Bridgewater v Leahy Case Comment - Essay Example

CRITICAL CASE COMMENT Bridgewater v. Leahy Outline The case of Bridgewater v Leahy concerns a dispute over the proceeds of the will of the late William York, who bequeathed his property valued at over $650,000 for a considerably lower sum to his nephew, thereby compromising the interests of his wife and daughters. The issues raised in this case were that of equity, unconscionable conduct and undue influence and this analysis of the issues and judgment rendered in this case is presented predominantly from an economic and feminist standpoint. Critical Case Comment: Bridgewater v. Leahy The case of Bridgewater v Leahy is concerned with equity in the apportionment of the proceeds of the will of William York, an old man who bequeathed this estate to his nephew at a price that was ridiculously low when compared to the market value of the property. The question that arises in the disposition that was made in this case relates to the law of unconscionability and whether the judgment reflects the appropriate application of this law to derive results that provide for the promotion of efficient market outcomes. Since the Plaintiffs in this case were the daughters of the deceased man while the primary beneficiary was a nephew upon whom the deceased may have been unconsciously dependent, an additional question that arises is whether this dependence produced a property distribution that was inequitable to the daughters when viewed from a feminist perspective. Summary of the facts of the case Bill York was a grazier who had lived in Wallumbia all his life. He had four daughters, all married and living off the estate, which he operated, with the help of his brother Sam and his nephew Neil York. In 1985, Bill York drew up his will in which he gave his house, his car and money in the bank to his wife while the estate was to be divided among his daughters, subject to an important qualification – he gave his nephew Neil York, the option to purchase the entire holding for the sum of $200,000.1 Subsequent to this, in 1988, Neil York arranged for the sale of a piece of land known as Injune, which he had acquired with advances from the Mt Leigh pastoral Company that owned holdings possessed jointly held by Bill, Sam and Neil, for the sum of $150,000. He offered to buy some portions of Bill’s property for that sum of $150,000, while retaining his option on the balance of land that remained with Bill. In 1988, the transfers were arranged accordingly. The land that was transferred was owned partially by Bill alone (the territory known as Wonga Park partly by Bill and Sam (the territory known as Wonga park fee simple) and that owned by Neil and Bill (Risby land). Bill agreed to sell Neil his share in the part of the lands that he wanted to buy – valued at $696,811- at the sum of $150,000 by way of a Deed of forgiveness by which amounts owing in excess were written off. Upon Bill’s death, the balance of land that remained of Bill’s share in the holdings was valued at $243,600, which Neil acquired by exercising his option of the $200,000 purchase price. Therefore, in effect, Neil was able to acquire the entire holdings of William York at a sum that was considerably lower than the assessed value and the fact that he had paid $150,000 earlier and then exercised his option with a further $200,000 diminished the rights of the widow and daughters under the Succession Act, to claim equitable distribution of Bill York’s holdings on the basis of a seriously undervalued price. The existence of the Deed of Forgiveness resulted in the negation of the Vendor’s lien which would have become applicable and is valid for the sale of every piece of land.2 The Judge at the district level dismissed the claims of undue influence and unconscionability of Neil York in his purchase of the land, since evidence presented in the Court suggested that Bill York was in full possession of his mental acuity. At the upper Court in Queensland, Plaintiffs (comprising the widow and daughters) contested the 1988 will but focused more on presenting Neil in a harsh light rather than concentrating on getting the Deed of forgiveness set aside, which they remedied while contesting at the High Court of Australia. Ratio decidendi in the case At the lower Courts, the appeal of the Plaintiffs on unconscionable conduct of Neil York was dismissed. At the Supreme Court of Queensland, the decision was upheld with Chief Justice Macrossan,  Davies JA; Fitzgerald P offering dissenting opinions. The major issues that were brought before the High Court were based upon equity and hinged upon the Deed of Forgiveness that had been granted by Bill York to his nephew, forgiving the value in excess of $150,000 for the transfer of three sections of land that were acquired before Bill York’s death. Unconscionable conduct, undue influence and principles of equity in distribution of the economic proceeds from the land to the female members of the family were at issue. The High Court judgment was in favor of the Plaintiffs, setting aside the Deed of Forgiveness, so that the Supreme Court of Queensland could make a more equitable distribution of William York’s holdings, based upon the discretion of the Court3 after a determination was made of the amount that would be due on the basis of equity to the daughters. Contract law as applicable to this case from an economist perspective According to Section 7 of the sale of Goods Act (1923) of New South Wales specifies that where a sale occurs, the mental capacity of a person to enter into such a sale is vital4. In regard to the ascertainment of the proper price5, this is to be accomplished through mutual agreement between the parties and the price is to be “reasonable”. The Australian Constitution is primarily governed by the principles of common law and Section 51 of the Constitution of the Commonwealth provides legislative power for the Commonwealth to make laws on the acquisition of property as well.6 In this respect the Commonwealth also has the power to ensure and guarantee just terms7 in order to provide constitutional protection for the right to hold private property.8 Section 51 of the Australian Constitution has often been used as the basis whereby Courts determine “unjust enrichment” which has been defined by the Birkisian theory as the accruing of benefit to a defendant through unjust circumstances at the expense of the Plaintiff.9 The word “property” has been given the widest possible meaning under Section 51 (31) and the phrase “acquisition of property” is not to be limited by traditional modes of conveyance of property, thereby clearly defining the intent to make unjust enrichment based upon the assessed value of property as the defining clause of this Section.10 The restitution in this case may be made only by implementing “just terms” which has been described as that which is “fair in the circumstances.”11 There are also other laws in place such as the Fair Trading Act (1987) (NSW) and the Contracts review Act (1980) (NSW) to assess and redress power imbalances in contractual relationships. Such power imbalances have crept in, undermining the freedom to contract, as spelt out by various contract theories and therefore legislation has been enacted through the Acts and Constitutional provisions spelt out above to correct power imbalances accruing to retailers under common law principles and to ensure that consumer rights are protected. Traditional contract theories are being challenged on various grounds of constitutionality, unconscionability, duress, undue influence and other factors that have resulted in intervention by Courts and the law to redress economic imbalances. Theories of Contract One of the earliest theories of contract that was advocated in the 19th century was the classical contract theory, founded upon the individualistic basis of laissez faire, also known as the will theory. This system was prevalent in Britain and the United States and imported into Australia as well and it rests on the economic principle that the good of all is to be found in the pursuit of individual, selfish economic gain.12 The Courts had to respect the fact that a contract was an expression of the free will of the parties. Richard Baumann characterizes classical contract law as focusing on the private ordering of relations by “independent, freedom-seeking individuals” where the role of the Courts is restricted to enforcing their bargained-for exchange.13 One of the salient criticisms of this theory is that a contract is not necessarily a true representation of the will of the parties and could be the result of an inequitable distribution of economic power. In fact, the basic principle of the classical contract theory that the purpose of a contract is to promote economic efficiency has been rejected by many on the basis that it is an unattractive moral principle.14 This has resulted in an alternative approach to contract theory, based upon deontological moral theory that emphasizes the role of promise. This theory was initiated by Charles Fried who forwarded the view that persons entering into a contract are morally bound to keep it.15 According to this theory, the contract must be enforced when the party with whom the contract is made relies upon it. However, this has not found widespread acceptance in Australian courts, which are more in line with the Consent Theory of Contract advocated by Barnett, which states that a contract, in order to be valid, must be a consensual one, wherein the agreement of both the parties to the terms of the contract must be clearly manifest. Barnett advocates six principles - will, reliance, restitution, substantive fairness, efficiency and bargain – would all be criteria of consent that can be enforced and contractual obligations can be fully understood only as a function of legal entitlements, with plaintiffs being adequately compensated with monetary damages.16 He suggests that when parties do not make their intentions explicit, it becomes difficult to enforce contracts, hence silence on the part of one party could also be construed as assent and could amount to acceptance of the terms of contract, especially in the case of a sale.17 Kinsella states that modern contract theory merely ensures specific performance of a contract through the transfer of title to the property of the parties to a contract.18 He believes that not all promises can be legally enforceable18. A promise can at best, can serve as the evidence upon which actual enforceability takes place which is through the medium of title transfer, as advocated in the transfer-title theory of contract.19 According to Murray Rothbard who advocated this theory, “Contract must be considered as an agreed-upon exchange between two persons of two goods, present or future. . . . Failure to fulfill contracts must be considered as theft of the other’s property.”20 Future transfers of title can also be arranged through a contract under this theory, wherein the title transfer becomes conditional upon the performance of a future event. One of the criticisms that has been advocated against this theory is that the conditional title transfer theory is based upon promises to do something in the future and therefore it becomes difficult to enforce, however modern contract law enforces contracts through the payment of compensation or damages or recompense for defaults of contract.18 Hence modern contract theory is based upon the principle of enforceability through the assignment of a monetary value of compensation to be paid for a breach or default in contractual obligations. Unconscionability and the promotion of efficient market outcomes From the foregoing, it may be noted that most theories of contract are based upon the creation of efficient economic outcomes through the redistribution of wealth. However, the courts have clarified21 that in regard to “mistakes” arising out of contracts, the Courts furnish relief only when the mistake rests in the terms of the contract itself and not in the commercial after effect of that contract.22 The doctrine of unconscionability would in a similar manner, require the support of the assumption of a mistake or wrong doing in the framing of the contract. The Trade Practices Act (1974) of the Commonwealth under Section 51 AC and Section 12CC of the ASIC Act has included unconscionability regulations that require commercial parties to take note of the interests of others and have made it easier to over turn or rewrite contracts23. The Sections of the Act now include provisions for the potential use of unconscionabiltiy and undue influence through unfair treatment to a third party.24 Australian Courts have now started to apply the principles of unconscionability in cases where a stronger party exploits a weaker party due to the combination of circumstances in which they find themselves.25 In the case of ACCC v GG Berbatis Holdings Pty Ltd, the principle of establishment of unconscionability as the central principle underlying the law of equity was laid out by French J, to corroborate the provision of a stronger party exerting undue influence over a specially disadvantaged party, as was laid out in the case of Amadio.26 Sir Anthony Mason has laid out the grounds for unconscionability as the basis for grounds for equitable relief as follows:27 “Relief against unconscionable bargains is granted when a transaction, considered in the light of the circumstances in which it was entered into, is so unconscionable that it cannot be allowed to stand……….. What is required is that there be an unconscientious taking advantage of the disability or disadvantage of the person in the weaker bargaining position by procuring or retaining the benefit in question in a way that is both unreasonable and oppressive.” In the instant case of Bridgewater v Leahy, the grounds of unconscionability were invoked in the rendering of the final decision; the major thrust was to find a solution that was “practically just” and equitable. The judges drew upon the finding of Jacobs ACJ in the case of Louth v Diprose,28 who said “It is an oversimplification to say that because the respondent acted as he did with his eyes open, and with a full understanding of what he was doing, he was not in a position of disadvantage, and therefore not the victim of unconscionable conduct." In effect, the Courts were only implementing the new provisions that have been laid out under Section 51 AC of the Commonwealth which has set out unconscionability as a ground for relief in contracts where a party is at a special disadvantage. The question of undue influence was also considered in this case, especially because William York was an old man who demonstrated all the signs of senility periodically. Creating the kind of conditions whereby a person becomes emotionally or otherwise, dependant upon another would qualify for grounds of the exercise of undue influence.29 Being elderly and vulnerable is especially a ground for being dependent and there is no doubt that in this case, Bill York depended upon his nephew Neil, to take care of his properties and be the son he never had. Thus, while he may not have made his will under duress of any kind, there were grounds for unconscionable conduct on the grounds of equity and the discovery of a “practically just” solution that would benefit the daughters of Bill York as well. Through the offer of $150,000 for part of Bill York’s holdings, Neil York in effect, had raised the total payment for the lands to $350,000 upon Bill’s death, in order to weaken the case that would have existed for Bill York’s daughters to gain a larger share of the estate through legal action on the grounds of unfair allocation of compensation, i.e, $50,000 for each daughter when Neil exercised his option. The law of equity upon which the Commonwealth functions, in order to address imbalances in contract laws that produce economically advantaged parties, mandated the redistribution of the proceeds from Bill’s lands to be more equitable to the daughters of Bill York, through a revocation of the Deed of Forgiveness. Hence the decision did contribute to the promotion of more efficient market outcomes, since it helped to ensure that the lands were distributed at their proper economic value based upon the evaluation process, rather than functioning as a gift given away by Bill York without due and fair compensation for the same, for distribution to his daughters. The decision from a feminist perspective The jurisdiction of equity therefore dictated that although the transaction between Bill York and Neil York did not involve deceit by common law standards, the deed of Forgiveness could not be allowed to stand because it was inconsistent with equity.30 The application of the equitable doctrine is especially relevant from a feminist perspective and has been elucidated in the case of Garcia v National Australia Bank Ltd, in the use of superior bargaining power by one party to the detriment of another party who is in a dependant or disadvantaged position31 From a feminist standpoint, earlier contract theories of “laissez faire” have been traditionally in favor of the stronger party, and remedies within the Australian legal system are limited.32 The legal position in regard to women has been that the home is a private sphere where the law may not intrude in order to enforce contracts in the same manner as commercial contracts may be enforced33. According to Lord Denning, “as a matter of common fairness, it is not right that the strong should be allowed to push the weak to the wall.”34 Within a domestic situation, the oppression of the female member by the male is rarely redressable through channels of law, as was the case with Maria who was promised money for a holiday by her husband if she stayed home, only to be denied it when the time came.35 Hence, due to the inequality of bargaining power in the case of females, the doctrine of equity states that a contract is rendered liable if; “without independent advice,  (a party) enters into a contract which is very unfair  or  transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him for the benefit of the other.”36 This is particularly relevant in the case of William York, who adhered to old fashioned gender bias and did not treat his wife or daughters on an equitable basis throughout his lifetime. He was more inclined to favor Neil since he did not have a son of his own, and although he may have formulated his will on his own without any undue duress from Neil York, nevertheless, he was guilty of violation of the doctrine of equity through the transfer of his property for a sum that was “grossly inadequate” in terms of making a fair and equitable provision for his daughters in terms of the present day values of the land and in handing over to Neil an unfair advantage, by virtue of his position of dependence and attachment for Neil. The doctrine that has established “special equity” for wives in order to compensate for gender imbalances was first set out in the case of Yerkey v Jones37, wherein a wife can have a transaction set aside if she can prove that she did not understand the nature of the transaction. However, this doctrine as enunciated by Dixon J, did not represent the ratio decidendi of the case and was therefore not construed to set legal precedent.39 But this special equity of a wife was again referred to in the case of Garcia vs. National Australia Bank Ltd in the joint judgment of Gaudron, McHugh, Gummow and Hayne JJ, where the judges were of the opinion that the principles of equitable treatment of wives as laid out by Dixon J have as much application today as they did back then.40 The doctrine of constructive notice that was a reinforcement of the same principle was laid out in the case of Barclays Bank Plc vs. O’Brien38 whereby a wife can have a transaction set aside if a third party had knowledge of any mala fide action on the part of her husband against her. These cases have some relevance in the Bridgewater case as well, since Bill York, who was old fashioned in terms of gender bias, did not see fit to inform either his wife or his daughters of the option that he was providing for Neil in his will. The cases cited above have been mostly concerned with the attainment of fairness. While it may have been true that Bill York harbored a fondness for Neil and preferred him to be the owner of his holdings in order that they be retained in one piece rather than being distributed four ways, nevertheless the provision of $50,000 apiece for land that was valued at a much higher price and should have netted a much larger sum for his daughters was an unconscionable act that was not consistent with the attainment of fairness. These are the kind of cases where the Commonwealth has deemed it fair to intervene and eliminate the kind of leverage that has been granted to certain stronger parties by virtue of the theories of contract that have hitherto prevailed, which have not been strictly executed according to the free and fair will of all the parties concerned but rather from the position of strength of a particular party. In this instance, the party in the position of strength was Neil York who did not hesitate to make use of his Uncle’s dependency on him and of his Uncle’s chauvinistic views to acquire the substantial holdings at a value that was far below the market price via the Deed of Forgiveness. Hence the revocation of the Deed of Forgiveness was an equitable measure that brought about a measure of justice and fairness to the transaction/contract between Neil York and William York, both in terms of the promotion of efficient market outcomes and well as ensuring equity from a feminist perspective for the wife and daughters of William York. Bibliography 1 Bridgewater v Leahy [1998] HCA 66 (22 October 1988). 2 Davies v LittleJohn (1923) 34 CLR 174 at 185 3 Singer v Berghouse (1944) 181 CLR 201 at 208-212, 218-220, and 224-227. 4 Section 7 of the Sale of Goods Act (NSW), See endnote 4 5 Section 13 of the Sale of Goods Act (1923) NSW, see end note 5 6 Constitution of the Commonwealth at Section 51 (31), see end note 7 (i) Mutual Pools & Staff Ltd v The Commonwealth (1994) 179 CLR 155 (ii) Georgiadis v AOTC (1994) 179 CLR 297. 8 Ziff, B, 1993. “Principles of Property Law” Toronto: Carswell, pp 6-27. 9 Birks, PBH, 1989. “An Introduction to the Law of restitution” Oxford: Oxford University Press, Chapter 1. See End note. 10 Statement of Deanne and Gaudron JJ in the case of Mutual Pools and Staff Pty Ltd v FCT (1992) 173 CLR 450. See endnote. 11 Nelungaloo v Commonwealth (1948) 75 CLR 495 at pages 541-2, 569 cf. pages 547-8. 12 Paterson J, Robertson A & Heffey P, 2005., "Principles of Contract Law", 2nd ed, Sydney, pp 6 13 Baumann, Richard W, 2002. “Ideology and Community in the First Wave of Critical Legal Studies” Toronto: University of Toronto Press, pp 84 14 Smith, Stephen A, 2004. “Contract Theory: Oxford: Oxford University Press, pp 3 15 Fried, Charles, 1982. “Contract as Promise” Boston: Harvard University Press, pp 9-17. 16 Barnett, Randy E, 1999. “Contracts Cases and Doctrine, 2nd Edition” Little Brown and Co. pp 614-36 17 Barnett, Randy E, 2002. "Consenting to Form Contracts" 71 Fordham Law Review 627, pp 635-36 18 Kinsella, Stephan N, 2003. “A Libertarian theory of contract: title transfer, binding promises and inalienability” Journal of Libertarian Studies, Vol 17, No: 2, pp 14, 16 18 Kinsella, Ibid at pp 15 19 Barnett, Randy, 1992. “Rational Bargaining Theory and Contract: Default Rules, Hypothetical Consent, the Duty to Disclose, and Fraud,” Harvard Journal of Law & Public Policy 15, pp. 783–803; 20 Rothbard, Murray N, 1962. “Man, economy and State” Los Angeles: Nash Publishing, pp 153. 21 Statement of Rimer J in the case of Clarion Ltd v National Provident Institution (2000) 2 all ER 265 22 Phang, Andrew, 2002. “Commercial certainty, Mistake, Unconscionability and Implied terms.” Journal of Obligations and Remedies, pp 21-27 23 (a) HECEC Australia Pty Ltd v Hydro-Electric Corp (1999) ATPR 46-196; (b) Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37 24 Murphy v Overton Investments Pty Ltd [2001] FCA 500 at pg 158 25 (a) ACCC v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491; (b) CG Berbatis Holdings Pty Ltd v ACCC [2001] FCA 757; and (c) (c) ACCC v Samton Holdings Pty Ltd [2002] FCA 62. 26 Commercial Bank of Australia Ltd v Amadio, (1983) 151 CLR 447 27 Mason, Sir Anthony, 1994. ‘The Place of Equity and Equitable Remedies in the Contemporary Common Law World’, 110 Law Quarterly Review 238, pp 248-249 28 Louth v Diprose (1992) 175 CLR 621 at 626, 629-630, 637-638, 643. 29 “Undue influence and Financial exploitation”, No Date. Issues on Ageing, Vol 14, No: 2. 30 Beale, Ian, 1999. “Unconscionability in equity and under the Trade Practices Act 1974” NLR 1 31 (1998) 155 ALR 614 32 The Contracts Review Act 1980 NSW and the Trade Practices Act 1974 Cth. 3.  See for example, the case of Mabo v Queensland  No 2 (1992) 107 ALR 1. 33 Graycar, R and Morgan J, 1990. he Hidden Gender of Law. The Federation Press, pp 36. 34 Hillman, R, 1988-89. "The Crisis in Modern Contract Theory" Texas Law Review . See also Walton Stores (Interstate) Ltd v Mahers 35 Clarke, Kristy, 1994. “A “Near’ Contract experience” Feminist Jurisprudence. Vol I, Number 3. 36 Chin, N, 1985. "Unconscionsble contracts in Anglo-Australian Law"  16 Western Australian Law Review 164 37 (1939) 63 CLR 649. 38 (1994) 1 AC 180 39 (1996) 39 NSWLR 577 at page 598. 40 1998) 155 ALR 614, see page 619 Endnotes. 4. Section 7 of the Sale of Goods Act (1923) of New South Wales states as follows: “Capacity to buy and sell is regulated by the general law concerning capacity to contract and to transfer and acquire property: Provided that where necessaries are sold and delivered to a person who, by reason of mental incapacity or drunkenness, is incompetent to contract, the person must pay a reasonable price therefor.” 5. Section 13 of the Sale of Goods Act (1923) of NSW states as follows: “The price in a contract of sale may be fixed by the contract, or may be left to be fixed in manner thereby agreed, or may be determined by the course of dealing between the parties. (2) Where the price is not determined in accordance with the foregoing provisions, the buyer must pay a reasonable price. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. “ 6. Section 51 (31) of the Constitution of the Commonwealth, attributes power to the Common wealth to legislate in respect of “(xxxi) the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws.” 9. According to the formula set out by Birks’ theory, a Plaintiff may sue on the grounds of unjust enrichment where there has been (a) an enrichment (b) the enrichment accrues to the Defendant (c) the enrichment occurs at the expense of the plaintiff and (d) the enrichment occurs in unjust circumstances. 10. At page 184-185 of the case of Mutual Pools and Staff Pty Ltd v FCT (1992) 173 CLR 450, Deanne and Gaudron JJ stated as follows: “….the word "acquisition" is not to be taken to be pedantically or legalistically restricted to a physical taking of title or possession. Once it is appreciated that "property" in s 51 (31) extends to all types of "innominate and anomalous interests" it is apparent that the meaning of the phrase "acquisition of property" is not to be confined by reference to traditional conveyancing principles and procedures.” Read More