topic two fraud in equity unconscionable transactions
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TOPIC TWOFRAUD IN EQUITY
UNCONSCIONABLE TRANSACTIONS
Topics:
• Estoppel, Ch 10• Undue influence, Ch 7• Fraud and Mistake, Ch 8• Unconscionable Dealing, Ch 9
• These topics will be covered in lectures weeks 2 and 3.
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INTRODUCTION
• Fraud in Equity ≠ Unfairness• Fraud in Equity is more precise
and only operates via discrete doctrines
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UNCONSCIONABILITY
• Unconscionability has become a buzz word but it is confusing
• It is confusing because unconscionability has two meanings– 1. broad meaning, as a big, unifying concept, and – 2. narrow meaning, as a small, discrete doctrine
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DISCRETE DOCTRINES
• Undue Influence• Unconscionable (catching)
Bargains• Misrepresentation• Estoppel• Mistake• Fraud In Equity
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ESTOPPEL
• You have seen this doctrine mostly in contracts but it isn’t limited to contracts
• Estoppel protects a party from the detriment which would flow from that party’s change of position if the assumption or expectation that led to it were to be ignored
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Estoppel (cont’d)
• There are many different forms of estoppel• There is Common Law and equitable estoppel• We are only looking at equitable estoppel
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Estoppel (cont’d)
• Traditionally, there were two sorts of equitable estoppel :– Promissory estoppel, and– Proprietary estoppel.
• However, the division no longer seems very important
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Estoppel (cont’d)
• Elements of Equitable Estoppel– Representation,– Reliance, must be reasonable so it is a likely that
commercial parties won’t be using estoppel very much, and
– detriment , there must be a causal link between the representation and the detriment
• Remedy-After satisfying the elements then the question of the remedy
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Estoppel (cont’d)
• Cases on Estoppel• Legione v Hateley (1983 HC)– Secretary said “I think that’ll be all right, but I’ll
have to get instructions”– HC held this did not amount to estoppel
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Estoppel (cont’d)
• Waltons Stores v Maher (1988 HC)– Waltons intended to lease premises– Advanced negotiations with the Mahers, who had
land with a building on it– Walton’s solicitor made a representation– Mahers demolished existing building and started
building the store for Waltons– Waltons said there was no contract and refused to
go into possession
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Estoppel (cont’d)
• Waltons (cont’d)• HC held that Waltons were estopped but
different reasoning used
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Estoppel (cont’d)
• Verwayen (1990 HC)– V was a sailor on a ship in RAN that was involved
in bad accident– V sued the Commonwealth– The C said it would not argue Statute of
Limitations and combat defence– V went ahead with suing the Commonwealth – Cth then changed its policy re liability– V argued that it couldn’t
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Estoppel (cont’d)
• Verwayen (cont’d)• By 4 to 3 the HC held that the C couldn’t
change its mind• However, even the four in the majority were
split– Two judges on waiver,– Two on estoppel
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Estoppel (cont’d)
• Giumelli v Giumelli (1999 HC)• Parents made oral promises relating to their
land to Robert• Later his parents gave R a choice, the land or
his new wife • R argued this was an invalid choice, as the
land was already his.
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Estoppel (cont’d)
• Giumelli cont’d• The full court of the WASC agreed with R, the
promises created an estoppel and that was remedied in this case by a CT
• The HC agreed that there was an estoppel but differed with the court below over the remedy
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Estoppel (cont’d)
• Giumelli (cont’d)• The appeal to the HC was about the remedy
for the estoppel• the HC held that the Court could award a CT
but first decide whether there is an appropriate equitable remedy that falls short of the imposition of a trust
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Estoppel (cont’d)
• Giumelli cont’d• The HC held that CT was not the appropriate
remedy, which was (in this case) an equitable lien
• Crt stressed the importance of detriment• Remedy may not involve making good teh
assumption
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UNDUE INFLUENCE
• U/I → transaction being set aside• Barclays Bank divided U/I into– Actual U/I (class 1),– Presumed U/I (class 2) from either• Certain Relationships (class 2 A)• Proved on the facts (class 2 B)
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Certain Relationships
• Parent/Child,• Spiritual advisor/ follower,• Client/ solicitor,• Doctor/ patient, • fiancé/ fiancée (but not husband/ wife)
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Husband/wife and U/I
• No presumption of U/I but ...• Dixon J in Yerkey v Jones• “The special equity theory”• So it protecting married women• In England, Yerkey has been rejected• In England, after Barclays protection revolves
around notice
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Husband/wife and U/I (con’t)• But in Australia, the English position has not
been accepted, so it is not based on notice• What is the Australian approach today?• For a while it was believed that Yerkey was
subsumed into broad unconscionability principle coming from Amadio
• But the HC in Garcia rejected this
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Husband/wife and U/I (Garcia)
• Trial judge applied Yerkey• NSW CA applied a broad principle of
unconscionability and applied Amadio• The HC applied Yerkey and it held that Amadio
did not apply and that it did not make actionable some form of broad unconscionability
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Husband/wife and U/I (Garcia cont’d)
• The HC also held in Garcia that the protection in Yerkey is based upon trust and confidence
• Further the HC also held that notice by the third party (usually a bank) is not needed under Yerkey for the transaction to be set aside but is needed under Amadio and Barclay
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Class 2B Undue Influence
• Where not one of the certain relationships have to show it on the facts
• Johnson v Buttress (1936 HC)
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Independent Legal Advice
• Independent Legal Advice is very important to show that person not acting under undue influence
• But it can be very hard to satisfy• Bester v Perpetual Trustee (1970 NSWSC)
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Basis of U/I
• The basis is not settled• According to Dixon in Johnson v Buttress the
doctrine based on ascendancy• But according to Mason in Amadio the
doctrine is activated when the will of the innocent party is not independent and free
• But according to Deane in Amadio the doctrine looks to the quality of the consent
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