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66 UNSW Law Journal^ Volume 26(1)
THE EQUITABLE DOCTRINE OF UNDUE INFLUENCE
CONSIDERED IN THE CONTEXT OF SPIRITUAL INFLUENCE
AND RELIGIOUS FAITH: ALLCARD v SKINNER REVISITED IN
AUSTRALIA
PAULINE RIDGE *
I INTRODUCTION
The equitable doctrine of undue influence allows for the rescission of a gift or contract arising out of a relationship of influence between the transacting parties. 1 The doctrine applies in two ways. The first application is through ‘actual undue influence’ where it must be proved that one party unconscionably used their position of significant influence in the relationship to secure the transaction.^2 Actual undue influence is analogous to duress at common law although it allows more flexibility as to the type of conduct that will justify relief. The alternative application of the doctrine of undue influence is through ‘presumed undue influence’. 3 Here, the court presumes that the transaction resulted from the unconscionable exertion of influence if two factors are satisfied. The first is whether there is a sufficiently strong relationship of
- BA/LLB (Hons) (Australian National University); BCL (Oxford); Lecturer in Law, Australian National University. I thank my colleague, Dr Joachim Dietrich, and the two anonymous reviewers for their constructive comments on earlier drafts. 1 The probate doctrine of undue influence has different requirements and is not discussed in this article. See generally Matthew Tyson, ‘An Analysis of the Differences between the Doctrine of Undue Influence with Respect to Testamentary and Inter Vivos Dispositions’ (1997) 5 Australian Property Law Journal 38. 2 ‘[T]here has been some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating, and generally, though not always, some personal advantage obtained by a donee placed in some close and confidential relation to the donor’: Allcard v Skinner (1887) 36 ChD 145, 181. Actual undue influence does not depend upon a pre-existing relationship: Johnson v Buttress (1936) 56 CLR 113, 134. 3 The House of Lords in Royal Bank of Scotland Plc v Etridge (No 2) (2002) 2 AC 773 (‘ Etridge ’) sought to assimilate the two limbs of undue influence into one doctrine more closely resembling actual undue influence. Their Lordships did this by emphasising that the presumption of undue influence was merely a ‘forensic tool’ by which a finding of actual undue influence could be made despite the lack of direct evidence: 797. Further, some members of the House of Lords cast doubt on the utility of the second category of presumed undue influence by which a relationship of influence to which the presumption applies is proved on the facts: 822, 842–3. A critical evaluation of the judgments in Etridge is outside the scope of this article, however, it is hoped that this aspect of the case is not followed in Australia. See Roderick Meagher, Dyson Heydon and Mark Leeming, Equity: Doctrines and Remedies (4 th^ ed, 2002) [15-105].
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influence between the transacting parties on the facts or, alternatively, whether the parties’ relationship belongs to a class to which the presumption applies automatically for reasons of public policy. The second is that, given the relationship in question, the transaction would not normally be expected because of its value or other factors. The relationship coupled with the transaction activates the presumption of undue influence. 4 For the transaction to stand, the presumption that undue influence was exercised must be rebutted by the stronger party. This can be achieved by demonstrating that the stronger party ‘took no advantage of the donor, but that the gift was the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee’. 5 Producing evidence that the person subject to the influence received independent advice before entering into the transaction is the most common way to rebut the presumption, although not essential in all cases. Judges are reluctant to describe too precisely the type of relationship that will attract the presumption, 6 however, it has been characterised as a type of fiduciary relationship because one party reposes trust and confidence in the other such that the other ‘may exercise ascendancy or dominion over the will or mind of the donor’.^7 A duty arises on the part of the stronger party not to abuse that trust and confidence. 8 Only those relationships in which it is not normal to expect contracts or sizeable gifts are affected by the automatic presumption of undue influence.^9 The doctrine of undue influence is not as straightforward as this brief description implies and indeed the description is given with some trepidation.^10 There is debate concerning both its operation and underlying rationale. This article will consider questions raised by the doctrine’s application to relationships of spiritual influence and to gifts motivated by religious beliefs. 11 This article will seek to clarify the doctrine’s operation in this specific context, and address broader questions about the doctrine’s operation and rationale. The discussion
4 In Australia, see, eg, Watkins v Combes (1922) 30 CLR 180, 193–4; Yerkey v Jones (1939) 63 CLR 649,
- In England, see, eg, Allcard v Skinner (1887) 36 ChD 145, 185 recently affirmed in Royal Bank of Scotland Plc v Etridge (No 2) (2002) 2 AC 773, 798–800. See also Meagher, Heydon and Leeming, above n 3, [15-030]; Rick Bigwood, ‘Undue Influence in the House of Lords: Principles and Proof’ (2002) 65(3) Modern Law Review 435, 445. For the view that it is the relationship alone that activates the presumption, see Paul Desmond Finn, Fiduciary Obligations (1977) [179] and Barclays Bank Plc v O’Brien (1994) 1 AC 180, 189–90. 5 Johnson v Buttress (1936) 56 CLR 113, 135; Union Fidelity Trustee Co of Aust Ltd v Gibson [1971] VR 573, 575. 6 See National Westminster Bank Plc v Morgan [1985] AC 686, 709. 7 Union Fidelity Trustee Co of Aust Ltd v Gibson [1971] VR 573, 575. See also Johnson v Buttress (1936)
56 CLR 113, 135.
8 Johnson v Buttress (1936) 56 CLR 113, 135; Union Fidelity Trustee Co of Aust Ltd v Gibson [1971] VR 573, 575. Some commentators query the fiduciary analysis and I will discuss this further below. 9 Yerkey v Jones (1939) 63 CLR 649, 675. 10 ‘Few areas of law have struggled so unsuccessfully for satisfactory doctrinal exposition and analysis as the equitable jurisdiction to relieve against undue influence in the procurement of an inter vivos transaction’: Bigwood, ‘Undue Influence in the House of Lords: Principles and Proof’, above n 4, 435. 11 Although in principle the doctrine applies to contracts as well as gifts, the case law primarily concerns gifts. Cf Tufton v Sperni (1952) 2 TLR 516. The issue of ‘manifest disadvantage’ arising in relation to contracts will not be addressed.
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What is the authority of a guardian, or even parental authority, what are the means of influence by severity or indulgence in such a relation, compared with the power of religious impressions under the ascendancy of a spiritual adviser; with such an engine to work upon the passions; to excite superstitious fears or pious hopes; to inspire, as the object may be best promoted, despair or confidence; to alarm the conscience by the horrors of eternal misery, or support the drooping spirits by unfolding the prospect of eternal happiness: that good or evil, which is never to end? What are all other means to these? Are inferior considerations to have so much effect; and is no regard to be given to the most powerful motive, that can actuate the human mind? 16 Modern authorities also acknowledge the power of spiritual influence upon a person of religious faith. After quoting with approval the statement above, McClelland J in the 20 th^ century case of Quek v Beggs^17 commented:
To such considerations as these might be added the ease and subtlety by which suggestions may be conveyed to, encouraged in, and absorbed by, those vulnerable to them as to what is the will of God in relation to their actions in particular matters. 18 Allcard v Skinner is a leading case on the doctrine of undue influence. It also illustrates the doctrine’s application to a relationship of spiritual influence. 19 Miss Allcard greatly admired the preaching and work of the Reverend Mr Nihill. Although a Church of England clergyman, he was considered unorthodox by that institution. He became Miss Allcard’s spiritual director and confessor and she joined the ‘The Sisters of the Poor’, a Sisterhood set up by Mr Nihill and Miss Skinner to do charitable work in London. Miss Allcard transferred all her assets to Miss Skinner, the Lady Superior of the Sisterhood, in pursuance of the rule of poverty adhered to by members of the Sisterhood. Most of these assets were spent in charitable works; neither Miss Skinner nor Mr Nihill received any personal benefit. Miss Allcard participated in this expenditure. Subsequently, Miss Allcard renounced her vows and left the Sisterhood to become a Roman Catholic. Some time later Miss Allcard brought an action for rescission of her gifts. She was unsuccessful, but only because of her delay in bringing the action. A majority of the Court of Appeal (Lindley and Bowen LJJ) held that she would have been allowed to recover at least some of her property, had it not been for her delay in instituting proceedings. In dissent, Cotton LJ, would have allowed her claim in part. There was no finding of actual undue influence in Allcard v Skinner. All members of the Court were adamant that Miss Skinner and Mr Nihill had behaved with complete propriety:
16 Huguenin v Baseley (1807) 14 Ves Jr 273, 288; 33 ER 526, 532 (Sir Samuel Romilly, during argument). 17 (1990) 5 BPR [97405] 11,761. 18 Ibid 11,766. 19 See generally Michael Nash, ‘Undue Influence in Contract’ (1988) 85 Law Society’s Gazette 29. Nash points out that the case is important for three reasons: it was decided shortly after the fusion of the courts of law and equity by a bench of eminent lawyers; it illustrates the development of the doctrine of undue influence during the 19 th^ century; and ‘it brought to a head the controversies over the direction the Church of England was taking, and whether ritualism and the monastic life could have any part in the established church’.
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The result of the evidence convinces me that no pressure, except the inevitable pressure of the vows and rules, was brought to bear on the Plaintiff; that no deception was practised upon her; that no unfair advantage was taken of her; that none of her money was obtained or applied for any purpose other than the legitimate objects of the sisterhood. Not a farthing of it was either obtained or applied for the private advantage of the lady superior or Mr Nihill … 20 Despite this, a presumption of undue influence arose because the relationship between Miss Allcard and Miss Skinner was one of complete spiritual submission and obedience in which Miss Allcard could not ‘freely exercise her own will’. 21 The presumption could not be rebutted because when joining the Sisterhood Miss Allcard had promised not to seek the advice of outsiders without Miss Skinner’s consent. The lack of independent advice was fatal even though it was highly unlikely that Miss Allcard would have followed any advice that counselled her against the gift. At first instance, Kekewich J acknowledged that ‘she would have put from her the advice received as a temptation of the evil one’.^22 Spiritual beliefs and practices continue to be important in contemporary Australia. The range of religions practiced in Australia has grown and undue influence cases involving relationships of spiritual influence and transactions motivated by religious faith continue to be heard. In Australia there have been five such cases since 1986, the majority at the Supreme Court level. The two most recent cases were decided in 2001 and 2002.^23 Some involved deliberate and extreme exploitation for personal gain of trust and confidence reposed in a spiritual adviser. Luffram v Australian and New Zealand Banking Group Ltd^24 (‘ Luffram ’) is one example. 25 In Luffram , a religious leader, described as ‘a person who in the name of religion preys on the sensibilities of those who are gullible and uses the beliefs of those weaker than himself for his own self advancement’, persuaded one of his followers to provide security for his debts to a bank. 26 It appears that the basis of the decision was actual undue influence with notice by the defendant bank.
20 Allcard v Skinner (1887) 36 ChD 145, 179. 21 Ibid 172. One of the rules of the Sisterhood was: ‘when thou are reproved, remember that the voice of thy Superior [Miss Skinner] is the voice of God. Listen on thy knees in perfect silence and defend not thyself’: at 147. 22 Ibid 159. 23 There do not appear to be Australian cases prior to 1986. Conversely, in England, the last successful reported decision was Tufton v Sperni [1952] 2 TLR 516. Cf Nel v Kean [2003] EWHC 190 (Unreported, Simon J, 14 February 2003). This case was not decided on the basis of a relationship of spiritual influence although the relationship did have spiritual aspects. There have been actions in which spiritual influence was alleged but these were decided on procedural points without consideration of the substantive issues. See, eg, Roche v Sherrington [1982] 1 WLR 599; Catt v Church of Scientology Religious Education College Inc [2001] CP Rep 41. In Scotland, see Anderson v The Beacon Fellowship [1992] SLT 111. 24 (1986) ASC ¶55-483. 25 See also Illuzzi v Christian Outreach Centre (1997) Q ConvR ¶54-490. This case concerned whether a church could be vicariously liable for the undue influence of one of its ‘salvation counsellors’ who persuaded a member of his bible study group to provide a guarantee for his bank loan. 26 (1986) ASC ¶55-483, 56,602.
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The motivations for the gift were Mrs Hartigan’s desire to assist the religious community that she wished to live in, her husband’s encouragement to make the gift, and a belief based on her understanding of the Hare Krishna scriptures that divestiture of material possessions would assist her spiritual growth. In allowing rescission, Bryson J stressed the extreme improvidence of the gift and the lack of independent advice. He accepted the extensive evidence on Hare Krishna scriptures, provided as part of the defendant’s arguments, and found that according to those teachings, Mrs Hartigan was not expected to give away her property. 31 Although there had been no relationship of influence prior to the gift, the negotiations between the Hartigans and two representatives of the local ISKCON community had led Mrs Hartigan to repose trust and confidence in the two representatives, thereby raising the presumption of undue influence. Justice Bryson held that they should have been alerted to Mrs Hartigan’s unorthodox understanding of the Krishna Consciousness teaching and corrected her. He also held that the two ISKCON representatives should have arranged for independent advice. 32 Thus, in Australia, the case law on spiritual influence falls into both categories of undue influence. It also includes cases that could be argued on either ground. It is also worth noting that the person vulnerable to influence in each Australian case was a woman and that all the actions were successful, although I will not discuss these aspects further. 33 There is, however, no decision in Australia like Allcard v Skinner. That case stands alone because of the shared altruistic motives of donor and donee and the total absence of any personal benefit.
III QUESTIONS RAISED BY THE CASE LAW ON UNDUE
INFLUENCE IN THE RELIGIOUS FAITH CONTEXT
Despite its status as a leading decision on the doctrine of undue influence, Allcard v Skinner raises some questions when it is viewed in the context of transactions motivated by religious faith. Similar questions and others arise from the Australian case law in this area. Some of these questions, while especially significant in this particular context, also relate to the operation of undue influence in general. The first questions are conceptual and concern the rationale for the doctrine of undue influence. What is the conceptual basis for recovery in cases such as Allcard v Skinner and Hartigan, and can the same conceptual basis be used to explain cases of actual undue influence? These questions reflect an existing and
31 This was because she had young children: Hartigan [2002] NSWSC 810 (Unreported, Bryson J, 6 September 2002) [36], [94]. 32 Hartigan [2002] NSWSC 810 (Unreported, Bryson J, 6 September 2002) [93]. 33 For cases involving male plaintiffs see Morley v Loughnan (1893) 1 Ch 763; Tufton v Sperni [1952] 2 TLR 516; Roche v Sherrington [1982] 1 WLR 599.
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vigorous debate about the nature of undue influence.^34 Then there are questions that relate to the operation of the undue influence doctrine. For example, what is the function of independent advice given that, as noted above, most of the donors would have been confirmed in their intentions by such advice rather than following it? Further, should a donee’s lack of personal benefit be taken into account when assessing the remedy for undue influence? In Allcard v Skinner Miss Skinner spent the proceeds of Miss Allcard’s gifts on charitable work with the latter’s approval. How was this relevant, if at all? The answers have implications for religious groups who spend the proceeds of gifts tainted by a finding of presumed undue influence. Another doctrinal question raised specifically by Hartigan is whether there must be a relationship of spiritual influence before equitable intervention is warranted. Are there other, more appropriate, equitable doctrines? Also relevant in the specific context of spiritually motivated gifts is the significance of the improvidence of a disputed transaction in assessing the likely success of an action. The courts in Allcard v Skinner , Quek v Beggs and Hartigan all stressed the magnitude of the disputed gifts. One might think that the answers to these questions are present in the answer to the first, conceptual, question. However, as I will demonstrate below, the prominence of the conceptual debate does not greatly assist in resolving the particular questions about the operation of undue influence. There are two further questions that relate solely to the specific context of religious faith. The first is related to the question above concerning the improvidence of transactions. In Allcard v Skinner Lindley LJ stated that ‘if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift.’ 35 This threshold test for undue influence has been regularly applied in subsequent cases, however, the question remains: can it accommodate gifts motivated by religious faith? For example, did the fact that Mr Nihill was not part of the mainstream Church of England have any relevance to the decision in Allcard v Skinner? And does the threshold ‘ordinary motives’ test contain a bias against large gifts to minority religious groups? Finally, are any policies relevant to the religious faith context apparent in the case law? The remainder of the article will discuss these questions. I will rely primarily upon Allcard v Skinner and the Australian cases noted above, particularly Quek v Beggs and Hartigan , with some reference to other decisions in the United Kingdom and North America. The questions are addressed in order from the most general to the most specific, with the exception that the doctrinal and contextual relevance of improvidence are discussed together in subparts E and F.
34 This debate has been largely generated by unjust enrichment theorists. See, eg, Peter Birks and Chin Nyuk Yin, ‘On the Nature of Undue Influence’ in Jack Beatson and Daniel Friedmann (eds), Good Faith and Fault in Contract Law (1998) 57. 35 (1887) 36 ChD 145, 185. The House of Lords has recently confirmed this test: Royal Bank of Scotland Plc v Etridge (No 2) (2002) 2 AC 773.
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The real truth is that the Plaintiff gave away her property as a matter of course, and without seriously thinking of the consequences to herself. She had devoted herself and her fortune to the sisterhood, and it never occurred to her that she should ever wish to leave the sisterhood or desire to have her money back. 39 Nonetheless, she was entitled to rescind the transaction because of the risk, in such situations, that a person’s trust and confidence can be abused. Rejection of the ‘impaired will’ conceptual basis of undue influence is also implicit in Justice Bryson’s reasoning in Hartigan : ‘It may be unconscionable to accept and rely on a gift which was fully intended and understood by the donor and originated in the donor’s own mind, where the intention to make the gift was produced by religious belief.’ 40 It is true that undue influence decisions place varying emphases upon both the prevention of unconscionable behaviour by the defendant and the impaired will of the plaintiff. This is because the two themes are complementary. Depending upon the facts of the situation, either may predominate as the reason for recovery. However, this does not change the rationale for recovery, which is maintenance of fiduciary standards. This view is taken by Rick Bigwood:
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.^41 The other aspect of the fundamental question is whether actual undue influence should be separated from presumed undue influence. Actual undue influence has clear parallels to common law duress and could easily be assimilated with that doctrine.^42 However, there are actual undue influence decisions that involve a fiduciary relationship. In these instances, relief is given because an unconscionable advantage has been taken in that relationship. It seems preferable to accept that the categories blur at the edges and that actual undue influence straddles the divide between common law duress and presumed undue influence. 43 I do not intend to discuss the various views concerning the proper conceptual basis and ordering of undue influence any further, except as they relate to the specific doctrinal questions posed by the religious faith cases.
39 Allcard v Skinner (1887) 36 ChD 145, 179. 40 [2002] NSWSC 810 (Unreported, Bryson J, 6 September 2002) [28]. 41 Bigwood, ‘Undue Influence: “Impaired Consent or Wicked Exploitation”?’, above n 38, 512. See also Johnson v Buttress (1936) 56 CLR 113, 134 (Dixon J); Finn, ‘The Fiduciary Principle’, above n 38, 44–5. 42 See Finn, ‘The Fiduciary Principle’, above n 38, 43. 43 Contra Finn, Fiduciary Obligations , above n 4, [173]; Finn, ‘The Fiduciary Principle’, above n 38, 43. It should also be acknowledged that the House of Lords in Royal Bank of Scotland Plc v Etridge (No 2) (2002) 2 AC 773 has clearly answered my question in the negative. In their Lordships’ view, presumed undue influence and actual undue influence are alternative means to the same conclusion and should not be separated.
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B What is the Function of Independent Advice? According to Dixon J in Johnson v Buttress , 44 the presumption of undue influence is rebutted by showing ‘that [the donee] took no advantage of the donor, but that the gift was the independent and well-understood act of a man in a position to exercise a free judgment based on information as full as that of the donee’. 45 Proving that the donor received independent advice concerning the gift is one way of achieving this.^46 The advice given must be pragmatic rather than necessarily legal.^47 It remains unclear, however, whether the advice must have been followed. Must it simply have been given, whether or not it is followed by the donor, or must it have been heeded, in which case, in all probability, the gift would not have been made. This question is particularly relevant in the context of gifts motivated by religious faith because independent advice concerning the unworldliness and improvidence of the gift may simply confirm the donor’s intention. Should independent, pragmatic and comprehensive advice suffice to rebut the presumption of undue influence, regardless of the fact that the donor’s determination precludes them from following such advice? If this was the case, such gifts could only be overturned if actual undue influence was proved. Alternatively, are there some gifts that cannot be made, regardless of the presence of independent advice, because that advice can never remove the donee’s advantage? In other words, are there cases where the donor, by their nature, can never exercise an independent judgment in relation to the donee? There appear to be two views in the cases and commentaries regarding the function of independent advice. The first view was taken by Kekewich J at first instance in Allcard v Skinner. Counsel for Miss Skinner submitted that the requirement of independent advice was meaningless because Miss Allcard would have treated it as the temptation of the Devil and because it would have strengthened her convictions. Justice Kekewich accepted that this was the likely outcome, however, he noted that:
The necessity of competent independent advice wherever that necessity occurs, is not affected by the consideration that the advice, however plainly and strongly given, would in all probability be disregarded, or, in other words, that the donee of a gift obtained by the exercise of undue influence might insist on the donor adopting this precaution (which would make the gift indubitably safe) without running any appreciable risk of loss.^48 Thus, in Justice Kekewich’s view, as long as independent advice was given, it did not need to be followed for the presumption to be rebutted.^49
44 (1936) 56 CLR 113. 45 Ibid 134. 46 However, independent advice is not an essential requirement. See Haskew v Equity Trustees, Executors and Agency Co Ltd (1919) 27 CLR 231, 235. 47 See, eg, Brusewitz v Brown [1923] NZLR 1106; Bester v Perpetual Trustee Co Ltd (1970) 3 NSWR 30. 48 (1887) 36 ChD 145, 159. Contra Allcard v Skinner , (1887) 36 ChD 145, 184–5. According to Lindley LJ, it was impossible to know what Miss Allcard’s reaction to independent advice would have been. 49 In fact, Kekewich J found that Miss Allcard had the benefit of sound advice from her family at the time of entry into the sisterhood and this validated the gift. This finding was overturned on appeal.
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absence of personal benefit will not preclude a presumption of undue influence arising. Logically, this follows because a defendant’s behaviour may still be exploitative, even if they receive no personal gain and have good character and standing. 51 Is there any protection given to donees who may be held liable, even though they received no personal gain from the gift? In Allcard v Skinner , Miss Skinner received no personal gain from the gifts. It was intended that the proceeds would be used for the charitable purposes of the Sisterhood. This was the case, and Miss Allcard enthusiastically participated in the expenditure. Only Cotton LJ considered the question of Miss Allcard’s remedy.^52 After noting the absence of personal gain and that there was no deliberate deception by Miss Skinner, he stated:
But if the Plaintiff has an equity to set aside gifts made to the Defendant, in my opinion the Defendant would have a stronger equity against the Plaintiff to prevent her from making the Defendant personally liable for money spent for the charitable purposes to promote which the Plaintiff and Defendant were at the time of the expenditure associated, and which the Plaintiff was at the time willing and anxious to promote. 53 In his dissenting judgment, Cotton LJ held that Miss Allcard was only entitled to any part of the gift still held by Miss Skinner and to income derived from it since commencing her action. It is not clear how Cotton LJ reached this conclusion, however, it seems to be the most appropriate one. Similarly, in obiter, Lindley LJ said that Miss Allcard would have been entitled ‘to obtain restitution from the Defendant of so much of the Plaintiff’s property as had not been spent in accordance with the wishes of the Plaintiff, but remained in the hands of the Defendant’.^54 Are these conclusions possible if the traditional remedy of equitable rescission^55 is applied? The aim of equitable rescission is to restore the parties, as far as possible, to their original positions before the gift was made. However, unlike common law rescission, ‘[t]he question is not whether the parties can be restored to their original position; it is what does the justice of the case require?’ 56 Equitable rescission is a flexible remedy that can accommodate changes in the value of the property received, or performance of the transaction entered into.^57 Thus, equitable rescission can be granted upon terms.
51 Bigwood, ‘Undue Influence: “Impaired Consent or Wicked Exploitation”?’, above n 38, 512. An American example involving a will is Suagee v Cook (Re Estate of Maheras ), 897 P 2d 268, 274 (Okla, 1995). ‘The gravamen of undue influence is legal harm from the wrongful exertion of power over the will’s maker rather than the receipt of personal benefit from the offending act of influence’. 52 Lindley and Bowen LJJ held that the claim was barred due to Miss Allcard’s delay in commencing the action. 53 (1887) 36 ChD 145, 170–1. 54 Ibid 186. In fact, Miss Allcard had limited her claim to this sum. 55 But see Dusik v Newton (1985) 62 BCLR 1 (damages); Mahoney v Purcell (1996) 3 All ER 61 (equitable compensation); McCulloch v Fern [2001] NSWSC 406 (Unreported, Palmer J, 28 May 2001) (constructive trust remedy). 56 O’Sullivan v Management Agency Ltd [1985] 1 QB 428, 466–7. 57 Alati v Kruger (1955) 94 CLR 216, 223–4.
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In Allcard v Skinner there are four factors relevant to a grant of rescission that explain the limited remedy that Cotton LJ was prepared to grant. These are: the delay on the part of Miss Allcard, the moral character of Miss Skinner, the lack of personal benefit, and the fact that most of the gift had been dissipated. A plaintiff’s delay in taking action, even if it does not preclude recovery outright, will be taken into account in awarding a just remedy.^58 Secondly, the fact that a defendant’s ‘personal conduct is not open to criticism’ will be taken into account in formulating a remedy that does not operate harshly.^59 Because Miss Skinner received no personal benefit and most of the money had been spent she would not have been restored to her original position if ordered to repay the gift. The reasoning of the High Court in Vadasz v Pioneer Concrete (SA) Pty Ltd^60 (‘ Vadasz ’) is also helpful in understanding Lord Justice Cotton’s statement in Allcard v Skinner. The High Court found unconscionability to be the conceptual basis for the court’s approach to rescission:
Thus unconscionability works in two ways. In its strict sense, it provides the justification for setting aside a transaction. More loosely, it provides the justification for not setting aside the transaction in its entirety or in doing so subject to conditions, so as to prevent one party obtaining an unwarranted benefit at the expense of the other. 61 This statement has been criticised for not explaining more precisely the grounds upon which rescission will be granted.^62 However, in my view, it encapsulates the reason why Miss Skinner was not required to repay the full value of Miss Allcard’s gifts. It was unconscionable in the specific, doctrinal sense of the term for Miss Skinner to have accepted the gifts, because the elements of undue influence were satisfied. However, due to Miss Allcard’s delay, the personal character of Miss Skinner (in the words of Cheese v Thomas she was an ‘innocent fiduciary’ 63 ), the lack of personal benefit, and the fact that the money had been irretrievably spent for the intended purpose, it would have been unconscionable for Miss Allcard to insist upon full recovery.^64 Another factor apparent in Lord Justice Cotton’s reasons for why only limited rescission was available was the fact that the plaintiff approved and participated in the expenditure of her gifts. This is problematic because at that time she was still ‘spellbound’ by the influence of Mr Nihill and Miss Skinner. Therefore, the weaker party’s conduct at the time of the gift should not be relevant to the terms of rescission because they could still be subject to the other party’s influence.
58 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, 1278–9. 59 Cheese v Thomas (1994) 1 WLR 129, 138. (^60) (1995) 184 CLR 102 (citing with approval Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218; Alati v Kruger (1955) 94 CLR 216; O’Sullivan v Management Agency Ltd (1985) 1 QB 428; Cheese v Thomas (1994) 1 WLR 129). (^61) Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102, 114. (^62) See, eg, John W Carter and Gregory Tolhurst, ‘Rescission, Equitable Adjustment and Restitution’ (1996) 10 Journal of Contract Law 167. (^63) Cheese v Thomas (1994) 1 WLR 129, 138. 64 See Louis Proksche, ‘Rescission’ in Patrick Parkinson (ed), The Principles of Equity (2003) 923 at n 72: ‘Money paid which has been irretrievably spent for the purpose for which it was given may be irrecoverable [citing Allcard v Skinner (Cotton LJ) and Quek v Beggs ] even though the defendant may indirectly have some benefit therefrom’.
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D Must There be a Relationship of Spiritual Influence or is it Sufficient that a Transaction is Motivated by Religious Fervour? The doctrine of undue influence protects those who are vulnerable in relationships of trust and confidence. In these relationships, the vulnerable party has ‘let down his or her guard’ and is susceptible to the influence of the other party. 69 Traditionally, spiritual influence cases concern relationships between a spiritual leader and a follower who looks to the leader for spiritual guidance and inspiration, and may even attribute divine qualities to that person.^70 However, what of those cases where the relationship is not the prime motivation for the weaker party’s transaction, but rather the reason is their own religious convictions? Is there any need for equitable protection, and if so, is undue influence the appropriate doctrine? In Allcard v Skinner Lindley LJ made it clear that the undue influence doctrine is concerned with ‘the undue influence of one person over another; not the influence of enthusiasm on the enthusiast who is carried away by it, unless indeed such enthusiasm is itself the result of external undue influence’. 71 The recent case of Hartigan raises these questions. This case is unique amongst the Australian cases because Mrs Hartigan’s decision to give her property to ISKON was not associated with an existing relationship of spiritual influence. Justice Bryson held that a relationship of trust and confidence arose during the subsequent negotiating process with the leaders of the local ISKON community. Tufton v Sperni^72 is an English example. In that case an unscrupulous property dealer took advantage of a recent convert to Islam and sold him property on highly disadvantageous terms. Like Mrs Hartigan, Mr Tufton was enthusiastic about his new found faith and this affected his business judgment: ‘In regard to matters affecting his faith and cause of Moslems, he was (in the language of the Judge) “credulous and unbusinesslike”’.^73 In both cases, a relationship of influence attracting the presumption of undue influence was found to exist, however, it is arguable that the facts would have been better pleaded as attracting the doctrine of unconscionable dealings, as stated in Commercial Bank of Australia Ltd v Amadio^74 (‘ Amadio ’). It is not unusual for the two doctrines to overlap in this way; indeed, in Amadio itself, Mason J criticised the pleadings for relying upon unconscionable dealings instead of undue influence.^75 The requirement of the doctrine of unconscionable dealings is a special disability in the weaker party that is knowingly taken advantage of by the stronger party to secure the transaction. Constructive knowledge of the special
‘ McCulloch v Fern ’ (2002) 18 Journal of Contract Law 138. 69 Bigwood, ‘Undue Influence: “Impaired Consent or Wicked Exploitation”?’, above n 38, 510. 70 See, eg, Nottidge v Prince (1860) 2 Giff 246; 66 ER 103; McCulloch v Fern [2001] NSWSC 406 (Unreported, Palmer J, 28 May 2001). 71 (1887) 36 ChD 145, 183. 72 (1952) 2 TLR 516. 73 Ibid 517. 74 (1983) 151 CLR 447. 75 Ibid 464. The facts could have been pleaded as a relationship of influence between the son and his parents with notice by the bank.
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disability is sufficient. Historically, special disabilities were limited to physical or economic conditions that affected the weaker party in all their dealings, however, the High Court has more recently held that the doctrine can extend to relational disadvantages such as an emotional infatuation with the stronger party. 76 It could be argued that Mrs Hartigan’s enthusiasm for her new religion and lifestyle, which in some respects misinterpreted the Hare Krishna teachings, was a special disability akin to an emotional infatuation. This was knowingly taken advantage of by the agents for the defendant. The same analysis can be applied to Tufton v Sperni. Does it make any difference if Hartigan and Tufton v Sperni are characterised as examples of the unconscionable dealings doctrine rather than of undue influence? There is no difference in outcome; the remedy is still rescission. Both doctrines have a similar conceptual basis although they apply to slightly different scenarios. Undue influence focuses on a relationship between the parties, whereas, unconscionable dealing focuses on the circumstances of the transaction itself. The advantage of recognising that some spiritual influence cases are better suited to the doctrine of unconscionable dealings is that awkward interpretations of facts can be avoided.^77 Rather than straining to find a relationship of influence in Hartigan , the root weakness of the transaction (the fact that Mrs Hartigan proposed her gift in the flush of religious conversion and under a misunderstanding as to its spiritual significance) is addressed by recognising this as a special disability.
E What is the Significance of the Improvidence of the Transaction? The improvidence of the transaction is relevant in two ways to the application of the undue influence doctrine in the context of religious faith. First, there are many statements in the case law asserting that equity will not ‘undo’ transactions simply because they were unwise or foolish and, by implication, improvident. ‘Courts of equity have never set aside gifts on the grounds of imprudence, folly or want of foresight on the part of donors.’ 78 Despite this rhetoric, such gifts are generally set aside, and improvidence can be a strong, indeed, overwhelming reason for awarding relief. In Hartigan , for example, the improvidence of the gift rendered it extremely suspicious. In Justice Bryson’s view:
76 Louth v Diprose (1992) 175 CLR 621. 77 See, eg, Amadio (1983) 151 CLR 447, 461, 474. In their separate, yet similar, judgments, Mason and Deane JJ drew a distinction between unconscionable dealings and undue influence. This favours the dichotomy proposed by Birks and Chin, above n 34, 57. Presumed undue influence is said to look to the plaintiff’s ‘overborne will’ (quality of consent), whereas unconscionable dealings look to the defendant’s conduct. With respect, this cannot be correct. A strong distinction does not exist between unconscionable dealings and undue influence – they blur into each other. See Bigwood, ‘Undue Influence: “Impaired Consent or Wicked Exploitation”?’, above n 38, 514. 78 Union Fidelity Trustee Co v Gibson [1971] VR 573, 575. ‘Extravagant liberality and immoderate folly do not of themselves provide a passport to equitable relief’: Tufton v Sperni (1952) 2 TLR 517, 519; ‘[O]ur laws, very unfortunately for the owners, leave them at liberty to dissipate their fortunes as they please, to the ruin of themselves and their families’ Bridgeman v Green (1757) Wilm 58; 97 ER 22, 23.
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to society’s norms (‘the ordinary motives on which ordinary men act’)^86 has serious consequences for transactions motivated by religious faith because such transactions are often intended to contradict such norms. Gross improvidence in secular terms may be the primary attraction and motivation for a gift to a religious institution or individual. Many religions espouse poverty as a means to spiritual growth. Some Christians, for example, hone their faith by ‘trusting in the Lord’ rather than in financial security, hence Miss Allcard’s vow of poverty. This suggests that gifts motivated by religious beliefs are more likely to attract scrutiny by the courts. The likelihood of judicial scrutiny increases when donors hold strong religious beliefs. Anthony Bradney has highlighted the difficulties of ‘obdurate believers’ in Great Britain in having their beliefs and practices accepted by the law.^87 For obdurate believers ‘their religion is central to their lives, determining their behaviour in most or all respects’.^88 They are characterised by the ‘unyielding nature of their faith’.^89 There are a greater number of obdurate believers in religions that are new to Great Britain (and therefore, likely to be minority religions) although obdurate believers can also be found in mainstream religious groups. Bradney criticises the use of a test that is based upon ‘[m]oral standards which are generally accepted in the society in which the Judge lives’^90 in the context of English child custody law:
A failure to live by such standards frequently becomes, in the law’s eyes, a failure to live in an acceptable manner. In a society such as Great Britain, dominated as it is by secular liberal mores , obdurate believers will invariably live by standards which are different from those which are general in society or take the standards which are general and apply them in a more rigid and unwavering manner. There is thus, at root, an incompatibility between the law and the believer.^91 Bradney argues that this benchmark characterises many areas of law other than child custody law. The threshold test of ‘ordinary motives on which ordinary men act’ in the doctrine of undue influence is not one of his examples, yet it clearly poses similar problems for obdurate believers. Even if the obdurate believer is unlikely to challenge a gift on this ground, their heirs may do so. Using the norms of society to evaluate the acceptability of a transaction also discriminates between religious groups according to their size and social acceptability. ‘Ordinary motives on which ordinary men act’ may encompass mainstream religious practices but not necessarily those of minority groups. For example, would it be considered within the ‘ordinary motives’ test for a woman to give away all her assets to a Roman Catholic order of nuns that she is entering 92 because Australian society has a tradition (albeit a dying one) of women entering convents? Would it be more questionable for a woman to make
86 Allcard v Skinner (1887) LR 36 ChD 145, 185. 87 Anthony Bradney, ‘Faced by Faith’ in Peter Oliver, Sionadh Douglas Scott and Victor Tadros (eds), Faith in Law: Essays in Legal Theory (2000) 89. 88 Ibid 90. 89 Ibid. 90 C v C (1991) 1 FLR 223, 230. 91 Bradney, above n 87, 101 citing Thornton v Howe (1862) Beav 14. 92 The facts of Allcard v Skinner can be distinguished because Anglican orders of nuns are rare.
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such a donation to ‘a small break-away sect of a religious movement called the Church Universal and Triumphant’?^93 The ‘ordinary motives’ threshold test requires judges to make difficult decisions regarding the social acceptability of religious practices. These decisions involve questions that may require substantial evidence of the religious group’s beliefs and practices to be put before the court. 94 Another problem with the improvidence and ‘ordinary motives’ factors is their subjectivity. This is illustrated by the finding of extreme improvidence in Hartigan. Was Mrs Hartigan’s gift as improvident as Bryson J thought? In his Honour’s view
the arrangement [was] one of extremely unworldly improvidence which a person could not, in all practicality, possibly enter into while acting under ordinary human motivations, unless the person had abandoned worldly considerations and self- regard. 95 However, Mrs Hartigan was relatively young, and could reasonably have expected to live for many more years, during which she could have chosen to earn an income to support her family. It would have been reasonable for her to expect that her husband would similarly be able to support their family. They expected (albeit in a casual fashion) to live with the local ISKCON community on its farm and were not concerned about accommodation costs. When assessed in the context of the lifestyle of a Hare Krishna community, the gift appears less improvident than when assessed against the norms of society. Does this imply that the threshold test for the undue influence doctrine to apply should refer to the norms of the religious group in question instead of the ‘ordinary motives of ordinary men’? It would be a radical change to say that if a gift was consistent with the mores of the particular religious group to which the donor belonged, then the undue influence presumption could not apply. This would be inconsistent with the decision in Allcard v Skinner itself and does not allow for the societal interest (public policy) in ensuring that religiously motivated donors are not exploited. A more balanced approach, which considers both the norms of society and those of religious groups, is to maintain the threshold test of ‘ordinary motives’, but to also acknowledge that if the gift is explicable according to the norms of the religious group then this will be a strong factor against granting rescission. This was the approach taken in Hartigan. Justice Bryson accepted the defendant’s submission that Mrs Hartigan’s gift was not even prudent according to the Hare Krishna teachings, because she was the parent of young children. 96 In other words, the fact that the gift was not explicable, according to the norms of the Krishna Consciousness Movement, supported rescission.
93 See McCulloch v Fern [2001] NSWSC 406 (Unreported, Palmer J, 28 May 2001). 94 Anthony Bradney suggests that ‘obdurate believer’ litigants improve their chances of success when more evidence concerning the religious group in question is before the court. Rather than increasing the cost and length of individual hearings he suggests that judges receive greater training in religious studies: Bradney, above n 87, 100. 95 Hartigan [2002] NSWSC 810 (Unreported, Bryson J, 6 September 2002) [74]. 96 Ibid [94].
