Undue Influence: A Legal and Psychological Threat to Property, Autonomy, and Identity

In a world where influence is ever-present, it’s vital to understand when influence crosses the line into a legal and psychological threat.

Undue influence can occur in various contexts, such as family, business, religion, or personal relationships.

It can have serious legal and psychological consequences for the victims, who may lose their money, property, autonomy, or identity.

This blog post will explore undue influence, how it works, and the possible defences against it.

What Is Undue Influence?

Undue influence is a term used in contract law to describe a situation where one party can influence the other party to the contract to act in a way that is not in their best interest, typically through manipulation or coercion.

This influence is considered “undue” because it prevents the influenced party from exercising their free will when entering the contract.

In What Situations Can Undue Influence Be Manifested?

Undue influence can manifest in various scenarios in Australian contract law, similar to other jurisdictions. Here are a few common situations:

• Relationships of Trust and Confidence: This might include a lawyer-client, doctor-patient, or carer-patient relationship. For example, if a carer induces an elderly patient to sign a contract that significantly benefits the carer, this could be undue influence.
• Family Relationships: It can be claimed when one family member holds power or influence over another. This could be parents over their children or vice versa. For example, a parent pressuring a child to take on a loan in their name could be undue influence.
• Commercial Transactions: It can also appear in commercial scenarios. For example, a business that exerts excessive pressure on a smaller supplier to sign a contract with unfavourable terms could be seen as exerting undue pressure.
• Financial Transactions: This often occurs when a lender exerts it over a borrower. This might include a lender coercing a borrower into accepting harsh terms or conditions.

In all these scenarios, the common theme is that one party has exerted power or influence to take advantage of another.

If the disadvantaged party can prove in court that they entered the contract due to undue influence, the court may declare the contract voidable.

It’s worth noting that undue influence is a complex area of law and depends significantly on the specific facts of each case.

Also read: What is Power of Attorney Abuse and How to Prevent It

How to Prove Undue Influence

Proving undue influence can be complex because it often requires demonstrating intangible elements such as coercion, manipulation, and the state of mind of the person allegedly influenced.

However, here are some general steps:

1. Establishing a Relationship of Trust or Dependence: It’s usually necessary to prove that the parties had a relationship in which one person was justifiably reliant on the other and the other had some power over them. This might be a lawyer-client relationship, a doctor-patient relationship, or a family relationship.
2. Proof of Manipulation or Coercion: Evidence that the dominant party used their position to manipulate or coerce the other into entering the contract. This could be evidence of threats, deceit, or excessive pressure.
3. Unusual or Suspicious Circumstances: The court will look for signs of undue influence in the circumstances surrounding the contract. For example, if an agreement is made quickly, without legal advice, or has heavily one-sided terms, these could all be signs of undue influence.
4. Lack of Independent Advice: If the person allegedly influenced did not have independent advice (for instance, from a wills and estate lawyer or financial advisor), this might also indicate undue influence, particularly in cases involving significant or complex transactions.
5. The person was vulnerable: If the person allegedly influenced was in a vulnerable position, such as being elderly, ill, or lacking understanding about the contract, this could indicate undue influence.
6. Reversal of the Onus of Proof: In some jurisdictions, once a presumption of it has been raised, the burden of proof may shift to the alleged influencer to demonstrate that the transaction was not the result of undue influence.

What Are the Different Types of Undue Influence?

Undue influence typically falls into two categories similar to those in many other common law jurisdictions: actual undue influence and presumed undue influence.

Actual Undue Influence

Actual undue influence occurs when there is clear evidence of coercion or manipulation that caused a person to enter into a contract or transaction against their free will.

The allegedly influenced party must provide clear proof of manipulation, coercion, or pressure that overwhelms their capacity to make decisions freely.

Presumed Undue Influence

In these situations, the relationship between the parties or the circumstances surrounding the transaction create a presumption of undue influence.

1. Presumed Undue Influence in Recognised Relationships: These are relationships with a recognised presumption of influence, such as parent-child, solicitor-client, doctor-patient, or trustee-beneficiary. The law automatically presumes that it could occur in these relationships because one party is inherently in a position of power or trust.
2. Presumed Undue Influence in Other Relationships: These relationships do not automatically give rise to a presumption of it. However, the particular circumstances demonstrate a high degree of trust and dependence. This could include friendships, romantic relationships, or business relationships where one party has come to trust and rely heavily on the other.

When presumed undue influence is asserted, once the claimant has shown that there was a relationship of trust and confidence and that a transaction requires explanation (it was not to the apparent benefit of the influenced party), the burden of proof shifts to the other party.

They must demonstrate that the transaction was not the result of undue pressure. They might do this by showing that the claimant had independent legal advice or was fully aware of and understood the nature and implications of the transaction.

Also read: When Should Beneficiaries of a Will be Notified?

Undue Pressure vs a ‘Special Relationship’

“Undue pressure” and “special relationship” are terms used in contract law’s context of undue influence. They address different aspects of how undue influence can occur.

Undue Pressure

This term refers to coercive behaviours or actions exerted by one party on another that effectively overcome the influenced party’s free will, causing them to enter into a contract they may not have otherwise agreed to.

The focus here is on the behaviour and tactics of the influencing party. Undue pressure could include threats, excessive persuasion, manipulation, or exploiting a person’s vulnerability.

The influenced party must show that they were pressured to a degree that impaired their ability to make voluntary and informed decisions.

Special Relationship

This term denotes relationships where one party has power, trust, or confidence over another.

Such relationships can create a presumption of undue pressure. The underlying premise is that, due to the nature of the relationship, one party can unduly influence the other’s decisions.

Examples of unique relationships include parent-child, lawyer-client, doctor-patient, trustee-beneficiary, etc.

In these cases, the presumption of it may arise, and the burden shifts to the dominant party to prove that no undue pressure was exerted.

What Are the Possible Defences for Undue Influence?

If a party is accused of exerting undue influence, they might raise several potential defences.

These can vary based on jurisdiction and specific circumstances but generally include the following:

• Free Will and Knowledge: The accused party might argue that the other party agreed to their own free will and with a complete understanding of its terms and consequences. This can involve proving that the other party had access to independent legal advice or otherwise understood the nature and implications of the transaction.
• No Relationship of Trust or Influence: The accused party might argue that no relationship of trust or influence could give rise to a presumption of undue pressure. They could present evidence showing the parties dealt with each other at ‘arm’s length—independently and without any particular relationship of trust or power.
• Adequate Explanation: If there’s a presumption of undue influence, the accused party can refute this by providing a sufficient explanation for the transaction—for instance, that the transaction was beneficial to the other party or was something they would have done anyway.
• Passage of Time or Affirmation: If the party claiming undue influence continued to act following the contract after the undue influence had ceased or a significant amount of time had passed, this could be seen as affirming the agreement, potentially barring them from claiming undue pressure.
• Involvement of Independent Advice: If the claimant received independent legal or financial advice before entering into the contract, this could significantly strengthen the defence against an undue pressure claim.

What Are the Penalties for Undue Influence?

Undue influence in contract law in Australia is typically a civil law issue, not a criminal one. It usually doesn’t involve criminal penalties such as fines or imprisonment.

However, if undue pressure is successfully proven in a legal dispute, there can be several consequences, most often related to the terms and status of the contract itself:

• Rescission: The primary consequence is that the contract is usually voidable at the option of the unduly influenced party. This means they have the right to rescind (cancel) the contract, restoring the status quo as much as possible.
• Restitution: If the contract is rescinded, the court might require a refund, which means returning the parties to their pre-contractual position. This could include the return of money or property exchanged under the contract.
• Damages: In certain circumstances, the court might also order the party who exerted undue pressure to pay damages (compensation) to the influenced party. The goal is to compensate the victim for losses due to undue influence.
• Injunction: The court might also issue an injunction to prevent further harm, such as stopping the enforcement of the contract terms.

Are You a Victim of Undue Influence?

If you feel pressured into making decisions that aren’t in your best interest, you might be experiencing undue pressure. It’s crucial to know your rights and seek legal help.

At Justice Family Lawyers, we stand ready to provide expert legal advice tailored to your situation. Don’t let undue influence rob you of your freedom of choice. Contact us today, and let us help you regain your autonomy.