Badman v Drake

[2008] NSWSC 1366

CITATION:	Badman v Drake [2008] NSWSC 1366
HEARING DATE(S):	3-6 November 2008
JUDGMENT DATE :	19 December 2008
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Order that the first and second defendants pay to the plaintiff by way of equitable compensation the sum of $378,623.19 plus interest charged on the relevant property.
CATCHWORDS:	EQUITY [49]- First and second defendants act as joint executors, guardians and attorneys for elderly plaintiff- First and second defendants in financial difficulties with reverse mortgage on their property- Plaintiff allegedly made a monetary gift to the first and second defendants so that they can purchase back their property in their names in return for them caring for the plaintiff- Plaintiff never received independent legal advice- Held on facts that the transaction must be set aside for equitable fraud and undue influence.
CASES CITED:	Laskar v Laskar [2008] 1 WLR 2695
PARTIES:	Dorothy Badman (P) Lawrence Drake (D1) Judith Drake (D2) Wight & Strickland Pty Ltd (D3) Peter Zacharatos (D4)
FILE NUMBER(S):	SC 3733/08
COUNSEL:	J C Kelly SC and S J Duggan (P) D L Williams SC and S W Balafoutis (D1 & 2) H K Insall SC (D3 & 4)
SOLICITORS:	Gibsons Lawyers (P) Wight & Strickland (D1 & 2) Hugh & Associates Lawyers (D3 & 4)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Friday 19 December 2008

3733/08 – BADMAN v DRAKE

JUDGMENT

1 HIS HONOUR: This is an elder law case in which an 87 year old lady seeks to recover property which she once owned but which is now owned by the first and second defendants.

2 By order of 18 September 2008, a preliminary question was posed for decision, viz:

(a) the claim for relief contained in paras 1 to 10 of the amended statement of claim (now the further amended statement of claim);

(b) the allegations contained in paras 1 to 20 of the pleadings and particulars; and

(c) the issue contained in paras 2, 3 and 4 of the reply to the defences of the first and second defendants.

3 When making this order, Palmer J noted the undertaking of the third and fourth defendants to be bound by the result of the determination of the preliminary issue and by any issue estoppels which may arise in the determination of the preliminary issue.

4 The preliminary issue came on before me 3, 4, 5 and 6 November 2008. Mr J C Kelly SC and Mr S J Duggan appeared for the plaintiff, Mr D L Williams SC and Mr S W Balafoutis appeared for the first and second defendants. Mr H K Insall SC did actually appear for the third and fourth defendants at the hearing. He took little part in the proceedings but did make some submissions. He was present virtually throughout the proceedings.

5 Essentially paras 1 to 20 of the further amended statement of claim allege that the first and second defendants had been the plaintiff’s attorney under power granted on 20 June 2007. In January 2008, the first and second defendants were in occupation of a property at Rouse Hill. There was a threat to that occupation. It is alleged that the plaintiff authorised the first and second defendants to purchase that house in the plaintiff’s name so that the first and second defendants could care for the plaintiff in that house and pay her rent for her retirement and living expenses. However, what in fact happened was that the first and second defendants took title in their own name.

6 Then it was alleged that in mid-January 2008, the first and second defendants insisted that the plaintiff’s financial adviser sell all her shares and place the proceeds of about $260,000 into the plaintiff’s bank account from which the first and second defendants in due course removed the money for their own purposes.

7 I need to give some further background details. It appears that at some time in the past, the first and second defendants owned the Rouse Hill property in fee simple. They got into financial difficulties. Although this is a little obscure, it would seem that they entered into a reverse mortgage type transaction whereby they sold their property to a company controlled by a Mr Shoostovian, who had a group of companies including AS Group Nominees Pty Ltd (AS).

8 The transaction with AS was that AS became the proprietor in fee simple of the Rouse Hill property and mortgaged it to La Trobe Capital and Mortgage Corporation Ltd and obtained money which it then passed over to the first and second defendants as the purchase price. The “purchase price” was less than the full value. Whilst the fee simple was vested in AS, the first and second defendants had a 50 year lease at a relatively nominal rental. It would seem that at all material times AS regarded the transaction as a mortgage.

9 In November 2007, Mr Shoostovian himself was in financial difficulties and his mortgagees were threatening to take possession. There was about $343,000 owing on the mortgage. The first and second defendants considered the property to be worth about $525,000. Mr Shoostovian made it known that he was willing to transfer the fee simple for the amount owing to his mortgagee even though the property was worth about $182,000 more. Whether this was out of the goodness of Mr Shoostovian’s heart or because he understood that the transaction was really one of mortgage is of no moment.

10 The plaintiff is now aged 87. Although she gave evidence before me, she is currently not in a state where she would be instantly recognised as having any capacity to enter into any legal transactions. However, her mental state in January 2008 may not have been as dire.

11 The plaintiff seems to have lost her driver’s licence about four years ago and so became dependent on others, in particular people to take her shopping etc. She became friendly with the second defendant.

12 The second defendant says that she met the plaintiff as a customer in her beauty salon and they became friendly because conversations showed they had similar childhoods and similar interests. She also found out that the plaintiff knew her grandmother and cousin.

13 She says that the plaintiff informed her that her son had walked out on his wife and children without warning. She had sided with her daughter-in-law when her son obtained his divorce, her prime motive being to keep contact with her grandchildren. However, her son then refused to have much contact with his mother. Accordingly, apart from playing bowls with friends, the plaintiff was very lonely.

14 The second defendant developed breast cancer in December 2003 and closed her salon and stopped working full-time.

15 She saw more and more of the plaintiff and started helping the plaintiff with her shopping and transport to medical appointments etc. In May 2006, the first and second defendants were appointed joint executors, joint attorneys and joint guardians of the plaintiff together with Mr William Mills, the plaintiff’s accountant. At that stage Carol Flanagan was the plaintiff’s solicitor. The first and second defendants would have me accept that Carol Flanagan urged them to become the plaintiff’s attorneys under power even though they really did not want to do it.

16 In about Easter 2007, the plaintiff had a heart attack and was taken to the Sydney Adventist Hospital at Wahroonga. The first and second defendants visited her there and the second defendant says that the plaintiff said to her that her son David and his second wife came to visit her the previous day. She said: “They knew I was here because Margaret my cleaning lady told them. They spent the whole time being very unpleasant and very unsociable and making me upset. I don’t think he regards me as family or his mother. I think he only came to see me because he thought I was dying.”

17 The second defendant says that in June 2007 Carol Flanagan, the plaintiff and the first and second defendants had a discussion at the plaintiff’s house. She says that Carol Flanagan said: “David is no longer in Dorothy’s will. Judith [ie the second defendant] could you please help Dorothy prepare some notes explaining why Dorothy does not want them to receive anything from her estate after her death. I would like to put those notes on file.”

18 The second defendant says that the plaintiff dictated her recollections of events with David. The second defendant typed them out, read them over to the plaintiff who corrected them and the plaintiff said: “Yes that’s right. That’s what happened.” The notes are in evidence as AX 124 though to 126.

19 The second defendant says that in about early September 2007, the plaintiff fell ill and went to the Sydney Adventist Hospital and then was transferred to Lady Davidson Rehabilitation Centre in Turramurra. In November 2007 she was transferred to the Mowll Village in Castle Hill for full time respite care.

20 The second defendant says that during the time the plaintiff was in hospital, she and her husband visited the plaintiff almost daily. She invited the plaintiff to stay with them for a few weeks and also over Christmas.

21 The second defendant said that she and her husband returned from holiday in mid-December 2007 and found a message from Mr Shoostovian that he could no longer carry their mortgage because of his own financial problems. This upset the second defendant who was crying and she said that the plaintiff saw her crying and asked what the problem was. The first and second defendants told the plaintiff about their problem. The plaintiff asked how much it would cost to pay out the mortgage and was told about $343,000. The plaintiff said that she had that amount and that she would give it to them “to buy our house back”. The second defendant said that her husband told the plaintiff: “As there is so much money involved I should contact Carol Flanagan to tell her this wonderful news” to which the plaintiff said: “Why phone Carol can’t I just draw it out and give it to you and you give it to Armond (Shoostovian).”

22 The second defendant says that on 7 January 2008, there was a meeting at a coffee shop at West Pennant Hills with Carol Flanagan, the plaintiff and the first and second defendants. The first defendant showed Carol Flanagan a copy of the plaintiff’s bank statement and her share portfolio and indicated what the plaintiff was intending to do and the second defendant said that Ms Flanagan said it was all very complicated. The first and second defendants impressed on Ms Flanagan that they had a need to move quickly because they were at risk of losing their home and they wanted to keep things simple. Ms Flanagan said to the plaintiff: “Did you understand any of this?” and the plaintiff allegedly laughed and said: “Of course, I haven’t, not all of it” and the second defendant said she understood that because she found it difficult herself.

23 Ms Flanagan who gave evidence for the plaintiff said that in early January 2008 she received a phone call from the first defendant who said: “A miracle has happened. We were at risk of losing our home but Dorothy Badman has offered to buy it back for us.” She then had a meeting with the first and second defendants and the plaintiff which lasted about two hours at which she said: “I would advise Dorothy Badman against entering into any agreement which requires the expenditure of a considerable amount of her assets if her interests are not protected.” The first defendant said: “We don’t want you to complicate matters.” Ms Flanagan said she advised the first and second defendants they should get independent legal advice as they had a conflict of interest and gave them the name of Mr Michael Mattick, a local solicitor.

24 Mr Mattick’s diary note of 11 January 2008 shows that it was put to him by Carol Flanagan that there was a proposal from the first and second defendants and the plaintiff that the plaintiff give the first and second defendants $343,000 to enable them to re-own their home on the basis that they would agree to continue to care for the plaintiff until her death. He noted that Carol Flanagan asked whether he would act for the first and second defendants and he said he would be prepared to do so on the usual commercial basis. The note continues:

“Carol indicated that she would not be prepared to rely on Dorothy’s instructions but intended speaking to Dorothy’s GP. I suggested to Carol that the deal could probably only go through safely for her as Dorothy’s solicitor if the Protective Commissioner was managing Dorothy’s affairs and agreed to the transaction. I suggested that it was unlikely that the Protective Commissioner would agree to Dorothy just giving the Drakes the $343,000 but might possibly agree to an arrangement where that amount was lent to the Drakes by Dorothy on a commercial basis secured by first mortgage against the home.”

25 Carol Flanagan’s diary note of 11 January 2008 shows that she obtained estimates of the cost of having the Public Trustee or someone of that ilk manage the plaintiff’s affairs and her note is as follows (TB246):

“343K fraught with danger. Tribunal would not approve [illegible] Legal situation if decisions not in best interests of client nor her capacity.”

26 The tender bundle (TB270) contains a fax to Mr Mattick from the first defendant of 17 January 2008. There is a file note of Mr Mattick dated 18 January 2008 saying that he advised Ms Flanagan that the first and second defendants were happy with an arrangement whereby the plaintiff and the first and second defendants would acquire the property in joint names as tenants in common in the proportions of their contributions, the first and second defendants’ contribution being $180,000 equity that they already had in the home and the plaintiff’s contribution being $345,000. However, Carol Flanagan was going to get further material with respect to the plaintiff’s capacity and thought that the Protective Commissioner may have to be involved.

27 By late January 2008, the first and second defendants decided that the solicitors were too slow and too expensive and were just putting difficulties in the way of a straightforward transaction and that they should plot their own course.

28 Ms Flanagan had written to the solicitors for AS to find out whether the plaintiff could buy the Rouse Hill property and the solicitors for AS, Wood Marshall Williams, sent a contract in the 2005 edition of the standard form to Ms Flanagan. The purchaser was shown as “Dorothy Bradman”. However, as she was virtually removed from the position nothing happened with this contract.

29 The first and second defendants made contact with the mortgagee’s solicitors, Wood Marshall Williams.

30 The mortgagee’s solicitors acquainted the first and second defendants with advice that the property could be sold to them, but the intended settlement date was 4 February 2008. This occurred about 22 January 2008.

31 At about the same time as the first and second defendants were thinking of dispensing with the services of solicitors, the question appears to have come up in their minds as to whether there should be a “special clause” in the contract. TB284 is a note which bears a handwritten date of 22 January 2008 which reads:

“Dorothy, Judith and I discussed a possible clause to be incorporated into the Contract of Sale for the property so that it would show the true intent of the three of us and this follows.”

32 The clause was on a separate piece of paper and was as follows:

“ SPECIAL CLAUSE
TO BE INCORPORATED INTO THE CONTRACT FOR SALE

In consideration of Dorothy Badman’s extremely generous offer and insistence to finance the purchase of the dwelling at … Rouse Hill NSW 2155 by Judith Evangeline Drake and Lawrence Allan Drake, for an approximate sum of $350,000, from Armond Shoostovian and/or his Company, AS Group Nominees Pty Ltd
The said Judith Evangeline Drake and Lawrence Allan Drake hereby promise and solemnly declare the following:-
To continue looking after and be responsible for the well-being and happiness of Dorothy Badman and for the three of them to live together at …. Rouse Hill. If at any time in the future, by reason of serious ill health or serious incapacitation or serious deterioration of all or any one of them and if virtually forced to go into some kind of Care Facility, Hostel or other similar establishment, then the remaining one or ones will continue to look after the interests and welfare of the other or others, including regular visits and outings for as long as they are able.”

The document is signed by all three with the date 26 January 2008.

33 As pointed out during cross-examination of the first and second defendants, the document in fact also requires the plaintiff to look after the first and second defendants if they fall into ill health.

34 The note referred to in [31] above, which was dated 22 January 2008, continued:

“Later on however, Dorothy said:- ‘I don’t want any funny things put into the Contract’ because she also indicated that she wanted no restrictions or other things included as she was happy to simply finance the purchase of the house for us and she would trust us to carry out our promise to look after her in our home for as long as we were able to do so and for as long as Dorothy was wishing to stay provided that if Dorothy became ‘too much trouble’ to use her own words, then she would understand that eventually she would probably have to go into a Care Facility of some kind and she trusted us to still keep in touch, if this happened and to visit her regularly.
As we know we would keep our promise anyway, irrespective of a piece of paper that said we would do so we agreed not to ask you, Charles, to incorporate this special wording into the Contract of Sale.”

The “Charles” referred to was a partner in the mortgagee’s solicitors’ firm.

35 It is difficult to reconcile the note which bears date 22 January 2008 which allegedly retracted the “special clause”‘ of 26 January 2008, ie made four days later.

36 There is another note to say that:

“After Carol Flanagan said we had ‘initiated’ the idea of Dorothy buying the house for us whereas the reverse was the case, we decided to ask three very long-standing friends of ours to vouch for our integrity….”.

There are then attached three references, two from ministers of religion and one from a GP. These do appear to be a case of equitable fraudsters trying to pull themselves up by their own bootstraps.

37 On 30 and 31 January 2008 there was correspondence between the first and second defendants and the solicitors and a letter from the plaintiff to Ms Flanagan. Mr Mattick got the impression (probably rightly), that the first defendant was asking him to put through an unethical transaction on the basis that Mr Mattick would be “let off the hook” or would be absolved for any responsibility in an unethical transaction. Mr Mattick refused and declined to act further.

38 On 31 January 2008, there is a letter in the plaintiff’s handwriting to Ms Flanagan saying that:

“As you have not contacted me since 7/1/08 time has run out. Please cease to act for me in this matter as I have made other arrangements.”

39 There is also a diary note to Mr Mattick noting that on 31 January 2008 Carol Flanagan had received a fax from the plaintiff withdrawing her instructions. The diary note also says: “I advised that my instructions had also been withdrawn.”

40 Mr Mills, the plaintiff’s accountant, gave evidence that he had for some time been the plaintiff’s accountant and held a power of attorney together with her friend Mrs Deidre Jones. During January 2008 he said that the first defendant attended his office unannounced and insisted that the plaintiff was concerned about the market forces and wanted to cash in her portfolio. Mr Mills said he felt frustrated in not having the opportunity to speak to the plaintiff, but was bound by the signed authority. He sold down the plaintiff’s portfolio and converted it to cash. From 21 January 2008 the first defendant telephoned him regularly to see if the funds would be transferred as soon as possible.

41 Whilst it may be the case that in hindsight it was wise to sell down the shares, the first defendant could not explain why it was to the advantage of the plaintiff to break term deposits and other deposits which cost the plaintiff a penalty.

42 These were the monies that went into the account at the National Australia Bank to enable the property to be purchased.

43 Thereafter the first and second defendants called upon the mortgagee’s solicitors and saw a young woman who was not then a solicitor but was admitted as a solicitor within a month afterwards. Initially a contract had been prepared for the plaintiff with a purchase price of $350,830.40 being the amount owing to the mortgagee. However, a new contract was drawn up in which the purchasers were shown as Lawrence Allan Drake and Judith Evangeline Drake, the purchase price now being $356,231.92.

44 The plaintiff had an account with the National Australia Bank at Rouse Hill. She appears to have written a cheque on her account in favour of the mortgagee’s solicitors, Wood Marshall Williams for the deposit on the Rouse Hill purchase, $35,623.19.

45 The plaintiff said that the cheque of 1 February 2008 whereby she paid the deposit is not in her writing though she recognises her signature on the cheque. She also says that she cannot remember signing any “special clause”.

46 The cheque was sent to the mortgagee’s solicitors who issued their trust account receipt to the plaintiff, though calling her “Mrs Bradman”.

47 The young woman who was dealing with the transaction at the mortgagee’s solicitors swore that on the morning of 1 February 2008, the first and second defendants and the plaintiff visited her office. The revised contract was handed to the first and second defendants and they were then sent to an independent solicitor across the road to be advised as to their rights. The solicitor gave the certificate required and they returned.

48 The young woman says that whilst the first and second defendants were across the road she assisted the plaintiff to the bathroom and whilst the plaintiff did not comment on the transaction she thanked the woman for her assistance in helping her.

49 When the first and second defendants returned, the four of them went to the boardroom, and the first defendant said: “The Badman family has turned their back on Dorothy. We have been looking after her because she prefers not to go to a retirement home and wants to live with us. By way of thanks, Dorothy has given us this money so that Judith and I might purchase back our home. We really appreciate it.” The woman looked at the plaintiff and she nodded. She then said to the plaintiff: “Are you comfortable witnessing the signature of Mr and Mrs Drake?” and the plaintiff said: “Yes”. The woman said that nothing occurred at the meeting that gave her the impression the plaintiff did not understand what she was doing or that it was against her will.

50 I should note that in cross-examination the first defendant was asked: “Don’t you remember telling the lady at Wood Marshall Williams ‘Dorothy has given us this money’?” He denied it.

51 As would be expected, the young woman faced a very torrid time in the witness box.

52 One would have hoped that had a more experienced person been acting, he or she would have handled the situation quite differently. However, not the least of the problems was that Wood Marshall Williams had received trust monies from the plaintiff and then had applied them to the first and second defendants without much, if anything, by way of authorisation.

53 Furthermore, in a situation that was fraught with the possibility of fraud, the only acknowledgement that the plaintiff thought the transaction was in order was a nod of her head when the first defendant was doing all the talking.

54 The woman gave evidence that so far as the money was concerned, she thought she was holding it on behalf of AS. She was asked how it ever became the property of the first and second defendants to which she answered: “They provided the cheque. My point of view was that I was acting for the vendor and as to where the monies came from was not my business. It was my business to document the cheque and in documenting the cheque I noted that it came from Mrs Badman and it was in relation to our client’s file being 280082 which was AS Group Nominees.”

55 The woman was asked: “Did it not occur to you that Mrs Badman was in a position where she might be taken advantage of?” The answer was unresponsive where she said: “First and foremost, I don’t think her physical inability reflects necessarily on her mental capacity.” She was then asked: “You tested her mental capacity in some way did you?” to which the answer was: “No I didn’t. I specifically did not want to cross the topic of providing advice to the Drakes or Mrs Badman.”

56 However, she did say: “I was uncomfortable with the scenario and the advice that I received from [a partner of the firm] was ‘you act for the vendor. It’s none of our business as to where all the monies are coming from or whom the purchasers are’.” If the partner in the firm was quoted correctly, that was not the advice that one would expect from a solicitor in New South Wales. Justice in New South Wales can only be achieved if all legal practitioners are sensitive to the commission of fraud. Where a professional solicitor sees an old lady of 87 who may be in a vulnerable situation, it is impermissible for any solicitor to take the view that because monies are going to flow in which are to the advantage of his or her client, that they can just close their eyes to the fraud that may be being perpetrated on the vulnerable person.

57 However, because I believe the young woman concerned was not a solicitor at the time and her terrible experience in the witness box has shown her the right course in the future, I have not named her in this judgment, nor do I think the matter should be taken any further.

58 The first defendant was cross-examined. He was asked whether he instructed anyone at Wood Marshall Williams to bring into existence a contract in the name of himself and his wife and he said that he did and it would have been before 1 February 2008. That is significant because, as I have said, only a day or two previously, he had caused the retainers of the two solicitors to be terminated.

59 The young woman at the solicitors’ office clearly remembers it and while she may have been inexperienced, she was clearly a witness of truth and on this issue had no reason to take any sides.

60 The exact legal analysis of what happened is a trifle unclear but it does not really matter very much. It may be that the plaintiff had $378,623.19 or so in Wood Marshall Williams’ trust account and somehow or other notionally gave that money to the first and second defendants who purchased the property, or the scenario could be that the money was used by the solicitors to settle the contract in the first and second defendants’ names there being a resulting trust in favour of the person who paid the purchase money.

61 The evidence of a free and willing gift of the money is sparse. If the transaction was one whereby the plaintiff’s money was used to purchase a property for the first and second defendants beneficially, then the circumstances cry out for the transaction being voidable for undue influence.

62 The conveyancing transaction was completed on 7 February 2008. In order to allow the contract to be completed, the plaintiff had to put the mortgagee in funds. She did this by writing a cheque for $343,000 and going to the National Australia Bank, Rouse Hill branch with that cheque and a deposit slip.

63 It would seem that the payee of the cheque was not completed. When the cheque was taken to the teller, a Ms Rachel Bowler, the teller treated it as a cash cheque.

64 The manager of that branch was a Mrs Todd. Mrs Todd swore that on 6 February 2008 Ms Bowler came to her and said that she had a customer who wished to make a withdrawal which was over the teller’s limit.

65 Mrs Todd noticed that the cheque was for a very large amount, namely $343,000. Mrs Todd approached the customers and spoke to the first defendant and told him that she would like to speak to the plaintiff because of the large amount of the cheque. The first and second defendants indicated that the plaintiff was sitting down close to them.

66 Mrs Todd asked the plaintiff whether she was happy with the withdrawal, to which the plaintiff said “Yes”. Mrs Todd said: “What is the withdrawal for?” The first defendant said: “It’s for the purchase of a house.” Mrs Todd said: “Are you moving?” The first defendant said: “No Dorothy is buying a house for Judith and me.” The plaintiff nodded and said “Yes”. Mrs Todd then authorised the payment of the cheque and the monies were paid into the mortgagee’s solicitors’ trust account.

67 The plaintiff was elderly and lonely; she relied on the first and second defendants to keep her out of a nursing home; she had a solicitor; the solicitor could see that the situation was fraught with difficulties; the first and second defendants had a solicitor who also indicated that the transaction needed to be handled with care. Mr Mattick advised that, at least without proper evidence of independent assessment of the plaintiff’s capacity to understand the transaction, it was at risk, but had a better chance of passing muster if the parties owned the property as tenants-in-common according to their contributions (the first and second defendants being given the benefit of the difference between the purchase price and the true value).

68 The first defendant, however, either panicked because he felt that the dates being set by the mortgagee had to be met as deadlines (lawyers could have told him they were not), or because he thought that the solicitors were interfering too much with what he considered to be a straight transaction, and as a result, chose to go ahead. He endeavoured to cover his back to a degree by the so-called special clause and in other ways, but these were quite inadequate.

69 The case is thus a classic example of a situation that needs to be set aside for undue influence.

70 Arguing against that proposition, Mr Williams put that the first and second defendants had actually done a lot of good towards the plaintiff. She had been cast aside by her son until the son realised that he was risking his inheritance until he made up with his mother. They provided her with day to day support, emotional support and a home, and naturally she felt generous towards them.

71 The first and second defendants appear to have been concerned that it was only because they were the holders of a power of attorney from the plaintiff that they were circumscribed in obtaining benefits from her. Certainly the fact that there was that power of attorney adds to the evidence that the plaintiff was a person who could expect not to be exploited by the first and second defendants, but even apart from the power of attorney, it can easily be seen that the plaintiff was a vulnerable, lonely woman who could easily be exploited.

72 It is put in Mr Williams’ submissions that entering into the arrangement was an understandable and rational decision for the plaintiff to make for a number of reasons.

73 The first reason given was that the plaintiff did not want to go into a nursing home. She could no longer live alone, and she needed someone with whom to live, and she could not live with her son because of the rift between the two of them. The first and second defendants were the only people who could take care of her. Secondly, she was only utilising $378,623.19 of her assets for which she had no need, she lived frugally and had another $600,000 in assets so that the money really was of no consequence. Thirdly, it gave pleasure to the plaintiff to help the first and second defendants. Fourthly, proposals to purchase the Rouse Hill property in the plaintiff’s name or jointly were not practical or desirable. This is said to be so because the parties did not have the necessary legal assistance to proceed in that matter and time was of the essence. Furthermore the proposal was not desirable because the plaintiff and the first and second defendants were all concerned that the plaintiff’s son would acquire her interest and make it difficult for the first and second defendants to continue living in the property.

74 None of those matters seem to me to justify what happened. In particular, had lawyers been involved it would not have been beyond their wit to see that the first and second defendants were protected from attacks by the plaintiff’s successors, by writing in the appropriate clauses in their “joint venture agreement”.

75 It is not at all unusual in undue influence cases for the persons receiving the benefit to have been generous to the person whose property they have taken. Sometimes this is out of the goodness of their hearts (as may well be the case here). Other times it is just the bait in order to secure the transaction.

76 There is no doubt that an elderly person may, if she wishes, deal with her property in any way she likes including making gifts to friends. However, as most lawyers know and as Ms Flanagan and Mr Mattick appreciated in the present case, where there is doubt about a person’s capacity, the transaction is always in some danger of being attacked unless it can be shown that the action was a free will action of the elderly person.

77 In the present case, Ms Flanagan was only prepared to act if both she and Dr Lowe, the plaintiff’s medical adviser, saw the plaintiff together and were both satisfied as to her capacity. However, the transactions took place during the Christmas/January period, and both the doctor and Ms Flanagan only had limited time in which they could arrange a joint appointment. The first defendant was not willing to wait and so he arranged a time for Dr Lowe to see the plaintiff without Ms Flanagan.

78 Dr Lowe who has been the plaintiff’s general practitioner for some years, gave evidence that she saw the plaintiff on 29 January 2008 and found that she had improved amazingly since her previous consultation. The plaintiff was walking without a stick; she had gone out to lunch; she was off oxygen and nebuliser.

79 Dr Lowe conducted a mini mental examination of the plaintiff in February and March 2008, and found that she had a very good score.

80 Had the transaction been properly explained and had there been independent advice, it may well be that there would have been sufficient material together with Dr Lowe’s advice to show that the plaintiff had capacity to do what she wanted to do. However, the transaction did not happen in the way in which the lawyers proposed it happen and it is not at all clear from the material that the plaintiff did anticipate that she would be giving away the whole of the $378,623.19 to the first and second defendants.

81 The plaintiff in her affidavit of 16 July 2008, said she did not remember very much about the situation relating to the first and second defendants. At that time she had been taken into the care of her son and his second wife. I should note that although she swore this affidavit and Ms Flanagan certified that she appeared to understand what she was swearing to, by the time she came to be cross-examined, she was in no fit situation to make any meaningful response.

82 The first and second defendants say that they cared for the plaintiff and the plaintiff was not being cared for by anybody else. They were good to her, she had capacity and she wanted to benefit them. They say that it is only now that her son has realised that there are hundreds of thousands of dollars awaiting him if he looks after his mother, that the position has changed.

83 There is something to be said for the first and second defendants’ position. However, equity works by precedent and it has almost become a rule of elder law that when one is dealing with an elderly person who is lonely and friendless, a person who befriends her must, if they are to gain a personal benefit, be extremely careful to ensure that there is no unworthy conduct.

84 The rules that have grown up are to the effect that ordinarily it is necessary for the community to be sure that there has not been undue influence over an elderly vulnerable person, for that person to have had independent advice, usually independent legal advice, and their capacity to understand is established and they freely and voluntarily wished to benefit the people who now have their property. Where the transaction involves a large amount of money for which the elderly person receives very little by way of benefit, it is even harder to ensure that the transaction is above board.

85 In the instant case, two experienced solicitors were finding their way through the situation. It may well have been that had they been left to finish what they were doing, that the scenario could have been reached whereby the first and second defendants retained their house. It may well be that the scenario towards which Mr Mattick was working, that is, co-ownership of the property at Rouse Hill, may well have been feasible. Furthermore, had time been allowed to have Ms Flanagan and Dr Lowe explain quietly to the plaintiff what was occurring and how her interests were being protected, that she may have agreed to that situation in such a way as would be binding on her.

86 However, had the plaintiff had a solicitor representing her interests, that solicitor would, like Ms Flanagan, have had to advise her strongly against the present situation which meant that she had no security at all and would have parted with a large sum of money.

87 Most of the indicia of the traditional elder law fraud case are present in the instant case. The fact that the first and second defendants were kind to the plaintiff is not unusual in this sort of case. The plaintiff got virtually nothing from the transaction, though she doubtless thought that she was getting a friendly roof over her head for an indefinite period. The transaction should be set aside.

88 When I say the transaction should be set aside, the question is what was the transaction?

89 Mr Kelly says that the transaction was the purchase of the house of Rouse Hill and that it should be held on trust for the plaintiff. When it was put to him that that would mean that the plaintiff would have a windfall because on the assumptions that have been made in this case, the house is worth $525,000 and the purchase price was $378,623.19, Mr Kelly said that the purchase price for the fee simple was $378,623.19 that was wholly paid by the plaintiff and the whole house should be held on trust for the plaintiff.

90 It seems to me that if the transaction was the purchase of the house, then as the plaintiff is seeking equity she must do equity. To make the order which Mr Kelly seeks would in reality give her an advantage of $146,376.81. This is the approach taken by the English Court of Appeal in Laskar v Laskar [2008] 1 WLR 2695.

91 If the transaction is considered to be one of a gift of money, then the problem does not arise. The order would be the repayment of the money with interest by way of equitable compensation secured on the house.

92 To my mind that is the appropriate minimum equity that the court should order.

93 Accordingly, in my view the appropriate order is that the first and second defendants pay to the plaintiff by way of equitable compensation the sum of $378,623.19 plus interest at the court rate until date of judgment.

94 Had the first and second defendants still held the Rouse Hill property, the proper order would have been to charge the amount against that property.

95 However, the further amended statement of claim pleads in para 21, that is, the paragraph not within the separate question, that on or about 23 July 2008 (that is after these proceedings were commenced on 11 July 2008), the first and second defendants purported to enter into a contract of sale with a company known as Homesafe Solutions Pty Ltd, which has been or will be added as the fifth defendant, under which they purported to sell the Rouse Hill property to the fifth defendant for $167,871 upon terms allowing them to remain in occupation.

96 At least until priorities are unravelled, an order should be made that $378,623.19 plus interest be charged on the property.

97 It is claimed that this was a clear breach of trust or fiduciary duty. It is alleged that the third and fourth defendants, a firm of solicitors and a partner in that firm, assisted the first and second defendants in their “dishonest and fraudulent design, with knowledge of their breach of trust” by acting for the first and second defendants as their solicitors.

98 These matters and how the equitable charge on the proceeds of sale is to be imposed must now be fixed for hearing. As I mentioned earlier, Mr Insall who appears for the third and fourth defendants, sat throughout most of the hearing as an observer, but took no active part. However, the arrangement was that the third and fourth defendants would be bound by the findings on the separate question.

99 The remaining matter is whether the third and fourth defendants should be liable to pay any costs that are ordered against the first and second defendants on the preliminary issue. Mr Kelly says that the third and fourth defendants exposed themselves to costs because they elected to appear when they were at liberty not to do so, and in fact played more than a watching role. Plaintiff’s counsel instanced that on day one senior counsel announced that the third and fourth defendants would be adopting the position generally of the first and second defendants. On day three Mr Insall objected to a question in cross-examination of the first defendant and caused that question to be withdrawn.

100 Mr Kelly says that exposure to costs should not depend upon the quality or quantity of the steps taken on behalf of a party; it should depend on whether the party elects to appear and take any steps at all to advance his or her interest before the court. That is what happened in this case.

101 Mr Insall submits that there is no basis for making an order for costs against his client on the preliminary issue; they are bound by the determination.

102 Costs are in the discretion of the court. There is some validity of course in what Mr Kelly puts, but it seems to me that the involvement of the third and fourth defendants’ counsel above merely observing is so minimal that I should not make an order that his clients pay the costs of the plaintiff of the preliminary issue.

103 Finally, the parties are agreed that other questions as to costs should await the examination of these reasons.

104 Accordingly, I will merely publish these reasons. The matter may be listed before me in the first week of the new term. I will list it at 9.50am on 4 February 2009 unless my Associate is advised that some other date is more convenient to counsel.

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