Doctrine of Precedent in Common Law

Introduction

The doctrine of precedent is one of the hallmarks of common law. The doctrine of precedent is based on the principle of stare decisis, which has allowed the judiciary to formulate rules that are characterised by consistency, certainty and predictability. Moreover, the expectation of binding precedent allows the judiciary to function with continuity. However, there is a need for achieving balance between adherence to precedent and flexibility required to deal with cases in newer contexts as no two cases are the same. The need to change with the times has created concerns on judicial activism, as judicial activism would signify deviation from the established law. The High Court has been more flexible with regard to adherence to stare decisis and has shown willingness to examine old precedents for more coherent rulings, with emphasis on interpreting words and phrases in their context. Thorne v Kennedy exemplifies this position of the High Court. This essay examines three key concepts – undue influence, unconscionable conduct and duress, in how Thorne v Kennedy applied, departed or followed precedent in the doctrines. The essay explores and analyses some of the arguments for and against the conflation of the concepts as laid down by precedent.

Precedents

In Thorne v Kennedy, the Full Federal Court has applied the traditional interpretation of the terms undue influence, unconscionable conduct and duress and concluded that the agreement should not be set aside because financial inequality does not equate to duress. The court held that as there was no evidence to show that Mr Kennedy misled Ms Thorne about his financial position, the case could be decided in the favour of the defendant. Section 90F of the Family Law Act 1975 read with amendment Act 2000 protects those parties under an agreement that are unable to support themselves should the relationship with the other party to the agreement comes to an end. There is requirement for independent legal advice to be provided under s90G (1) and the agreement must be signed with an acknowledgement of having had the advantages and disadvantages explained by the lawyer. Undue influence, duress and special disadvantage of inability to act in own best interest, can vitiate the agreement; the equitable principle of unconscionable conduct can set aside the agreement. In Thorne v Kennedy, the facts showed that both parties had received legal advice before the prenup agreement was signed and the postnup agreement was essentially the same as the prenup and there was no pressure on the plaintiff to sign it. A series of precedents would suggest that the agreement was valid. Having been married before, in Radmacher, like Ms Thorne, the wife was deemed to have received quality legal advice to understand the terms of the nuptials. The Court expected them to show what they foresaw when they entered into the agreement. The lawyer in Radmacher, similar to Ms Thorne’s lawyer, repeatedly told the plaintiff to not sign the agreement. However, in Radmacher, the agreement was upheld even when the husband admitted to bullying behaviour. In Thorne v Kennedy, the High Court set agreement aside because of undue influence and unconscionable conduct. There is a crucial difference in the two cases in that the earlier case saw the exercise of bullying behaviour by the defendant in spite of which the court refused to set aside the prenup agreement, whereas in Thorne v Kennedy, the court set aside the agreement even in the absence of any evidence of bullying behaviour or pressure tactics on the part of the defendant. However the court did not completely depart from precedent in Thorne v Kennedy as it followed ANZ Banking Group v Karam, which found that duress required proof of threat or actual unlawful conduct. In this context, the HCA did not depart from precedent and dismissed the need to consider duress.

But the HCA considered Ms Thorne’s wider circumstances to determine that she was under pressure due to the wedding arrangements, her lack of support in Australia, lack of skill to support herself, due to which she had no choice “as she saw it” but to sign the prenup agreement. The HCA considered why the plaintiff would sign an agreement that she knew was unfair and considered the “gap” as illustrative of undue influence – pressure to ensure the wedding proceeded. Hence the approach in Thorne v Kennedy was a radical departure from precedents.

Undue Influence

In Thorne v Kennedy, undue influence was treated as a plaintiff sided operation to prove impaired consent that the plaintiff has “no free will” and was unable to protect himself or herself because of deprivation of choice. The plurality set out factors which it identified as being relevant to whether a financial agreement should be set aside for undue influence, these being noted as follows:

1. Whether the agreement was offered on a basis that it was not subject to negotiation;

2. the emotional circumstances in which the agreement was entered into, including any explicit or implicit threat to end a marriage or to end an engagement;

3. whether there was any time for careful reflection;

4. the nature of the parties’ relationship;

5. the relative financial positions of the parties; and

6. the independent advice that was received and whether there was time to reflect on that advice.

These factors were considered to be not only important to the determination in this case, but clear guidance as to the factors which should be looked at in future applications to set aside a financial agreement for undue influence.

Undue influence as a plaintiff sided operation is controversial in some respects. The debate hinges on whether undue influence is due to plaintiff’s impaired consent or defendant’s conduct. The High Court Thorne v Kennedy focussed on the plaintiff; whereas, Johnson v Buttress, took the opposite approach. In Johnson v Buttress undue influence was determined because of the absence of proof that undue influence had not been exercised to cause the impugned transaction. Justice McTiernan determined that Mrs Johnson failed to demonstrate that, notwithstanding the presumption of influence, the gift was the result of the free exercise of the donor’s will. Justice Dixon concluded that “an antecedent relation of influence existed which throws upon Mrs Johnson the burden of justifying the transfer by showing that it was the result of the free exercise of the donor’s independent will.” Latham CJ observed that “…though it has not been affirmatively proved against [Johnson] that she exercised undue influence, yet she has not displaced the presumption of undue influence which arises in the circumstances of this case.” Thus, in Johnson v Buttress, the court determined undue influence based on the lack of proof that despite the presumption of undue influence, the defendant did not exercise it. Similarly, in Stivactas v Michaletos (No 2) a woman recovering from a cerebral haemorrhage transferred her land to her great nephew at $1 AUD, but she recovered, she changed her wish. The great nephew did resist the transfer, but the woman insisted on it. The transfer was set aside because of undue influence whereby the consent of transfer was deemed to be impaired. The great nephew could not prove that the aunt acted in her own free will because of her frailty at that point and because of the lawyer he sent to her did not give adequate information. In this case, two judges determined on the impaired capacity of the woman for undue influence. Mahoney JA subsumed undue influence under unconscionable conduct such that the nephew should not have taken advantage of the woman given the circumstances. It does remain unclear if it is the consequence of extreme dependence in undue influence that caused the transaction to be voidable, or the abuse of the plaintiff’s dependence that is voidable in the above cases. However, it does demonstrate that the traditional precedent relied on for undue influence asks for examination of the defendant’s participation in the causing of the undue influence. In Thorne v Kennedy, there was no examination of the defendant’s role in compromising the plaintiff’s transactional assent. It made no reference to fiduciary characteristics. Therefore, this signifies a departure from established precedents in the field.

Undue influence is also dependent on the degree to which autonomy was impaired by the defendant’s transactional influence. Thorne v Kennedy had commented that the will of the plaintiff need not be completely overborne to the degree of automaton. Relationships where there are clear elements of dependence, trust and gratitude, to the exclusion of others, the common factor may be the impairment of autonomy in the determination of undue influence. Undue influence does not demand complete surrendering of one’s will to another. In Allcard v Skinner, the plaintiff wanted to recover some of the wealth she gave to a Convent after she changed her faith to an Anglican. There was no presumed pressure from the Convent or clergy. But the plaintiff’s religious enthusiasm was deemed to have impaired her capacity to make decision in her own best interest. Thus, there was no need to prove complete subjection to the will of the defendant. In this respect, the HCA did not deviate from precedents in Thorne v Kennedy. However, the reason for finding undue influence altered in Thorne v Kennedy, where the plurality’s approach says a plaintiff that did not have a real choice, is not acting freely and is subject to undue influence in deciding to comply with the wishes of the defendant. Ms Thorne’s choices about entering the agreements on Mr Kennedy’s terms were subordinated to the will of Mr Kennedy. Ms Thorne accepted the terms of the agreements in part due to her reliance on Mr Kennedy for all things. The purpose of doctrine of undue influence is to establish whether the plaintiff was able to freely and independently make a decision. The reason for undue influence is to protect parties from the abuse of relationships of influence. The relief of undue influence is achieved through subordination of the plaintiff’s consent, not the reason for the subordination. Here the plurality made the reason for Ms Thorne’s loss of capacity to be her limited choice, rather than actual impaired capacity to voluntarily made a judgment. Furthermore, the possibility of presumed undue influence was essentially overturned in Thorne v Kennedy. From Johnson v Buttress, presumed undue influence is based on fiduciary principles. This was further established by cases like Louth v Diprose. In Louth v Diprose, Brennan J observed that it may no longer be right to make a presumption that a substantial gift made by a woman to her fiancé is procured by undue influence. Common experience today of the wide variety of circumstances in which two people can become engaged to marry negates any conclusion that a relationship of fiancé and fiancée should give rise to a presumption that either person substantially subordinates his or her free will to the other. Edelman and Bant and Birks and Chin have supported this approach – that the plaintiff need only to prove that there is excessive dependence on the defendant.

Unconscionable conduct

From Thorne v Kennedy, the process of unconscionability and undue influence can be proven by the unfairness evident in the terms of transaction. Unconscionable conduct is focused on conduct, whereas undue influence is consent based. The primary judge was correct to consider the unfair and unreasonable terms of the pre nuptial agreement and the post nuptial agreement as matters relevant to her consideration of whether the agreements were vitiated…despite the usual financial imbalance in agreements of that nature, it can be an indicium of undue influence: Ms Thorne’s special disadvantage was known to Mr Kennedy. Her special disadvantage had been, in part, created by him…these matters increased the pressure which contributed to the substantial subordination of Ms Thorne’s will in relation to the agreements. Consider the reverse of Thorne v Kennedy in Louth v Diprose. In the latter case, a lawyer gifted over 50000 dollars to a woman with whom he was infatuated for many years. The woman however played upon this dependence to gain gifts like a house by threatening suicide. This was deemed unconscientious conduct. The majority decision was given by Deane J: That special disability was sufficiently evident to the other party to make it prima facie unfair or unconscionable that the other party procure, accept or retain the benefit of the disadvantaged party’s assent to the impugned transaction in the circumstances in which he or she procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable…

Thus, unconscionable behaviour requires: 1) plaintiff’s special disability; 2) the defendant’s awareness of the weakness of sufficient significance to render the acquisition prima facie unconscientious; and 3) the defendant being unable to show that the transaction was fair. Therefore, these are distinct elements of undue influence although many undue influence plaintiffs would be able to satisfy these criteria. Thorne v Kennedy drew on the precedent of Bank of Australia v Amadio, wherein a plaintiff subject to special disadvantage and the defendant, knowing of the disadvantage, takes unconscientious advantage of it, thereby vitiating the act through undue influence. Unconscionability affects the ability of the plaintiff to protect his interests. It is the defendant’s conduct that allows for relief. In Thorne v Kennedy there were grounds for unconscionable conduct because in effect, the position of special disadvantage was created in part by Mr Kennedy by bringing Ms Thorne to Australia, keeping her in the country for many months in a state of belief that he would marry her, allowing preparations for the wedding to proceed and then subjecting her to the pressure of refusing to marry her unless she agreed to the terms of the first agreement. The conduct was unconscionable due to timing. Even after the wedding, she was still at a relative disadvantage as she was no longer capable of insisting upon amendments by any leverage. The plurality held that:

Ms Thorne was subject to undue influence – powerless, with what she saw as no choice but to enter the agreements – point inevitably to the conclusion that she was subject to a special disadvantage in her entry into the agreements.

Overall, the HCA’s approach to unconscionable conduct approach followed precedent.

Duress

Duress is often known as pressure, wherein freedom is impaired due to pressure being inappropriate to the context. If there is illegitimate pressure causing impaired capacity, the case can be presented as undue influence. In determination of duress, the relief is based on the plaintiff’s decision making capacity being impaired, and not from the defendant unconscionably taking advantage of the plaintiff. The basic elements of duress are: the plaintiff must have been subjected to illegitimate pressure which caused the plaintiff to confer a benefit on the defendant. In Australia and New Zealand Banking Group v Karam, it was held that for the determination of duress, there must be proof of threatened or actual unlawful conduct. Karam followed the precedent of Equiticorp Finance Ltd, where Kirby J described economic duress as better considered under undue influence and unconscionability. Lawful acts of coercion have been accepted under the common law doctrine of duress, but the court recommended foregoing ‘economic duress’ and ‘illegitimate pressure’ in lawful act duress claims and adopt the approach of “equitable principles relating to unconscionablility” due to concerns over vagueness in the terms. In Thorne v Kennedy, Nettle J noted that since Karam, it is an established doctrine that equity relieves against illegitimate pressure exerted by lawful means. Although Nettle J noted that the better approach might be to consider whether the pressure goes beyond what is reasonably necessary for the protection of the [the pressure applier’s] legitimate interests.

Overall, the HCA judgment followed the precedent of Karam even though Nettle J disagreed with Karam’s reasoning.

Unifying the three concepts

Thorne v Kennedy recognised that the boundaries between these the concepts of undue influence, unconscionable conduct, and duress, were not always clear. The plurality’s judgment also brought about the odd situation where undue influence, a condition where one’s decision making capacity is substandard, to co-exist with unconscionable conduct, where the decision maker has full knowledge of the risks and benefits of choices, but made the choice because the special disadvantage that she was at. It has been argued that one reason to have a consolidating concept for these doctrines is to simplify the tests and rules for their elements. Some authors have seen no distinction between unconscionability and presumed undue influence. Others have considered the significant overlap between unconscionability and economic duress. Bigwood have observed that duress and undue influence both examine “deflected volition” while unconscionability examines the “deficiency in rational or judgmental capacity”. Both concepts concern autonomy. This is a fundamental requirement for contract validity. Whether there is deficiency in capacity or impaired volition, or exploitation of disabilities – these are facts that are irrelevant to the questions of contract validity. The essential condition relating to consent in order for a contract to be valid is autonomy as it implies the person is agreeing to carrying the responsibility associated with the decision. However, inequality of bargaining power does not meet the conditions for these doctrines to avoid a contract. There are occasions where there may be a stronger party that allows its superiority to constrain the weaker party’s autonomy to decide on the contract, and other occasions where the stronger party might not do so. Hence in unconscionability and presumed undue influence, there needs to be investigation to confirm that such risk occurred. There also needs to be establishment of a relationship of dependence (as in presumed undue influence) or qualifying disability (unconscionability). The common factor is that the weaker party has constrained decisional autonomy either by disability or influence. Pressure and proven influence need not be associated with inequality in bargaining power to be deemed to cause duress or actual undue influence.

Numerous precedents have found the common principle of constrained autonomy amongst the three concepts. Sir Frederick Pollock wrote:

The question to be decided in each case is whether the party was a free and voluntary agent. Any influence brought to bear upon a person entering into an agreement, which , having regard to the … nature of the transaction, and all the circumstances of the case, appears to have been such as to preclude the exercise of free and deliberate judgment, is considered by the courts of equity to be undue influence, and is a ground for setting aside the act procured by its employment.

Whilst this statement only addresses undue influence, the same can be said of all three doctrines.

It has also been proposed that “exploitation” was the best description to demonstrate that one party’s autonomy is constrained through having knowledge (actual or constructive) of the other party’s constraint, failure to take steps to shelter the other party and entering into contractual agreement with the other party.

The outcome is not material, as duress and actual undue influence does not require equalising terms of contract. But unconscionability and presumed undue influence do require the contract be invalidated altogether. Bigwood noted that “the benefit that results from …exploitation is the contract itself”.

Doctrines of unconscionability and presumed undue influence require the presence of substantive disparity. They require proof that the parties’ relationship can be exploited: whether this be from disability to access its decisional autonomy from internal or external conditions; or that the party’s autonomy was invaded by inappropriate influence. In both cases, even if the stronger party acted in ordinary self interest, it is exploitative. Hence when there is a strikingly substantive disparity in the relationship, the law also presumes that the contract was procured by exploitation. The presence of substantive disparity was the means to the assumption. In such circumstances, the procurement of the contract is faulty therefore the contract needs to be voided rather than only altering the terms. In duress and actual undue influence, there is direct evidence of misconduct limiting the plaintiff’s autonomy. In a situation where evidence is found to prove a relationship to be of exploitative nature and that there is substantive disparity between parties resulting in the improper constraint of the plaintiff’s autonomy in decision making for the transaction, the responsibility then shifts to the defending party to proof that the plaintiff’s decision making was autonomous. In undue influence, relationships are deemed or proved to be exploitative unless proved otherwise. The associated disparity in the terms of the bargain is used as proof that the contract was obtained using such influence. The responsibility lies on the benefiting party to show that there was no undue influence exerted in obtaining the contract. In unconscionability, the defendant is acting in ordinary self interest but the exploitation results from the evidence of knowledge of the weaker party’s disability These are generally obvious disabilities. A clear disparity in the terms of the contract is then further evidence that this knowledge was exploited. The principle of exploitation encompasses duress because illegitimate pressure to obtain consent as the other party has ‘no realistic choice but to consent to the contract’ means that the plaintiff’s decisional autonomy had been seriously constrained. Undue influence is exploitative if the use of improper influence to limit a party’s autonomy, is done knowingly and the constraint is serious. Unconscionability is encompassed if the party has a disability that seriously constrains their autonomy, and the bargain is evidently unfair to suggest that the other party knowingly took advantage of that disability to enter into transaction. The use of exploitation of constrained decisional autonomy ensures that if the defendant had done no wrong, the contract would be upheld.

The constraint in autonomy needs to be serious and in relation to the decision at hand. The factual elements that needs establishing remains the same – in duress it is to ascertain which pressures are illegitimate and the definition of excess. In unconscionability, the facts needs to establish what disabilities are covered and the gap of imbalance is overreaching in the taking of disadvantage. In unifying these principles, there would be an enabling of certainty and consistency allowing the establishment of the fundamental question to justify whether or not a contract is vitiated by examining the degree to which freedom to enter into contract was improperly constrained or otherwise. In CIBC Mortgages v Pitt, the House of Lords overturned the idea that there need to be a manifest disadvantage for a transaction to be voided under undue influence. This means manifest disadvantage has a much smaller role in the construction of undue influence. Since the basis for relief is the vitiation of autonomy, the question to establish is whether an unimpaired person would have entered into the transaction. This allows for considerations of factors other than value, like roots, cultural beliefs and sentiments can also be considered. Dixon J in Yerkey v Jones said that the character of the relationship is never enough to explain the transaction and to account for it without the suspicion of confidence abused. In undue influence where the relationship is presumed, both parties must know the existence of a relationship.

In Thorne v Kennedy, a spectrum consideration of choice was acknowledged in that majority of judges were clear that one’s will need not be completely overborne. The subjective evaluation of there being no alternative was sufficient. This view can avoid the court being patronizing to hold a person’s decision as wrong or not good enough as in undue influence. It avoids the unquestioning upholding of autonomy in nuptial agreements even when there is clear imbalance in the relationship. Thus, the concept of free will was reconsidered. Herring wrote in 2010 that ‘autonomy has achieved a “sacred status” not only among lawyers but within wider society’. Individual responsibility may be now seen as autonomy. Dependence may be re branded as vulnerability. Vulnerable parties are those who have less agency in the development of difficulties. Increasingly, the courts have no role in protecting the autonomous parties even if they are victims of abuse or exploitation. The House of Lords has observed that justice of fairness in financial orders must be measured against social values including non discrimination and equality. As the structure and meaning of family living changes, family law needs to adjust its role in both helping people make choices in the face of the changes, and supporting the legal claims those choices may result in. It needs to be able to ‘reflect a basic set of assumptions about what is equitable in contemporary society’. Had the power balance been more equal, Ms Thorne could have negotiated a more mutually beneficial agreement. In considering this possibility and why this was not chosen, HCA recognized Ms Thorne’s economic vulnerability and loss of agency to achieve a fairer outcome.

Conclusion

In replacing these individual rules with a common underlying principle would improve the clarity of the concept and simplify litigations and adjudication as long as the unifying principle is correctly encompassing the rationale behind each doctrine but distinguishes them from doctrine of mistake, misrepresentation – conditions where autonomy is not constrained but rather was unreliable due to the information on which autonomy was applied. As demonstrated above, the current three distinctive doctrines are excessively pre occupied by factual conditions of scenarios. But the final result that matters legally is the constraint of autonomy being exploited in contract making. Caution is always argued in any change proposed. Delays can result in inappropriate use of the doctrines to result in twisting of the doctrines to result in someone who should win does. Changes entail uncertainty and inconsistency. In this case, a good time for precedent to be reviewed would be when there are sufficiently well established cases to support the change. It does not have to be done in one leap. Courts can use the concept of exploitation as a category for organisation of the current three doctrines. Cases can be discussed in these terms but still decided under the three separate doctrines. With time, evidently the principle can be seen to deliver the same results whilst providing clearer justification, then the decision under separate doctrines can be retired.

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