Every marriage or de facto relationship usually involves a level of mutual trust, confidence and influence. However, when does that normal situation become undue influence or enable one party to unconscionably take advantage of the other? These questions were considered by the Family Court in two cases dealing with pre-nuptial style agreements – Saintclaire & Saintclaire and Zagar & Hellner.
Actual undue influence
There are several categories of undue influence which, if proven, would enable the aggrieved party to get out of a contract he or she had entered into, whether that was a Financial Agreement under the Family Law Act, a Domestic Relationship Agreement under the (now superseded) Property (Relationships) Act or a commercial contract.
The first of these categories is actual undue influence, which is proven by the aggrieved party showing, when the agreement was being negotiated and signed, the other party exerted such pressure, influence or control over the aggrieved person that he or she was not exercising his/ her free will. It is not enough that, when making the agreement, the aggrieved person faced only unpalatable choices.
In neither Saintclaire nor Zagar & Hellner did the Court find that there had been actual undue influence.
Presumed undue influence
The second category of undue influence is presumed undue influence, of which there are two sub-categories – a “recognised relationship” and a “special relationship of influence”.
The law recognises certain relationships, such as between a solicitor and client, as being ones of presumed undue influence, because unequal knowledge and bargaining power are presumed to be inherent in such relationships. Given this presumption, an aggrieved party to a contract involving such a recognised relationship need not prove actual undue influence. Rather, the other party must demonstrate that, notwithstanding the recognised relationship, no undue influence, in fact, occurred.
The Appeal Court in Saintclaire confirmed that the relationship between a married or de facto couple is not a “recognised relationship”. That is, a marriage or de facto relationship is not, by virtue of its nature alone, a relationship of undue influence.
The Saintclaire Appeal Court also considered whether a “special relationship of influence” existed in that case. The Court found that the normal trust, confidence and influence which exists in a marriage or marriage-like relationship would not ordinarily establish a special relationship of influence, such that an agreement between the parties would have been tainted by undue influence.
Rather, to demonstrate that there was a special relationship of influence, the aggrieved party must show that it was a feature of the parties’ relationship that the other party exercised such dominance over the aggrieved person as to override that person’s free will, making him or her routinely beholden or obliged to the other party. A special relationship of influence was not found in either Zagar & Hellner or Saintclaire.
In negotiating a contract, pressure is often exerted or felt by one party and/ or the parties’ bargaining power might be unequal. Entering into a loan agreement with a bank, for example, would often involve the borrower being under pressure, with the bank having greater bargaining power. Pressure and inequality of bargaining power do not necessarily mean, however, that the more powerful party used unconscionable conduct to coerce the other party to make the agreement. If that were the case, banks would find it almost impossible to enforce loan agreements!
In order to demonstrate that one person used unconscionable conduct to force the other person to sign an agreement, say a Financial Agreement under the Family Law Act, the aggrieved party must show that he or she was at a “special disadvantage” because his or her ability to protect his/ her own interests was seriously compromised as a result of illness, ignorance, inexperience, mental impairment, financial need or some other reason. The aggrieved person must also demonstrate that the other person knew of the special disadvantage and, in negotiating and entering into the agreement, unconscionably took advantage of it for that person’s benefit.
Unconscionable conduct – Saintclaire & Saintclaire
In Saintclaire the wife argued that she was in a position of special disadvantage because she had suffered post-natal depression, the husband had been violent and she was in considerable debt. She claimed that the parties’ Financial Agreement should, therefore, be set aside.
The Appeal Court found that the husband’s conduct surrounding negotiations for the Agreement had not been unconscionable. The wife’s post-natal depression had resolved 11 months earlier; the husband’s violence consisted of two disputed incidents some 11 and five months prior to the Agreement and were, in any event, not related to discussions about it; and, despite having significant credit card debts, the wife was an experienced, well-paid financial planner, capable of managing her financial difficulties.
Unconscionable conduct – Zagar & Hellner
There were different facts, and therefore a different outcome, in Zagar & Hellner. That case involved a Domestic Relationship Agreement under the (now superseded) Property (Relationships) Act. When the Agreement was negotiated and signed, the de facto wife had not long given birth to the parties’ daughter, she was no longer working and had no income, and, in any event, her previous employment had been at the de facto husband’s business. Further, she had recently moved into the husband’s home and had nowhere else to live, with only $3,000 in the bank and debts of $5,000. To make matters worse, knowing all of those things, the husband threatened to kick her and her ten day old baby out of his home if she didn’t sign the Agreement.
The Court found that those circumstances put the de facto wife in a position of “special disadvantage” vis-a-vis the husband, and that the husband engaged in unconscionable conduct by taking advantage of that special disadvantage to coerce his de facto wife into signing the Agreement. In order to save the Agreement, it was then up to the husband to prove that the Agreement was nevertheless fair, just and reasonable. He couldn’t do so, as the Agreement was found to be unfair to the wife, and it was set aside.
We all, naturally, place trust and confidence in, and have influence over, our intimate partners. However, such normal trust and confidence does not mean that a marriage or de facto relationship is necessarily a relationship of undue influence. Similarly, just because someone is under pressure or in an inferior bargaining position does not necessarily mean that an agreement he or she entered into will be set aside because of unconscionable conduct. However, as the case of Zagar & Hellner shows, circumstances could arise in a marriage or marriage-like relationship which would justify setting aside a Financial Agreement on the basis of unconscionable conduct.
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