These two doctrines (sometimes referred to as the doctrines of equitable fraud, Hall 2006) are designed to achieve fairness in transactions by providing remedies to overcome the effect of an unfair transaction (Davis 2008, p.50). The distinction between the doctrines was discussed by Deane J in Commercial Bank v Amadio (1983) 151 CLR 447 at 474. They do not require intent to be shown although sometimes undue influence may be exercised intentionally.
It is quite difficult to make out a case of undue influence or unconscionable conduct in Australia for the assets for care arrangements covered by this guide (Burns 2002, 2003).
The doctrine of undue influence refers to a situation where the weaker party is influenced into entering into an agreement. Undue influence can be ‘actual’ or ‘presumed’. Actual undue influence may arise as a result of physical coercion which prevents the exercise of independent judgment. Certain relationships also create a presumption of undue influence. However, a relationship between an older person and their adult child does not result in an automatic presumption of undue influence.
For undue influence, what needs to be shown is 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 older person; and
- the transaction was manifestly disadvantageous to the older person’ (Burns 2002, p. 517).
When identifying whether a case of undue influence could be made out, you should look at things like:
- intelligence, education, character of the older person,
- age, state of health of the older person,
- the older person’s previous experience in business and finances, such as selling a house before and whether they manage their business affairs,
- strength of character and personality of the younger person,
- period of closeness of parties and their relationship,
- vulnerability of the older person in relation to the younger family member,
- opportunity of the younger person to influence the older person,
- whether the older person received independent legal advice.
If the presumption is raised, what needs to be shown by the other party is that the transaction was a result of the donor’s independent and informed judgment. If your client initially obtained independent legal advice about the nature and effect of the transaction, then the presumption can usually be rebutted. (This underlines the importance of fully and properly advising your client at the outset – see Professional duties.)
- Is it the action of the perpetrator or the experience of the plaintiff that counts?
It is the experience of the plaintiff that counts. Consequently, the focus is on the common situation of older people in relationships with family members where dependence exists (situations of trust), rather than just situations of clearly abusive behaviour such as threats and coercion. (Such behaviour in itself could amount to common law duress.) The attention is on the circumstances of the transaction and the alleged perpetrator is required to establish consent, such as by providing evidence that the older person received independent legal advice (see also Burns 2002b on cases concerning trust and dependence).
- Did the plaintiff consent? Did they have the ability to consent?
That is, what was the integrity of the plaintiff’s consent? (See Hall 2006, citing Birks & Chin 1995).
Although a parent/child relationship is not in itself sufficient basis to presume a transaction between them is tainted by undue influence (Kaye J in Christodoulou v Christodoulou & Anor  VSC 583), the fact that a daughter acts towards her mother out of respect and affection does not change the conclusion that a daughter may unduly influence her parent (Barrett J in Winefield v Clarke  NSWSC 882 at para 43).
See the case study under Undue influence and unconscionability in Professional duties.
This doctrine can help prevent benefit being gained through deliberate exploitation of a power imbalance or ‘special disadvantage’. Its focus is on the conduct of the more powerful party. If applied successfully, a transaction can be set aside as unconscionable (Hall 2006).
Case law determines that an older person’s emotional dependence can be a ‘special disadvantage’. (See Louth v Diprose (1992) 175 CLR 621; Bridgewater v Leahy (1998) 194 CLR 457.) For example, the older person and an adult family member meet on unequal terms and the adult family member takes advantage of their position to obtain a benefit through an improvident transaction (Bridgewater v Leahy at para 123).
Some examples of special disadvantage include ‘poverty or need of any kind, sickness, age, sex, infirmity of body, mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary’ (Blomley v Ryan (1956) 99 CLR 362 at para 9).
A son persuades his elderly mother with a range of disabilities to buy property and transfer it to him
Magda was 90 years old, partly deaf, poorly educated, with limited experience in practical affairs, and limited ability to read and write English. She was accustomed to rely on her son Vlad for financial affairs. She bought a property from her own funds with the belief, created by Vlad, that she had to transfer a one half interest in the property to herself and the other half to Vlad. Magda claims that no explanation of the effect of the documents had been given to her, she was unable to read them and she did not receive independent legal advice (see Sleboda v Sleboda  NSWCA 122 (3 June 2008)).