Christodoulou v Christodoulou

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 10565 of 2008

BETWEEN

PARASKEVI CHRISTODOULOU (BY HER ADMINISTRATOR, STATE TRUSTEES LIMITED)	Plaintiff
and
ANDREW CHRISTODOULOU	First Defendant
and
KPA LAWYERS (A FIRM)	Second Defendant

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JUDGE:	KAYE J
WHERE HELD:	Melbourne
DATE OF HEARING:	30 November – 4 December 2009
DATE OF JUDGMENT:	14 December 2009
CASE MAY BE CITED AS:	Christodoulou v Christodoulou & Anor
MEDIUM NEUTRAL CITATION:	[2009] VSC 583

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EQUITY – Undue influence – Unconscionable conduct – Transfer by gift of plaintiff’s half-interest in home to adult son – Plaintiff elderly and illiterate.

LEGAL PRACTITIONER – Second defendant acting as solicitor for plaintiff – Whether duty to advise of alternative transactions available – Whether breach of implied duty of care – Nature of damages if breach of duty.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P L Ehrlich	S Kourkoulis & Associates
For the First Defendant	Mr T P Mitchell	GPZ Legal
For the Second Defendant	Ms A M Ryan	Lander & Rogers

HIS HONOUR:

The dispute in this case arises from the transfer by the plaintiff to her son, the first defendant, of her interest in her former matrimonial home in July 2006. The proceeding is brought on behalf of the plaintiff by State Trustees Limited, which was appointed guardian of the plaintiff by order of the Victorian Civil and Administrative Tribunal on 7 July 2008. The plaintiff claims that the transfer should be set aside on two grounds, namely, that it was procured by undue influence, and, alternatively, that there was unconscionable conduct, by the first defendant. The plaintiff also claims damages against the second defendant, who acted as her solicitors in the transaction. In addition, the first defendant, by a third party notice, makes a claim for damages in negligence against the second defendant, in the event that I uphold the plaintiff’s claim against the first defendant.

The background facts are not in dispute and can be shortly stated. The plaintiff, who was born in 1923, was 83 years of age at the time of the transaction in question. She and her former husband had five children, namely, the first defendant, another son (Peter), and three daughters, Mrs Kim Fricot, Mrs Mary Kydas, and Mrs Sue Bedford. The family migrated to Australia from Greece in about 1974. For 30 years, until the breakdown of her marriage, the plaintiff and her husband had lived at their home at 20 Camden Road, Hughesdale (“the property”), of which they were the joint registered proprietors. In late 2005, the plaintiff obtained an intervention order against her husband, and he obtained a similar order against her. At the same time, her husband physically partitioned the house, forcing the plaintiff to live in the front section of the house, in difficult conditions which I shall later describe.

In September 2005, the plaintiff executed an enduring power of attorney, by which she appointed the first defendant and Kim Fricot to be her attorneys and guardians. The document comprised an enduring power of attorney, an enduring power of attorney (medical treatment), and an appointment of guardian.

In the meantime, the plaintiff and her former husband had become involved in proceedings in the Family Court. On 21 February 2006, the Federal Magistrates’ Court made orders that the property be sold, and that the plaintiff’s husband have the sole right to occupy the property pending the sale of it. On 5 April 2006, the Court made orders by consent that the property be sold by auction, and that the parties divide the net proceeds of sale equally. The orders also provided that the plaintiff’s husband was to pay the plaintiff the sum of $10,000 out of his share of the net proceeds of the sale. On 8 April 2006, the property was sold at a public auction to a nominee of the first defendant for a price of $477,000. On 16 June 2006, the first defendant and the plaintiff were substituted as the purchasers under the sale contract. Accordingly, the plaintiff and her former husband signed a transfer of land, by which they transferred the property to the plaintiff and the first defendant as tenants in common in equal shares.

On 17 July 2006, the first defendant and the plaintiff signed a deed (“the conveyance deed”), by which the plaintiff transferred all her right title and interest in the property to the first defendant. Subparagraph A of the preamble recited that the plaintiff (referred to as “the donor”) was the registered proprietor of the property. The deed referred to the first defendant as “the donee”. The recitals then continued:

“B.      The Donor has reached an advanced stage and has various health concerns requiring daily care and assistance.
C.      The Donee is the son of the Donor and has agreed to provide care and assistance to the Donor.
D.     In consideration of the Donee providing care and assistance to the Donor the Donor wishes to transfer all her right title and interest in the property to the Donee.
E.      The Donee in consideration of receiving a transfer in fee simple of the Donor’s right title and interest in the property agrees to permit the Donor to continue to reside at the property and to grant a life interest to the Donor to reside at the property and to provide daily care and assistance to the Donor.”

The operative provisions of the conveyance deed were as follows:

“1. In consideration of the Donee agreeing to:
(i)provide care and assistance to the Donor for the remainder of her life,
and

(ii)and entering into a life interest with the Donor in respect of the property
Then the Donor transfers all her right title and interest in the property to the Donee.

(2)     The Donee covenants and agrees that he shall provide care and assistance to the Donor for the remainder of the Donor’s life.
(3)     The Donee covenants and agrees that he shall grant a life interest to reside in the property to the Donor (‘the life interest’) and shall also reside in the property to provide daily care and assistance to the Donor.
(4)     The Donee covenants and agrees for the benefit of the Donor that the life interest shall continue in full force and effect and shall not be revoked or terminated in any circumstances save and except by written agreement signed by the Donor.”

On the same date, the plaintiff and the first defendant signed a transfer of land, by which the plaintiff transferred to the first defendant all her estate in fee simple in the property, in consideration of “natural love and affection”. On 11 September 2006, the transfer was registered, and the first defendant became the sole registered proprietor of the property.

For a period of about 6 weeks before the settlement of the sale of the property, the plaintiff had lived with the first defendant and his wife at their family home in Endeavour Hills. After settlement of the sale on 7 July 2006, the plaintiff returned to live in the property. In December 2006, the first defendant and his family vacated their family home, and moved into the property with the plaintiff, in order to provide an increased level of care to the plaintiff. In March 2007, the plaintiff was diagnosed with progressing Alzheimer’s disease and dementia. On 18 April 2007, the plaintiff was admitted to aged care at the Alexander Aged Care Centre. The plaintiff has resided there since. It is common ground that she was unfit to give evidence in this proceeding.

The claims

In her statement of claim, the plaintiff pleaded four causes of action, based on lack of mental capacity, non est factum, undue influence by the first defendant, and unconscionable conduct by the first defendant. In opening the case, Mr P Ehrlich, who appeared for the plaintiff, did not pursue a claim based on non est factum. In final address, he abandoned reliance on lack of mental capacity. Thus, ultimately, the plaintiff relies on two grounds, upon which she seeks to set aside the transfer of her half interest in the property to the first defendant, namely, undue influence, and unconscionable conduct by the first defendant. As I have stated, the plaintiff also claims damages against the second defendant, as an alternative to her claim against the first defendant. The first defendant also makes a claim for damages against the second defendant, which is only relevant if the claim of the plaintiff against the first defendant succeeds.

The plaintiff called two short witnesses. The first, David Wilson, is a guardian advocate employed by the Office of the Public Advocate. Mr Wilson gave evidence about some conversations which he had in 2008 which, in the upshot, were irrelevant. The second witness, Mrs Erica Horsfield, is a solicitor. She gave evidence as to the circumstances in which the plaintiff executed the power of attorney in September 2005. Mr Ehrlich also tendered three reports of Associate Professor Paoletti, a psychiatrist. Professor Paoletti had not examined the plaintiff. The views expressed by him in those reports were based on a number of documents, which had been provided to him.

Apart from that evidence, the plaintiff otherwise relied on a number of documents, and circumstantial evidence, in support of her claims. In response, the first defendant gave evidence, and called two witnesses on his behalf, namely, his sister Mrs Kim Fricot, and the plaintiff’s next door neighbour, Mrs Helen Natoli. Mr Dean Anthony, a principal of the second defendant, gave evidence on behalf of the second defendant.

No challenge was made to the credibility of any of the witnesses called at trial, either in cross-examination, or in final address. I regard each of the witnesses to have been truthful in their evidence. Mrs Natoli and Mrs Horsfield were both independent witnesses, and I was impressed with their testimony. Mrs Fricot is sympathetic to the first defendant, but I did not detect any attempt on her behalf to exaggerate her evidence, or to tailor it to fit the first defendant’s case. While the first defendant and Mr Anthony were each witnesses in their own causes, I found each of them to be honest and reliable witnesses, who did their best to be witnesses of truth. The first defendant’s evidence was, to some extent, hampered, in that his first language is Greek, and not English. Notwithstanding that handicap, he presented as a sincere witness. I gained the strong impression that the first defendant cares deeply about his mother, and he became genuinely emotional when he spoke about a number of matters relating to her condition, and in particular the circumstances in which she was effectively shut out from her own home in late 2005. I came to the conclusion, based both on the first defendant’s demeanour, and on his evidence, that in each of the transactions which were the subject of evidence, his motivation was to protect the position of his mother, and to act in accordance with her wishes.

The plaintiff’s claims – the evidence

I shall deal, first, with the claims of the plaintiff against the first defendant, before turning to the claims against, and between, the defendants. In essence, the plaintiff’s claim, that the transfer of her interest in the property to the first defendant was affected by undue influence by him, was based on matters relating to the plaintiff’s age, her lack of literacy in English, and the nature of her relationship with the first defendant. At trial, Mr Ehrlich disavowed any allegation that the first defendant had sought to exercise any actual influence over the plaintiff in relation to the transfer. Rather, it was submitted that, based on factors such as those I have just mentioned, the law presumes that the transaction was the result of undue influence, thereby placing the onus on the first defendant to prove the contrary. Mr Ehrlich submitted that the first defendant had failed to discharge that onus. Alternatively, it was submitted that the plaintiff, to the knowledge of the first defendant, was affected by a special disadvantage when making the transfer of her interest in the property to the first defendant, so that it would be unconscionable for the first defendant to have received, and to retain, the interest in the property thereby transferred to him. In final address, Mr Ehrlich stated that it was not alleged that the first defendant had exploited, or sought to exploit, that disadvantage of the plaintiff; rather, it was put that by acting as a “passive recipient” of the transfer, the first defendant was guilty of unconscionable conduct, and that the transaction should be set aside on that basis.

It is useful to first outline the evidence that was called in the trial in relation to those issues. In doing so, I shall commence by summarising the testimony of the two key participants in the transaction, the first defendant and Mr Dean Anthony of the second defendant.

The first defendant stated that in 2005 the relationship between his parents had deteriorated, to the extent that they each obtained intervention orders against the other. The effect of the orders was that the plaintiff was to live in the front half of the house, and her husband in the rear half. The plaintiff was to have access to the bathroom, kitchen and toilet facilities, which were situated in the rear part of the house. However, Mr Christodoulou barricaded the back half of the house, so that the plaintiff was prevented from using those facilities. As a consequence, the plaintiff was forced to use a bucket as a toilet. Her next door neighbour, Mrs Helen Natoli, also permitted her to use her facilities.

The first defendant described how, as a result of those circumstances, a rift occurred in the family. His sisters, Sue Bedford and Mary Kydas, stopped talking to the plaintiff, and sided with their father. During that time, the plaintiff received letters from Kyrou Lawyers, who were acting for her husband, requiring the house to be sold. The plaintiff became very upset at those letters, because she did not wish to sell the house. She said to the first defendant that she would “die” if she was moved out of her house. She stated that she had been living in the house for 35 years, and that it was close to where her clubs, church, friends and shops were.

As a result, the plaintiff and the first defendant contacted the Law Institute, and obtained the name of a solicitor to act on behalf of the plaintiff. Ultimately, they made contact with Mr Anthony. The plaintiff and the first defendant first attended the practice on 12 September 2005, when they spoke to his wife Michelle Anthony. Mr Anthony is of Greek parentage, and is fluent in Greek. Accordingly, it was arranged that the plaintiff would see Mr Anthony on 20 September. On that date, the first defendant, Mrs Kim Fricot and the plaintiff attended Mr Anthony. All the conferences with Mr Anthony were conducted in Greek.

In his evidence, the first defendant stated that, at the first meeting with Mr Anthony, they described to him the circumstances in which the plaintiff was living, and told him about the letters, which she was receiving from her husband’s solicitors. Mr Anthony advised them to arrange for a valuation of the property. As a result, a valuation was obtained from AON Valuation Services in the sum of $380,000. In the meantime, the husband’s solicitors had obtained a valuation of the property from Anderson Valuations Pty Ltd in the sum of $410,000. The husband’s solicitors wrote a letter to Mr Anthony, proposing that the plaintiff purchase the husband’s interest in the property for $197,500. The first defendant stated that at that time the plaintiff was urging him to do all he could to help her keep the house. She said to him “if I go from the house I will die”. She asked the first defendant to do his best to pay out his father’s share so that she could continue to live in the house.

As a result of that request, the first defendant met with his sister Kim Fricot and his brother Peter, to discuss with them purchasing their father’s share in the house, so that the plaintiff would be able to continue to reside in it. However, both Kim and Peter said that they did not have any funds with which they could assist. The first defendant was not employed at that time. He and his wife had some savings in the bank. He went to a number of banks, including the Bank of Cyprus, to try to arrange a loan to purchase his father’s share in the property. However, at the time of the auction sale on 8 April 2006, he had not obtained any approval for the loan.

In the meantime, the plaintiff had two stints staying in respite care, first in November 2005, and subsequently in February and March 2006. On both occasions, the plaintiff wished to return to her home. However, at the case conference in the Federal Magistrates’ Court on 21 February 2006, the Magistrate ruled that the husband should stay in the house pending its sale, and that the plaintiff should receive a sum of $300 per month out of the husband’s Cypriot pension. As a result, when the plaintiff’s respite care finished, she lived with the first defendant and his wife for a period of six or seven weeks. After that, she went into a respite care facility in Dandenong.

The first defendant gave evidence that in late 2005, when the plaintiff was living in the front part of the house, and was prevented from using the facilities in the back of the house, she became very upset at night. As a result, she would on occasions call the ambulance or the police. Sometimes, she would telephone the first defendant, who would go to her house, and calm her down. Subsequently, in 2006 when the plaintiff stayed with the first defendant in his home in Endeavour Hills, there were further occasions when she would have the same type of episodes at night. On those occasions, she would become angry and anxious that she was not permitted to live in her own house.

After the auction, the plaintiff and the first defendant engaged Mr Anthony to do the conveyancing in respect of it. In the meantime, the plaintiff’s application for a loan of $100,000 from the Bank of Cyprus was approved. The first defendant and his wife mortgaged their home at Endeavour Hills as security for that loan.

The first defendant gave evidence that on the day on which the sale of the property settled (7 July 2006), he picked up his mother from the respite care home in Dandenong, and took her to the property. When they arrived, they found that the house was in a particularly bad state. It appeared that the premises had been vandalised by the plaintiff’s husband and her daughters. The first defendant urged the plaintiff to return to his home with her, until the house was cleaned up. However, the plaintiff steadfastly refused the urgings of the first defendant, and insisted that she stay in her own home, notwithstanding that it was in a state of total disarray.

For the next six months, the plaintiff lived alone in the property. She was very happy to be back home, and she thanked the first defendant and his wife, on a number of occasions, for helping her to come back to the house. During that time, the plaintiff returned to her routine of going to the shops, meeting her friends, and going to the clubs. The first defendant stated that his mother did not need help all the time. He went there a few times a week to help clean the rubbish and the mess, and to assist his mother.

The first defendant stated that he first had a discussion with his mother, about transferring her half interest in the house to him, after the auction. That conversation occurred when they were at the solicitor’s office. On that occasion, Mr Anthony discussed with the plaintiff how such a transaction might be structured, and he told her about “the granny flat” rules of Centrelink. Referring to the deed signed on 17 July 2006, the first defendant stated that it was Mr Anthony who suggested that such a document be signed. The plaintiff had stated to Mr Anthony that she wanted to give the first defendant her share of the house. The first defendant stated that on the weekend before the deed was signed, his sister Kim told him that the plaintiff had asked her to take her to the solicitor, and that the plaintiff also wanted the first defendant to attend. Kim did not explain to the first defendant why the meeting was to take place. When the first defendant arrived at the office of Mr Anthony, he saw his sister Kim in the reception area. Kim told him that the plaintiff was in Mr Anthony’s office speaking to Mr Anthony. After a while, the plaintiff came out of that office, and Mr Anthony called the first defendant in. Mr Anthony explained the deed to the first defendant, and said, “Your mum wants to give you her share of the house because you’re the one who looks after her, you’re the one who helps her all the time”. He told the first defendant that the plaintiff was very happy to do that, that she was very angry with her daughters, and that she did not want them to get anything. As a result, the first defendant signed the deed.

In cross-examination, the first defendant agreed that the deed was an important document, and that the contents of it were truthful. He stated that in addition to gifting to him her half share in the property, the plaintiff also gave him the $10,000, which she received from her husband in the matrimonial settlement. He agreed that the plaintiff had significant trust and confidence in him as a son. The first defendant stated that, notwithstanding the recitals in the deed, the plaintiff was not dependant on him for her care. Sometimes his wife and he took food to his mother, but she had a portable stove at the house when she was locked out of the kitchen, and she used it to cook for herself. The first defendant also agreed that the plaintiff had been very keen to stay in the house, and that she was particularly grateful to him for buying out her husband’s share in the property. The first defendant stated that he did visit his mother two or three times per week, when she was staying in the house, but she did not need daily care and assistance at that time.

Mr Ehrlich cross-examined the first defendant about the contents of an aged care report dated 12 October 2005, which he had signed. The document was compiled by two persons, who were described in the form as “ACAT Team”. The first defendant stated that he had read the document before he signed it, to make sure it was correct. He stated that although the document noted that he and his wife were carers of the plaintiff, nevertheless at the time he was not providing daily care to his mother. He further stated that although the document referred to the plaintiff having some periods of confusion, he himself had never observed his mother in a state of disorientation or confusion.

The first defendant further agreed in cross-examination that Mr Anthony sent letters, addressed to the plaintiff, to his address. He said that that was so, because his mother was concerned that his father would intercept those letters, if they were sent to the property at Hughesdale. The first defendant stated that he would translate the letters to his mother, and discuss them with her. He agreed that some handwritten notes, which were recorded on the letters, indicated that at times he communicated his mother’s instructions to Mr Anthony on the telephone on her behalf.

I shall next summarise Mr Anthony’s evidence. Mr Anthony confirmed that, from September 2005, he acted for the plaintiff in relation to her Family Law dispute with her husband. From the outset, the plaintiff was adamant that she wanted to stay in the house for the rest of her life. She was particularly concerned that she be able to do that. She said that she would find it difficult to live comfortably, if she was forced to leave the home. The plaintiff told Mr Anthony that she was seeking her children’s assistance to try to keep the house. She told Mr Anthony that if any of her children could help her retain the house, she would look very favourably on them.

Mr Anthony explained that during the first conference, it became clear that the plaintiff lacked skills in the English language, so that she would not be able to understand any letters he sent to her. Consequently, it was agreed that all correspondence would be sent by Mr Anthony to the first defendant, so that he could translate the letters to the plaintiff.

In a subsequent meeting with the plaintiff and the first defendant, Mr Anthony discussed with them the offer, made by the husband’s solicitors, that the plaintiff buy out the husband’s share for $197,500. The plaintiff rejected that offer, on the basis that she was only prepared to pay one half of the AON Valuation, which would mean that she would pay $7,500 less than that proposed by the husband’s solicitors.

Mr Anthony then stated that the husband issued an application in the Federal Magistrates’ Court, seeking a division of the property. That application was supported by a detailed affidavit sworn by the husband. In response, Mr Anthony conferred at length with the plaintiff, and prepared a detailed affidavit for her. The affidavit went through a number of drafts, as Mr Anthony was concerned to ensure that it complied with his client’s instructions. He stated that during that process, the plaintiff was focused on the responses she made, and that she displayed good powers of memory. She understood the matters on which she needed to give instructions, and she gave clear and coherent instructions to him. I interpolate that a copy of the affidavit was tendered in evidence. As stated by Mr Anthony, the affidavit contains matters of substantial detail, as to the history of the plaintiff’s relationship with her husband and her family.

Mr Anthony then described the outcome of the case conference on 21 February 2006, which was attended by the plaintiff, the first defendant, Kim Fricot and (he thought) also Peter Christodoulou. He described the conciliation conference on 5 April 2006, and the outcome of that conference.

Mr Anthony stated that before the auction, which was held on 8 April, the first defendant attended at his office, and spoke to their conveyancing clerk, Effie Karas. The first defendant stated that he would bid for the property at the auction, and he arranged for the conveyancing department of the second defendant to prepare an authority appointing a friend, Arthur Papageorgiou, as their agent.

Mr Anthony then described the circumstances of a meeting, which he had with the plaintiff and the first defendant on 17 May 2006. Before that meeting, he was contacted by the plaintiff, who told him that she wanted to come and see him. She did not tell him what the meeting was to be about. Mr Anthony made a detailed file note of the meeting, which was tendered in evidence. At the commencement of the meeting, the plaintiff emphasised that she did not want her daughters, Mary and Susie, to be able to get her half share of the property. She told Mr Anthony that the first defendant had helped her keep the property, that the first defendant and his wife looked after her, and that her other children were not interested. She told Mr Anthony that she wanted to give her half share in the property to the first defendant. Mr Anthony stated that the plaintiff expressed that desire as a very strong recognition of what the first defendant had done to help her keep the house. She wanted to recognise that, by gifting her interest in the property to the first defendant.

When the plaintiff raised that matter, Mr Anthony wanted to make sure that the plaintiff fully understood what she wanted to do. He therefore suggested that if she was intending to benefit the first defendant, she might achieve that purpose by making a will in his favour. The plaintiff responded by asking whether that course would guarantee that Mary and Sue would not get any part of the property. In response, Mr Anthony advised her about the provisions of Part 4 of the Administration of Probate Act. The plaintiff stated that she did not wish there to be any circumstance, in which her daughters would be able to obtain any benefit from her estate. Mr Anthony stated that if she did make a completed gift, it would be difficult for Mary and Sue to challenge it. The plaintiff responded that that was what she wanted to do.

Mr Anthony then raised with the plaintiff the potential impact of such a gift on her pension entitlements. He explained to her that such a gift might have the result that the value of the property, transferred to the first defendant, would become part of her deemed assets for the next five years, which might have a potential impact on her entitlement to a pension. He explained to her the “granny flat” provisions relating to the Centrelink pension. The effect of those provisions is that if the transaction was structured so that the plaintiff was seen to have a life interest in the property, and the first defendant to be caring for her there, then the property, so gifted to the first defendant, would not become part of her deemed assets. Mr Anthony gave to the plaintiff a copy of a Centrelink document, which explained the effect of those provisions. The plaintiff responded that she thought that such a structure of the transaction would be a good idea.

Mr Anthony stated that although he raised the issue of a life interest, and a provision requiring that Andrew give care to his mother, the main purpose of that suggestion was to ensure that the transaction complied with Centrelink’s criteria. However, he also understood that such a transaction would be consistent with the type of arrangements, which the plaintiff and the first defendant had in contemplation. Mr Anthony suggested that before the plaintiff give her interest in the property to the first defendant, she should consult with her other children. The plaintiff responded that the first defendant had been the one member of her family who had helped her keep the house for her to live in. Mr Anthony told her that she should go away and think about the matter, and then come back.

In his evidence, Mr Anthony stated that it was the plaintiff who was driving the discussions in that meeting. Mr Anthony was comfortable that she understood his explanation of the matters relating to the Centrelink requirements and the like. It was the plaintiff who raised the issue of giving her interest to the first defendant. Mr Anthony understood, from the plaintiff, that she wished to give her half interest in the property to the first defendant, in recognition of the fact that the first defendant had assisted her to keep the house.

The next conference, which Mr Anthony had with the plaintiff, was on 6 June 2006. In the meantime, the conveyancing department of his firm had prepared a transfer of the property arising out of the auction sale, which was to be signed by the plaintiff and the first defendant. They came to his office to sign that document. The first defendant told Mr Anthony that he had discussed the matter with his wife, and that they were prepared to be permanent carers for the plaintiff. The plaintiff said that she had discussed the matter with her family, and that she wanted to proceed with the gift of her half interest in the property to the first defendant. She again said that the first defendant was looking after her, and she repeated that she did not want Mary and Susie to get any part of her estate. The plaintiff instructed Mr Anthony to proceed to prepare the transfer and deed of life interest document.

The next meeting which Mr Anthony had with the plaintiff was on 17 July. At some stage before that meeting, Mr Anthony had made it known to the plaintiff and the first defendant that he had prepared the documents necessary to complete the gift. The plaintiff attended at his office with her daughter Kim Fricot. Mr Anthony took her into the conference room. The first defendant had not arrived at that time. Mr Anthony went through the documents with the plaintiff. He asked her whether she was certain that she wanted to proceed with the transaction. The plaintiff was unequivocal that it was her intention to proceed with the gift of her share of the property to the first defendant. Mr Anthony explained to the plaintiff the transfer, the gift, and the deed, and how it operated. He explained how all those matters fitted with the granny flat provisions of Centrelink. The plaintiff again stated that that was what she wanted to do. She signed the deed and transfer, and then left the room. Mr Anthony stated that when he went into the reception area, the first defendant was present. The first defendant entered his office and signed the documents.

In his evidence, Mr Anthony stated that he did not understand that he was acting for the first defendant in that transaction. Nevertheless, he explained the documents to the first defendant before he signed them. Mr Anthony stated that in the Family Court matter, he was acting for the plaintiff. He was acting for both the plaintiff and the first defendant in respect of the conveyancing transaction, in which the plaintiff and her husband at auction had, in effect, sold the property to the plaintiff and the first defendant. However, Mr Anthony did not consider that he was acting for the first defendant, in respect of the gift of the plaintiff’s interest in the property to him. In the course of one of the meetings, which he had with the first defendant and the plaintiff about that matter, he had suggested to the first defendant that he obtain independent advice about the transaction, but the first defendant did not wish to do so.

Mr Anthony was cross-examined by Mr Ehrlich, primarily in relation to the issues between the plaintiff and the second defendant, to which I shall return later. In cross-examination, Mr Anthony did state that he knew from his observations that the plaintiff reposed confidence and trust in the first defendant. He knew that she relied on the first defendant to translate the letters, which he had sent to her. However, he stated that he was satisfied that there had not been any undue influence, or unconscientious behaviour, by the first defendant. He said that, from his observations, he did not have any concerns that any such conduct had occurred. He described the plaintiff as a very determined woman, who was resolute in achieving any outcome on which she had made up her mind. By way of example, in the Family Court proceedings, the plaintiff had stood her ground, rejecting an offer by the husband to purchase his share in the property, because there was a difference of $7,000 in the negotiating positions. Mr Anthony stated that the plaintiff was “very feisty” in those negotiations. Although she was physically frail, there was no frailty in her mental capacity, or in her resolute desire to achieve what she wanted to do. He described her as being “pretty full on” in that respect.

In cross-examination by Mr T Mitchell, who appeared for the first defendant, Mr Anthony added that the plaintiff was not the type of person whose judgment or decisions were easily swayed. He said she had definite ideas about what she wanted to achieve, and she was not easily moved. He also stated that he did not have any concerns about her intellectual capacity to understand the matters explained to her, both in the Family Court proceeding, and also in relation to the transfer of her half share in the property to the first defendant. She understood the explanation, which he gave her about the Centrelink provisions. He confirmed that he had no sense that the first defendant was taking advantage of the plaintiff. Rather, he described the first defendant as “very much a support person”, who was extremely supportive of his mother, and who wanted the best for her. Mr Anthony stated that his impression was that the first defendant did what she asked him to do, and, indeed, in order to achieve that end, the first defendant had borrowed money, in order to buy out his father’s interest in the house, so it could be kept for his mother.

I now turn to the other witnesses who were called in the action. The first witness was Mrs Erica Horsfield, who, with her late husband, conducted the firm of solicitors Horsfield and Associates. In September 2005, her husband received a phone call from the first defendant, raising issues relating to his mother. The first defendant was concerned about the advice, which the plaintiff was receiving from the firm acting for her in the matrimonial dispute. His mother was very frightened of her husband, who had been violent to her in the past. He said that she was reluctant to take outward steps which might provoke her husband. In response, the first defendant was advised of a number of possible options available, one of which was the plaintiff executing a power of attorney, which would enable the decision making power to be handed over to the first defendant.

About one week later, the first defendant telephoned, and said that the plaintiff wished to enter into a power of attorney. Subsequently, the first defendant and the plaintiff attended at the offices of Horsfield and Associates on 16 September 2005, and signed the power of attorney.

In cross-examination, Mrs Horsfield stated that her late husband was a psychologist as well as a lawyer. Because of the age of the plaintiff, he had carried out a number of “checking questions” with the plaintiff, before she signed the power of attorney. The interview with her lasted about one hour. Mrs Horsfield stated that, both she and her husband were satisfied that the plaintiff had the capacity to sign the power of attorney.

Mrs Kim Fricot gave evidence on behalf of the first defendant. She described the difficult circumstances in which her mother was living in the latter part of 2005, after her relationship with her husband had broken down. She said that on many occasions the plaintiff had expressed a strong desire to live in her house. Mrs Fricot, the first defendant and Peter Christodoulou had a meeting, during which the first defendant asked them to help him purchase the house by buying out their father’s interest, in order to assist the plaintiff. Both Mrs Fricot and Peter indicated they could not afford to help.

Mrs Fricot described how the plaintiff was still an active woman at that time. She would regularly visit the shops and her Greek club, and play the poker machines. She generally went out at about 8.30 am, and returned home at about 5.00 pm. She was capable of catching public transport, and she knew her way around. She did her own banking, and looked after her own affairs.

Mrs Fricot then explained that after the first defendant purchased his father’s interest in the property at the auction, the plaintiff was very happy. She had begged the first defendant to purchase the house, because she wanted to live in it. She did not want to live with the first defendant and his wife, but rather wanted to remain in her own home, so that she could be near her church, the shops, the club and her friends.

Some time after the auction, the plaintiff approached Mrs Fricot, and said that she wanted to go to the solicitor, Dean Anthony. She asked Mrs Fricot to tell the first defendant that he should also attend. When Mrs Fricot went to pick up the plaintiff, she said that she wanted to sign the house over to the first defendant, because he was the one who would be looking after her. The plaintiff asked Mrs Fricot if she was upset with that proposal, and Mrs Fricot responded “Absolutely not”. When they arrived at the solicitor’s office, they went into the waiting room. The plaintiff went inside the office with Dean Anthony. When the first defendant arrived, he sat outside in the waiting room with Mrs Fricot. In due course, the plaintiff came out of the office, and the first defendant went into it.

Mrs Fricot stated that the plaintiff had mentioned to her that she did not want Mary or Susie to be involved, because she felt they were going to come back and take her share of the house. She wanted to give her share of the house to the first defendant, so that she was safe, and they could not make a claim on her.

In cross-examination by Mr Ehrlich, Mrs Fricot stated that the plaintiff said that she wanted to give the house to the first defendant, because he was going to look after her. She said that the plaintiff relied on the first defendant, because the rest of the family worked. The plaintiff told Mrs Fricot that she was giving her share to the first defendant as a gift, because he was the one who was going to look after her, and he was the one who had bought the house for the plaintiff to live in. The plaintiff used to discuss issues, raised by Mr Anthony in his letters, with the first defendant, Peter and herself. However, the plaintiff did what she wanted to do. Mrs Fricot stated that they never told her what to do, the plaintiff knew exactly what she wanted to do.

The other witness who gave evidence was Mrs Helen Natoli, who was the next door neighbour of the plaintiff in Camden Road, Hughesdale. Mrs Natoli and her husband had moved into their home in 2000, and had become friendly with the plaintiff and her husband.

Mrs Natoli described the distress of the plaintiff, when in late 2005 she was not permitted to use the toilet, shower and kitchen facilities in her own home. Mrs Natoli offered to let her use her own facilities, which she did. When the court ordered that the house be sold, the plaintiff was quite upset. She wanted to keep her own home, and was adamant she would not leave it. She was determined that she and the first defendant would purchase the home. She wished to remain in the home until she passed away.

Mrs Natoli gave evidence about the plaintiff’s daily routine. She described how the plaintiff would go for a walk in the morning, carry out her housework, and then go to her club. She would also go out shopping and do her own banking. Later in the afternoon, she would drop in on Mrs Natoli, and tell her what had happened during the day. Mrs Natoli stated that the plaintiff had a good memory, and that she was capable of finding her own way around. In particular, she described one minor incident, which confirmed to Mrs Natoli that the plaintiff did have a sound memory.

Mrs Natoli stated that on the day of the auction, the plaintiff came to her home after the auction, and was very happy that the first defendant had helped her to keep the house. On many occasions, the plaintiff had told Mrs Natoli that the child who looked after her would inherit the home. The plaintiff was convinced that the only child interested in her well being was the first defendant. Mrs Natoli further stated that after the property was purchased, the plaintiff told her she had signed documents to transfer the property to the first defendant. She said that she had been to the solicitor’s office that day, and signed the house over to the first defendant, because he was the only one interested in looking after her.

Mrs Natoli further described how, when the plaintiff returned home in July 2006, she was very happy to be back home. She resumed her routine of going out in the morning, doing her own banking, and dropping in on Mrs Natoli later in the day for a cup of tea.

Counsel’s submissions

Mr Ehrlich submitted that I should conclude on the evidence that the gift of the plaintiff’s half share in the property to the first defendant was the result of undue influence, alternatively unconscionable conduct, by the first defendant. In respect of the claim based on unconscionable conduct, he relied on the principles stated in Commercial Bank of Australia Limited v Amadio[1] and Blomley v Ryan[2]. Mr Ehrlich submitted that the evidence established that, at the time of the transaction, the plaintiff was at a special disadvantage in relation to the first defendant. He referred to a number of factors, including the plaintiff’s age, her lack of literacy in English, and the close relationship which the plaintiff had with the first defendant. Mr Ehrlich pointed to the role which the first defendant played in the plaintiff’s dealings with the second defendant, both in the Family Court proceeding, and also in the transfer of her interest to the first defendant. He also relied on the power of attorney, which the plaintiff had executed in favour of the first defendant and Mrs Fricot.
[1](1983) 151 CLR 447.
[2](1956) 99 CLR 362.

In addition, Mr Ehrlich submitted that the evidence established that the plaintiff, at the time of the transaction, was in need of daily care, and that she was reliant on the defendant for that care. Mr Ehrlich placed significant emphasis on the recitations in the preamble to the conveyance deed, and on the aged care record signed by the first defendant, on behalf of the plaintiff, in October 2005. He referred to the section of that document which described the first defendant and his wife as the non-resident carers of the plaintiff. Mr Ehrlich also pointed to the evidence of Mr Anthony, Mrs Natoli and the first defendant, to the effect that the plaintiff wanted the first defendant to move in with her, and look after her after she had gifted her share in the property to him. Mr Ehrlich contended that although the evidence might indicate that the plaintiff was quite independent, at least until late 2006, nevertheless, at the time of the transaction, she perceived that she needed help and care from the first defendant, and that she felt that she was reliant on him for it.

Furthermore, Mr Ehrlich submitted that the evidence established that the plaintiff was overwhelmingly grateful to the first defendant for purchasing his father’s interest in the property, and thus enabling her to continue to reside in it. Mr Ehrlich contended that the “extreme gratitude”, which the plaintiff felt towards the first defendant, “put her in a euphoric irrational or vulnerable state which caused her to overcompensate the first defendant in a manner which was improvident”. He also pointed out that the plaintiff’s share in her home was, to all intents and purposes, her only asset of any value. In those circumstances, Mr Ehrlich submitted that the facts were such as to give rise to a presumption that the first defendant had unconscionably exploited the plaintiff’s disadvantage in relation to him, so that it would be unconscionable for him to retain the plaintiff’s share in the property transferred to him. By reference to the judgment of Deane J in Commercial Bank of Australia Limited v Amadio[3], he submitted that the first defendant had failed to discharge an evidentiary onus on him to establish that the transaction was fair, just and reasonable. Accordingly, Mr Ehrlich submitted that I should conclude that the transaction in question was the product of unconscionable conduct by the first defendant.
[3]Above, at 474.

Alternatively, he contended that the evidence established that the gift of the plaintiff’s share in the property to the first defendant was the result of undue influence by the first defendant. He acknowledged that the plaintiff did not make a case against the first defendant, based on any actual ascendancy or influence exercised by the first defendant over the plaintiff. Further, in final address, Mr Ehrlich stated that the plaintiff did not press an automatic presumption of undue influence arising by virtue of the appointment of the first defendant as the plaintiff’s attorney and guardian under the power of attorney. Rather, Mr Ehrlich submitted that this is a case in which, by reason of the antecedent relationship between the parties, the law presumes that the transaction was affected by undue influence, unless the recipient proves that the transaction was the product of the exercise of free will by the donor of the property. Mr Ehrlich acknowledged that the case does not fall within one of the recognised classes of case in which undue influence is presumed, such as that of guardian and ward. He submitted that there was an antecedent relationship between the plaintiff and the first defendant of authority or influence, which was of such a character that the law presumes that the transaction between the plaintiff and the first defendant was the result of undue influence by the first defendant, unless the contrary is proven.[4]
[4]Johnson v Buttress (1936) 56 CLR 113, 134 to 135 (Dixon J).

Mr Ehrlich pointed to a number of factors which, he contended, established the requisite antecedent relationship of authority or influence of the first defendant over the plaintiff. In particular, he submitted that the relationship between the plaintiff and the first defendant was a relationship of trust and confidence “far above that arising from the usual mother son relationship”. He again relied on the section of the aged care record dated 12 October 2005, in which the first defendant was described as the plaintiff’s main carer, and his wife as the plaintiff’s “other carer”. He referred to the part of the document, which listed the plaintiff as suffering from depression and anxiety, having regular bouts of disturbed sleep and insomnia, and occasional bouts of short term memory problems, confusion and disorientation. Mr Ehrlich again relied on the preamble to the deed, which recognised the first defendant’s ongoing contribution to her care, and her continued need for that care from the first defendant. In conjunction with that aspect, Mr Ehrlich also relied on the evidence that, before the settlement of the sale contract in July 2006, the plaintiff had lived with the first defendant and his wife at their home in Endeavour Hills. Finally, he pointed to the active role, which he submitted the first defendant played in the management of the plaintiff’s legal affairs concerning her divorce. Mr Ehrlich relied on the plaintiff’s age and physical and mental condition, and in the latter respect, he referred to the report of Professor Paoletti. He again referred to what he described as the “euphoric irrational or vulnerable state” of the plaintiff arising from her “extreme gratitude” to the first defendant for purchasing his father’s share in the property. Mr Ehrlich submitted that the combination of those circumstances gave rise to a presumption that the transaction was the product of undue influence exercised by the first defendant over the will of the plaintiff.

Mr Ehrlich then submitted that the first defendant had failed to rebut that presumption. He submitted that the advice given by the second defendant to the first defendant was not independent advice, because, at the time, the first defendant was present during the giving of that advice, and, secondly, in the same period of time, the second defendant was acting for the first defendant.

In response, Mr Mitchell submitted that there was no evidence that the first defendant had exercised undue influence over the plaintiff in her decision to transfer to him her half interest in the property. He referred to the evidence of witnesses such as Mrs Natoli and Mrs Fricot, that the plaintiff was an independent person, capable of making her own decisions. In the Family Court proceeding, the plaintiff had demonstrated a substantial degree of resoluteness in the settlement negotiations with her husband. There was no evidence that the first defendant had instigated the plaintiff’s decision to transfer her half interest in the property to him. Rather, the totality of the evidence is that it was the plaintiff’s idea to effect that transaction. There was no evidence that the first defendant played any role in the plaintiff’s decision to implement that idea. The transaction was a simple one, and the effects of it were well understood by the plaintiff. She obtained independent advice from the second defendant. In all those circumstances, Mr Mitchell submitted, the evidence does not establish that there was an antecedent relationship between the plaintiff and the first defendant such as to give rise to a presumption of undue influence. Alternatively, he submitted that, in the circumstances, that presumption was rebutted.

In relation to the claim based on unconscionable conduct, Mr Mitchell submitted that there was no evidence that the plaintiff had a relevant disability, or was at a special disadvantage to the first defendant, in the transaction. Although she was of advanced years, and had some physical disabilities, nevertheless she lived a free and independent life at the time of the transaction. Again, he submitted the transaction was a simple one, well understood by the plaintiff. She received independent advice given to her by the second defendant. Even if that advice was in any respect deficient, nevertheless the consequences of it should not be visited upon the first defendant.[5]
[5]Turner v Windever & Anor [2005] NSWCA 73 [74]-[75] (Giles JA).

Mr Mitchell further submitted that if the plaintiff was labouring under any special disability or disadvantage, there is no evidence that the first defendant was aware of it. Rather, the plaintiff at all times gave the impression of being a person who was in control of her own affairs, and who was living quite independently. In addition, Mr Mitchell submitted that, on the evidence, the first defendant did not take advantage of any special disadvantage of the plaintiff. Rather, at all times, the motivation of the first defendant was to assist his mother in her desire to live in her home. To that end, he had taken a considerable risk, bidding at the auction for the purchase of his father’s share, when he did not have the means to pay for it, and, further, in obtaining a significant loan, while he himself was not of substantial financial means. Rather than seeking to take advantage of any disability of his mother, rather, the first defendant at all times was acting out of genuine concern for her. In those circumstances, Mr Mitchell submitted that it was not unconscientious for the first defendant to have received, and to retain, the transfer to him of the plaintiff’s interest in her home.

Finally, Mr Mitchell submitted that, in any event, the plaintiff should be precluded from seeking equitable relief, by reason of laches, acquiescence and delay by the plaintiff. He contended that, as a result of the delay of the plaintiff in issuing proceedings before March 2007, the plaintiff is not now available to give evidence on behalf of the first defendant, and as a result the first defendant has suffered prejudice in his defence.[6] He also submitted that the plaintiff had ratified the transaction in January 2007. In support of that contention, Mr Mitchell pointed to evidence given by the first defendant, in cross-examination, that in January 2007 the plaintiff had lodged a caveat with the Titles Office over the property, but that she had subsequently withdrawn that caveat. Mr Mitchell relied on that action by the plaintiff as an election by her to affirm the transaction. Finally, he submitted that if the plaintiff is otherwise entitled to relief, such relief should be granted on conditions which provide for appropriate compensation to the first defendant in respect of substantial improvements, which he has made to the property since June 2006, and for any expenses incurred by him in respect of them.
[6]Orr v Ford (1989) 167 CLR 316, 330.

Legal principles – undue influence

I shall consider, first, the principles relating to the claim based on undue influence, and then the principles relating to the claim based on unconscionable conduct.

The basic principles relating to the concept of undue influence are uncontroversial. In equity, a transaction, whereby a donor transfers property to a donee (or recipient), is voidable, if it is shown to be the result of undue influence exercised by the recipient over the mind of the donor. There are two categories of cases of undue influence. The first category of cases arises where it has been positively proven that the transaction in question was produced by actual influence exercised by the recipient over the donor. In opening, Mr Ehrlich made it clear that he was not making a case based on the exercise of any actual influence by the first defendant over the plaintiff. The second category of case is where there has been shown to be an antecedent relationship between the donor and the donee, which is such as to raise a presumption that the donee has relevant influence over the donor. In such a case, the court will set aside a voluntary gift, unless it is proven by the donee that the gift was a spontaneous act of the donor in exercise of an independent and informed will.[7] In this category of case, the law has recognised particular relationships which automatically raise a presumption of influence, including the relationship of doctor and patient, solicitor and client, guardian and ward, and parent and child (where the gift is by the child to the parent). However, the classes of relationships, in which the presumption arises, are not fixed and inflexible. In essence, where there is found to be an antecedent relationship between the parties, which gives the recipient of the gift “authority or influence over the donor from the absence of which it is proper that he [or she] should be protected”, the law will presume that any gift by the donor to the donee was the result of undue influence exercised by the latter.[8]
[7]Allcard v Skinner (1887) 36 Ch D 145, 171 (Cotton LJ); Inche Noriah v Shaik Allie Bin Omar [1921] AC 127, 132 to 133.
[8]Johnson v Buttress (1936) 56 CLR 113, 134 (Dixon J).

The relevant principles have been established and discussed in a number of authorities, including Johnson v Buttress[9], Allcard v Skinner[10], Inche Noriah v Shaik Allie Bin Omar[11], and Union Fidelity Trustee Co of Australia Limited v Gibson[12]. The classic statement of the principles is in the following passage from the judgment of Dixon J in Johnson v Buttress[13]:

“The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor’s will or freedom of judgment in reference to such a matter. The source of power to practise such a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an influence over the mind of the alienor that it cannot be considered his free act. But the parties may antecedently stand in a relation that gives to one an authority or influence over the other from the abuse of which it is proper that he should be protected. Where they stand in such a relation, the party in the position of influence cannot maintain his beneficial title to property of substantial value made over to him by the other as a gift, unless he satisfies the court that he took no advantage of the donor, but that the gift was the independent and well understood act of a man in a position to exercise a free judgment based on information as full as that of the donee. This burden is imposed upon one of the parties to certain well known relations as soon as it appears that the relation existed and that he has obtained a substantial benefit from the other. A solicitor must thus justify the receipt of such a benefit from his client, a physician from his patient, a parent from his child, a guardian from his ward, and a man from the woman he has engaged to marry. The facts which must be proved in order to satisfy the court that the donor was freed from influence are, perhaps, not always the same in these different relationships, for the influence which grows out of them varies in kind and in degree. But while in these and perhaps one or two other relationships their very nature imports influence, the doctrine which throws upon the recipient the burden of justifying the transaction is confined to no fixed category. It rests upon a principle. It applies whenever one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part. One occupying such a position falls under a duty in which fiduciary characteristics may be seen. It is his duty to use his position of influence in the interests of no-one but the man who is governed by his judgment, gives him his dependence and entrusts him with his welfare. When he takes from that man a substantial gift of property, it is incumbent upon him to show that it cannot be ascribed to the inequality between them which must arise from his special position … But, except in the well recognised relations of influence, the circumstances relied upon to establish an antecedent relation between the parties of such a nature as to necessitate a justification of the transaction will be almost certain to cast upon it at least some measure of suspicion that active circumvention has been practised. This often will be so even when the case falls within the list of established relations of influence. Because of the presence of circumstances which might be regarded as presumptive proof of express influence, cases outside the list but nevertheless importing a special relationship of influence sometimes are treated as if they are not governed by the presumption but dependent on some inference of fact.”[14]

[9]Footnote above.

[10]Footnote above.

[11]Footnote above.

[12][1971] VR 573, 575 to 579.

[13]Footnote above 134 to 135.

[14]See also at 119 to 120 (Latham CJ); Watkins v Coombes (1922) 30 CLR 180, 194 and following (Isaacs J).

In cases such as this, the first issue which arises concerns the nature of the relationship between the donor and the donee. In determining that question, it is important to bear carefully in mind the elements of the relationship, identified by Dixon J in Johnson v Buttress[15], in which such a relationship is found to exist. As his Honour stated, the relationship must be one which gives to the donor “an authority or influence” or “ascendancy” over the donee, from the abuse of which it is proper that the donor should be protected. That proposition does not mean that every relationship of trust and confidence between a donor and donee automatically comes within the ambit of such a principle. In Re Coomber; Coomber v Coomber[16], the donor had inherited, from her husband, a business which she carried out as a retailer. That business was conducted by her son, who continued to manage the business on behalf of the donor after the death of his father. Two months after inheriting the business, the donor voluntarily assigned the lease of the premises of the business, and the goodwill of the business, to the son for no consideration. On the death of the donor, the plaintiff (her eldest son) sought to set aside the transaction on the basis of undue influence by the donee. The chief ground relied on was that the donee was in a “fiduciary relation” to his mother, so that a presumption of undue influence arose. That proposition was rejected by the Court of Appeal.
[15]Footnote above.
[16][1911] 1 Ch 723.

In reaching that conclusion, each member of the Court of Appeal emphasised that not every fiduciary relationship, or relationship of trust and confidence, gives rise to a presumption of undue influence. Rather, the relationship (whether fiduciary or otherwise) must be such that, in the absence of proof to the contrary, the court would infer that the gift was the product of undue influence upon the mind of the donor by the donee.[17] Thus Fletcher Moulton LJ stated:

“It is said that the son was the manager of the stores and therefore was in a fiduciary relationship to his mother. This illustrates in a most striking form the danger of trusting to verbal formulae. Fiduciary relations are of many different types. … In some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of interference (by the court). Of course that is absurd. The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the court on those facts, than cases which relate to fiduciary and confidential relations and the action of the court with regard to them. In my opinion there was absolutely nothing in the fiduciary relations of the mother and the son with regard to this house which in any way affected this transaction.”[18]

[17]See especially at 726 (Cozens-Hardy MR), 728 to 729 (Fletcher Moulton LJ), 730 (Buckley LJ).

[18]See also Union Fidelity Trustee Co of Australia Limited v Gibson (above), 576 (paragraph 5) (Gillard J).

Where an issue of undue influence arises, the critical question is, ultimately, whether the decision of the donor was the result of the exercise by her of an independent judgment, free from any undue influence of the donee, and based on sufficient information so that the donor understands the nature and consequences of her act. In each case, that question involves an examination of all the relevant factors which bear on the nature of the relationship between the donor and donee, and in particular which relate to the effect of that relationship on the mind and will of the donor in the transaction in question.

Where a presumption of undue influence arises, one relevant circumstance is whether the intention, to make the gift, originated with the donor.[19] However, by the same token, the fact that the proposal to make the gift originated with the donor would not preclude application of the principles of undue influence.[20]
[19]Watkins v Coombes (above), 196 (Isaacs J).
[20]Union Fidelity Trustee Co of Australia Limited v Gibson (above) 576 (point 8); Spong v Spong (1918) 18 CLR 544, 549 (Griffiths CJ).

An important factor in determining whether the presumption of undue influence has been rebutted, is whether the donor, before making the gift, had independent legal advice. However, there is no fixed rule that where a relationship exists, whereby undue influence is presumed, it must be shown that the donor have independent advice, in order to rebut that presumption. In Inche Noriah v Shaik Allie Bin Omar[21] the Privy Council stated:

“But their Lordships are not prepared to accept the view that independent legal advice is the only way in which the presumption can be rebutted; nor are they prepared to affirm that independent legal advice, when given, does not rebut the presumption, unless it be shown that the advice was taken. It is necessary for the donee to prove that the gift was the result of the free exercise of independent will. The most obvious way to prove this is by establishing that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely as to satisfy the court that the donor was acting independently of any influence from the donee and with the full appreciation of what he was doing; and in cases where there are no other circumstances this may be the only means by which the donee can rebut the presumption.”

[21]Footnote above, 135 to 136.

Of course, for such advice to be effective, the solicitor must be in possession of sufficient facts as to be able to advise the client as to both the nature and consequences of the contemplated gift.[22] The solicitor must be independent of any relationship with the donee which might affect the objectivity and independence of the advice.[23] On the other hand, it is not necessary, in each case, that the solicitor advise the donor as to the wisdom or desirability of the contemplated gift. Rather, what is required is that the donor be given properly informed advice as to the nature of the act contemplated by the donor, and the consequences of it.[24] Again, what is ultimately at issue is whether the donor, with a full understanding of the transaction, entered into it in the free and independent exercise of her will. As Gillard J stated in Union Fidelity Co of Australia Limited v Gibson[25]:

“But it is undoubtedly true that in many authorities the presence or absence of independent advice has had a great influence on the court’s decision on this vital question. If the donor, however, should receive independent advice, and either misunderstands the advice or is given possibly erroneous advice whereby he fails to appreciate or realise the financial implications and the detriment to himself involved in the gift, a court of equity will not set aside the gift if the donor otherwise understood the nature of the transaction and acted therein in the full exercise of his will … .”
[22]Inche Noriah (above), 136.
[23]Re Coomber (above), 730.
[24]Re Coomber (above), 729 to730.
[25](Above), 578.

Legal principles on unconscionable conduct

The second basis, upon which the plaintiff seeks relief, is on the ground that there was unconscionable conduct of the first defendant in procuring and retaining the transfer by the plaintiff of her interest in the property to him. The doctrine of unconscionable conduct has some similarities to the doctrine of undue influence, but the underlying rationale of the two doctrines is quite different. As I have demonstrated, the principles relating to undue influence focus on whether the transaction was the product of the independent and voluntary will of the donor. By contrast, the doctrine of unconscionable conduct is concerned with circumstances where the will of the donor, while independent and voluntary, is the result of a special disadvantage or disability of the donor, of which the donee has taken unconscientious advantage.[26] In other words, while undue influence focuses on the quality of the consent or assent of the donor, unconscionable dealing is concerned with the conduct of the donee or recipient in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability “ … in circumstances where it is not consistent with equity or good conscience that he should do so”.[27] The essence of the doctrine was usefully summarised by Mason J in Commercial Bank of Australia Ltd v Amadio[28] as follows:

“… if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interest, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that the situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.”

[26]Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447, 461 (Mason J), 474 (Deane J).

[27]Commercial Bank of Australia Limited v Amadio (above) 474 (Deane J).

[28]Footnote 467.

In order to establish such a claim, the plaintiff must first demonstrate that she was under a relevant special disability or disadvantage, viz a viz the defendant, in respect of the particular transaction. The authorities have used the adjective “special”, to qualify the requisite disability or disadvantage of the party claiming to be the subject of unconscionable conduct, so as to repudiate any suggestion that the principle might apply, whenever there is some difference in the position or bargaining power of the parties. In particular, the nature of the disadvantage or disability must be “special” in the sense that it must be one which “… seriously affects the ability of the innocent party to make a judgment as to his own best interests …. “.[29]
[29]Commercial Bank of Australia Limited v Amadio (above), 462 (Mason J); see also Louth v Diprose (1992) 175 CLR 621, 628 to 629 (Brennan J).

In a well known passage in his judgment in Blomley v Ryan[30], Fullagar J referred, as instances of such a special disability, to conditions such as “sickness, age, sex, infirmity of mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary”. The common feature of those qualities, in the contemporary circumstances in which that judgment was written in the 1950s, was that each of them would have a significant impact on the ability of the innocent party to make an appropriate judgment as to what was in his or her best interests.
[30](1956) 99 CLR 362, 405.

There are, of course, no fixed categories of special disadvantage or special disability. Further, such disadvantage or disability may comprise a combination of a number of features pertaining to the innocent party, as was in the case in Commercial Bank of Australia v Amadio.

In addition, it must be shown that the party, against whom unconscionable conduct is alleged, knew, or ought to have known, that the innocent party was so affected by his or her special disability, that it would be unconscionable that that other party procure, or retain the benefit of, the transaction.[31] In Commercial Bank of Australia Limited v Amadio, Mason J[32] identified that element of the doctrine as requiring that the other party (the recipient) “... knows or ought to know of the existence of that (special) condition or circumstance and of its effect on the innocent party”. It is important to note that, thus stated, the element contains two composite parts. First, the recipient must know, or have constructive knowledge of, the special disability or disadvantage of the donor. Secondly, the recipient must know (or have constructive knowledge) of the effect of that disability or disadvantage on the ability of the innocent party to make an appropriate judgment, as to whether the transaction was in his or her best interests.
[31]Louth v Diprose, 637 (Deane J).
[32]462.

Finally, where it is proved that the donor stood in a specially disadvantageous relationship with the donee, and the donee had knowledge, or ought to have known, of that special disadvantage and its effect on the donor’s capacity to make an appropriate decision in relation to the transaction, an inference may be drawn that the transaction was the result of unconscionable conduct by the donee. In those circumstances, that inference may be rebutted should the donee demonstrate that in the circumstances the transaction was fair, just and reasonable.[33]
[33]Commercial Bank of Australia Limited v Amadio, 474 (Deane J); Compare Louth v Diprose (above) 631 to 632 (Brennan J).

Factual findings

As I have stated, although the doctrines of undue influence and unconscionable conduct are distinct, nevertheless they have a number of similarities. In the present case, the application of both doctrines, involves a consideration of the same fundamental factors, namely, first, the personal circumstances and characteristics of the plaintiff in terms of her physical and psychological capacities, secondly, the plaintiff’s relationship with the first defendant, and, thirdly, the effect of those two factors on the decision of the plaintiff to give her half interest in the property to the first defendant in July 2006.

In particular, both grounds of relief, relied on by the plaintiff, involve the following factual issues, namely:

(a)The plaintiff’s physical and psychological state and circumstances at the time of the transaction.
(b)The extent, if any, to which the plaintiff was dependent on the first defendant.
(c)The plaintiff’s decision making during the period in question.
(d)The plaintiff’s personal relationship with the first defendant.
(e)The extent to which the plaintiff was affected by gratitude to the first defendant in making the gift of her interest in the property to him.

While each of those factors are interrelated, it is useful to deal with them separately.

I turn, first, to the question of the plaintiff’s psychological and personal functioning at the time of the transaction. The only evidence presented on behalf of the plaintiff, on this aspect of the case, was the report of Associate Professor Paoletti. As I stated Professor Paoletti did not examine or treat the plaintiff during the period in question, or at all. He acknowledged in his report that, in forming his opinion, he was entirely dependent on a number of documents which were made available to him, some of which were tendered in evidence. Those documents consisted of notes of a number of clinics and hospitals, some letters of the plaintiff’s general practitioner, aged care records, and the like. Professor Paoletti concluded, from those documents, that for many years the plaintiff had had a background of anxiety with panic attacks and depression. She went through a period in 2005, 2006 and early 2007 of frequent visits to doctors, by locums, and to hospitals. On balance, by 2007, she was probably in considerable decline. Professor Paoletti then stated:

“What is not clear is whether on the two key dates in July 2006, when she signed the documents, she may have been dementing and, if so, whether her capacity to make informed decisions was affected. It would seem that it is possible, if not probable, that she was in the early stages of dementia, but it is not possible to say to what degree she may have been affected on those key days. The best evidence would come from medical and non-medical witnesses at the time.”

In his final address, Mr Ehrlich placed some reliance on the conclusions thus expressed by Professor Paoletti, but he did not refer, at all, to any of the documents and records upon which the opinion of Professor Paoletti was formed.

It is significant that Professor Paoletti qualified his opinion, by noting that the best evidence would come from medical and non-medical witnesses at the time. As I have already stated, the evidence of those witnesses, who knew the plaintiff between late 2005 and late 2006, was unanimous, namely, that the plaintiff was well in possession of her mental faculties, and certainly, at least during the daytime, did not evince any signs that she was incapable of making rational and appropriate decisions in her best interests. In this respect, the evidence of Mrs Natoli is particularly pertinent. As I stated, I consider that Mrs Natoli was an impressive witness. In substance, her evidence was that the plaintiff, during the period in question, was an active woman, notwithstanding her physical disabilities, who regularly went out during the day. The plaintiff would usually visit Mrs Natoli on her return home, and would relate to her what she had done during the day. Mrs Natoli stated that the plaintiff demonstrated a good memory, and there was no sign that she become at all disoriented in terms of people she knew, or in terms of where she was.

The evidence of others, who knew the plaintiff at the same time, namely Mrs Fricot, the first defendant and Mr Anthony, was to the same effect. Indeed, in September 2005, when the plaintiff signed her power of attorney, Mrs Horsfield and her husband, who was a psychologist, were satisfied that the plaintiff had appropriate capacity to sign that document. In the ensuing seven months, Mr Anthony had substantial dealings with the plaintiff during her matrimonial dispute. She understood the issues which were involved in the Family Court proceedings. During a series of conferences, she was able to give appropriate instructions in relation to the preparation of a detailed affidavit, which was tendered in evidence. Mr Anthony stated that at all times during that process she was focused on the responses to his questions, and that she appeared to have a full understanding of the matters on which he advised her and which he discussed with her. Similarly, Mr Anthony stated that when the plaintiff raised with him her proposal to give the first defendant her share in the property, she was able to understand the issues which he raised with her as to the potential effect of that transaction on her Centrelink pension, and she comprehended his explanation of the “granny flat” provisions of Centrelink.

Certainly, there was evidence that during the night time there were occasions when the plaintiff became particularly agitated and anxious. The evidence of the first defendant, which I accept, was that those conditions were largely provoked by the plaintiff’s frustration, first, at being locked out of the toilet and bathroom facilities of her own home, and, later, of being precluded from living in her home, by the order of the Federal Magistrates’ Court of February 2006. Conversely, when the plaintiff returned to her home in mid 2006, she appeared to settle in well there, and to function appropriately, until her decline set in, in the early part of 2007.

The second factual issue relates to the degree of the plaintiff’s dependency during that period, particularly on the first defendant. The documents, which were tendered in evidence, revealed that for two weeks from 17 November to 1 December 2005, the plaintiff was in respite care. She returned to respite care for the period 4 February 2006 to 1 April 2006, and, subsequently, from 16 June 2006 to 7 July 2006. During the periods in which she was not in respite care, up to February 2006, the evidence to which I have referred demonstrates that the plaintiff was capable of functioning independently, with only a limited need for support and assistance from others.

“The retainer given by the Foxes to the respondents obliged the respondents to act generally in the Foxes’ interests in and about their entering into the contract and their taking of title to the property pursuant thereto. At the least that obligation required the respondents, either themselves or by an employee qualified to do so, to go through the contract with the Foxes and explain the salient points of it to them. In this way their principal rights and obligations under it would be explained as would the general course the matter might be expected to take. The respondents were also under an obligation to explain to the Foxes provisions of the contract which were in an unusual form and which might affect their interests as they were known by the respondents to be. …
The respondents were also under an obligation which required them to give attention, before the contract was signed by the Foxes, to the question of whether it, from their point of view, contained adequate provisions to protect them against a variety of contingencies which might reasonably have been foreseen as likely to arise if things did not go as expected. … The Foxes were entitled to rely on the respondents to see to it that the contract was adequate to protect their interests.
In cases such as the present a solicitor is paid not only for what he in fact does, but also for the responsibility he assumes in trying to protect clients from financial loss if things go wrong. It is easy enough to act for people if things go as they are expected to. But it is because the unexpected will sometimes happen that solicitors are rightly paid the fees which they command. The corollary of this proposition is that if they do not measure up to the standard which is required of them, they are liable for breach of the obligation which they owe to the clients. The standard required of them is not an absolute one.”[49]
[47]Sykes v Midland Bank & Trustee Co Ltd [1971] 1 QB 113.
[48](1983) 76 FLR 170.
[49]Pages 174 to 175.

Conclusions on plaintiff’s claim against second defendant

The question which then arises is whether, pursuant to the implied term of his retainer that he exercise due care and skill, the second defendant was required to explore with the plaintiff the options postulated by Mr Ehrlich in cross-examination and in final address, whereby, in one form or another, the plaintiff would reserve to herself an interest in her half share in the property until her death.

The starting point, for considering that question, lies in the scope of the retainer of the first defendant by the plaintiff. The retainer pleaded by the plaintiff, and admitted by the second defendant, was a retainer to advise the client, and act for her, in respect of the transactions which were effected pursuant to, and in contemplation of, the conveyance deed and the transfer of land. In other words, the retainer was to advise the client, and act for her, in respect of the proposed gift by the plaintiff of her half share of the property to the first defendant. In that respect, it is clear from the evidence of Mr Anthony, and from his contemporary file notes, that the plaintiff engaged the second defendant to give effect to her instruction that she assign to the first defendant, by way of gift, her half share of the property. The retainer was first raised in the meeting which Mr Anthony had with the plaintiff and the first defendant on 17 May 2006. The plaintiff made it plain to Mr Anthony that she wished to give her half share in the property to the first defendant, as recognition for what the first defendant had done to help her keep the house. Mr Anthony wanted to be sure that the plaintiff fully understood what she had instructed him to do. Thus, he suggested that if the plaintiff was intending to give her property to the first defendant, that might be done by way of her will. However, when he explained to the plaintiff the implications of Part 4 of the Administration and Probate Act, the plaintiff stated that she wished to give the first defendant her interest in the property during her lifetime. In response, Mr Anthony raised with the plaintiff the potential implications of such a gift on her pension entitlements, and he set about structuring the gift in such a way as to ensure that, in the future, the gift would not have any adverse potential effect on her pension rights.

In the two subsequent meetings which Mr Anthony had with the plaintiff, on 6 June, and 17 July, there is no evidence that the ambit of Mr Anthony’s retainer altered or enlarged. In essence, it is clear that his retainer was to put into effect the instruction of the plaintiff to transfer to the first defendant her half interest in the property.

In cross-examination, Mr Anthony accepted that he had not specifically advised the plaintiff that, instead of giving the first defendant her half interest in the property outright, she might use one of the three alternative structures put by Mr Ehrlich. He stated that he did not give consideration to proposing to his client that she should nominate, as a purchaser of a half interest in the property, a company with the two classes of shares described by Mr Ehrlich. Mr Anthony stated that the arrangement he was being asked to advise on was a family arrangement, and that the plaintiff had expressed a very clear intention of gifting her interest in the property to her son. Mr Anthony made a similar response, when counsel put to him that he might have arranged for the plaintiff to purchase her share in the property pursuant to the family discretionary trust. In response to both of those proposals, he also raised concerns that they could have implications for the plaintiff, both in terms of her pension entitlements, and also in terms of exposing her interest in the property to capital gains tax in the future. He explained that with either such arrangement, Centrelink would have deemed the underlying value of either the company or the discretionary trust to be assets of the plaintiff, which were not exempt from the limit set for her pension. While, at that time, the underlying value of either the company or the trust would have been lower than the current Centrelink threshold, Mr Anthony was concerned that, should circumstances change in the future, the plaintiff’s pension might be put in jeopardy. It was for that reason that Mr Anthony advised the plaintiff to enter into the conveyance deed, so that the gift by her to the first defendant of her interest in the property would conform with the “granny flat” requirements of Centrelink.

As I stated, the proposition by the plaintiff that the second defendant ought to have structured the transaction as a settlement under the Settled Land Act, reserving to the plaintiff a life interest in the property, was only raised late in the proceeding. Indeed, it was first mooted on behalf of the plaintiff in the course of cross-examination of the second defendant on the second last day of the trial, near the end of his cross-examination. In response, Mr Anthony stated that he did not give consideration to structuring the transaction in that way. When the proposition (of a settlement under the Settled Land Act) was put to him in cross-examination, he said that it did not recognise “what [my] instructions were and what the transaction was about”. He stated that the plaintiff had made it clear that she wished to make a gift to her son, while retaining to herself the ability to reside in the property for the rest of her life. Mr Anthony expressed the view that the scenario, involving a life interest to the plaintiff, would not have conformed with those instructions.

The question, then, is whether, in light of that evidence, Mr Anthony failed to exercise reasonable care and skill in discharging his retainer with the plaintiff, by not suggesting to her that, rather than making a gift outright of her interest in the property to the first defendant, she nominate a company or a discretionary trust as the purchase of her interest in the property, or, alternatively, that she should create a settlement under the Settled Land Act, whereby a half interest in the property would be held on trust for her for life.

It is clear that the plaintiff retained the second defendant to put into effect her instructions that she give her half interest in the property to the first defendant. As such, he was obliged to give her appropriate advice as to the nature and effect of that proposed transaction. When the second defendant raised with her the option of carrying out those instructions by way of her will, the plaintiff, after some consideration, stated that she wished the transaction to proceed by way of gift. As I have already found, the plaintiff well understood that she would thereby be disposing, once and for all, of her only asset. There is no suggestion that the second defendant failed to make the nature and effect of the gift appropriately clear to the plaintiff. Further, the second defendant, in discharge of his duty to the plaintiff, gave her advice as to the potential implications, which the gift might have, in the future, for her pension. While that advice might have been given out of an over-abundance of care, given the then pension threshold limits, nevertheless the giving of that advice sheds light on the ambit of the retainer of the second defendant by the plaintiff. Clearly , as part of that retainer, the second defendant correctly perceived that he should advise the plaintiff as to any potential adverse effects on her rights which might result from the gift by her to the first defendant of her half interest in the property. However, the obligation of the second defendant to give such advice is different and distinct to the obligation, contended for by the plaintiff, that the second defendant should have given advice as to other alternative means by which the transaction might have been structured, so as to reserve to the plaintiff the equivalent of a life interest in the property.

In those circumstances, the onus lies on the plaintiff to satisfy me that, as part of the second defendant’s duty to exercise reasonable care in carrying out her instructions, the second defendant was obliged to advise her that she should not enter into the transaction by way of outright gift of her interest in the property to the first defendant, but that, instead, she should nominate a company or a discretionary trust (in the form outlined by Mr Ehrlich in cross-examination) as purchaser of her half interest in the property, or, alternatively, she should create a settlement of that interest under the Settled Land Act, thus preserving to her a life tenancy in her half share in the property.

Little evidence was led to support the plaintiff’s case against the second defendant, and, in particular, to support the claim that the second defendant’s duty to the plaintiff required him to give advice of that kind to the plaintiff. In cases involving an allegation of negligence against a legal practitioner, it is not necessary that expert evidence be called in support of the plaintiff’s case.[50] However, evidence as to common practices adopted by practitioners, in transactions of the type in question, is considered, in an appropriate case, to be admissible and relevant.[51] The expert is not entitled to give evidence as to what he or she would or might have done in the circumstances of the case before the court. Further, the evidence of the expert is not conclusive in relation to the question of the content of the standard of care in a particular case. However, in an appropriate case, the evidence of an expert, as to the common practice of respected practitioners in such transactions, may be helpful.
[50]Nagle v Power [1967] SASR 373, 376 (Bray CJ); Amadio Pty Ltd & Anor v Henderson & Ors (above), 217; Dickson v Creevey [2002] QCA 195, [15] (Helman J).
[51]Heydon v NRMA Limited (above), [152]-[153] (Malcolm AJA); Tasmanian Sandstone Quarries Pty Ltd v Tasmanian Sandstone Pty Ltd [2009] SASC 111, [215]-[216] (White J).

In the present case, no such evidence was led on behalf of the plaintiff. There is a paucity of evidence in relation to whether the three structures, proposed by Mr Ehrlich, are structures which are commonly used by solicitors, and as to the type of transactions in which they are to be found. While the absence of that evidence is not fatal to the plaintiff’s case, nevertheless, given the manner in which the issues emerged in the case, the absence of that evidence leaves the case of the plaintiff against the second defendant as consisting of little more than a series of propositions advanced from the Bar table.

In a case such as this, where the plaintiff has not called expert evidence of the kind to which I have just referred, the court is left to decide for itself what, in the circumstances of the present case, an ordinary reasonably prudent and careful solicitor would have advised the plaintiff to do, and, in particular, whether such advice would have included any of the matters now contended for on behalf of the plaintiff.[52]
[52]Nagle v Power (above) 376, (Bray CJ); Fox v Everingham (above), 179; Henderson v Amadio (No 1) (1995) 52 FCR 1, 138 (Heerey J).

In considering Mr Ehrlich’s contention, that the solicitor should have advised his client to nominate either a company or a discretionary trust to purchase her interest in the property in completion of the auction contract, I consider that there is significant force in the evidence given by Mr Anthony that the transaction, in respect of which he was asked to act, was a basic family arrangement relating to a half interest in a relatively modest dwelling in Oakleigh. In those circumstances, it would be unusual, to say the least, for a transaction involving such a property to be structured using the type of devices suggested by Mr Ehrlich, particularly where they may, potentially, have adverse implications for the plaintiff’s pension entitlements in the future, and may also have capital gains tax consequences. The devices of the company, using two types of shares, and the discretionary trust, are somewhat sophisticated and esoteric, in the context of such a transaction. There is some unreality about such a proposition in the circumstances of the present case. In my view, it could not be fairly concluded that the solicitor acted in breach of his duty of care to the client in not suggesting either of those structures to her.

As I have stated, the suggestion relating to the use of the Settled Land Act arose near the very end of the trial. As a result, little evidence was devoted to it. In particular the plaintiff did not call any evidence as to how commonly such a device – or indeed structures such as the company or discretionary trust – are used for transactions of the type contemplated in the present case. There is no suggestion that the structure, ultimately used by the second defendant, did not conform with his client’s instructions. In particular, the deed executed by the parties was legally binding on them. It reserved, at the least, the right to the plaintiff to reside in the house for the rest of her life, which was her principal desire.

In the absence of any evidence relating to the contentions relating to the Settled Land Act, I am left to determine whether, in the circumstances of the retainer in this case, an ordinary reasonably prudent solicitor would have made a suggestion to the plaintiff along the lines now contended for by Mr Ehrlich. The submission, made on behalf of the plaintiff, does call for some analysis. If the solicitor had given that advice to the plaintiff, then she would have obtained, presumably, a life interest in a one half share, as tenant in common, in the property, to be held by the trustee of the relevant settlement. Mr Ehrlich contended that such an interest would have enabled the plaintiff to retain something of value which, if her circumstances changed, could have been sold, and the proceeds used for her benefit. On its own, the power of sale of a life tenant, under s 38 of the Settled Land Act, would be of little value to the plaintiff. It would be doubtful, if not highly unlikely, that a purchaser could be found for the half share in the property held by the settlement. Accordingly, in order to realise any value of the half share, it would be necessary for the property itself to be sold. As I stated, on the evidence, it is clear that the first defendant, at all times, has had his mother’s best interests in mind. Presumably, he would be amenable to such a sale. However, if not, then the solicitor would have had to contemplate a situation in which the plaintiff, as the life tenant of a one half interest in the property, could have, and would have, sought a sale of the property under s 222 of the Property Law Act.

Such a situation would, to say the least, be most unusual. Certainly, the interest of a life tenant is registrable under s 10(1)(f) of the Transfer of Land Act, and therefore, presumably, is an interest in land under s 222 of the Property Law Act. Accordingly, theoretically, a client, gaining a life interest in a one half interest in the property, might be able to force the sale of it. However, the solicitor would then need to contemplate what benefit such a sale would be to the client. On such a sale, the client would not be entitled to the proceeds of the sale of her half interest. Rather, she could, as contended by Mr Ehrlich, use any income generated by an investment of that capital sum. Based on the auction price of April 2006, the net value of that sum would be in the region of $230,000. No evidence was led as to how it might have been invested. Presumably, the hypothetical prudent solicitor might reckon on that sum returning a net income of about $10,000 per annum at that time. In this respect, the suggestion of Mr Ehrlich runs into a further difficulty. At that time, as I understand it, the plaintiff was on an aged pension. The guide to Social Security law, tendered on behalf of the plaintiff (Exhibit O), sets out the relevant permissible income levels in respect to such a pension. If the solicitor were to have advised the course now contended for the plaintiff, he would also have had to bear in mind whether any income generated by the capital sum brought about by a sale of a half interest, would have any, and if so what, adverse effect on the plaintiff’s pension entitlement. In the end, if the solicitor contemplated such a structure, it would be unsurprising if he rejected it as too complicated, with little (if any) potential benefit to the client. Thus, in the upshot, in my view, the idea of reserving a life interest, in the manner contended for by the plaintiff, would not present itself as an option capable of generating any substantial benefit for the plaintiff.

All of those matters, to which I have just referred, when taken in combination, comprise issues which would arise, should the hypothetically ordinary prudent solicitor have given consideration to the proposition now advanced on behalf of the plaintiff, namely, that her one half share in the property should be held pursuant to a settlement under the Settled Land Act. Each of the issues, particularly when taken in combination, are such that, in my view, it could not be fairly concluded that an ordinary reasonably prudent solicitor would have advised the plaintiff to enter into such a transaction.

In this context, I consider that it is relevant that, in making her case against the second defendant, the plaintiff’s case underwent a number of reformulations during the period of five days over which the trial was conducted. The proceeding was issued in December 2008, and the trial took place twelve months later. It is significant that, at the commencement of the trial, the plaintiff’s case was not opened on the basis upon which it concluded. There is an incongruity in attributing negligence to the second defendant, in failing to advise the plaintiff about a number of alternative propositions, which the plaintiff’s present advisers did not proffer on behalf of the plaintiff, at the commencement of the trial, and which only emerged during the running of it.

Ultimately, the analysis of the case against the second defendant returns to the question of the ambit of the retainer of the second defendant by the plaintiff. The plaintiff made it plain to the second defendant that she wished to dispose of her interest in the property to the first defendant by way of gift. As I stated, she fully understood what she was doing, and in particular she knew that she was thus disposing, once and for all, of what, to all intents and purposes, was her sole asset. The deed prepared by the second defendant ensured that the plaintiff’s interest and desire in continuing to live in her house was protected. In my view, the obligation of the solicitor, to exercise reasonable care and skill, did not extend to giving advice of the type postulated by the plaintiff at trial, nor to structuring the transaction in the manner contemplated by any of the three alternatives ultimately put on her behalf during the trial.

In those circumstances, I do not consider that the second defendant acted in breach of his duty to exercise reasonable care and skill in acting for the plaintiff, by not advising, or suggesting, to her, that she should structure the proposed transaction in the form of one of the three alternatives relied on by the plaintiff at the trial of this case. In the circumstances which I have outlined above, I do not consider that the second defendant could be fairly characterised as failing to exercise a reasonable degree of care and skill, by not proposing those alternative structures to the plaintiff.

If, contrary to the foregoing, I had concluded that the second defendant acted in breach of the implied term that he exercise reasonable care and skill on behalf of the plaintiff, the next question which would arise is whether the plaintiff has suffered any, and if so what, loss and damage as a consequence. In this respect, the plaintiff’s claim would have faced a number of obstacles. The basic object of damages, in a case such as this, is to place the plaintiff in the same position as she would have been, if the second defendant had not breached the retainer, in the manner alleged by her.[53] Thus, the plaintiff’s claim for damages would be based upon the proposition that she would have been in a different position, had the second defendant given her the advice that she should structure the gift to the plaintiff in one of the three ways suggested by Mr Ehrlich.[54] In order to succeed in a claim for damages on that basis, the plaintiff would first need to establish, on the balance of probabilities, that she would have acted on that advice.[55] The answer to that factual question was not directly addressed in evidence. Certainly, however, I am satisfied, on the balance of probabilities, that if the second defendant had given the plaintiff the type of advice contended for by the plaintiff, she would not have abandoned her plan to dispose of her property to the second defendant during her lifetime. In other words, I am not satisfied that the transaction would not have proceeded at all. On the contrary, I am satisfied that the transaction would have proceeded, whether in the form in which it was constituted, or (at the least) in the alternative form argued for by Mr Ehrlich.
[53]Livingstone v Rawyards Coal Co (1880) 5 App Cas 25, 39 (Lord Blackburn); Johnson v Perez (1988) 166 CLR 351, 355 (Mason CJ), 363, 367 (Wilson, Toohey and Gaudron JJ).
[54]Rosenberg v Percival (2001) 205 CLR 434, 443 [25] (McHugh J), 461-462 [87] Gummow J, 484 [154] (Kirby J); Micarone & Anor v Perpetual Trustees Australia Ltd ((1999) 75 SASR 1, 147-148 (Debelle and Wicks JJ); Berry v Kanakis [2002] NSWCA 68.
[55]Smeaton v Pattison [2002] QSC 431, [23] (Atkinson J).

Each of the three alternatives, postulated by Mr Ehrlich, would have provided, in effect, that the plaintiff would have, in one form or another, a life interest in the property, with the first defendant becoming entitled to an interest in fee simple on her death. However, it is here that the plaintiff’s claim encounters two difficulties. First, it is by no means clear that the plaintiff has not, in fact, gained a life interest in the property under the conveyancing deed. In other words, it is not clear that the deed does not constitute a “settlement” under s 8(1)(c) of the Settled Land Act 1958. That question was raised by me in final address with Mr Ehrlich. It was only the subject of limited submission both by Mr Ehrlich and by Ms Ryan, and Mr Ehrlich has filed a short supplementary submission in respect of it. The point is not clear cut. The deed, both in the recitals, and in its operative conditions, refers to the grant of a “life interest” to the plaintiff “to reside at the property”. The critical question is whether the deed, in that way, provided to the plaintiff a mere right to “reside” or “live on” the property as a personal right, or whether it also provided to her a life interest in the property, entitling her to occupy or use it, as well as to reside in it.[56] In the absence of full argument, I am loathe to decide the point. Indeed, in my view, it would not be necessary for me to do so. It is accepted by the parties that the deed is a legally enforceable document between them, notwithstanding that it was entered into by the parties primarily in order to protect the plaintiff’s rights to her pension. There is no suggestion that the deed was a sham document. Further, there is no evidence that the first defendant does not recognise that, under the deed the plaintiff, has a life interest. The evidence is entirely neutral to that effect. This is not a case in which the first defendant has successfully resisted a claim by the plaintiff that, under the deed, she has a life interest. Thus, the plaintiff has not proven, against the second defendant, that the first defendant has not accepted, or does not recognise, that she has a life interest in the property under the deed. The plaintiff could only suffer the loss and damage, now claimed on her behalf, if she were precluded from claiming that she has a life interest under the deed. That issue has not arisen. Thus, the plaintiff has failed to prove a critical element of her claim for loss and damage in any event.
[56]Re Keenan (1913) 30 WN (NSW) 214, 215; Batey v Potts (2004) 61 NSLWR 274, [25]; Re Hoppe [1961] VR 381, 403 to 404.

Pausing there, I add that if, on its correct construction, the deed does provide to the plaintiff a life interest in the property, the plaintiff would have thereby derived, in one sense, a more extensive interest, than that contended for on her behalf in this case, namely, a life interest in a one half share in the property. For, the deed is expressed in terms of providing to the plaintiff a life interest in the whole of the property, and not just in respect of her previous half interest in it.

Finally, if, contrary to the foregoing, the first defendant acted in breach of his retainer to the plaintiff, by failing to reserve to the plaintiff the equivalent of a life interest in her half share of the property, and if she were now precluded from such an interest, the plaintiff has nonetheless failed to prove that she has thereby suffered loss and damage.

As I have earlier stated, the claim pleaded on behalf of the plaintiff was based on the value of her half share in the property. The plaintiff did not adduce any evidence as to the current market value of the property. However, it might be assumed that the market value of it, at the time of the transaction, was constituted by the price agreed to be paid by the plaintiff and the first defendant at the auction sale in April 2006. Nevertheless, the plaintiff’s loss, on the claim made on her behalf in this case, is not to be quantified by reference to the market value of the plaintiff’s half interest in the property. Rather, ex hypothesi, the plaintiff’s claim is based on the proposition that if the second defendant had provided to her “non-negligent” advice, she would now have the equivalent to a life interest in a one half interest in the property. The plaintiff has not called any evidence to prove the value of that life interest. As I have already observed, under the Settled Land Act, if she were a life tenant of a one half interest in the property, she would be able to sell that interest. It is most improbable that she could find a willing purchaser for a one half interest in the property. Accordingly, in order to realise the value of that interest, she would first need to obtain an order for the partition and sale of the whole property under s 222 of the Property Law Act. Upon such a sale, she would not be entitled to receive the equivalent of the net proceeds of one half of the sale of the property. Rather, she would be entitled to use, during her lifetime, any profit from the investment of that capital sum. The plaintiff did not call any evidence as to the amount of those profits, or as to their current day value. Further, no evidence was given as to the effect, on her pension, of the receipt by her of any income, from the investment. Accordingly, assuming all other matters in favour of the plaintiff, she has nonetheless failed to prove the loss and damage she has sustained on the basis of the claim now made against her by the second defendant. For that further reason, the plaintiff’s claim against the second defendant would, in any event, have failed.

For the foregoing reasons, the plaintiff’s claim against the second defendant should be dismissed.

Cross claim by first defendant against second defendant

Finally, I should refer to the cross claim made by the first defendant against the second defendant. That claim was made in the event that the plaintiff should succeed against the first defendant. Although the first defendant was not a client of the second defendant, the claim was made on the basis of the existence of a duty of care of the first defendant to the second defendant.[57] In essence, it was put that the second defendant owed the first defendant a duty of care, because the second defendant knew and understood that if the transaction, whereby the plaintiff disposed of her interest in the property to the first defendant, was ineffective, the first defendant would suffer loss and damage.
[57]Hill v Van Erp (1997) 188 CLR 159.

Because of the conclusions which I have reached in this case, it is not necessary for me to express any view in relation to the cross claim by the first defendant against the second defendant. I should observe, however, that the basis of the cross claim, when argued, was not entirely clear. If the plaintiff were to succeed on the basis of undue influence or unconscionable conduct by the first defendant, Mr Mitchell was unable to identify any respect in which the second defendant could have avoided that outcome by acting differently. For, if the second defendant had advised that the plaintiff should structure the transaction in the manner now contended for by Mr Ehrlich, any such transaction would, nonetheless, have been also susceptible of challenge for undue influence or unconscionable conduct. In addition, as contended by Ms Ryan, if (contrary to my findings) there was undue influence or unconscionable conduct by the first defendant, the responsibility of the second defendant would have been to act to protect the plaintiff from that conduct. That contractual duty would be in conflict with any duty of care of the type contended for on behalf of the second defendant. For those reasons, if the plaintiff had succeeded in her claim against the first defendant, no basis has been made out on which the first defendant might make a claim against the second defendant.

Conclusion

Accordingly, for the foregoing reasons, the claims of the plaintiff against both defendants should be dismissed. The cross claim of the first defendant against the second defendant should also be dismissed.

[2009] VSC 583

14 December 2009