LAWS5980 Equity and Trusts - Lecture 7 - Examining Intention I 8.2.2024.pdf

Between Autonomy and Unconscionability: Examining Intention I LAWS5980 Equity & Trusts | 8 February 2024 Common law values Security of property Freedom of contract Includes freedom to make a bad bargain No need to bargain in good faith Pursuit of commercial self-interest generally accepted Common la...

Between Autonomy and Unconscionability: Examining Intention I LAWS5980 Equity & Trusts | 8 February 2024 Common law values Security of property Freedom of contract Includes freedom to make a bad bargain No need to bargain in good faith Pursuit of commercial self-interest generally accepted Common law maxims: caveat emptor pacta sunt servanda Sir Anthony Mason (Chief Justice of High Court of Australia 1987-1995) ‘Three things are to be helpt in Conscience; Fraud, accident, and things of confidence.’ - Sir Thomas More Sir Thomas More (Lord Chancellor 1529-1532) Political rationalities of justice Market-individualism Paternalistic Free market and freedom of contract - Consent (contract) as central principle - Need to protect property Limits to free market and freedom of contract: - Inequitable conduct - Need to protect vulnerable Formalist/procedural approach to justice based on application of rules Substantive approach to justice, looking at particulars of the case Limited role for judiciary More active role for judiciary Formal equality – equal treatment Substantive equality – special treatment Rescission at Common Law Restitutio in integrum (complete restoration of pre-contractual position) (eg Clarke v Dickson (1858)) Limited grounds for rescission: Fraudulent misrepresentation: Derry v Peek (1889) Duress Rescission in Equity Rescission itself more flexible Put back in original position as far as substantively possible Court can impose terms Wider grounds for rescission: Innocent misrepresentation: Redgrave v Hurd (1881) Undue influence Unconscionable bargain Equitable fraud – ‘infinite’ ‘Fraud (in equity) is infinite, and were a court of equity once to lay down rules, how far they would go, and no further, in extending their relief against it, or to define strictly the species or evidences of it, the jurisdiction would be cramped, and perpetually eluded by new schemes which the fertility of man’s invention would contrive.’ - Lord Hardwicke LC in Earl of Chesterfield v Janssen (1750) Lord Hardwicke (1737-1756) Equitable fraud – obligation on conscience ‘When fraud is referred to in the wider sense in which the books are full of the expression, used in Chancery in describing cases which were within its exclusive jurisdiction, it is a mistake to suppose that an actual intention to cheat must be proved. … What it really means is, not moral fraud in the ordinary sense, but breach of the sort of obligation which is enforced by a court which from the beginning regarded itself as a court of conscience.’ - Lord Haldane LC in Nocton v Lord Ashburton (1914) Lord Haldane (1912-1915, 1924) The categories of fraud ‘This court has an undoubted jurisdiction to relieve against every species of fraud.’ - Earl of Chesterfield v Janssen (1750): 1. 2. 3. 4. 5. Actual fraud Inequitable and unconscientious bargains Presumed fraud from the nature and circumstances of the parties contracting Fraud on third parties Catching bargains Our focus: Undue influence Unconscionable bargain Undue influence ‘The question is … how the intention was produced.’ – Lord Eldon in Huguenin v Baseley (1807) Two ways of understanding undue influence: Regulating production of consent/intention Regulation relationships of influence, ie power-relationships Two ways of proving of undue influence: 1. Actual undue influence 2. Presumed undue influence Actual undue influence - requirements A question of fact that must be proved Defendant must have capacity to influence Influence must have been exercised Must be ‘undue’ in the sense that it results in the other party not freely exercising their own will – traditionally wider than common law duress Must result in the claimant entering the transaction Actual undue influence – 3 examples Williams v Bayley (1866) Nottidge v Prince (1860): ‘These statements, from the Defendant’s own mouth, prove the case of a gift obtained by imposing a belief upon the mind of a weak woman that he sustained supernatural character. This successful imposture was the influencing motive for the gift, and therefore vitiates it entirely.’ Thorne v Kennedy (2017) – Australian High Court (majority) Henry James Prince (1811-1899) en.wikipedia.org/wiki/Agapemonites en.wikipedia.org/wiki/Louisa_Nottidge Lawful act duress and the influence of Equity ‘[T]he courts have developed the common law doctrine of duress to include lawful act economic duress by drawing on the rules of equity in relation to undue influence and treating as “illegitimate” conduct which, when the law of duress was less developed, had been identified by equity as giving rise to an agreement which it was unconscionable for the party who had conducted himself or herself in that way to seek to enforce.’ - Lord Hodge in Times Travel (2021) at para ; see in particular paras - Presumed undue influence: rationale based on public policy Protection of certain relationships from abuse where will or consent might be overborne Concern with those in potentially vulnerable position who could be dependant on stronger party Particularly where there is a reposing of trust and confidence But no need for any other particular disadvantage, such as incapacity Presumed undue influence: an overview A way of proving undue influence If: trust and confidence placed in defendant, and transaction that calls for an explanation, then Equity shifts the burden to defendant to show consent freely given. Two categories of ‘trust and confidence’ Status-based – irrebuttable presumption of influence (trust and confidence being reposed): Trustee and beneficiary Parent and child (eg Bainbrigge v Browne (1888)) Guardian and ward Spiritual advisers (eg Huguenin v Baseley (1807), Nottidge v Prince (1860), Allcard v Skinner (1887)) Legal and medical advisers Fact-based – need to prove trust and confidence on the facts: Married couples (eg National Westminster v Morgan (1985), Royal Bank of Scotland v Etridge (No 2) (2001), Hewett v First Plus Financial Group (2010)) Fiance-ficancee (eg Thorne v Kennedy (2017) (Aust.)) Cohabitants Bank manager and client (eg Lloyd’s Bank v Bundy (1975)) Employer and employee (eg Credit Lyonnais (1997)) Allcard v Skinner (1887) Distinguished actual and presumed undue influence Presumed undue influence based on public policy of preventing victimisation; it is not about preventing ‘folly’ Rebutting the presumption: independent advice and removing donor from influence of the donee Lloyds Bank v Bundy (1975) Majority: Mr Bundy reposed trust and confidence in bank manager Bank manager owed a ‘fiduciary duty of care’ towards the client Lord Denning MR (minority): General rule: guarantor is bound by contract and common law will not intervene Various categories of exception to the general rule A new unified principle of inequality of bargaining power? Lloyds Bank v Bundy (1975) – inequality of bargaining power (Denning’s ‘lead balloon’) ‘English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance of infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.’ Lord Denning MR (Master of the Rolls between 1962-1982) National Westminster v Morgan (1985) Bank managers not usually in a position of trust and confidence No general principle of ‘inequality of bargaining power’ Need for a meticulous examination of the facts ‘There is no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence. This is the world of doctrine, not of neat and tidy rules. … A court in the exercise of this equitable jurisdiction is a court of conscience. Definition is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends upon the particular facts of the case.’ Lord Scarman (Lord of Appeal in Ordinary 1977-1986) Etridge (No 2) (2002) Important statement of principles clarifying law for benefit of banks and mortgage markets Public policy: from victimisation to the market? Status-based relationships of trust and confidence not extended to husband-wife Recognising equality? ‘The Court of Chancery was not blind to the opportunities of obtaining and unfairly using influence over a wife which a husband often possesses. But there is nothing unusual or strange in a wife, from motives of affection or for other reasons, conferring substantial financial benefits on her husband.’ (Lord Nicholls (emphasis added)) Only one category of undue influence, but two ways of proving it Wrongdoing (defendant) or consent (claimant) based? What about the ‘public policy’ aspect? Lord Nicholls (Lord of Appeal in Ordinary 1994-2007)