Public Trustee (WA) v Brumar Nominees Pty Ltd

[2012] WASC 161

THE PUBLIC TRUSTEE (WA) -v- BRUMAR NOMINEES PTY LTD [2012] WASC 161

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[2012] WASC 161
Case No:	CIV:1658/2011	Heard:	26 MARCH 2012
Coram:	PRITCHARD J	Delivered:	22/05/12
No of pages:	32	Judgment Part:	1 of 1
Result:	Plaintiff successful
Category:	B
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Parties:	THE PUBLIC TRUSTEE (WA) BRUMAR NOMINEES PTY LTD DELGA NOMINEES PTY LTD TRACEY DALE KITTELTY SHANE BURNETT KITTELTY
Catchwords:	Capacity to contract Understanding nature and effect of contract Relationship between the Guardianship and Administration Act 1990 (WA) s 64 administration order and common law incapacity Knowledge Knowledge of incapacity Whether constructive knowledge of incapacity is sufficient
Legislation:	Administration Act 1903 (WA), s 35 Guardianship and Administration Act 1990 (WA), s 64
Case References:	Ashton v Melbourne Money Pty Ltd (1992) ANZ ConvR 95 Collins by her next friend Poletti v May [2000] WASC 29 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Dalle-Molle v Manos (2004) 88 SASR 193 FS [2007] WASAT 202 Gibbons v Wright (1954) 91 CLR 423 Giles v Rooney (1996) 23 MVR 510 Imperial Loan Co v Stone (1892) 1 QB 599 Lampropoulos v Kolnik [2010] WASC 193 Manches v Trimborn (1946) 174 LT 344 McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) (1904) 1 CLR 243 Stone v Registrar of Titles [2012] WASC 21

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION : THE PUBLIC TRUSTEE (WA) -v- BRUMAR NOMINEES PTY LTD [2012] WASC 161 CORAM : PRITCHARD J HEARD : 26 MARCH 2012 DELIVERED : 22 MAY 2012 FILE NO/S : CIV 1658 of 2011 BETWEEN : THE PUBLIC TRUSTEE (WA)

Plaintiff

AND

BRUMAR NOMINEES PTY LTD
First Defendant

DELGA NOMINEES PTY LTD
Second Defendant

TRACEY DALE KITTELTY
Third Defendant

SHANE BURNETT KITTELTY
Fourth Defendant

Catchwords:

Capacity to contract - Understanding nature and effect of contract - Relationship between the Guardianship and Administration Act 1990 (WA) s 64 administration order and common law incapacity

Knowledge - Knowledge of incapacity - Whether constructive knowledge of incapacity is sufficient

(Page 2)

Legislation:

Administration Act 1903 (WA), s 35

Guardianship and Administration Act 1990 (WA), s 64

Result:

Plaintiff successful

Category: B

Representation:

Counsel:

Plaintiff : Ms C F Holyoak-Roberts
First Defendant : Mr A P Hershowitz
Second Defendant : Mr A P Hershowitz
Third Defendant : Mr M M Mony De Kerloy
Fourth Defendant : Mr M M Mony De Kerloy

Solicitors:

Plaintiff : Public Trustee (WA)
First Defendant : Paiker & Overmeire Solicitors
Second Defendant : Paiker & Overmeire Solicitors
Third Defendant : Mony De Kerloy
Fourth Defendant : Mony De Kerloy

Case(s) referred to in judgment(s):

Ashton v Melbourne Money Pty Ltd (1992) ANZ ConvR 95
Collins by her next friend Poletti v May [2000] WASC 29
Commercial Bank of Australia v Amadio (1983) 151 CLR 447
Dalle-Molle v Manos (2004) 88 SASR 193
FS [2007] WASAT 202
Gibbons v Wright (1954) 91 CLR 423
Giles v Rooney (1996) 23 MVR 510
Imperial Loan Co v Stone (1892) 1 QB 599
Lampropoulos v Kolnik [2010] WASC 193
Manches v Trimborn (1946) 174 LT 344
McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) (1904) 1 CLR 243
Stone v Registrar of Titles [2012] WASC 21
(Page 3)

1 PRITCHARD J: On 15 June 2009, Mr Robert Arthur Kittelty signed a contract (the Contract) for the sale of a property for which he was the sole registered proprietor, at 7 Barnet Place North Perth (the Property). The purchasers of the Property were the first defendant as the Trustee for the Bruno Tat Trust (as to one 50% share) and the second defendant (as to the other 50% share). Mr Bruno Tatasciore signed the Contract in his capacity as a director of the first defendant. Mr Laurence Biagioni signed the Contract in his capacity as a director of the second defendant.

2 At the time he signed the Contract, Mr Kittelty was 73 years of age. He had resided at the Property for most of his life but had moved to the Craigcare Nursing Home in 2006. At the time when the Contract was entered into, the Property was home to Mr Kittelty's niece, Ms Tracey Kittelty, the third defendant in these proceedings.

3 In 2006 Mr Kittelty was diagnosed as suffering from probable alzheimer's disease, although that diagnosis appears subsequently to have given way to a diagnosis of mild dementia. From the beginning of 2009 Mr Kittelty's mental health began to deteriorate. In addition, between April and June 2009, Mr Kittelty suffered from other medical conditions which caused him severe pain. The evidence was that that pain, and the narcotic medication with which it was treated, at times also impacted on Mr Kittelty's mental health in that it contributed to him suffering from mental confusion and poor memory.

4 On 24 June 2009, the State Administrative Tribunal (the Tribunal) made an order (the Administration Order) appointing Mr Kittelty's nephew, Mr Shane Kittelty, the fourth defendant in these proceedings, as the administrator of Mr Kittelty's affairs, pursuant to s 64 of the Guardianship and Administration Act 1990 (WA) (the GA Act). In his capacity as administrator, the fourth defendant refused to perform the Contract. By notice dated 31 August 2009 the first and second defendants advised that they intended to seek compensation for the failure to perform the Contract (the Default Notice).

5 As a result of these developments, questions were raised as to whether Mr Kittelty had the mental capacity necessary to enter into the Contract on 15 June 2009. In turn that raised the question whether the Contract was valid. Those questions were the subject of the hearing on 23 and 26 March 2012.

6 For the reasons set out below, I have concluded that on the balance of probabilities, Mr Kittelty did have the necessary mental capacity to

(Page 4)

enter into the Contract on 15 June 2009. In any event, there was no evidence to support the conclusion that the first or second defendants had any knowledge that Mr Kittelty was suffering from mental incapacity when he entered into the Contract. Accordingly, I have concluded that the Contract is valid.

The originating summons

7 Mr Kittelty died on 6 October 2009. He had made two wills prior to his death: one on 8 December 1997 (the Earlier Will) and one on 12 August 2009 (the Later Will). The beneficiaries under the Earlier Will are the third and fourth defendants in these proceedings. The beneficiaries under the Later Will are various charities.

8 The Public Trustee is named as the executor in both wills. The Public Trustee is seeking to propound the Later Will and has commenced proceedings seeking a grant of probate in solemn form (the Probate Proceedings), but probate has not yet been granted. I digress to note that an issue in the Probate Proceedings is whether Mr Kittelty had testamentary capacity to make the Later Will. The question of Mr Kittelty's testamentary capacity on 12 August 2009 was not relevant to the present proceedings, and nothing in these reasons for decision bears upon the question of Mr Kittelty's testamentary capacity in relation to the Later Will.

9 It appears that the beneficiaries under the Later Will do not object to the performance of the Contract, whereas the third and fourth defendants are of the view that the Contract should not be performed. Given that probate has not been granted, the Public Trustee elected to join the third and fourth defendants, in addition to the first and second defendants, in these proceedings.

10 In view of the issue as to whether Mr Kittelty had the mental capacity to enter into the Contract on 15 June 2009, the Public Trustee commenced the present proceedings by an originating summons. The primary issue for determination on the originating summons is the question whether Mr Kittelty had capacity to enter into the Contract, but the relief sought in the originating summons deals with additional issues. The Public Trustee seeks:

1. A declaration as to the validity and enforceability of the Contract;

(Page 5)

2. The appointment of the Public Trustee pursuant to s 35 of the Administration Act 1903 (WA)to perform the Contract (if it is a valid and enforceable contract); and

3. A declaration as to the liability of the estate of Mr Kittelty for interest claimed by the first and second defendants pursuant to the Default Notice.

11 The hearing on 23 and 26 March 2012 was, with the agreement of the parties, confined to dealing with the question whether Mr Kittelty had capacity to enter into the Contract, and thus with whether the Contract was valid. That course was adopted so that once that issue was resolved, the parties could consider whether a further hearing was required to deal with the balance of the issues in the originating summons and to enable consideration of whether all of the parties would wish to continue to participate in the proceedings.

The issues for determination at the hearing

12 It is well established that a contract will be voidable by reason of the incapacity of one of the parties to the contract if the person claiming the incapacity, or their representative, establishes:1

(i) that they did not have such soundness of mind as to be capable of understanding the general nature of what they did by their participation in the contract; and

(ii) that the other party to the contract had knowledge of that incapacity.

13 In view of this background, the two issues which arose for determination at the hearing were:

1. Did Mr Kittelty have capacity to enter into the Contract - that is, did Mr Kittelty have such soundness of mind as to be capable of understanding the general nature of what he did by participating in the Contract?

2. If not, did the first or second defendants have knowledge of that incapacity?

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1. Did Mr Kittelty have capacity to enter into the Contract?

(i) Principles in relation to the assessment of capacity

14 The question of a person's capacity to enter into a transaction falls to be assessed by reference to two principles. First, there is no fixed standard of sanity which is required for the validity of all transactions. Instead, what is required, in relation to each transaction, is that each party have such soundness of mind as to be capable of understanding the general nature of what they are doing by their participation.2. Ordinarily, understanding the nature of the transaction means understanding its broad operation or the 'general purport' of the instrument, but in some cases it may mean the effect of a wider transaction which the instrument is a means of carrying out.3 In this sense, the inquiry into mental capacity is 'issue specific' in that the question of mental capacity must be assessed in the context of the particular transaction into which the person has entered (in this case, the Contract).4

15 A further aspect of this principle is that the question whether a person has the capacity to understand a particular transaction is not determined by whether that person has the capacity to understand another transaction. Evidence of capacity in relation to other decisions will be relevant, but must be weighed with such other evidence as is adduced.5

16 In addition, the fact that a person suffers from a condition which renders them vulnerable to exploitation or at risk of making imprudent decisions, is not determinative of their capacity to enter into a particular transaction. Evidence as to their condition, and the effects of that condition on their decision-making ability will be relevant to the determination of capacity but must be considered along with all other relevant evidence.6

17 Secondly, the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument, and may be described as the capacity of a person to understand the nature of that transaction when it is explained to

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them.7 It may also be necessary to explain the implications of the transaction and its broader effects.8

18 In my view, in order to have understood the general nature of the Contract, Mr Kittelty would have had to have understood (when it was explained to him) the following:

(i) the Contract involved the sale of the Property;

(ii) the practical effect of the Contract would be that Mr Kittelty would no longer have ownership or possession of the Property and that neither he, nor persons authorised by him including members of his family, would be entitled to live in the Property in the future other than as tenants of the purchaser;

(iii) Mr Kittelty was entitled to sell the Property for a price of his choosing, and that he was not obliged to sell the Property at all if he did not wish to do so, or if any purchase price offered was not acceptable to him;

(iv) Mr Kittelty would receive money in return for the sale of the Property comprising the agreed sale price less any agent's commission and fees associated with the sale of the Property; and

(v) Mr Kittelty would be obliged to comply with any obligations on him under the terms of the Contract.

19 Mr Kittelty's capacity to understand these matters falls to be determined as at 15 June 2009 when he entered into the Contract, although evidence concerning Mr Kittelty's mental capacity before and, to some extent, after that date is nevertheless relevant in forming a picture of his capacity as at 15 June 2009.

20 Ordinarily, it will be the party suffering from a mental incapacity (or their legal representative) who will subsequently wish to set the contract aside, and in that case, that party bears the onus of establishing that the requirements for setting aside a contract for incapacity have been met.9

21 In some cases, a person may be generally incapable of entering into contractual relations, but may experience more lucid moments when they may be able to understand the nature of the contractual obligations into

(Page 8)

which they are entering. In cases of that kind, it has been suggested that the burden of establishing that the contract was formed during a lucid moment will fall on the person alleging that fact.10 Nevertheless, the onus ultimately remains with the party seeking to set aside the contract to establish positively, having regard to the whole of the evidence, that the contracting party was suffering from an unsoundness of mind.11

(ii) Mr Kittelty's mental capacity as at 15 June 2009

(a) Overview of the evidence and findings

22 Determining whether Mr Kittelty had the mental capacity to enter into the Contract on 15 June 2009 was made difficult by two factors. First, at the relevant time, Mr Kittelty's mental capacity was not static. Although Mr Kittelty was suffering from dementia, and his mental health had begun to decline from the beginning of 2009, the evidence did not establish that in the months leading up to and during June 2009 he had insufficient mental capacity to enter into any contractual relations at all. Rather, the evidence established that illness, pain, and the medication Mr Kittelty was taking meant that in June 2009 his mental capacity varied from day to day (at least). Secondly, although five witnesses12 gave evidence which addressed Mr Kittelty's mental health and mental capacity, only one of those witnesses, Ms Buckovska, who was the real estate agent who acted for Mr Kittelty, actually saw him on 15 June 2009. The credibility of Ms Buckovska's evidence was challenged by the third and fourth defendants, and I deal with that issue later in these reasons.

23 There was some evidence which suggested that Mr Kittelty may not have had the mental capacity to understand the nature of the Contract when he entered into it on 15 June 2009. That evidence came from four sources: first, the evidence of Mr Brian Lee, who was the clinical nurse manager at the Craigcare Nursing Home in 2009; secondly, the evidence of the fourth defendant, including the fact of the fourth defendant's appointment as the administrator of Mr Kittelty's estate; thirdly, the evidence of the third defendant; and finally, some of the medical evidence which was adduced in documentary form.

24 More significant, however, was the evidence of Dr Louis Papaelias, who was Mr Kittelty's general practitioner between 2008 and Mr Kittelty's death in October 2009 and who saw Mr Kittelty on approximately a monthly basis during that period. In his evidence, Dr Papaelias accepted

(Page 9)

that it was possible that on 15 June 2009 Mr Kittelty could have understood the nature of the transaction into which he entered when he signed the Contract. Given Dr Papaelias' role as Mr Kittelty's general practitioner, his knowledge of Mr Kittelty's mental health generally, and his understanding of the impact of Mr Kittelty's physical ailments on his mental health in June 2009, I placed significant weight on Dr Papaelias' testimony.

25 In addition, there was evidence from Ms Buckovska about her dealings with Mr Kittelty prior to, and on, 15 June 2009. Ms Buckovska spoke with Mr Kittelty about the sale of the Property on several occasions prior to 15 June 2009, and on several occasions on 15 June 2009 itself, including once when she visited Mr Kittelty at the Craigcare nursing home on that day. Ms Buckovska's evidence about her conversations with Mr Kittelty and observations of him on 15 June 2009, when considered in conjunction with the evidence of Dr Papaelias, supported the conclusion that, notwithstanding the evidence to the contrary, it was more likely than not that Mr Kittelty had the capacity to understand the nature of the transaction into which he entered when he signed the Contract on 15 June 2009.

26 Finally, evidence of other surrounding circumstances, namely that Mr Kittelty's decision to sell the Property was not a spontaneous one, but rather one that he had had under consideration for some time, and the fact that the price for which the Property was sold reflected a fair market value, was not inconsistent with the conclusion that Mr Kittelty had the mental capacity to enter into the Contract on 15 June 2009.

27 I have discussed the evidence, and explained my reasoning, in greater detail below.

(b) The evidence which suggested that Mr Kittelty may not have had the requisite mental capacity to enter into the Contract on 15 June 2009

The evidence of Mr Lee

28 Mr Lee's evidence was that by early 2009 there was a noticeable decline in Mr Kittelty's physical and mental health. The impact of this decline on Mr Kittelty's mental health appears primarily to have manifested itself in two ways: first, Mr Kittelty began to suffer from periods of confusion and disorientation; and secondly, from around March 2009 Mr Kittelty began to experience paranoid ideations in relation to his finances and became convinced that people were trying to steal his money. Nevertheless, by May 2009, when he provided a report in support

(Page 10)

of an application to the Tribunal for the appointment of an administrator for Mr Kittelty's estate, Mr Lee expressed the view that Mr Kittelty

can have short periods of confusion but [is] otherwise lucid. Mr Kittelty can manage budgeting decisions but does require assistance with managing finances. Mr Kittelty's assets are his main worry. Mr Kittelty will need assistance with finances and financial matters.

29 Furthermore, Mr Lee accepted that the primary motivation for his support for the application to the Tribunal was his hope that if Mr Kittelty no longer had to be responsible for his finances, then that might alleviate Mr Kittelty's anxiety and concern that people would steal his money from him.13

30 Mr Lee's evidence was that from mid to late May 2009 through to June 2009, there was a significant decline in Mr Kittelty's physical and mental condition. Mr Kittelty's physical ailments meant that he suffered great pain, which was treated with narcotics. The evidence was that his pain, and the medication he took to relieve it, caused Mr Kittelty to experience confusion. In his witness statement, Mr Lee expressed the view (to which there was no objection) that

from mid-April [2009], and until the date of his passing, I am confident that Robert would not have had the mental capacity to understand the general nature of a sale of land contract.

This would be particularly the case on 15 June 2009 when he was in great pain and was taking very high doses of opiod.14

31 I am unable to place great weight on this aspect of Mr Lee's evidence, for three reasons. First, at least in so far as it indicated a belief that Mr Kittelty lacked the requisite mental capacity from mid-April 2009, this statement was not entirely consistent with the belief Mr Lee expressed in his submission to the Tribunal on 18 May 2009. In addition, in late April or early May 2009, Mr Lee had a conversation with Mr Kittelty in the presence of a real estate agent, in relation to the possible sale of Mr Kittelty's home. Mr Lee's evidence was that he told Mr Kittelty that

he could sell the house if he wanted but he needed to have someone, preferably [the fourth defendant], there to assist him to read all the documents and ensure [he] understood what was going on.15

(Page 11)

Mr Lee's view, at least at this stage, thus appears to have been that if some assistance or explanation was provided to Mr Kittelty, he would have been able to understand the general nature of a contract to sell the Property.

32 Secondly, in so far as Mr Lee's statement suggests that Mr Kittelty lacked the requisite mental capacity to enter into the Contract at any time between April and October 2009, his evidence was inconsistent with other aspects of his own evidence, and with the evidence of other witnesses, which was to the effect that Mr Kittelty's mental capacity varied from day to day (or even more frequently).

33 Thirdly, and most significantly, this aspect of Mr Lee's evidence was inconsistent with the evidence of Dr Papaelias, to which I refer below. Although Mr Lee was an independent witness with some medical knowledge (as a result of his nursing qualifications and experience), I prefer Dr Papaelias' evidence to that given by Mr Lee to the extent that their evidence was not consistent, having regard to Dr Papaelias' greater medical expertise, and to the fact that he also had regular contact with Mr Kittelty during 2009.

34 There is a further aspect of Mr Lee's evidence which should be mentioned. Mr Lee said that Mr Kittelty had given him two main reasons for why he wished to sell the Property. First, Mr Kittelty had what Mr Lee described as a

paranoid belief that people were trying to steal his money. Secondly, he was concerned that [the third defendant] was living in the property rent free. … [Mr Kittelty] told me that he believed that if the house was sold, he would have full control of his money and prevent people from stealing it. He also told me that selling the house would also resolve the issue with [the third defendant].16

35 It is not difficult to envisage circumstances where an irrational basis for a decision might be an indicia of a lack of a real understanding of the nature of the decision itself. However, some caution needs to be exercised in reaching such a conclusion. People with full mental capacity often make decisions that others consider to be imprudent or irrational. In the present case, the evidence did not establish that Mr Kittelty's stated reasons for wishing to sell the Property were entirely irrational. Wanting to have control of one's money, and wanting to liquidate assets (particularly in the later years of life) is not an intrinsically irrational reason for the sale of a property. Similarly, if Mr Kittelty felt dissatisfied
(Page 12)

about the third defendant renting the Property, he may well have felt uncomfortable about confronting her directly about that. Accordingly, Mr Lee's evidence as to Mr Kittelty's reasons for selling the Property did not incontrovertibly point to a lack of capacity on his part to enter into the Contract.

The evidence of the fourth defendant and his appointment as the administrator of Mr Kittelty's estate

36 The fourth defendant's evidence was that he visited Mr Kittelty regularly while he resided at the Craigcare Nursing Home, and had for some years been helping Mr Kittelty manage his financial affairs, and pay his bills. I did not give the latter evidence great weight in determining Mr Kittelty's mental capacity at the time of the Contract because it was not sufficiently specific to assist me to determine whether Mr Kittelty would have been able to understand the nature of a contract for the sale of land. In addition, in cross-examination, it emerged that the assistance the fourth defendant provided while Mr Kittelty lived at the nursing home had been fairly limited. There were, for example, relatively few bills which required payment. Further, the assistance provided by the fourth defendant appears to have been in the nature of the provision of advice, and to intervene if Mr Kittelty got into difficulty in dealing with the providers of services and utilities; the example given was that Mr Kittelty had had difficulties after he had been persuaded to hold an account with more than one telephone company.17 According to the fourth defendant, Mr Kittelty was a vulnerable person, in that he would agree to the suggestions of others, and was therefore easily able to be taken advantage of.18

37 The fourth defendant observed a steady decline in Mr Kittelty's mental functioning during April to June 2009. During this period, the fourth defendant observed that Mr Kittelty

would have his good and bad days in that some days he could hold a rational conversation whilst other days he was confused and struggled to speak.19

The fourth defendant also noted that Mr Kittelty was

visibly in a great deal of pain and confusion to the extent that he was rarely in any condition to discuss his finances and the payment of accounts. He would, for the greater part, ramble on incoherently about various people,

(Page 13)

most notabl[y] his sister, trying to steal his house and money … He was often too confused to discuss anything and quite incapable of making any decisions regarding his financial affairs or anything else of significance'.20

Although this evidence suggested that there were times when Mr Kittelty was very confused, and probably unlikely to have had mental capacity to make a significant financial decision, the fourth defendant's evidence made clear that that was not always the case. To the extent that his evidence left open the possibility that at times Mr Kittelty may have had the requisite capacity to enter into contractual relations, the fourth defendant's evidence was consistent with that given by Dr Papaelias, to which I refer below.

38 The fourth defendant also said that he had met with Mr Kittelty and with Mr Brian Lee in May 2009, at which point Mr Kittelty's desire to sell his home had been discussed. The fourth defendant's evidence was that:

I remember saying to [Mr Kittelty] and Brian Lee that I did not have an objection in principle to [him] selling his house but I was concerned that [he] did not have the mental capacity to make such an important decision by himself. I said that I wanted to make sure that if there was to be a sale, then I was totally involved to ensure [Mr Kittelty] was not taken advantage of.21

39 At least as at May 2009 the fourth defendant's concern does not appear to have been that Mr Kittelty was wholly unable to understand the nature and implications of entering into a contract to sell the Property but rather that if he did so without assistance from another party there was a risk that he might be taken advantage of.22

40 That this was the essence of the fourth defendant's view was also borne out by other evidence. After he was appointed the administrator of Mr Kittelty's estate, the fourth defendant telephoned Mr Bruno Tatasciore and advised him that he did not intend to proceed with the sale of the Property. The first reason the fourth defendant gave was not any mental incapacity on Mr Kittelty's part, but rather that the fourth defendant thought that the Property had been sold too cheaply.23 In addition, the fourth defendant wrote to Acton Mount Lawley, where Ms Buckovska worked, to complain about the sale of the Property. However, there was no suggestion in that letter that Mr Kittelty did not have the mental capacity to enter into the Contract. Rather, the letter complained that the

(Page 14)

fourth defendant had told Ms Buckovska that he should be present at any signing of agreements by Mr Kittelty, and also complained about the sale price.

41 There is a further aspect of the fourth defendant's evidence that should be mentioned at this point. As I have already noted, on 24 June 2009, the fourth defendant was made the plenary administrator of the estate of Mr Kittelty. The making of the Administration Order so soon in time after Mr Kittelty signed the Contract might be seen to support an inference that Mr Kittelty did not have the mental capacity to enter into the Contract. However, while I have taken the making of the Administration Order into account as part of the general context, it does not, of itself, establish that Mr Kittelty did not have mental capacity to enter into the Contract.

42 There are three reasons why the making of the Administration Order does not conclusively determine the issue of Mr Kittelty's mental capacity to enter into the Contract. First, the Tribunal's decision to appoint an administrator to Mr Kittelty's estate was made on 24 June 2009, whereas in the present case I am required to determine Mr Kittelty's capacity as at 15 June 2009.

43 Secondly, the requirements for the appointment of an administrator under s 64 of the GA Act involve some overlap with, but are not the same as, the test for incapacity in the present context. Under s 64, the Tribunal must be satisfied that a person in respect of whom an application for an administration order is made is 'unable, by reason of a mental disability, to make reasonable judgments in respect of matters relating to all or any part of his estate' and that the person 'is in need of an administrator of his estate'.24

44 In making its determination, the primary concern of the Tribunal is the best interests of the person in respect of whom the application is made.25. The Tribunal is also to approach an application with the presumption that a person in respect of whom an application is made is, amongst other things, capable of managing his own affairs and making reasonable judgments in respect of matters relating to his estate until the contrary is proved to the satisfaction of the Tribunal.26

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45 The application of s 64 of the GA Act involves both subjective and objective tests.27. The Tribunal is required to consider whether the person in respect of whom the application is made has the ability to make 'reasonable judgments' about their estate. That constitutes a subjective test, because the person's ability falls to be assessed in relation to their actual estate. At the same time, the Tribunal must also consider whether the person has the ability to engage in the particular mental process which is required in order to make that judgment, and that test is an objective one. The Tribunal is thus required to

consider the extent to which a person with a mental disability is able to engage in the cognitive process that culminates in an ability to make a 'reasonable judgment' (which will vary from person to person and may include a lack of any observed ability), and then to set that ability against the requirements of the person's individual estate and circumstances.28.

46 Thirdly, such information as was available to the court in relation to the evidence on which the Tribunal's order was based suggests that the application was not brought because Mr Kittelty's carers considered him to be permanently mentally incapacitated, but rather that they were concerned that for at least some of the time Mr Kittelty may not have been capable of making reasonable decisions in relation to his financial affairs. In her application for the Administration Order, the manager of the Craigcare Nursing Home, Ms Sharon Moir, indicated that although Mr Kittelty had a diagnosis of dementia, and 'has periods of confusion', he 'does have frequent periods of lucidness'.29 I have already referred to Mr Lee's submission in support of the application, which was in similar terms. In addition, Mr Kittelty's general practitioner, Dr Papaelias, who had seen Mr Kittelty on 22 June 2009, and who provided a report in support of the application, did not express the view that Mr Kittelty was incapable of making reasonable decisions in relation to his financial affairs, but rather indicated that he was 'not sure' whether Mr Kittelty was in a position to make such decisions.30

Evidence of the third defendant

47 The third defendant's evidence touched briefly on Mr Kittelty's mental capacity. The third defendant had observed that Mr Kittelty's mental and physical health were deteriorating in 2009, and that he became forgetful. The third defendant also gave evidence that in May 2009 she

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received a number of phone calls from Mr Kittelty, some of them late at night, in which he appeared to be in a confused and distressed state.31 However, the third defendant accepted that she only saw Mr Kittelty about half a dozen times from mid-2006 until his death, and that she was not well placed to know about his condition at any given time.32

48 Although the third defendant's evidence was consistent with the other evidence which established that at times Mr Kittelty experienced periods of confusion, it was not sufficiently specific in its nature and timeframe to assist me to determine whether Mr Kittelty had the requisite mental capacity to enter the Contract on 15 June 2009.

49 One final aspect of the third defendant's evidence should be mentioned. Clearly the third defendant was surprised that Mr Kittelty wished to sell the Property when it had been in his family for some years. However, his decision to do so, of itself, does not indicate a lack of mental capacity on Mr Kittelty's part. Mr Kittelty's decision to sell the Property has to be seen in the context that he had been living at Craigcare for approximately three years, and any attachment he might formerly have felt for the Property may well have waned in that period. Assuming that Mr Kittelty had the mental capacity to do so, he was, of course, entitled to deal with his Property as he saw fit.

Documentary medical evidence

50 Annexed to the witness statement of Dr Papaelias were a number of documents which contained information relevant to Mr Kittelty's mental capacity at the time he entered into the Contract. These included discharge notes following Mr Kittelty's admission to hospital in late June 2009, and a medical report provided by Dr Papaelias to the Public Trustee in early January 2010.

51 What the notes suggest is that Mr Kittelty was admitted to hospital on 27 June 2009, that he had been suffering from acute confusion over the previous two weeks, that this confusion was attributable to the medication he had been taking for pain relief, and that this confusion resolved when Mr Kittelty ceased taking the medication. The discharge notes were not prepared by Dr Papaelias. I am unable to place any significant weight on the discharge notes, given that the statements within them constitute hearsay evidence, are in very general terms, and do not specifically refer to Mr Kittelty's mental health as at 15 June 2009.

(Page 17)

52 The medical report provided by Dr Papaelias to the Public Trustee noted the observations in the discharge notes, but did not deal specifically with Mr Kittelty's mental health as at 15 June 2009. Of far greater assistance to the Court was Dr Papaelias' evidence at the hearing, to which I now turn.

(c) The evidence which suggested that Mr Kittelty did have the mental capacity to enter into the Contract

The evidence of Dr Papaelias

53 Dr Papaelias' evidence-in-chief was that between April and June 2009 Mr Kittelty suffered significantly from mental confusion and poor memory, that these symptoms were exacerbated by his physical ailments, and by the effects of his medication, especially the narcotic medications he took to ease severe pain, but that once the dosage of this medication was reduced, Mr Kittelty's condition improved.33

54 Dr Papaelias also stated that in the period between April and June 2009 Mr Kittelty would not have been 'competent' to 'understand sufficiently contracts for sale of land, agent authorities, all settlements authorities and similar documents'.34 He also expressed the opinion that it was 'reasonable to assume that Mr Kittelty may well have been confused on 15 June 2009 when he entered into [the Contract]' due to his medication.35

55 Dr Papaelias' evidence-in-chief thus strongly supported the conclusion that it was more likely than not that as at 15 June 2009, Mr Kittelty did not have the mental capacity to understand the general nature of the Contract into which he entered.

56 However, when the totality of his evidence, and in particular his evidence under cross-examination, was taken into account, it became clear that Dr Papaelias' opinion about Mr Kittelty's mental capacity was not as unambiguous as appeared from his evidence-in-chief.

57 Dr Papaelias did not see Mr Kittelty on 15 June 2009, and he accepted that he could not be certain as to what Mr Kittelty's condition was on that date. Ultimately, however, Dr Papaelias accepted that it was possible that Mr Kittelty had the capacity to understand the nature of the

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Contract into which he entered on 15 June 2009. Three aspects of Dr Papaelias' evidence illustrate this point.

58 First, as I have already noted, on 24 June 2009 Dr Papaelias prepared a report to the Tribunal in support of the application for the appointment of an administrator. In his report, Dr Papaelias expressed the view that he was 'not sure' whether Mr Kittelty was able to make reasonable decisions in relation to his financial affairs. Under cross-examination, Dr Papaelias accepted that at the time he was ambivalent as to whether or not Mr Kittelty was able to manage his financial affairs, and accepted that Mr Kittelty may have been able to manage his financial affairs.36

59 Secondly, Dr Papaelias accepted that the opinion given in his evidence-in-chief, namely that Mr Kittelty would not have been able to understand a contract, in fact amounted to an opinion that because Mr Kittelty was eager to please, suggestible, and willing to agree with what others said, he 'could have been talked into things'.37 Dr Papaelias accepted that that was different from Mr Kittelty not being able to understand what he was doing.38 Dr Papaelias accepted that his primary concern in relation to Mr Kittelty's capacity to enter into a contract was that someone might try to take advantage of him.39

60 Thirdly, under cross-examination, Dr Papaelias accepted that it was possible that on 15 June 2009 Mr Kittelty could have been functioning at his normal level of functioning,40 and that at that normal level of functioning, Mr Kittelty 'could operate at a fairly basic sort of level'.41 He also accepted that it was 'certainly a possibility' that in the two weeks prior to the end of June 2009, and in the period between April and June 2009, Mr Kittelty might have had capacity to understand a contract.42 Dr Papaelias accepted that judging Mr Kittelty's capacity was, therefore, a day to day situation.43

61 Dr Papaelias was of the view that Mr Kittelty would have to have had information in relation to what he was doing repeated to him, and that that would have contributed to his ability to understand contractual documents.44 However, Dr Papaelias' evidence was that during his lucid

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periods, Mr Kittelty would have been able to decide that he wanted to sell something.45 Dr Papaelias was therefore not surprised that Mr Kittelty was able to decide to reject an initial offer from the first and second defendants, to make a counter-offer, and then to accept a further offer from the first and second defendants.46 Dr Papaelias also accepted that it was possible that Mr Kittelty would have understood the consequences of selling the Property for anyone who was living in the house.47 Dr Papaelias' evidence was that 'he may not have been able to put his finger on all the consequences of an action, but I think ... he'd be aware that his action would have had an effect on someone else'.48

62 In my view, Dr Papaelias' evidence as a whole provided strong support for the conclusion that on 15 June 2009 Mr Kittelty may have had the mental capacity to understand the nature of the Contract.

The evidence of Ms Buckovska

63 That brings me to the evidence of Ms Buckovska. Ms Buckovska was the only witness who gave evidence who actually saw and spoke to Mr Kittelty on 15 June 2009. Ms Buckovska's evidence also traversed her contact with Mr Kittelty prior to 15 June 2009.

64 Ms Buckovska's evidence was that she met with Mr Kittelty on three occasions prior to 15 June 2009. As to the first occasion, Mr Kittelty appears to have telephoned Acton Mount Lawley requesting an appraisal of the Property. In response to that telephone call, Ms Buckovska went to see Mr Kittelty at the Craigcare nursing home.49 Ms Buckovska's evidence was that at this first meeting, they discussed Mr Kittelty's wish to sell the Property, details of the Property, and Mr Kittelty requested that she provide an appraisal of the Property.50

65 Ms Buckovska's evidence was that at her second meeting with Mr Kittelty, which was a few days after the first meeting, they discussed her obtaining access to the Property for the purpose of conducting the appraisal, the fact that the third defendant had been living at the Property without paying much rent, and that Ms Buckovska should contact the third defendant in order to obtain entry to the Property.51 Ms Buckovska said that at this meeting she also advised Mr Kittelty that he would need

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to sign a selling authority agreement in order to have her act for him to sell the Property.52 Ms Buckovska said that Mr Kittelty asked her what the Property might be sold for, and what he would receive by way of proceeds of the sale, as a result of which they also discussed the costs and fees which would be involved in selling the Property.53

66 Ms Buckovska's evidence was that at their third meeting, which was on 18 May 2009, Mr Kittelty signed a listing agreement, by which he engaged Acton Mount Lawley Pty Ltd to act for him in the sale of the Property. Ms Buckovska's evidence was that she explained to Mr Kittelty 'exactly what was going on',54 took him through each page of the document,55 and that he had 'a good look' at the agreement. Ms Buckovska said that she formed the view that Mr Kittelty understood what was going on because he was 'nodding' and when asked '[i]s that okay? Do you understand this?' he responded '[y]es I do'.56 Mr Kittelty then signed the agreement. Ms Buckovska's evidence was that Mr Kittelty asked her questions about when the Property would officially go on the market and what it would take for that to occur.57 According to Ms Buckovska, at this meeting they also discussed, and agreed on, a listing price of $850,000 for the Property.58 Ms Buckovska said that Mr Kittelty told her that he had received another appraisal of the Property and she understood that the price suggested in that other appraisal was very similar to her suggested price. Mr Kittelty also asked her what amount he was likely to receive from the sale after fees were deducted from the sale price.59

67 Ms Buckovska spoke with Mr Kittelty by phone shortly before the Property was advertised for sale. It was her evidence that on that occasion, Mr Kittelty asked her about the condition and presentation of the Property, and whether some of his furniture was still inside the Property.60

68 Ms Buckovska spoke to Mr Kittelty by phone on 15 June 2009 to advise that she had received an offer to purchase the Property for $750,000. Ms Buckovska's evidence was that in the course of that conversation, Mr Kittelty told her he would not sell the Property at that

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price as the offer was too low.61 Ms Buckovska said that she had explained to Mr Kittelty that he could make a counter offer, and that a figure reasonably close to the asking price would not be unrealistic.62 Mr Kittelty then told Ms Buckovska that he wished to make a counter-offer at a significantly higher figure than the initial offer (but which was also less than the listing price). It was Ms Buckovska's evidence that it was 'definitely' Mr Kittelty who had specified the price which was to be counter offered.63

69 Later on the same day, in response to a counter offer of $790,000 from the first and second defendants, Ms Buckovska visited the Craigcare nursing home to discuss the offer with Mr Kittelty. Ms Buckovska's evidence was that at this meeting, Mr Kittelty 'was no different than what he was the first day I met him',64 when she had described him as being 'as normal as any of my other clients'.65

70 In the course of his meeting with Ms Buckovska on 15 June 2009, Mr Kittelty agreed to sell the Property to the first and second defendants for $790,000 'because it was a cash offer'.66 He also asked her what the commission would be.67

71 Ms Buckovska gave evidence that she explained to Mr Kittelty the special conditions that were included in the Contract, and that Mr Kittelty had requested the deletion of one of the proposed special conditions under the Contract (which warranted that all of the electrical, gas and plumbing fixtures were in working order) because he was not sure whether the gas and electricity were actually working.68 In addition, they discussed special condition E, which effectively drew the purchasers' attention to the fact that the Property was rented to a tenant (the third defendant) but specified that the Property would be sold with vacant possession unless a fixed term lease was agreed to with the third defendant. Ms Buckovska's evidence was that she discussed this condition with Mr Kittelty both at the point of the offer and acceptance and prior to that. Her evidence was that 'he was quite aware that [the third defendant] didn't have anywhere to go so … [i]t was more to actually give [the third defendant] a longer period of time for her to find a property'.69 Ms Buckovska's evidence (which was

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not objected to) was that Mr Kittelty understood what the clause meant, namely 'that [the third defendant] would be renting back for a period of time after the … house was sold. … [Mr Kittelty] wasn't worried about [it] either way. That wasn't his condition as such. It was doing the right thing by [the third defendant]'.70

Ms Buckovska's evidence should be accepted

72 I approached Ms Buckovska's evidence with some caution for three reasons. First, Ms Buckovska's professional reputation as a real estate agent may have been adversely affected in the event that any criticism was made of her conduct in acting for Mr Kittelty in relation to the sale of the Property. Accordingly, there was a risk that Ms Buckovska's personal interest in the court reaching the conclusion that Mr Kittelty did have capacity on 15 June 2009 might colour her recollection of the events leading up to, and on, that day.

73 Secondly, there were some inconsistencies between Ms Buckovska's evidence at the hearing and her recollection of the events of 15 June 2009 which she had recounted in January 2010. In a letter Ms Buckovska sent to the Public Trustee in January 2010,71 Ms Buckovska claimed that a staff member of the Craigcare nursing home was always present during her meetings with Mr Kittelty. In cross-examination, however, Ms Buckovska accepted that that was not correct.72

74 Thirdly, there were also some inconsistencies between aspects of Ms Buckovska's evidence and the evidence of the third and fourth defendants, particularly in relation to whether either or both of them told Ms Buckovska prior to 15 June 2009 that Mr Kittelty suffered from dementia or that his mental health was deteriorating. Ms Buckovska denied that either the third or fourth defendants had mentioned Mr Kittelty's mental capacity to her,73 whereas the fourth defendant was adamant that, prior to 15 June 2009, he told Ms Buckovska that Mr Kittelty did not have the mental capacity to enter into a contract.74 Similarly, the third defendant's evidence was that before the Property was put on the market, she told Ms Buckovska that Mr Kittelty was not capable of selling the Property.75

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75 There was also some dispute on the evidence about the providence of special condition E in the Contract. Ms Buckovska's evidence was that the condition was included after she had a conversation with the fourth defendant about the position of the third defendant as a tenant at the Property.76 The fourth defendant denied that he had any involvement in the terms of the Contract.77

76 It was apparent from his evidence that the fourth defendant felt very strongly that Ms Buckovska had acted inappropriately in taking instructions from Mr Kittelty to sell the Property. The fourth defendant admitted that his intention in the litigation was to 'expose the sales agent for her conduct and to show that the purchasers were not bona fide when they entered the sale'.78 Similarly, the Property was clearly of great sentimental value to the third defendant and she felt very strongly that it should not have been sold. I am unable to exclude the possibility that these sentiments may have coloured the evidence given by the third and fourth defendants to the extent that their evidence touched on Ms Buckovska's involvement in the sale of the Property. As a result, it is not possible for me to resolve the inconsistencies between the evidence of Ms Buckovska and the evidence of the third and fourth defendants respectively.

77 In any event, it is not necessary, for present purposes, to resolve these inconsistencies in the evidence. Even if Ms Buckovska was made aware of concerns in relation to Mr Kittelty's mental capacity, that would not be determinative of whether Mr Kittelty had the requisite mental capacity on 15 June 2009. Similarly, the providence of special condition E in the Contract is not determinative of Mr Kittelty's mental capacity. Rather, the question is whether Mr Kittelty understood the implications of the sale of the Property, particularly for the third defendant's continuing tenancy of the Property.

78 Despite my caution in relation to Ms Buckovska's evidence, I accept her evidence as to what occurred on 15 June 2009, for two reasons. First, to reject Ms Buckovska's evidence would, in effect, be tantamount to concluding that she had either acted with the knowledge that Mr Kittelty did not have sufficient mental capacity or that she had acted with complete indifference to the possibility that he did not. In my view, there was not sufficiently clear evidence in this case to support an inference of either kind.

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79 Secondly, and more significantly, for the reasons set out below, Ms Buckovska's evidence as to what Mr Kittelty said and did on 15 June 2009, suggested that Mr Kittelty understood the nature of the Contract. Ms Buckovska's evidence was therefore consistent with Dr Papaelias' evidence that it was possible that on 15 June 2009 Mr Kittelty had sufficient mental capacity to understand the nature of the Contract.

Conclusions as to capacity which may be drawn from Ms Buckovska's evidence

80 In my view, Ms Buckovska's evidence permits the following conclusions to be drawn in relation to whether Mr Kittelty had the mental capacity to enter into the Contract on 15 June 2009.

81 Ms Buckovska's evidence suggests that on 15 June 2009 there were no outward indications that Mr Kittelty lacked mental capacity to understand the nature of the Contract. On her evidence, the conclusion can be drawn that Mr Kittelty enjoyed a period or periods of lucidity on that day.

82 Dr Papaelias' evidence was that on a good day, Mr Kittelty would have been able to decide that he wanted to sell something like a house.79 Ms Buckovska's evidence as to the matters she discussed by telephone and in person with Mr Kittelty on 15 June 2009, and her evidence of Mr Kittelty's responses in the course of their conversations, together with Dr Papaelias' evidence, permit the inference to be drawn that Mr Kittelty was able to understand the information Ms Buckovska gave him about the initial offer to purchase and his counter-offer, that he was able to understand the terms of the Contract, and that he had the capacity to provide her with instructions in relation to the counter-offer and ultimately the sale of the Property.

83 The fact that Mr Kittelty accepted the offer of $790,000, after having rejected an earlier offer, also supports the conclusion that Mr Kittelty understood that what was involved was the sale of the Property. In reaching that conclusion I have also taken into account that Mr Kittelty had been considering the sale of the Property for some time, that it was Mr Kittelty who approached Ms Buckovska to arrange the sale of the Property, that it was Mr Kittelty who contacted her on more than one occasion to pursue the sale of the Property, and that Mr Kittelty had several conversations with Ms Buckovska in relation to the sale of the Property in which he asked pertinent questions about the consequences of

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the sale, including the amount he would receive from the sale once the agent's commission and fees were deducted from any sale price. Even having regard to Dr Papaelias' evidence that Mr Kittelty needed things to be 'gone over' more than once in order for him to understand them,80 these circumstances support the inference that Mr Kittelty had understood what was involved in the sale of the Property, and had the capacity to reach a deliberate decision to sell the Property. The fact that he accepted the first and second defendants' offer of $790,000 having taken into account the fact that it was a 'cash offer' also suggests that Mr Kittelty had some appreciation of the advantage of an offer which was not conditional on the first and second defendants' obtaining finance.

84 The fact that Mr Kittelty rejected the first offer made by the first and second defendants on the basis that it was too low, and following Ms Buckovska's advice, determined to make a counter offer which was significantly higher than the initial offer, supports the inference that Mr Kittelty understood that he was not obliged to sell the Property, and could sell the Property for a price of his choosing.

85 The fact that Mr Kittelty enquired what Ms Buckovska's commission would be if he accepted the first and second defendants' offer of $790,000 also suggests that Mr Kittelty understood that Ms Buckovska's commission would be deducted from the purchase price.

86 The fact that Mr Kittelty, having been given an explanation by Ms Buckovska of the special conditions in the Contract, proceeded to instruct Ms Buckovska to delete one of those special conditions, supports the inference that Mr Kittelty understood that he would be required to comply with those special conditions to the extent that they pertained to him.

87 It was submitted by counsel for the third and fourth defendants that special condition E was not inserted into the Contract by Mr Kittelty, nor was it explained to him or discussed with him, with the result that it could not be concluded that Mr Kittelty understood how the Contract affected the position of the third defendant as a tenant at the Property. I am unable to accept that submission. Dr Papaelias accepted that it was possible that Mr Kittelty could have understood the implications of the sale of the Property on anyone living at the Property.81 Although the providence of special condition E was in dispute, I have referred above to the evidence of Ms Buckovska that she discussed special condition E with Mr Kittelty.

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The evidence of Ms Buckovska, when considered with the evidence of Dr Papaelias, supports an inference that Mr Kittelty understood that after the sale of the Property neither he nor persons authorised by him, including the third defendant, would be entitled to reside at the Property. That inference is also supported by Mr Lee's evidence that one of Mr Kittelty's reasons for wanting to sell the Property was his concern about the third defendant continuing to reside in the Property.

Evidence of the surrounding circumstances

88 There were two other aspects of the evidence which should be mentioned. These were significant not because they independently assisted to establish that Mr Kittelty had mental capacity on 15 June 2009, but rather because they were not inconsistent with the conclusion that he had the requisite mental capacity. First, as I have noted above, it was apparent from the evidence of Mr Lee, of the fourth defendant, and of Ms Buckovska, that Mr Kittelty had been contemplating the sale of the Property for some time, and had had a number of discussions with others about his intention to do so. Secondly, the price for which the Property was sold was clearly a fair market price. A valuation which was tendered in evidence established that the market value of the Property as at July 2009 was $750,000.82 Had Mr Kittelty made a spontaneous decision to sell the Property on 15 June 2009, or decided to sell the Property for a price significantly below its market value, that may have cast some doubt over whether he had the mental capacity to enter into a contract on that date. The fact that he sold the Property on 15 June 2009 following consideration of his intention to do so over some weeks, and for a price that exceeded a fair market value, was not inconsistent with the conclusion that he had mental capacity to enter into the Contract when he did.

Conclusion in relation to Mr Kittelty's mental capacity on 15 June 2009

89 Having regard to the evidence outlined above, I find that it is more likely than not that on 15 June 2009, Mr Kittelty had the mental capacity to enter into the Contract, in that it is more likely than not that he understood the general nature of what he did by his participation in the Contract. I turn now to consider the second issue for determination, namely whether the first and second defendants had knowledge of any incapacity on Mr Kittelty's part.

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2. Did the first and second defendants have knowledge of Mr Kittelty's incapacity to enter into the Contract as at 15 June 2009?

Legal principles

90 The extent of the knowledge of the mental incapacity which is required in order to render a contract voidable was not examined in detail by the High Court in Gibbons v Wright. In the key passage of its reasons, the court traced the development of the law in the following way:

Even while the doctrine [that no man of full age should be heard to set up in the courts his own insanity] still flourished, the courts allowed an exception from it in the case of a contract made by a lunatic with a person who at the time was aware of the lunatic's insanity: Imperial Loan Co v Stone, per Fry LJ. But it came to be held, not only that proof of knowledge of the lunacy enabled the lunatic to avoid liability under the contract despite the rule against stultifying himself: Dane v Viscountess Kirkwall, but also that without proof of that knowledge (or at least proof of 'the greatest reason to believe' that the lunacy existed) the lunacy was not sufficient to enable the contract to be treated as invalid, even by the lunatic's privies in representation to whom the rule against pleading his insanity had never applied: Molton v Camroux. This step having been taken, it was possible for Lopes LJ in Imperial Loan Co v Stoneto state the principle to be deduced from the cases in these terms: 'A contract made by a person of unsound mind is not voidable at that person's option if the other party to the contract believed at the time he made the contract that the person with whom he was dealing was of sound mind. In order to avoid a fair contract on the ground of insanity, the mental incapacity of the one must be known to the other of the contracting parties. A defendant who seeks to avoid a contract on the ground of his insanity, must plead and prove, not merely his incapacity, but also the plaintiff's knowledge of that fact, and unless he proves these two things he cannot succeed'.83(emphasis added)

91 Although the underlined passage suggests that the court accepted the possibility that constructive knowledge of the mental incapacity of the other party might suffice, neither in Imperial Loan Co v Stone,84which set out the principle approved by the Court, nor in the Court's later discussion of the principle and the reasoning behind it, was there any reference to the possibility of constructive, as opposed to actual, knowledge of the mental incapacity of the other contracting party being sufficient to render the contract voidable. For example, the Court noted that 'what [a plea of mental incapacity] asserts is that the state of his mind
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was such that if the other contracting party was aware of it he ought not to be allowed to insist upon the contract'.85

92 The Full Court of this Court in Giles v Rooneyexpressed the view that the High Court's statement of the principle was confined to actual knowledge and did not encompass cases where the other party ought to have known of the incapacity.86

93 In other cases, however, it has been accepted that constructive knowledge of the mental incapacity will suffice. In Ashton v Melbourne Money Pty Ltd, Teague J read the reasons of the court in Gibbons v Wrightas indicative that constructive knowledge would suffice.87 In reaching that conclusion, his Honour relied upon the underlined words in the passage cited above. As for what was required to establish constructive knowledge, his Honour relied on observations made by Mason J and Deane J in Commercial Bank of Australia v Amadio.88

94 Similarly, in Collins,Owen J held that it was not necessary to prove actual knowledge of the incapacity, but rather that constructive knowledge would suffice.89 His Honour also concluded that considerations of the kind discussed by Mason J in Commercial Bank of Australia v Amadiowould be relevant in determining that question.90 His Honour did not discuss in any detail the observations by the High Court in Gibbons v Wright, and his Honour's attention does not appear to have been drawn to the decision of the court in Giles v Rooney.

95 The question whether actual knowledge or constructive knowledge is required before a contract will become voidable arose for consideration in the context of a contract for the sale of land in Lampropoulos v Kolnik.91 In that case, Simmonds J noted the decision of the Full Court in Giles v Rooneybut 'took the law to be that it was sufficient if the other party ought to have known of the mental incapacity'.92 More recently, in a case involving a gift, Simmonds J again accepted that constructive, rather than actual, knowledge of the mental incapacity would suffice to render the contract voidable.93

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96 There is considerable persuasive force in the proposition that if the evidence establishes that one party ought to have known that another contracting party is incapable of understanding the nature of a contract, a contract should be voidable. However, having regard to the observations of the High Court in Gibbons v Wright, to which I have referred above, and in view of the decision of the Full Court of this court in Giles v Rooney, and with respect to those who have reached a different conclusion, I am unable to accept that anything other than actual knowledge of the incapacity will suffice to render a contract voidable.

The evidence as to the knowledge of the first and second defendants

97 Mr Bruno Tatasciore had lived next door to Mr Kittelty for a number of years in his youth, but had left home as a young man and had not lived at that address for more than 20 years. His father, Mr Alberto Tatasciore, however, continued to reside next door to Mr Kittelty's home, until after the date the Contract was entered into. Mr Lawrence Biagioni was married to Mr Bruno Tatasciore's sister, but had never resided at the home of his wife's parents. There was no evidence to suggest that either Mr Bruno Tatasciore or Mr Biagioni had any contact with Mr Kittelty at any time in the weeks prior to the Contract being signed, or even well before that date.

98 In her witness statement, the third defendant appeared to claim that prior to 15 June 2009 she met with Mr Bruno Tatasciore and Mr Biagioni and told them that Mr Kittelty was mentally unwell (a claim which was denied by each of them). However, the third defendant accepted in cross-examination that that meeting did not take place until after the Contract had been entered into.94 The fourth defendant accepted that he had no contact with Mr Bruno Tatasciore or Mr Biagioni, either in relation to the sale of the Property or Mr Kittelty's health, prior to 15 June 2009.95

99 There was no other evidence to support the conclusion that the directors of the first and second defendants - Mr Bruno Tatasciore and Mr Biagioni respectively - and through them, the first and second defendants themselves, had actual knowledge of any mental incapacity on Mr Kittelty's part. Accordingly, even had I found that Mr Kittelty did not have the mental capacity to understand the nature of the Contract on 15 June 2009, I find that the first and second defendants had no knowledge of any mental incapacity on Mr Kittelty's part.

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100 The third and fourth defendants submitted that I should find that Mr Bruno Tatasciore and Mr Biagioni, and thus the first and second defendants, had constructive knowledge that Mr Kittelty lacked the mental capacity to enter into the Contract. Having regard to my conclusion that actual knowledge is required, that submission must necessarily fail. However, for the reasons set out below, even if I am wrong in the conclusion that actual, as opposed to constructive, knowledge of mental incapacity is required, the evidence in this case did not support a finding that the information available to the first and second defendants was such that they ought to have known that Mr Kittelty was unable to understand the nature of the Contract.

101 There appeared to be four bases for the third and fourth defendants' submission that the first and second defendants had constructive knowledge that Mr Kittelty lacked the mental capacity to enter into the Contract.

102 First, counsel for the third and fourth defendants submitted that because the first and second defendants' families had lived next door to Mr Kittelty's family for 25 years, it could be accepted that there would have been 'regular visiting' by the families to each other, and that it was 'inconceivable' that they would not have been aware of Mr Kittelty's situation. I am unable to accept that submission, as it is entirely speculative. It is not at all uncommon for neighbours to have little or no contact with one another, particularly as they grow older, and the contrary cannot simply be assumed because the same people had been neighbours for many years. Even if Mr Bruno Tatasciore or Mr Biagioni, or their families, had been aware that Mr Kittelty was living in a nursing home, there is nothing to indicate that that fact alone should have made them aware that Mr Kittelty was suffering from some mental incapacity. An equally plausible hypothesis in those circumstances may well have been that Mr Kittelty resided at the nursing home because of some physical incapacity.

103 For completeness, I note that there was no evidence that Mr Alberto Tatasciore had any knowledge of any mental incapacity on Mr Kittelty's part or that even if he had, that he had mentioned this situation to his son, Mr Bruno Tatasciore, at any time prior to 15 June 2009.

104 Secondly, in his evidence, the fourth defendant claimed that he met with Ms Buckovska before the Contract was entered into and told her that she should not enter into any agreement with Mr Kittelty to sell the house

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because Mr Kittelty did not have mental capacity to enter into a contract.96 Ms Buckovska denied that this conversation took place. The third defendant gave evidence that on around 11 May 2009, she told Ms Buckovska words to the effect that Mr Kittelty 'was very unwell and had dementia'.97 She also gave evidence that she spoke with Ms Buckovska on several occasions between 11 and 22 May 2009 and during those phone calls she informed Ms Buckovska a number of times that Mr Kittelty had dementia and was not allowed to make financial decisions due to his poor mental health.98

105 For the reasons I have already outlined, I am unable to resolve the inconsistencies between the evidence of the third and fourth defendants on the one hand, and Ms Buckovska on the other hand.

106 In any event, in the present context it is not necessary for me to resolve the inconsistencies between the evidence of the third and fourth defendants, and that of Ms Buckovska. Even if Ms Buckovska was, priorto 15 June 2009, made aware of Mr Kittelty's declining mental health, Ms Buckovska was under no obligation to pass that information on to the first and second defendants - she did not act for them in connection with the sale of the Property. Furthermore, it was not submitted that Ms Buckovska was the agent of the first and second defendants, so that - if she had knowledge of any mental incapacitation on Mr Kittelty's part - that knowledge could perhaps be attributed to the first and second defendants. Finally, there was no suggestion, apart from a bare assertion to this effect by the fourth defendant,99 that assuming that Ms Buckovska was actually aware of an issue concerning Mr Kittelty's mental capacity, she had in fact passed it on to the first and second defendants.

107 Thirdly, the fourth defendant claimed that he told Mr Alberto Tatasciore that Mr Kittelty's house was not for sale.100 However, it was not clear from the evidence that the fourth defendant in fact told Mr Alberto Tatasciore that Mr Kittelty did not have capacity to enter into a contract. Even if the fourth defendant did convey this information, however, there was no evidence to suggest that Mr Alberto Tatasciore told Mr Bruno Tatasciore of that conversation.

108 Finally, in his evidence the fourth defendant expressed the view that the first and second defendants were reckless in entering into the Contract without first conducting some inquiries in relation to the vendor and his

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capacity to sell the Property.101 It was far from apparent why the first and second defendants should have made such inquiries, absent anything to indicate to them that there may have been some question about Mr Kittelty's mental capacity. It was not clear how a failure to conduct enquiries of this kind could, in any event, have amounted to constructive knowledge of mental incapacity on Mr Kittelty's part.

109 Accordingly, I find that on the balance of probabilities, the first and second defendants had no actual or constructive knowledge that Mr Kittelty may not have had the requisite mental capacity to enter into the Contract on 15 June 2009.

Conclusion

110 As I have found that Mr Kittelty was more likely than not to have had sufficient mental capacity to understand the nature of the Contract into which he entered on 15 June 2009, no basis exists for a finding that the Contract was invalid. Even if I am wrong in my finding as to Mr Kittelty's mental capacity, I have found that the first and second defendants did not have any actual or constructive knowledge that Mr Kittelty may not have had the requisite mental capacity to enter into the Contract on 15 June 2009. The Contract is therefore valid.

111 I will hear counsel on the form of any orders required to give effect to these reasons, and as to the orders required to programme for trial any remaining issues arising from the originating summons.

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1Gibbons v Wright(1954) 91 CLR 423, 441, (Dixon CJ, Kitto & Taylor JJ; see also McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2)(1904) 1 CLR 243, 275 (Griffith CJ, for the Court).
2Gibbons v Wright(437) (Dixon CJ, Kitto & Taylor JJ).
3Gibbons v Wright (438) (Dixon CJ, Kitto & Taylor JJ) citing Manches v Trimborn(1946) 174 LT 344, 345.
4Dalle-Molle v Manos(2004) 88 SASR 193 [19] (Debelle J).
5Dalle-Molle v Manos[27] (Debelle J).
6Dalle-Molle v Manos[27] (Debelle J).
7Gibbons v Wright(438) (Dixon CJ, Kitto & Taylor JJ); Dalle-Molle v Manos[19], [25] (Debelle J).
8Dalle-Molle v Manos[25] (Debelle J).
9Gibbons v Wright(441) (Dixon CJ, Kitto & Taylor JJ); Dalle-Molle v Manos[17] (Debelle J); see also Collins by her next friend Poletti v May[2000] WASC 29 [54] (Owen J).
10McLaughlin(277) (Griffith CJ); Collins[54] (Owen J).
11Collins[55] (Owen J).
12 Mr Lee, Mr Shane Kittelty, Ms Tracy Kittelty, Dr Louis Papaelias and Ms Donna Buckovska.
13 ts 81.
14 Exhibit 5, pars 40 - 41.
15 Exhibit 5, par 26.
16 Exhibit 5, pars 19 - 21.
17 ts 100.
18 ts 102.
19 Exhibit 7, par 20.
20 Exhibit 6 par 15.
21 Exhibit 7, par 21; see also ts 114.
22 ts 115. By the time of the hearing the third defendant's view did not appear to be entirely consistent.
23 ts 105.
24 Under the GA Act, a mental disability includes an intellectual disability, a psychiatric condition, an acquired brain injury and dementia: s 3 of the GA Act.
25 Section 4(2) of the GA Act.
26 Section 4(3) of the GA Act.
27FS [2007] WASAT 202 [106] (Barker J, Ms Toohey & Mr Mansveld).
28FS[110] (Barker J, Ms Toohey & Mr Mansveld).
29 Exhibit 15.
30 Annexure SWC19 to Exhibit 1.
31 Exhibit 9, pars 20 - 23; ts 134.
32 ts 126.
33 Exhibit 10, pars 4 - 8, 13.
34 Exhibit 10, par 9.
35 Exhibit 10, par 14.
36 ts 141.
37 ts 144.
38 ts 144 - 145.
39 ts 148.
40 ts 139 - 140.
41 ts 141.
42 ts 144.
43 ts 146.
44 ts 146.
45 ts 146.
46 ts 148.
47 ts 149 - 150.
48 ts 151.
49 ts 31.
50 ts 32.
51 ts 33.
52 ts 33 - 34.
53 ts 34.
54 ts 34.
55 ts 36.
56 ts 36.
57 ts 36.
58 ts 37.
59 ts 37.
60 ts 40.
61 ts 43.
62 ts 44.
63 ts 70, see also ts 44.
64 ts 48.
65 ts 32.
66 ts 44.
67 ts 45.
68 ts 46.
69 ts 66.
70 ts 66.
71 Annexure SWC 13 to Exhibit 1; ts 30.
72 ts 58.
73 ts 64.
74 ts 111.
75 ts 133.
76 ts 66.
77 ts 99.
78 ts 109.
79 ts 146.
80 ts 146.
81 ts 150 - 151.
82 Annexure SWC 14 to Exhibit 1.
83Gibbons v Wright (441) (Dixon CJ, Kitto & Taylor JJ) (footnotes omitted).
84Imperial Loan Co v Stone (1892) 1 QB 599.
85Gibbons v Wright (443) (Dixon CJ, Kitto & Taylor JJ).
86Giles v Rooney(1996) 23 MVR 510, 513 (Malcolm CJ), 514 (Kennedy & Rowland JJ agreeing).
87Ashton v Melbourne Money Pty Ltd (1992) ANZ ConvR 95, 99.
88Commercial Bank of Australia v Amadio (1983) 151 CLR 447, 467 (Mason J), 479 (Deane J).
89Collins[68] (Owen J).
90Collins[68] (Owen J) citing Commercial Bank of Australia v Amadio (467).
91Lampropoulos v Kolnik [2010] WASC 193 (Simmonds J).
92Lampropoulos v Kolnik [350] (Simmonds J).
93Stone v Registrar of Titles[2012] WASC 21 [151] (Simmonds J).
94 ts 128.
95 ts 104, 107
96 ts 111.
97 Exhibit 9, par 16.
98 Exhibit 9, par 18.
99 ts 109.
100 ts 117; Exhibit 7, par 25.
101 ts 107.