Johnson v Smith

[2010] NSWCA 306

New South Wales

Court of Appeal

CITATION:	Johnson v Smith [2010] NSWCA 306
HEARING DATE(S):	8 July 2010
JUDGMENT DATE:	17 November 2010
JUDGMENT OF:	Allsop P at [1]; Hodgson JA at [8]; Young JA at [11]
DECISION:	The appeal is dismissed with costs.
CATCHWORDS:	Equity- undue influence- whether son was in a position of influence and ascendency over mother- cheques bearing large sums signed by elderly woman in favour of son and late husband- son claiming that he holds funds beneficially as absolute gift- relationship of dependency and bonds of affection- mother suffering from special mental and physical disadvantage- progressive dementia- son principal carer- no independent legal or financial advice- no error in granting relief in circumstances- whether son exercised undue influence himself- son closely involved and received benefit. Equity- unconscionable conduct- whether transaction "fair just and reasonable"- whether honest subjective motivation determinative where son intending to act for the benefit of mother in carrying out transaction and retaining sums- not determinative where retention of benefit obtained from person with special disadvantage- detailed consideration unnecessary where assertion of absence of legally enforceable protection of mother's needs in transfer.
LEGISLATION CITED:	Family Provision Act 1982 Protected Estates Act 1983
CATEGORY:	Principal judgment
CASES CITED:	Allore v Jewell 94 US 506 (1876) Bridgewater v Leahy [1998] HCA 66; 194 CLR 457 Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447 Earl of Aylesford v Morris (1873) LR 8 Ch App 484 Jones v Dunkel [1959] HCA 8; 101 CLR 298 Nichols v Jessup [1986] 1 NZLR 226 Re B [2000] NSWSC 44 Redgrave v Hurd (1881) 20 Ch D 1 Torrance v Bolton (1872-3) LR 8 Ch App 118
PARTIES:	Andrew Robert Stuart Johnson (Appellant) Karen Elisabeth Smith (Tutor) Frances Madge Johnson (Respondent)
FILE NUMBER(S):	CA 2009/298421
COUNSEL:	A Crossland (Appellant) L Ellison SC (Respondent)
SOLICITORS:	Appellant Self Represented TressCox Lawyers (Respondent)
LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 2304/08
LOWER COURT JUDICIAL OFFICER:	Forster J
LOWER COURT DATE OF DECISION:	9 June 2009
LOWER COURT MEDIUM NEUTRAL CITATION:	Frances Madge Johnson by her Tutor Karen Elisabeth Smith v Andrew Robert Stuart Johnson [2009] NSWSC 503

2009/298421

ALLSOP P
HODGSON JA
YOUNGJA

Wednesday 17 November 2010

JOHNSON v SMITH

Headnote

In May 2007, $540,000 was removed by internet transfer and then cheque deposit from the accounts of the respondent Frances Madge Johnson (Mrs Johnson). $270,000 ultimately found its way to a bank account opened in her son Andrew Robert Stuart Johnson, the appellant’s, name. The other half went into a bank account jointly held by the appellant and the late Mr Johnson, to which the appellant succeeded on the passing away of Mr Johnson. At the time of the transaction Mrs Johnson was elderly, suffering from progressive dementia with intermittent “good days” and “bad days”, and was dependent on the appellant as her principal carer. The family intended to remove the funds from Mrs Johnson’s name to ensure the availability of liquid funds for her care should a guardian be appointed to her property. However, the transaction did not provide any enforceable protections or safeguards to ensure that the sums were used for this purpose.

At trial, the respondent, by her tutor Karen Elisabeth Smith, succeeded in obtaining declarations and orders requiring the defendant to transfer the funds to the plaintiff and damages for losses. Forster J rejected the respondent’s claim that Mrs Johnson lacked capacity to dispose of the funds because, given that she was having “a good day”, the evidence did not establish that she was not aware that she was signing cheques. However, he held that the sums were not advanced as a gift and that the appellant was not entitled to retain the proceeds of the cheques based on principles of “catching bargains” and unconscionable conduct. The transaction was totally disadvantageous to Mrs Johnson as no enforceable legal obligation to protect her arose from it. Further, the appellant knew that Mrs Johnson was at a special disadvantage because of her mental condition and lack of independent advice. Forster J found that the honest motive of the appellant was not determinative or relevant from the respondent’s perspective. Additionally, undue influence was made out because Mrs Johnson was in no place to resist the suggested transaction given her mental and physical dependency on the appellant as her carer.

On appeal, the appellant put that the trial judge erred in holding that unconscionable conduct was made out because the honest motivation of the appellant and Mr Johnson was determinative against a finding that the advances were “unfair, unjust or unreasonable” and unconscientious. The absence of legal obligation to Mrs Johnson did not make the transactions disadvantageous, given the appellant’s intention to protect the respondent. The appellant also challenged the finding of undue influence. The appellant argued that he (as opposed to Mr Johnson) did not have ascendancy over respondent merely because he was her carer, and that there was no evidence that the respondent was not in a position to resist the proposed transfer. The appellant put that the trial judge erred in applying a Jones v Dunkel presumption to the appellant’s evidence that Mrs Johnson visited two bank officers the day before the transfer occurred, when the appellant was not cross-examined on this issue.

The appeal raised three principal issues:

1. Whether the appellant had ascendency over the respondent and whether Mr Johnson rather than the appellant exercised any undue influence.
2. Whether a finding of undue influence or unconscionable conduct was open to the trial judge in the circumstances.
3. Whether the honest motivation of the appellant meant that the transaction was “fair just and reasonable” any conduct conscientious.

The court held, dismissing the appeal:

1. As to ascendency:

Allsop P, Young JA (Hodgson JA agreeing): the appellant had ascendency over Mrs Johnson given her age, her dependence on the appellant as her carer, the bonds of love and affection, and given that the appellant instigated the transaction. Regardless of Mr Johnson’s influence, the appellant was closely involved in the transaction from which he received a benefit to the disadvantage of his mother and the family did not intend that the funds would pass to the appellant beneficially. It was open to trial judge to conclude on the evidence that Mrs Johnson was not able to resist the proposed transaction. The failure to call the bank officers made it difficult to demonstrate that the Mrs Johnson’s visit substituted for independent legal advice.

2. As to undue influence or unconscionable conduct:

Young JA, (Hodgson JA agreeing): although the instant case is difficult to fit within the usual scenarios of undue influence, the circumstances are sufficiently close to the established circumstances where equity has given relief to grant relief in the present case. In the circumstances the appellant’s assertion of an outright gift (as opposed to a holding of the sums to be used on behalf of his family by way of fiduciary or equitable obligation, or perhaps a trust) made the unconscientiousness of the transaction and any previous high moral thoughts virtually irrelevant. The appellant and his privies initiated the transaction and the structure of the transaction gave Mrs Johnson no protection and no benefit.

Allsop P: given the relationship of influence, the lack of independent advice as to an outright parting of a large amount of money that Mrs Johnson would require access to if her condition deteriorated, and which would be at the mercy of life’s vicissitudes and her son’s creditors, the equitable relief was properly granted on the basis of undue influence.

3. As to the determinacy of subjective motivations to unconscientiousness:

Young JA, (Hodgson JA agreeing): although it is not the occasion to express a concluded view, there are situations where a person with pure subjective motives can be held to be acting unconscionably, by accepting the benefit of an improvident bargain by an ignorant person acting without independent advice which cannot be shown to be fair.

Commercial Bank of Australia v Amadio

[1983] HCA 14; 151 CLR 447; Bridgewater v Leahy [1998] HCA 66; 194 CLR 457, considered; Nichols v Jessup [1986] 1 NZLR 226, applied.

Allsop P: the attempt to take advantage of a special disadvantage lies at the heart of unconscionable conduct and is usually, but not necessarily, accompanied by conduct capable of moral or ethical criticism. In this case the appellant took advantage by an unconscientious attempt to retain the benefit obtained from a person with a special disadvantage. As appellant could not demonstrate that the transaction was “fair just and reasonable”, the transaction ought to be set aside for unconscionable conduct. The appellant was aware of his mother’s position and was or ought to have been aware of the potential for real disadvantage to her if the transfers were to be by way of outright gift with no legally enforceable protection to have the moneys used for her benefit.

Commercial Bank of Australia Ltd v Amadio

[1983] HCA 14; 151 CLR 447; Bridgewater v Leahy [1998] HCA 66; 194 CLR 45; Torrance v Bolton (1872-73) LR 8 Ch App 118; Earl of Aylesford v Morris (1873) LR 8 Ch App 484; Redgrave v Hurd (1881) 20 Ch D 1; Allore v Jewell 94 US 506 (1876), referred to.

2009/298421

ALLSOP P
HODGSON JA
YOUNGJA

Wednesday 17 November 2010

JOHNSON v SMITH

Judgment

1 ALLSOP P: As the reasons of the learned primary judge and of Young JA (the draft of which I have had the opportunity to read) reveal, this is a case with some unusual features. It must, however, because of the way the appellant argued the matter, be approached on the basis that the transaction and events on the day in question were intended to, and did, give rise to an outright gift, though attended by moral, but not enforceable, obligations.

2 As Deane J said in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; 151 CLR 447 at 474 and reiterated by Gaudron, Gummow and Kirby JJ in Bridgewater v Leahy [1998] HCA 66; 194 CLR 457 at 478 [74], the equitable doctrines of undue influence and unconscionable dealing or conduct are distinct. The former (undue influence) looks to the quality of consent or assent of the weaker party and the latter (unconscionable dealing or conduct) looks to the attempted enforcement, or retention of a benefit, of a dealing with a person under a special disability.

3 The facts as found by the learned primary judge were sufficient for him to conclude that there was a relationship of influence between the appellant and his mother. That relationship arose out of the mental condition, disadvantage and need for care of Mrs Johnson, the role of the appellant as her devoted carer and the evidently deep bonds of love and affection between them.

4 In that context, the lack of any independent legal, financial or other advice as to an outright parting of such a large amount of money, placing it at the risk of the vicissitudes of the life, and creditors (if any), of her son, in circumstances where she may have required access to it in the future in the (not unlikely) event of a deterioration in her condition, called for equitable relief as granted by the primary judge based on the doctrine of undue influence.

5 As to unconscionable dealing or conduct, it can be accepted that neither the appellant nor his father acted with any dishonesty. Nevertheless, it is the attempt to retain the benefit obtained from the special disadvantage of his mother that is the issue. In many cases (though not this one) this is accompanied by conduct that is capable of clear moral or ethical criticism – cheating, trickery, extortion or plain dishonesty. Nevertheless, what lies at the heart of the doctrine is that advantage is taken of the special disadvantage. This may occur because of the unconscientious use of power arising or existing in the circumstances or (as here) the unconscientious attempt to retain the benefit obtained from the person with the special disadvantage. If the transaction is not fair, just and equitable, the onus being on the beneficiary of the transaction to show that, the transaction will be set aside. See generally Bridgewater v Leahy at 478-479 [74]-[76]; Torrance v Bolton (1872-73) LR 8 Ch App 118 at 124-125; Earl of Aylesford v Morris (1873) LR 8 Ch App 484 at 490-491; Redgrave v Hurd (1881) 20 Ch D 1 at 12-13; Amadio’s Case at 462, 484 and 489; Allore v Jewell 94 US 506 at 510-512 (1876); and S W Symons Pomeroy’s Equity Jurisprudence (5^th Ed) Vol III at 758-762 § 947.

6 Here, in the circumstances, the transaction could not be characterised as just, fair and reasonable if the transfer from the disadvantaged mother gave her no legally enforceable protection to have the moneys used if necessary for her own benefit. The appellant was aware fully of his mother’s position and, if the transfers were to be by way of outright gift, he was, or ought to have been, fully aware of the potential for real disadvantage to her. The primary judge was correct to set aside the transaction on the basis of unconscionable dealing also.

7 I otherwise agree with the reasons of Young JA and with the orders his Honour proposes.

8 HODGSON JA: I agree with the orders proposed by Young JA, and I agree substantially with his reasons.

9 The appellant asserted there had been an outright gift to him of the money in question. He did not assert that he held the money to be used on behalf of the family, so that while he could use the money for his own expenses, it was also or primarily to be used for the benefit of the family and in particular of Mrs Johnson. If he had made that assertion, then the issue of whether this could save the transaction from unconscionability could have been investigated. It is said that, charitable trusts aside, there cannot be trusts for a purpose; but on the other hand, persons can accept fiduciary duties in respect of property to act on behalf of other persons, and when money or other property is applied to advance a common purpose and that purpose fails because of disagreements among the participants, constructive trusts can arise.

10 The exploration of issues such as these was excluded because of the appellant’s unequivocal assertion of an outright beneficial gift; and in these circumstances, the primary judge’s finding of unconscionability was plainly correct.

11 YOUNG JA: This is an appeal from a decision of Forster J sitting in the Equity Division of this Court involving the property or former property of Mrs Frances Madge Johnson (Mrs Johnson).

12 The appellant is a son of Mrs Johnson. The respondent is actually Mrs Johnson herself, but her daughter, Ms Karen Smith, who is her financial manager under an order made under the Protected Estates Act 1983 sues as her tutor. Although the notice of appeal has both ladies as respondents, I will refer to Mrs Johnson as the respondent and Ms Smith as the Tutor.

13 Mrs Johnson has a third child, David, who is not a party to these proceedings.

14 As at May 2007, Mrs Johnson was married to Andrew Arnold Johnson (Mr Johnson) who died on 5 July 2007.

15 As of 1 May 2007, Mrs Johnson had approximately $545,000 in one of her bank accounts.

16 On 17 May 2007, an amount of $540,000 was withdrawn from Mrs Johnson’s Maxi Direct Account with Westpac by way of internet transfer and was deposited by six entries totalling the said sum of $540,000, to the credit of Mrs Johnson’s cheque account with Westpac.

17 On the same day Mrs Johnson signed two cheques on that account each for $270,000. One of those cheques, which was made payable to both the appellant and Mr Johnson, was deposited to the credit of one of the two joint accounts that had been opened at the National Australia Bank in the names of the appellant and Mr Johnson. The other cheque, which was made payable to the appellant, was, on the same day, deposited in a bank account opened by the appellant in his own name at the Commonwealth Bank.

18 On 22 May 2007, both amounts of $270,000 were moved. The moneys that had previously been deposited in the joint account of the appellant and the late Mr Johnson at the National Australia Bank were transferred by internet transfer to their other joint account at the National Australia Bank, where the moneys remained at the date of hearing at first instance.

19 The other amount of $270,000 was likewise moved from the appellant’s Commonwealth Bank account to another account that had been opened by him in his own name at the Commonwealth Bank. Some of those moneys have since been withdrawn from that account, but at the time of hearing below, the balance of the said sum of $270,000 similarly remained in that account.

20 The retention of the funds was doubtless assisted by freezing orders that were made and continue in force.

21 The appellant, it appears, has succeeded to Mr Johnson’s share of the proceeds of the cheques as survivor to moneys held on joint account.

22 Mrs Johnson was born on 21 April, 1925 and was thus 82 years of age when she drew those cheques. She is still alive, now being 85.

23 On 17 September 2007 Ms Smith was appointed by the Guardianship Tribunal as the plaintiff’s Financial Manager. On 28 March 2008, the Office of the Protective Commissioner authorised her to bring these proceedings on Mrs Johnson’s behalf.

24 On 11 April 2008, Mrs Johnson, by her tutor, Ms Smith, filed a statement of claim for return of the moneys and for other related relief on two alternative bases, namely:

(i) that Mrs Johnson’s mental condition was such that she did not have the capacity to dispose of the funds in question; and

(ii) alternatively, even if she did have such capacity, nevertheless in all the circumstances, the appellant is still obliged to return their proceeds.

25 The appellant filed a defence on 12 May 2008. He admitted receipt of the moneys, denied that he had obtained them unconscionably or that the principle of non est factum applied and further said that he relied on the presumption of advancement by reason of the fact that he is a son of Mrs Johnson.

26 By her reply, Mrs Johnson disputes that the principle of advancement applies in the circumstances, and relies further on two letters written by the solicitors then acting for the appellant, one on 16 November 2007 and the other on 7 February 2008 in which the appellant is said to have acknowledged that he held the funds on behalf of Mrs Johnson. She says that these constitute admissions against interest as to the ownership of the funds in question, and claims that in the circumstances the defendant is estopped from making any assertion inconsistent with those admissions.

27 The pleadings in the case did not readily expose the real matters in dispute between the parties. Indeed, the statement of claim seemed to be based on the transaction being a gift to the appellant of $540,000 and the defence proceeded on the same basis.

28 However, the principal debate both in this Court and below was whether, because the appellant had assumed some moral obligation that he would use the funds at least in part to look after his mother and actually intended at the time of the transaction so to do, there could be no unconscionability involved in the transaction.

29 I might interpolate at this stage that if there is a family understanding that monies be taken out of a parent’s name and put into the name of a son, there are a variety of possible legal scenarios, including:

(a) The son holds the funds on trust for his mother; or

(b) The son holds the funds beneficially, but charged with an equitable obligation to expend whatever of them was required for the upkeep and benefit of his mother; or

(c) The son is fixed with some fiduciary obligation to use the funds on behalf of the mother; or

(d) The son holds the funds beneficially, but is under a moral (but not a legally or equitably enforceable) obligation to care for his mother.

30 Had the appellant taken the position that the present case involved scenarios (a), (b) or (c), a lot of what his counsel submitted to the primary judge and to this Court would have struck a welcoming chord. However, the appellant took the position that the moneys were a gift to him with only a moral obligation to look after his mother.

31 Of course, in each scenario, it would also be necessary to consider the fact that if no security is given to the mother, she realised that the funds might be dissipated by the funds being exposed to payments of the son’s own debts and liabilities and was willing to take that risk.

32 Another matter that might need to be taken into consideration by the family in this type of situation is the operation of what might loosely be called the principle of hotchpot as applied to testamentary instruments whereby a legacy may be in whole or partially adeemed by an advancement made by parent to child. The doctrine is ancient and its exact ambit unclear (see eg Hanbury & Martin, Modern Equity, 15^th ed (1997) p 862, a passage seemingly omitted from later editions), but it must be borne in mind. Where a parent has provided a gift to a person in her will and then makes a gift to that person, the circumstances may show that that gift was intended to be an advance on the testamentary gift and not an additional gift.

33 The primary judge found against Mrs Johnson on the non est factum ground, but found for her on undue influence and unconscientious grounds and ordered the appellant to restore the funds.

34 The non est factum claim failed because the primary judge considered that Mrs Johnson had not satisfied the onus of proof on her to show that at the relevant time she had no capacity to enter into the transactions.

35 As to the presumption of advancement, the primary judge correctly recorded that it was a rebuttable presumption: he held that in the present case, there had been substantial evidence adduced not only to rebut the presumption, but to satisfy him that the influence operated in the opposite direction.

36 There is no appeal over this disposal of the argument based on the presumption of advancement. Thus, its only current relevance is that, by pleading it, the appellant made it clear that he claimed the $540,000 beneficially.

37 Before dealing with the matters raised on the appeal, I should note that after the hearing before the primary judge and on 16 March 2010, Macready AsJ decided a claim made under the Family Provision Act 1982 by the appellant in the estate of Mr Johnson (Johnson v Smith [2010] NSWSC 125). The learned Associate Judge dealt with the case, apparently by consent, on the basis that Forster J’s judgment stood and made an order for a legacy out of notional estate. It is not necessary to refer to this matter further.

38 By his amended notice of appeal the appellant says the primary judge erred in finding against him on the issues of undue influence and unconscientious conduct. He says that he and his father were not in a position of influence, in carrying out the transaction he only ever intended to act for the benefit of Mrs Johnson and always intended that she would be well looked after by use of the funds and the transaction did benefit Mrs Johnson.

39 There is also filed an amended notice of contention challenging the finding that Mrs Johnson had not demonstrated that she lacked sufficient mental capacity to effect the relevant transactions and challenging the primary judge’s preference of the evidence of Michael Bourke over that of Ms Smith.

40 The appeal was heard on 8 July 2010, Mr A Crossland of counsel appeared for the appellant and Mr Lindsay Ellison SC for the respondent.

41 There was agreement at the trial as to some background facts. Further, there is little challenge to the primary facts found by the primary judge. I will thus briefly set out those facts principally using the words used by the primary judge and will later deal with the few challenges that were made.

42 It was common ground that Mrs Johnson had always been extremely reluctant to obtain any medical assistance and that she refused to see doctors for most of her life. There is no evidence to suggest that she visited any health professional prior to seeing Dr Roberts-Smith in August 2006. Although that visit appears to have occurred in the context of an application by the appellant for a carer allowance.

43 Dr Roberts-Smith described her condition at that time as suffering from “dementia-Alzheimers” and that he considered the condition to be permanent and not likely to improve. He also indicated that in his opinion Mrs Johnson needed help with personal care and that she was cognitively impaired.

44 On 8 May 2007 and again on 14 May 2007, Mrs Johnson attended Dr Samantha Lander of the Chatswood East General Medical Centre. She had been brought to Dr Lander’s rooms by the appellant and Mr Johnson.

45 Dr Lander found on the first of those occasions that Mrs Johnson was oriented to person, but not to place or time, that she was very resistant to questioning or examination and was verbally aggressive. Dr Lander made a presumptive diagnosis of dementia.

46 On the second of those occasions, Dr Lander found that Mrs Johnson remained resistant to intervention, and expressed the view that she had serious concerns about Mrs Johnson’s capacity to manage her life decisions and financial affairs.

47 On 15 May 2007 an initial assessment of Mrs Johnson was attempted at Mrs Johnson’s home by Ms Sarah Goodsell of the Mercy Complex Care, a body associated with Mercy Community Care, and by Ms Daphne Cluness, a registered nurse from Hornsby Hospital. In a report subsequently obtained, it was recorded that, on that occasion, Mrs Johnson had presented as disoriented, confused and suspicious.

48 On 22 May 2007 a further assessment was made again at Mrs Johnson’s home by a senior care worker, Helga Thom. On that occasion, Mrs Johnson was described as being consistently aggressive towards the care worker and extremely resistive to intervention or assistance. The care worker also expressed her concern over the extent of Mrs Johnson’s dementia and the level of care she would need.

49 Notes of the care worker from 31 May to 4 July 2007 disclose that Mrs Johnson showed no sign of recognition of her and was not receptive. The house in which the family lived was becoming even messier than when first seen and Mrs Johnson was inappropriately dressed for the cold weather, wearing a summer skirt and top. The notes continue to the effect that on 4 July 2007 Mrs Johnson was very aggressive and wanted the care worker to leave.

50 Mrs Johnson was admitted to Hornsby Hospital on 5 July 2007, the day Mr Johnson died. She stayed there until 30 July 2007, at which time she was transferred to the former Graythwaite Nursing Home at North Sydney. When that nursing home was closed, she was relocated to another nursing home.

51 At some time between Mrs Johnson’s admission to Hornsby Hospital on 5 July 2007 and 24 July 2007, she was evaluated by Dr Stephanie Polley, an advanced trainee in geriatric medicine at Hornsby Hospital.

52 Dr Polley reported that Mrs Johnson was found to have severe dementia of the Alzheimers type, and that cognitive testing in hospital revealed a Folstein MMSE of 10/30.

53 Dr Polley also noted that Mrs Johnson was unaware of her surroundings and had poor comprehension and retention of information. She concluded that she required the appointment of a guardian to make decisions in regard to health care and accommodation needs, with coercive power to enforce her residence in a secure nursing home. Dr Polley also concluded that Mrs Johnson required a financial manager to be appointed, as she was unable to attend to her finances.

54 In Ms Smith’s application to the Guardianship Tribunal, made on 13 July 2007, she expressed the view that her mother suffered from dementia. The same view was expressed by the appellant in his application to the Tribunal two weeks later on 26 July 2007. The only difference between the opinions expressed by Ms Smith and those expressed by the appellant was that in the opinion of Ms Smith, Mrs Johnson had been under such disability for seven years, while in his application, the appellant described Mrs Johnson’s condition as having been “progressive with good & bad hours over past two years, dependent on adult conversation to improve but does not always work, been quite confused week of 23 July.” (Blue 733).

55 At all material times prior to May 2007, the appellant had been Mrs Johnson’s carer and they had lived in the same house. He was thus in a good position to observe her. Ms Smith visited her mother every second Sunday, so, she also was in a good position to assess her mother’s abilities.

56 The primary judge noted that the appellant tended to play down his part in being Mrs Johnson’s primary carer at the time of the transaction. However, he found that he had no hesitation in saying that by May 2007, the appellant was Mrs Johnson’s principal carer. The appellant attended to the household chores of cooking, cleaning, washing and otherwise attending to Mrs Johnson’s physical wellbeing.

57 Whilst it was true that the family’s financial affairs were being attended to by Mr Johnson, the physical needs of Mrs Johnson were principally attended to by the appellant. It was only as a consequence of the care and assistance of the appellant that Mr and Mrs Johnson were able to remain in their home, at least until Mr Johnson’s death.

58 However, to give balance, the primary judge also stated that he accepted Mrs Jeffrey’s evidence that Mr and Mrs Johnson were also very proud of Ms Smith, who held a law degree and was employed as a teacher. He found that there was no doubt that they placed significant emphasis on any opinion or advice that might have been voiced by Ms Smith.

59 The primary judge noted that the third child of the marriage, namely David Johnson, had fallen out of favour with his parents and that there was no evidence to suggest that he was in any way involved in the transactions the subject of these proceedings.

60 The primary judge summed up the views of the appellant and Ms Smith as follows:

35 The defendant gave detailed evidence as to his observations of the plaintiff’s mental condition. He was of course in a good position to do so as he lived in the same house as she did and had very close day to day contact with her. He agreed that her mental condition had been declining and that by May 2007 she had deteriorated significantly from her condition a few months earlier. He said that at times the plaintiff was in a delirious state, while at other times she seemed more to disengage from the world and do nothing but sit in the sun. However, the defendant maintained that the plaintiff had “good days” and “bad days”. The days on which she was either delirious or had disengaged from the world were what he called “bad days”. He said that there were fewer and fewer “good days” and more and more “bad days” as time went on, and that by May 2007 there were very few “good days”.
36 However, the defendant maintained that on “good days”, the plaintiff was in as good a mental condition as she had been in earlier times, even as long as 5 or 10 years earlier.
37 Ms Smith, the plaintiff’s daughter, gave evidence to a somewhat different effect. She agreed that the plaintiff had been declining over the years and that by May 2007 she had deteriorated significantly. By that time, she stopped attempting to speak to her mother over the telephone as she could make no sense of what her mother was saying. The only way she could communicate with the plaintiff was by visiting her at home, which she usually did every second Sunday. Her evidence was that even during those visits, her communications with the plaintiff were extremely limited and that she had formed the view by May 2007 that the plaintiff had no capacity to look after her own interests.

61 Two other witnesses gave evidence on the issue. Mr Michael Bourke, who had been a friend of the appellant, but who had known the plaintiff and Mr Johnson for some time, visited the family home in May 2007 at the request of the defendant.

62 Mr Bourke described conversations he had had with the plaintiff on the morning of Sunday 13 May 2007. The primary judge observed that those conversations appeared on the surface to be relatively normal. However, in cross-examination, Mr Bourke agreed that Mrs Johnson tended to meander from topic to topic, although within each topic she was coherent. Nevertheless, it should be noted that the topics on which the conversations focused related to matters that had occurred quite some time earlier. Mr Bourke formed the view that Mrs Johnson was quite lucid. However, she did not have the attention span that she had had when he had last spoken to her in about 2000. He said that he noticed that her habit of moving conversations off onto different topics resulted in topics under discussion not being completed.

63 The other witness was a Mrs Jeffrey, who had been the family’s next door neighbour for some years. The primary judge found that her evidence was not of any great assistance, partly because she had little recollection of dates, and partly because she had not had much contact with the plaintiff or the rest of her family during 2007. Nevertheless, he said, Mrs Jeffrey appears to have formed the same view as had the other witnesses, at least to the extent that she agreed that the plaintiff had deteriorated during 2007 and that her mental condition was far poorer by that time than it had been previously.

64 The primary judge accepted the appellant’s evidence that Mrs Johnson had “good days” and “bad days”. Some “bad days” were worse than others. However, he concluded at [64] that he did not accept the appellant’s description of Mrs Johnson’s “good days”. He found that even on days that the defendant would describe as “good days”, Mrs Johnson’s mental capacity and abilities were significantly impaired, the level of impairment varying only in extent as between “good days” and “bad days”.

65 The primary judge reviewed the events of 14-17 May 2007 in great detail. He assessed the witnesses and, essentially found that where they differed, he preferred the evidence of Mr Bourke to Ms Smith, though, except for one matter, he found Ms Smith reliable. He preferred Ms Smith’s evidence to that of the appellant. However, he said that he considered that the appellant was not endeavouring to deceive, but his recollection had been detrimentally affected by his emotional involvement in the proceedings.

66 Mr Bourke’s evidence of the vital happenings of May 2007 as accepted by the primary judge was that Mr Bourke’s evidence was that on Monday, 14 May 2007, Mr Bourke slept at the family home and rose late at around 10am or 11am. What must have been a significant period of time afterwards, he observed Mr Johnson and the appellant going out to the front verandah where Mrs Johnson was sitting.

67 Mr Bourke recalled that he made himself a cup of coffee and then went to the front of the house, where he stood and listened to the conversation that was taking place on the verandah.

68 Mr Bourke gave evidence that the appellant was quiet during the whole of the conversation, but that he heard Mr Johnson say: “We have to transfer money from your account into a joint account in your name and Andy’s name. If we don’t do this, then Karen says David will get one-third of the money. We need you to choose which of the two banks we have looked at that you prefer. One of them has higher interest rates, but it also has higher fees”.

69 Mr Bourke said that he did not hear any reply from the plaintiff. He then observed the appellant walking back into the house. Mr and Mrs Johnson were still on the verandah and Mr Bourke heard a conversation to the following effect:

Mrs Johnson: “Go and get the cheque book”.

Mr Johnson: “I have brought it out already”.

Mrs Johnson: “What if something happened to you? Some of the money should be in Andy’s name.” [“Andy” is the appellant].

70 Mr Bourke said he spoke by telephone to Ms Smith in the evening of that same day, in the course of which he told Ms Smith that her parents had made up their minds to carry out the plan that she had recommended, presumably to have transferred out of the plaintiff’s account the sum of $540,000. His evidence was that Ms Smith appeared to be pleased and that she had said:

“It is essential that the money be transferred before any incompetency hearing. I have told them what they have to do. The $540,000 must be transferred out of mum’s account”.

71 The primary judge did not accept Ms Smith’s denial of that conversation. It should be noted that, despite that denial, Ms Smith admitted that she had been told by her father that some funds had been put into a joint account in the names of himself and the appellant. She said that at the time she had assumed that the amount involved was only a small amount that had been drawn out of a joint account in the name of Mr and Mrs Johnson at the Macquarie Bank.

72 However, the primary judge said that he found nothing strange in Ms Smith having been aware of the proposed transaction. It is clear on her own evidence that she considered that the plaintiff had seriously deteriorated in her mental condition and it must have been obvious to her that it was merely a matter of time (and a short time at that) before Mrs Johnson’s financial affairs were taken out of her hands. Plans were already in place to have a guardian appointed to her. She was also concerned for her mother’s welfare and was conscious of the costs involved were she to have been institutionalised. Her legal knowledge must have made her realise that in the event that her mother was declared incompetent, her assets, including the proceeds of her bank account at Westpac, would be frozen and that the family would be at the mercy of a guardian who would control those funds. In those circumstances, it would undoubtedly have occurred to her that there would be some benefit to the family as a whole if the funds were moved from her account to other safe hands within the family.

73 I do not need to repeat the major part of the appellant’s evidence of the transfer of the funds as the primary judge did not accept it. However, it must be noted that in that evidence, the appellant deposed to a conversation with his father on 17 May 2007 as they left the National Australia Bank, words to the following effect:

“Your mother wants you to open a savings account at the Commonwealth Bank in your sole name for the other cheque”.

He says he replied:

“Really? Thank you very much. I won’t use the money unless something happens to you or Mum”.

74 However, I do need to refer to some part of that evidence as it links with a submission made as to the significance of the failure of the appellant to call some bank officers as witnesses.

75 The appellant gave evidence of Mrs Johnson conferring with two Westpac bank officers on the morning of Wednesday 16 May 2007 one of whom was a Ms Sawti. Neither Ms Sawti nor any other bank officer was called as a witness and there was no evidence as to why they were not called.

76 The primary judge applied the Jones v Dunkel presumption. He took the view that, given that the mental capacity of the plaintiff has always been the most significant issue in these proceedings, and that it must have been obvious to the appellant that this alleged conversation between the bank officers and Mrs Johnson would be a significant matter, he was entitled to draw the inference, which he did, that the evidence of those witnesses would not have assisted the appellant’s case.

77 Mr Crossland says that that was an error. He says that there was no cross examination about Mrs Johnson’s attendance on the bank officers, thus the primary judge should have accepted that the visit was made.

78 Even conceding this point, the fact that the bank officers were not called meant that the court was deprived of evidence as to what was said between the officers and Mrs Johnson so that it is more difficult for the appellant to make the case, as he endeavoured to make before us, that the advice of the bank officers went a long way towards substituting for the need of independent legal advice.

79 I should pause at this point and take an overview of the situation. It would seem from the above that it was almost common ground that Mr and Mrs Johnson, the appellant and Ms Smith were all of the mind that it was appropriate to remove $540,000 from Mrs Johnson’s name into the name of some other member(s) of the family so as to ensure that liquid funds were available to care for Mrs Johnson should an unfriendly guardian be appointed in respect of her property.

80 Mr Crossland says that part of the family scheme was that the funds would be taken out of the mother’s name and provided as a gift to the appellant. The trial judge would not accept this and nor can I. It seems to me that whilst the evidence clearly shows the common intention that the funds be removed from the mother’s name, it was not part of the scheme that the funds would pass to the appellant beneficially.

81 The appellant argues that because he was dependent on his parents for accommodation and he and his parents were in a close family situation it was clear that he must be provided for and this was accepted by Ms Smith. It must follow that the only viable way of making the desired provision was for him to be the beneficial recipient of the funds.

82 I do not accept this. As noted earlier, there were a number of other ways of dealing with the situation which would have carried out the family scheme without unduly favouring the appellant. The way chosen if the appellant is right is that he alone has the legal and beneficial title to a large fund without any legal or equitable obligation to provide for his mother or to involve the other members of the family.

83 I should make some comment about the letters from the appellant’s solicitors referred to in Mrs Johnson’s reply. These letters are reproduced at pp 804-5 of the Blue Book (16 November 2007) and p 816 of the Blue Book (7 February 2008).

84 The full text of the letters does not demonstrate a full admission of Mrs Johnson’s ownership of the funds, nor could they operate as an estoppel. They were written in the course of debate about Ms Smith’s role as Mrs Johnson’s financial manger to the effect that although the funds might be considered to be Mrs Johnson’s moneys, Mrs Johnson herself was under an obligation to provide accommodation and pocket money for the appellant and that the financial manager could consent to the appellant resorting to the funds for his own purposes.

85 The legal or equitable basis for the manager to take that view is possibly by analogy of the right of a committee in lunacy to carry out the wishes of the protected person to make gifts, see eg Re B [2000] NSWSC 44 where I discussed this principle in some detail. Alternatively there may be some statutory power. That was not explored before us.

86 The letters do not appear to have been put to the appellant in cross-examination. They are not referred to in the primary judge’s reasons and really do not assist the case one way or the other.

87 The primary judge’s essential findings on the issue of undue influence are in [95] and following of his reasons. He said that the facts in the present case are clearly such as to satisfy the requirements of the application of the principle of undue influence and catching bargains. Mrs Johnson obtained no benefit from the transaction under challenge, it being the voluntary disposition by her of a substantial sum of $540,000. No contractual or other obligations were assumed by the recipients, for example to utilise the funds for her benefit.

88 The primary judge said at [103] that Mrs Johnson was, even on a “good day”, in a mentally weakened state. She was also at all times in a physically weakened state, the appellant was the principal carer of his mother as at May 2007 and had been such for some significant time. It is true that Mr Johnson also assisted in housekeeping matters, but at all times the principal responsibility for his mother’s physical welfare fell on the appellant. This rendered Mrs Johnson to a large extent dependent on him, and to a lesser extent on her husband. In those circumstances, it is hard to resist the clear conclusion that when the proposal was put to her that she transfer to her son and her husband the sum of $540,000, constituting substantially the whole of the proceeds of the sale of her property in Queensland, she was in no position to resist even if she did appreciate the consequences of her doing so.

89 The primary judge also ruled that he had no doubt that the plan to transfer the $540,000 from the plaintiff’s bank account in the manner described was one devised by her family. Mrs Johnson was not in a mental state to do so and there is nothing in the evidence to suggest that she was in any way responsible for initiating the transaction. The moving parties included the appellant and his late father, particularly once they had formed the view that Mrs Johnson was no longer in a position to execute a valid power of attorney in anyone’s favour.

90 He also found that at least one of the reasons for the appellant requesting the presence of Mr Bourke was to assist him in persuading Mrs Johnson to accede to the plan.

91 Mr Crossland challenges the primary judge’s findings in [103]. He puts that there was no evidence for the proposition that Mrs Johnson was not able to resist the proposed transaction and that her visit to the bank officers demonstrates this. The court is required to look at all the circumstances and, when this is done, it can be seen that there was a happy family unit with all the members intending to forward the family scheme.

92 This submission again assumes that the vesting of the funds in the appellant beneficially was part of the family scheme. However, the answer to it is that there was the evidence which the judge was entitled to rely on to reach the conclusion he reached.

93 The appellant also put that there was no evidence that the appellant had ascendency over Mrs Johnson. It is put that the mere fact that the appellant was her principal carer is insufficient. Perhaps this is so, but the facts in the present case show that Mrs Johnson was 82, of marginal ability to care for herself, the appellant was the principal instigator of the transaction to which Mrs Johnson acquiesced. I reject this submission.

94 The primary judge said that whilst it might have been the subjective intention of Mr Johnson and the appellant to ensure that Mrs Johnson was well looked after in her old age, no enforceable legal obligation arose out of the transaction. Indeed, as events subsequently unfolded, some of those funds have been used by the appellant for his own private purposes. It does not assist the appellant to say that his mother always wanted him looked after. From the mother’s point of view, this was a totally disadvantageous transaction.

95 He also found that it was also quite clear in light of Mrs Johnson’s mental condition that she was a person who was at a special disadvantage vis-a-vis Mr Johnson and the defendant. No attempt was made to provide her with independent advice of a legal, financial or of any other nature. Nor were any steps taken to obtain the assistance of any health care professional or government bodies.

96 Paragraph [26] of the appellant’s submissions state that he does not dispute that Mrs Johnson was in a situation of special disadvantage. What he disputes is whether the transaction was shown to be “fair just and reasonable” to borrow a phrase from the judgment of Mason J in Commercial Bank of Australia v Amadio [1983] HCA 14; 151 CLR 447, 474.

97 Indeed, the primary judge found that Mrs Johnson’s purpose in the transaction and its timing was precisely to ensure that her funds were removed before the Guardianship Tribunal made orders dealing with the control of the plaintiff’s financial affairs.

98 The primary judge said at [97] that not to put the matter too finely, the intention of the appellant and his late father was to take financial advantage of Mrs Johnson by procuring her to sign the cheques that resulted in the transfer to them of the $540,000. He said that he did not impute immoral or dishonest motives either to the appellant or to his late father. Undoubtedly in their own minds they were doing what they considered was beneficial not only for themselves, but also for Mrs Johnson.

99 However, the primary judge ruled, and this is challenged by the appellant in this appeal that subjective motivation of the appellant and his late father are not the determinative factors here. He ruled that he must consider the matter from the point of view of the plaintiff who was detrimentally affected as a result.

100 There does not appear to be much in the way of precedent considering whether a person whose subjective motives are pure can, nonetheless, be held to be acting unconscionably. No authority was cited to us. However, when one considers the facts in cases such as Bridgewater v Leahy [1998] HCA 66; 194 CLR 457, one finds support for what the primary judge ruled and against the present submission.

101 There are situations where a person who has no active intention of doing another down may still be guilty of unconscientious conduct if he or she accepts “the benefit of an improvident bargain by an ignorant person acting without independent advice which cannot be shown to be fair” (per McMullin J, Nichols v Jessup [1986] 1 NZLR 226, 234).

102 Thus I reject the submission.

103 I should comment that, in one sense, it is difficult to classify this case as one of undue influence in the usual sense. It is tempting just to say that the facts and circumstances show that the transaction was unconscionable. I do not wish to join those who consider that it is sufficient to give equitable relief if I subjectively consider a situation unfair. However, I also do not wish to ascribe to the view that if I cannot find a precedent, no relief should be given. The case is close enough to established situations where equity has given relief to give relief in the present case.

104 The primary judge considered the case as one of undue influence. However, he then separately considered the related principles of unconscionability or acts constituting “catching bargains” and came to the same conclusion that is that the transaction must be set aside.

105 Further, he correctly held that it was of no moment that the inspiration for the transaction might be attributable to the defendant, his late father, or even Ms Smith or Mr Bourke or to a combination of two or more of them. If the transaction was unconscionable and it resulted in a particular person obtaining its benefit, then so far as that person was aware of the circumstances, and presumably even more so if he co-operated in the transaction, the above principles still apply.

106 The appellant sought to escape from the primary judge’s conclusions by a number of submissions. Apart from submissions which were versions of those I have already considered, Mr Crossland said that if there was to be found any person who exercised undue influence it was Mr Johnson not the appellant.

107 This submission was reinforced by evidence that the appellant was not personally involved with some of the key discussions which led to Mrs Johnson entering into the transaction. However, the submission fails for at least two reasons. First, there is no evidence to suggest that Mr Johnson ever intended to keep beneficially any of his wife’s money. Secondly, even if others were involved, it was the appellant who, on his own evidence was closely involved in the transaction and received considerable benefit from it to the disadvantage of his mother.

108 Further, Mr Crossland put, (para [28] of the Orange Book) that when courts are considering whether behaviour is conscionable, it recognises that “behaviour” “is a psychological concept, involving not a mechanical assessment of action, but an assessment from a social viewpoint of the psychological basis for responses and actions.” No authority is provided for that statement.

109 Thus, it is put that when it is considered that the intentions of the appellant and his father were honourable, as the primary judge indeed held, there can be no valid finding that his conduct was unconscionable.

110 All this might be worthy of serious consideration if the appellant had recognised that he held the funds subject to some enforceable legal or equitable obligation to use the funds for the benefit of his mother. It would seem that, until the proceedings commenced, he was taking some such view. However, once it became clear that the appellant was claiming that there was an absolute gift to him of Mrs Johnson’s money (subject, possibly to a unsecured moral obligation to care for her) any previous high moral thoughts (assuming they existed) are virtually irrelevant. This is because the transaction was initiated by the appellant and his privies, the structure of the transaction gave Mrs Johnson no protection and no benefit and the appellant is now claiming it was one of absolute gift.

111 It follows that I do not consider that this is the appropriate occasion to consider whether equity should set aside a transaction which all persons at the time considered (bona fide, but erroneously) was for the benefit of the now plaintiff, but, when properly analysed conferred a substantial benefit on a person with moral ascendency over the plaintiff, that person being one of the principal instigators of the transaction.

112 I should not conclude without giving thanks to Mr Crossland, who, in the best traditions of the Bar, appears to have come into the case to assist the appellant who ran his own case at first instance. Although he had a hard case to run, he made all the available points and only the available points with force.

113 On the day following the hearing, the appellant abandoned his lawyers and filed a notice of motion to reopen his written submission. Allsop P granted this leave on 1 July 2010.

114 The appellant filed a 40 paragraph further submission.

115 The further submission was principally directed to peripheral issues such as whether Karen Smith’s affidavit was “lawfully affirmed” as well as asking us to reconsider the admission of all the evidence that was rejected at the trial and to rule that Ms Smith was not carrying out her obligations as Mrs Johnson’s manager.

116 No reason was proffered as to why the rejected evidence should now be admitted or what would be the affect on the case of such admission. It must also be noted that there is nothing in the notice of appeal specifying this matter as a ground of appeal.

117 The appellant puts that it should be concluded that the reason why Mrs Johnson arranged her affairs in the way she did was to exclude her children Karen and David from inheritance.

118 There is nothing in the additional submissions that goes to the substance of the matter. The only relevant affect on my mind is to reinforce the professional competence of Mr Crossland noted in [112] above.

119 It follows that I am of the view that the appeal should be dismissed with costs.

120 Because I am of this view, although, of course, I have considered the matters raised by the notice of contention, there is no need to burden these already lengthy reasons with a discussion of those matters.

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