II(A)(2).
[189] Cope, above n 14, [168].
[190] Ibid [185].
[191] Yerkey v Jones [1939] HCA 3; (1940) 63 CLR 649, 671 (Dixon J). For a full description of the invalidating tendency see: at 675–6 (Dixon J).
[192] [1998] HCA 48; (1998) 194 CLR 395 (‘Garcia’).
[193] Ibid 408–9 (Gaudron, McHugh, Gummow and Hayne JJ), 440–3 (Callinan J). Kirby J also held that the guarantee could be set aside, but was critical of the Yerkey v Jones principle and did not apply it: at 421–9.
[194] There have been a few cases where courts have taken the view that elders should be treated in the same way as wives. In Salerno v Saunders (1993) 173 LSJS 362, Judge Burley considered that parents guaranteeing a son’s debts ought, like wives, to be able to argue that they were entitled to the protection of independent advice as there was the likelihood of influence and reliance on the son: at 365–6. In Alderton v Prudential Assurance Co Ltd [1993] FCA 127; (1993) 41 FCR 435, Heerey J suggested that parents may be a protected class when they are elderly and poorly educated compared with their adult child: at 448.
[196] As Cummins, Guaranteeing Someone Else’s Debts, above n 1, 25 points out in relation to Garcia: ‘It is at once an over-inclusive and under-inclusive category, as it includes partners who have no special vulnerability and excludes other emotional relationships which do involve special vulnerability.’
[197] [1999] SASC 265; (1999) 75 SASR 1.
[198] Ibid 135 (Debelle and Wicks JJ).
[199] Cited in ibid 38 (Olsson J). See also Cummins, Guaranteeing Someone Else’s Debts, above n 1, 12.
[200] In this regard, recent developments in the United Kingdom appear to have surpassed Garcia. In Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021, the House of Lords set out a framework that banks and financial institutions must follow in order for guarantees to be enforceable against wives providing security for a husband’s debts. However, the Court made it clear that a bank would be put on inquiry whenever a person offers to act as surety for debts of another where the relationship of those parties was ‘non-commercial’: at 1048 (Lord Nicholls). It is likely that the relationship between an adult child and his or her elderly parent would come within this category. For considerations of this case, see Dominic O’Sullivan, ‘Developing O’Brien’ (2002) 118 Law Quarterly Review 337; Mika Oldham, ‘If at First ... Undue Influence and the House of Lords’ (2002) 61 Cambridge Law Journal 29.
[201] Duggan, above n 14, [1119].
[202] See, eg, Stivactas v Michaletos [No 2] [1993] Aust Contract Reports 90-031.
[203] See, eg, Australian Guarantee Corporation v McClelland [1993] ASC 56-230; Sinclair v Galluzzo (Unreported, Supreme Court of NSW, Spender AJ, 9 November 1994); Urane v Whipper [2001] NSWSC 796; [2002] NSW ConvR 55-992; Mitchell v 700 Young Street Pty Ltd [2001] VSC 116 (Unreported, Cummins J, 23 April 2001). See also Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 where there was no imputation of actual undue influence to a bank and the guarantor had not obtained independent advice, relying on the advice of the family solicitor instead.
[204] [2001] NSWSC 796; [2002] NSW ConvR 55-992.
[205] [2001] VSC 116 (Unreported, Cummins J, 23 April 2001).
[206] See, eg, Burke v State Bank of New South Wales (1994) 37 NSWLR 53; ASB Bank Ltd v Harlick [1996] 1 NZLR 655.
[207] See, eg, Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457; Urane v Whipper [2001] NSWSC 796; [2002] NSW ConvR 55-992.
[208] See, eg, Australian Guarantee Corporation v McClelland [1993] ASC 56-230; Mollross v Post (Unreported, Supreme Court of Tasmania, Zeeman J, 23 December 1992); Wilby v St George Bank (2001) SASR 404.
[209] See the comments of Kirby P in Stivactas v Michaletos [No 2] [1993] Aust Contract Reports 90-031, 89 661–2.
[210] Garcia [1998] HCA 48; (1998) 194 CLR 395, 404 (Gaudron, McHugh, Gummow and Hayne JJ).
[212] Trebilcock and Elliott, above n 10.
[213] See the decisions of the House of Lords concerning the giving of guarantees by wives in Barclays Bank plc v O’Brien [1993] UKHL 6; [1994] 1 AC 180; Royal Bank of Scotland plc v Etridge [No 2] [2001] UKHL 44; [2001] 3 WLR 1021.
[214] Trebilcock and Elliott, above n 10, 82.
[215] Ibid 79–81. See also Cummins, Guaranteeing Someone Else’s Debts, above n 1, 23, who suggests a ‘cooling-off period’ after an elder has signed a personal guarantee.
[216] See, eg, Cummins, Guaranteeing Someone Else’s Debts, above n 1, 29–33; Cummins, ‘Relationship Debt and the Aged’, above n 10, 66–7.
[217] This approach has been taken by overseas jurisdictions setting up ‘homestead legislation’: see Cummins, Guaranteeing Someone Else’s Debts, above n 1, 31.
[218] 33 ME REV STAT ANN (West) § 1022(1) (2001). A ‘major transfer of personal property’ is defined under § 1021(5) as ‘a transfer of money or items of personal property which represent 10% or more of the elderly dependent person’s estate.’
[219] Under 33 ME REV STAT ANN (West) § 1021(4) (2001) ‘less than full consideration’ means that ‘the transferee pays less than fair market value for the property or the transfer is supported by past consideration.’
[220] 33 ME REV STAT ANN (West) § 1023(2) (2001).
[221] 33 ME REV STAT ANN (West) §§ 1021(3), 1022(1) (2001).
[222] 33 ME REV STAT ANN (West) § 1021(2) (2001).
[223] 33 ME REV STAT ANN (West) § 1022(2) (2001).
[224] 33 ME REV STAT ANN (West) § 1021(1) (2001). The legislation also sets out the causes of dependency. An elderly person will be dependent when he or she is dependent for care and support because he or she:
[225] Under 33 ME REV STAT ANN (West) § 1022(1) (2001), the presumption arises where there is a transfer ‘by an elderly person who is dependent on others to a person with whom the elderly dependent person has a confidential or fiduciary relationship’.
[226] [2001] NSWSC 796; [2002] NSW ConvR 55-992.
[227] (Unreported, Supreme Court of Tasmania, Zeeman J, 23 December 1992).
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