Raoul (by his tutor Karamihas) v Hanna

[2017] NSWSC 728

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Raoul (by his tutor Karamihas) v Hanna [2017] NSWSC 728

Hearing dates:

15-19 and 23-24 May 2017

Decision date:

28 June 2017

Before:

Lindsay J

Decision:

(1) The plaintiff is beneficially entitled to property transferred out of his ownership, subject to compensation due to the defendant for discharge of a mortgage on the property.

 (2) Further consideration to be given to an exercise of protective jurisdiction affecting the plaintiff, and to costs.

Catchwords:

CONTRACT – Capacity – Mental health – Assessment of capacity time and task specific – Lack of capacity

 

EQUITY – Unconscionable contract – Special disadvantage – Mental health, age and frailty – Improvident transaction – Nature and quality of independent advice

CONTRACT – Contracts Review Act 1980 NSW – Unjust Contract – Procedural and Substantive injustice – Improvident transaction – Nature and quality of independent advice

Legislation Cited:

Contracts Review Act 1980 NSW
Guardianship Act 1987 NSW
Real Property Act 1900 NSW,
Uniform Civil Procedure Rules 2005 NSW
Trustee and Guardian Act, 2009 NSW

Cases Cited:

Aboody v Ryan [2012] NSWCA 395; 17 BPR [98610]
Blomley v Ryan (1956) 99 CLR 362
CJ v AKJ [2015] NSWSC 498
Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447
Gibbons v Wright (1954) 91 CLR 423
Hillpalm Pty Limited v Heaven’s Door Pty Limited (2004) 220 CLR 472
Louth v Diprose (1992) 175 CLR 621
Re W and L (Parameters of protected estate management orders) [2014] NSWSC 1106
Ryan v Aboody [2012] NSWSC 136

Category:

Principal judgment

Parties:

Plaintiff: Gratien Raoul by his tutor Emmanuel Karamihas
Defendant: George Hanna

Representation:

Counsel:
Plaintiff: ID Faulkner SC and DD Knoll
Defendant: V Culkoff

  Solicitors:
Plaintiff: Konstan Lawyers
Defendant: Julie A Orsini

File Number(s):

2015/00120549

Judgment

INTRODUCTION

1. These proceedings require a determination of the respective entitlements of the plaintiff (an elderly widower, a pensioner, without immediate family) and the defendant (a nephew on his late wife’s side of the family) to land at Campsie, upon which the home of the plaintiff was built before its destruction by fire on 3 January 2015, and the proceeds of an insurance policy that provided compensation for damage caused by the fire.

2. The primary focus for attention has been on title to the land. The parties have proceeded, correctly, upon an assumption that a determination of questions of land title will, incidentally, resolve disputation about title to the insurance proceeds.

3. At the time of the fire, as today, the title to the land (being the land contained in Folio Identifier 1/103769) was registered, under the Real Property Act 1900 NSW, in the names of:

1. the plaintiff, as to a life estate; and

2. the defendant, as to an estate in remainder.

4. A particular focus of these proceedings is on the validity and enforceability of transactions, effected on or about 16 September 2014, by which that state of the title came about.

5. Before those transactions, the plaintiff was registered as the proprietor of an estate in fee simple in the land, subject to a mortgage (Dealing No. AB207266) in favour of a third party financier which secured a principal sum of $200,000.

6. Title to the land changed by reason of:

1. the parties’ execution of a “Deed of Arrangement” dated 16 September 2014 and an undated memorandum of transfer apparently signed the same day; and

2. registration of the memorandum of transfer (as Dealing No. AI909367) on or about 18 September 2014, giving rise to the issue of a new certificate of title (to the plaintiff as life tenant and to the defendant as remainderman) on 22 September 2014.

7. Leaving to one side controversy about the terms of the deed of arrangement, and at the risk of oversimplification, its general tenor was to the effect that the defendant would obtain a discharge of the mortgage over the land by repayment of the mortgage debt; the plaintiff would transfer the land to the defendant; and the defendant would grant the plaintiff a life estate in the land, and agree to pay all rates, taxes and insurance premiums referable to the land and to maintain it in good repair and condition. The deed also provided that the defendant could at any time during the lifetime of the plaintiff, with his consent in writing, sell the land, invest the net proceeds of sale and pay the net annual income arising therefrom to the plaintiff during his lifetime.

8. The memorandum of transfer provided that the plaintiff transferred the land to himself (for the term of a life estate) and to the defendant (by way of an estate in remainder) for the consideration of $1.00.

9. The defendant obtained a discharge of the mortgage on 16 September 2014 by a payment of $200,509.64.

10. The market value of the land (including the residence then built on the land) – that is to say, the value of an unencumbered estate in fee simple – was $675,000.

11. For the purpose of these proceedings, without any admission by the defendant as to relevance of the current value of the land, on 16 November 2016 (as reflected in Exhibit C5), the parties agreed that:

1. the present value of the land is in the range of $850,000 to $900,000 ; and

2. the present value of the land, with a new, standard three-bedroom dwelling at a cost of approximately $400,000 (the approximate amount of the available insurance compensation) is in the range of $1,200,000 to $1,250,000.

12. The plaintiff is presently a person who, by reason of mental incapacity (dementia), is unable to manage his own affairs. Whether he lacked such capacity on or about 16 September 2014 is the subject of controversy.

13. By a tutor (required by rule 7.14 of the Uniform Civil Procedure Rules 2005 NSW because he is “a person who is incapable of managing his affairs” within the meaning of rule 7.13), the plaintiff seeks relief to the following effect:

1. an order that the deed of arrangement be declared void or set aside;

2. an order that the transfer of the land effected by a memorandum of transfer AI909367 be declared void or set aside;

3. a declaration that the plaintiff is beneficially entitled to an estate in fee simple in the land; and

4. orders for the land to be conveyed to the plaintiff, or vested in him, for his own use and benefit absolutely.

14. In seeking this relief the plaintiff acknowledges that, subject to one qualification, it must be sought conditionally upon the plaintiff paying, or submitting to orders for the payment of, an amount equal to the sum paid by the defendant to discharge the plaintiff’s mortgage plus interest at a reasonable rate accruing from 16 September 2014.

15. The qualification on this acknowledgement is a contention by the plaintiff that:

1. the defendant should pay the costs of these proceedings; and

2. the plaintiff’s liability to restore to the defendant the money the defendant paid to obtain a discharge of the plaintiff’s mortgage should be set off against any costs liability imposed upon the defendant.

16. Questions of costs are likely to loom large in the proceedings because:

1. the quantum of costs claimed by the parties (estimated up to and including the penultimate day of the final hearing), totalling $1,132,000 (representing $520,000 claimed by the plaintiff and $612,000 claimed by the defendant), bears an unhealthy relationship with the agreed value of the property in dispute; and

2. insofar as both the tutor for the plaintiff and the defendant claim to have conducted these proceedings in the interests, and for the benefit, of the plaintiff as an incapable person, the general rule that “costs follow the event” (reflected in UCPR rule 42.1) may be displaced by the practice in cases involving an exercise of protective jurisdiction of making costs orders by reference to what, in all the circumstances, seems the proper order for costs (CCR v PS(No. 2) (1986) 6 NSWLR 622 at 640; CAC v Secretary, Department of Family and Community Services (No. 2) [2015] NSWSC 344).

AN UNDERCURRENT IN THE PROCEEDINGS

17. The proceedings have been driven by rivalry between the defendant (the plaintiff’s nephew, a builder by trade) and Joseph Khalifeh (a friend of the plaintiff, a private investigator). Although their paths did not cross until early September 2014, each man appears very quickly to have identified the other as a threat to the plaintiff’s interests, if not his own.

18. On 25 February 2014, with assistance provided by Mr Khalifeh, the plaintiff executed in favour of Mr Khalifeh an enduring power of attorney and an enduring guardianship appointment.

19. On 8 September 2014, with assistance from the defendant, the plaintiff executed an instrument purporting to revoke the power of attorney (but not the guardianship appointment) dated 25 February 2014. The guardianship appointment subsists.

THE COMMENCEMENT, AND COURSE, OF THE PROCEEDINGS

20. These proceedings were commenced by a summons filed on 23 April 2015, accompanied by a notice of motion filed on the same day seeking an order that Emanuel Karamihas (an accountant) be appointed as tutor for the plaintiff. Not without misgivings, on the return of the summons and the notice of motion on 8 May 2015, the defendant consented to an order made by the Registrar (under UCPR rule 7.18) that Mr Karamihas be appointed as tutor.

21. On the same occasion (8 May 2015), the parties submitted to an interlocutory arrangement, expressed to be until further order, preserving property of the plaintiff and restraining both parties from taking any step towards a sale of the land.

22. On 28 August and 18 September 2015, consent orders and undertakings were recorded by Darke J, as the Real Property List judge, having the effect of quarantining, until further order, the sum of $392,190 paid out by the insurer who insured the subject property against fire damage.

23. In an amended summons (filed on 15 February 2016), upon which the plaintiff moved at the final hearing of the proceedings, there was a claim for relief the effect of which was:

1. to have declared void or set aside the instrument dated 8 September 2014 which purported to revoke the enduring power of attorney dated 25 February 2014 executed in favour of Mr Khalifeh; and

2. to seek confirmation that Mr Khalifeh is entitled hereafter to act as attorney for the plaintiff pursuant to the instrument dated 25 February 2014.

24. On its face, that instrument dated 25 February 2014 purports to have been executed by the plaintiff (and certified by a solicitor) on 25 February 2014 in respect of an appointment as attorney accepted by Mr Khalifeh on 24 February 2014. In fact, the instrument was executed and certified, and Mr Khalifeh accepted his appointment as attorney, on 25 February 2014. The reference to “24 February 2014” in the instrument is a clerical error of no operative significance.

25. During the course of the final hearing, the plaintiff abandoned the claim for “restoration” of the power of attorney dated 25 February 2014. He did, however, foreshadow a claim for orders under section 41 of the NSW Trustee and Guardian Act 2009 NSW designed to subject the plaintiff’s estate to management under the Act.

26. That foreshadowed claim was advanced, initially, in terms that Mr Khalifeh should be appointed manager of the plaintiff’s protected estate, then, when that proposal met opposition, in terms that the plaintiff’s tutor should be appointed to the office of manager. That proposal, too, was opposed by the defendant, who contends that management of the plaintiff’s estate should be committed to the NSW Trustee.

27. The question whether any (and, if so, what) protected estate management orders affecting the plaintiff should be made has been deferred pending the determination of other questions in the proceedings. Depending on the outcome of those other questions, and the very substantial claims for costs made in the proceedings, there may be no utility in the making of orders subjecting the estate of the plaintiff to protective management. Considerations of utility loom large upon an exercise of the Court’s discretion in the making, or revocation, of protected estate management orders: Re W and L (Parameters of protected estate management orders) [2014] NSWSC 1106; CJ v AKJ [2015] NSWSC 498 at [50]-[58].

28. At the time Mr Khalifeh accepted his appointment as the plaintiff’s attorney on 25 February 2014, he also accepted appointment as the plaintiff’s enduring guardian. The guardianship appointment has never been revoked. Neither its validity nor its continuing operation is challenged in these proceedings.

29. As the plaintiff’s enduring guardian Mr Khalifeh is authorised: (a) to decide where the plaintiff lives; (b) to decide what health care the plaintiff receives; (c) to decide what other kinds of personal services the plaintiff receives; and (d) to consent to the carrying out of medical or dental treatment on the plaintiff.

30. No controversy attaches to the observation that the plaintiff is presently incapable of managing his own affairs – whether expressed in terms of management of his estate or management of his person. During the course of the final hearing, the plaintiff attended court, briefly, for the purpose of his incapacity for self-management being demonstrated to the Court. In a relatively informal, conversational setting, and with the benefit of an interpreter (to assist the plaintiff, whose French is better than his English), he was gently examined, cross examined and given opportunities to speak at will. The common assessment of counsel, and myself, was that he is indeed currently incapable of managing his own affairs.

31. The plaintiff presented as a gregarious man, not inhibited by any formality attending the proceedings (or by anything at all), but disoriented in an unfamiliar setting. He spoke of each of Mr Khalifer and the defendant as “a good man”. Of the two, only the defendant was present in Court; he greeted the defendant warmly. He displayed flashes of indignation about loss of his home, an awareness that it had been destroyed by fire, and a sense that he had been taken down by somebody. However, he had no clear appreciation of who it was who may have taken advantage of him. He departed the courtroom loudly proclaiming “Happy Easter” to all present. Well received though the proclamation was, it was plainly not appropriate to the occasion save as confirmation of a general loss of mental capacity.

32. Two affidavits, purportedly sworn by the plaintiff on 1 April 2016 and 20 April 2016 respectively, have been formally read in presentation of his case. Both were purportedly sworn after the date upon which the parties agree he was incapable of managing his affairs. With the acquiescence of counsel, I pay no heed to either affidavit in my assessment of the facts of the case. Given the state of the plaintiff’s mental health, they are inherently unreliable.

33. At the outset of the final hearing (on 16 May 2017), I recorded a formal notation that “it is agreed between the parties that the plaintiff is presently, by reason of mental illness, incapable of managing his affairs and that he has been so incapable from a date no later than 20 September 2015”.

34. That date was selected by the parties by reference to a date upon which the defendant’s medico-legal expert (Professor Ian Coyle) personally examined the plaintiff and confirmed his incapacity.

35. After taking the evidence of Professor Coyle and the plaintiff’s medico-legal expert (Dr Gail Jamieson) in conclave, the date upon which the plaintiff can uncontroversially be characterised as having been incapable of managing his affairs can be pushed back to 13 December 2014, upon which date Dr Jamieson examined the plaintiff.

CENTRAL QUESTIONS IN DISPUTE

36. There is no challenge to the plaintiff’s capacity for self-management at the beginning of 2014 when, on 25 February 2014, he appointed Mr Khalifeh as his enduring attorney and guardian.

37. That leaves most of the year 2014 (more particularly, an indeterminate time between 25 February 2014 and 13 December 2014) as the period during which the plaintiff’s capacity for self-management is controversial.

38. The parties agree that the critical time for assessment of his capacity, for the purpose of these proceedings, is 16 September 2014, when he executed the deed of arrangement and the memorandum of transfer under challenge in the proceedings. They agree too that that question of capacity must be determined as capacity to understand, and to transact, the particular business evidenced by those two instruments.

39. The proceedings having been commenced by summons, the parties expressly disclaimed any need for pleadings, content to outline their respective cases in written submissions.

40. It is agreed between them that the central questions for determination are:

1. whether or not the plaintiff had the mental capacity on 16 September 2014 to enter the deed of arrangement and to execute the memorandum of transfer, taking Gibbons v Wright (1954) 91 CLR 423 at 437- 438 as the authoritative statement of the law to be applied upon an assessment of capacity;

2. whether (applying equitable principles discussed in cases such as Blomley v Ryan (1956) 99 CLR 362, Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 and Louth v Diprose (1992) 175 CLR 621) the deed of arrangement and the memorandum of transfer should be set aside as an unconscionable catching bargain; and

3. whether (upon an exercise of jurisdiction for which sections 7, 8, 9 and 19, and clauses 1(a) and 1(b) of Schedule 1, of the Contracts Review Act 1980 NSW provide) those instruments should be declared to have been “unjust”, in the circumstances relating to them at the time they were made, and set aside.

41. The parties accept that:

1. notwithstanding that the plaintiff may have signed the deed of arrangement and the memorandum of transfer without the requisite mental capacity, by operation of section 42 of the Real Property Act 1900 the defendant acquired legal title to an estate in remainder in the land upon registration of memorandum of transfer AI909367; but

2. subject to the requisite findings of fact being made, it would be open to the Court to order that the plaintiff be restored to proprietorship of an estate in fee simple in the land on the case sought to be made by the plaintiff because:

1. a person such as the defendant, who has title by virtue of section 42, may nevertheless hold title subject to “personal equities”, rights in personam as distinct from rights in rem (Hillpalm Pty Limited v Heaven’s Door Pty Limited (2004) 220 CLR 472 at 491 [54]); and

2. the orders sought by the plaintiff by reference to the Contracts Review Act 1980 are of a kind which the Act authorises the Court to make.

42. The plaintiff contends that, by reason of mental incapacity on the part of the plaintiff, the memorandum of transfer was void or, at least, voidable and that, in any event, it should be set aside upon an exercise of the Court’s equitable jurisdiction over catching bargains or pursuant to the Contracts Review Act.

43. Whether or not the plaintiff had the requisite mental capacity to enter the deed of arrangement bears directly upon the validity of the deed. If (to the knowledge of the defendant, actual or constructive) he lacked capacity, the deed is void.

44. Because of the operation of the Real Property Act, section 42, the prime relevance of the question whether the plaintiff had the requisite mental capacity to execute the memorandum of transfer might be located in the way in which it feeds into: (a) the Court’s equitable jurisdiction to set aside an unconscionable transaction; and (b) its jurisdiction to make orders affecting an “unjust” contract under the Contracts Review Act.

COMPETING CONTENTIONS

45. In presentation of the plaintiff’s case, his counsel likened it to Aboody v Ryan [2012] NSWCA 395; 17 BPR 32,359, in which the Court of Appeal (constituted by Bathurst CJ, Allsop P and Campbell JA) affirmed the judgment of Slattery J in Ryan vAboody [2012] NSWSC 136. Counsel for the defendant strongly contested any analogy between that litigation and this. In the absence of any dispute about the law, the focus for attention must be on the facts of the present case. Reasoning by factual analogy from an earlier case is not a recommended procedure for finding the facts of a particular case. I do not embrace it.

45. In presentation of the defendant’s case, counsel laid heavy emphasis on the facts that the proposal for what ultimately became the deed of arrangement originated with the plaintiff (not the defendant); a similar proposal had been put to Mr Khalifeh by the plaintiff before any such proposal was put by the plaintiff to the defendant; the proposal had its ultimate origins in an anxiety on the part of the plaintiff that he needed to adopt such a proposal to avoid losing his home in circumstances in which he was unable, from his own resources or otherwise, to obtain a discharge of the mortgage over the property; and (the defendant contends) the deed of arrangement, as the plaintiff fully understood, gave him precisely what he wanted (to be free of the mortgage and secure in his home) on terms better than those contemplated in the Khalifeh proposal.

CONTEXTUAL FACTS

47. A full appreciation of the parties’ competing contentions requires acknowledgement of the following contextual facts:

1. The plaintiff was born in July 1939 in Egypt.

2. In the early 1970s he migrated to Australia from Egypt.

3. Between the late 1970s and her death in 1998, the plaintiff was married to Susie (Souad), the sister of the defendant’s father. There were no children of the marriage.

4. The plaintiff and his wife purchased the Campsie land and lived there together for over 30 years.

5. Upon his wife’s death, the plaintiff became registered as proprietor of the land as the surviving joint tenant. It was at that time unencumbered.

6. In 2004 the plaintiff mortgaged the land to secure a loan of $200,000 to a friend, Mr Lewis Hiley.

7. Between 2005 and March 2014 or thereabouts, the plaintiff had instructed Hunt and Hunt, solicitors, in unsuccessful endeavours to force Mr Hiley to repay the loan.

8. On 10 August 2011 the plaintiff executed a Will (presently his only known Will) in which he provided a plethora of gifts to charity, together with inconsistent provisions about his preparedness or otherwise to confer testamentary benefits on family.

9. On 28 January 2013 the plaintiff was involved in a motor vehicle accident which led him, with assistance from Mr Khalifeh, to instruct his present solicitors (Konstan Lawyers), with whom Mr Khalifeh had a working relationship, to institute proceedings for the recovery of personal injury compensation.

10. Those proceedings were ultimately settled on 5 November 2014 (and the settlement was documented over a period extending to 5 December 2014) without the appointment of any tutor to represent the plaintiff in the proceedings and, apparently, without any substantial concern about the plaintiff’s capacity to provide instructions until a conference with counsel (about the current dispute) on 4 December 2014.

11. It was through those solicitors that the plaintiff executed instruments for the appointment of Mr Khalifeh as an enduring attorney and an enduring guardian on 25 February 2014.

12. In March-April 2014 the plaintiff proposed to Mr Khalifeh that, if Mr Khalifeh helped him by paying off the mortgage affecting his land, the plaintiff would, in return, either transfer ownership of the land to Mr Khalifeh or leave it to Mr Khalifeh in his Will.

13. Before he abandoned that proposal (he says, because he realised it was not in the plaintiff’s best interests), Mr Khalifeh took the proposal sufficiently seriously to prepare a draft “deed of agreement” dated 9 April 2014 (Exhibit CB 6, Volume 4, page 1391) which was not unlike that ultimately, independently of Mr Khalifeh, prepared by the defendant’s solicitor (Mr Anthony Panopolous) as the “deed of arrangement” (Exhibit CB 6, Volume 4, pages 1465-1466 and 1468-1469) under challenge in these proceedings.

14. At different times throughout 2014, a total of six solicitors (four of whom gave evidence at the final hearing of the proceedings) acted for the plaintiff either without forming an opinion that he was incapable of managing his own affairs or being prepared to act for him notwithstanding any doubts that they might have had as to his capacity to understand particular transactions.

15. On 16 June 2014, in circumstances not fully explained in the evidence, the plaintiff was the subject of a Canterbury Hospital “Aged Care Assessment” report of Dr Bruce Boman (a psychiatrist, not called to give evidence in the proceedings) which opined that, at that time, the plaintiff had capacity to manage his own affairs without the appointment of a financial manager (an appointment made by the Civil and Administrative Tribunal of NSW (NCAT) under the Guardianship Act 1987 NSW similar to the appointment of a protected estate manager under section 41 of the NSW Trustee and Guardian Act 2009) and testamentary capacity.

16. The plaintiff is a person who, even in his prime, presented to family and friends as eccentric.

48. Caution is required in the process of assessment of the plaintiff’s mental capacity to understand, and to enter, the deed of arrangement and the memorandum of transfer he executed on 16 September 2014 not to be unduly deflected by express, implied or presumed opinions of solicitors who dealt with the plaintiff on other dates and for the transaction of other business. Accepting that an assessment of capacity might be assisted by a review of evidence about the plaintiff’s presentation and conduct at different times, and in the transaction of different business, care needs to be taken not to be deflected (although possibly aided) by collateral opinions.

49. In presentation of his case the defendant relied heavily on an inference, or inferences, of capacity said to arise from opinions attributed to solicitors who had had dealings with the plaintiff in 2014. In doing so, he cited observations made by me in Scott v Scott [2012] NSWSC 1541; (2012) 7 ASTLR 299 at [209] and [270] about the utility of contemporaneous observations of an allegedly incapable person, particularly observations of an experienced solicitor.

50. It is as well to set out my treatment of general law principles relating to mental capacity in Scott v Scott at [197]-[209], remembering that the question in that case was whether an enduring power of attorney was valid, not, as here, a question about the validity of a deed of arrangement and an associated memorandum for the transfer of land. Mutatis mutandis, I adhere to the views there expressed:

“197   Gibbons v Wright is cited as the pre-eminent Australian authority on the question of the nature and degree of mental capacity to effect an inter vivos transaction. It establishes that different degrees of mental soundness may be required for the validity of different transactions, and that the "standard" is relative to the particular transaction: Crago v McIntyre [1976] 1 NSWLR 729 at 739C-F.

198 The foundation passages appear in the joint judgment of Dixon CJ, Kitto and Taylor JJ at 91 CLR 437-438:

"The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation. ...

.   

.. [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 to understand the nature of that transaction when it is explained. As Hodson LJ remarked (in Estate of Park [1954] P 89 at 136), 'One cannot consider soundness of mind in the air, so to speak, but only in relation to the facts and the subject-matter of the particular case'.

Ordinarily the nature of the transaction means in this connection the broad operation, 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. ..."

199   What follows from this statement of principle is that each case must be considered on its own facts. Care needs to be taken not to over-generalise. There is no rule of general application relating to all powers of attorney without regard to particular facts. Attention must be focussed on all the circumstances of the case, including the identities of the donor and donee of a disputed power of attorney; their relationship; the terms of the instrument; the nature of the business that might be conducted pursuant to the power; the extent to which the donor might be affected in his or her person or property by an exercise of the power; the circumstances in which the instrument came to be prepared for execution, including any particular purpose for which it may ostensibly have been prepared; and the circumstances in which it was executed.

200   An exploration of all the circumstances of the case will, not uncommonly, call for consideration of events leading up to, and beyond, the time of execution of the disputed power of attorney, as well as on the focal point of the time of execution itself. A longitudinal assessment of mental capacity, along a time line extending either side of the focal point, may be necessary, or at least permissible, in order to examine the subject's mental capacity in context. Medicos and lawyers, alike, tend to embrace that approach. It is difficult to do otherwise. Context has a temporal as well as spacial and relational dimensions.

201   Given equity's tender regard for protection of the weak and considerations of conscience, an examination of the question whether a donor had mental capacity to grant a power of attorney will, not uncommonly, also invite a critical inquiry as to whether any element of undue influence may be discernable.

202   Where an Enduring Power of Attorney confers on an attorney power to dispose of the principal's property to or for the benefit of the attorney or third parties, the nature and degree of mental capacity required to grant such a power may approximate that required for the making of a valid will. In that event, the "standard" laid down by Banks v Goodfellow (1870) LR 5 QB 549 at 564-565 might apply or be approximated.

203   That "standard" is explained in the following terms:

"It is essential to the exercise of [a power to make a will] that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties - that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made."

204   An Enduring Power of Attorney limited in its terms, or effect, to authorisation of acts for the benefit of the principal may require consideration of factors different from those considered upon an assessment of mental capacity for the making of a valid will.

205   It is not, literally, a matter of imposing, or recognising, a different "standard" of mental capacity in the evaluation of the validity of different transactions. What is required, rather, is an appreciation that the concept of "mental capacity” must be assessed relative to the nature, terms, purpose and context of the particular transaction. Nothing more, or less, is required than a focus on whether the subject of inquiry had the capacity to do, or to refrain from doing, the particular thing under review.

206   Insights into appropriate lines of inquiry, or relevant considerations, in a particular case can be obtained from consideration of similar cases in which the validity of similar transactions has been reviewed. However, care needs to be taken not to elevate helpful passages in potentially analogous cases into rules of general application, whether characterised as an applicable "standard" or rules of law or merely practice. At the end of the day, a qualitative judgment needs to be made in each case on the facts of the particular case. Process and form are not unimportant. In some cases, they may point the way to a substantive outcome of a dispute. However, they are not ends in themselves. The focus of the Court must be on the substance of the inquiry whether the particular subject had, in fact, the requisite capacity - understanding - to effect a particular transaction.

207   Assistance in the current proceedings is available from the observations of a variety of judges.

208   The following observations are taken from the judgment of Young J in Ranclaud v Cabban [1988] ANZ ConvR 134:

"...whilst it may be one thing to be aware that a person under a Power of Attorney may act on one's behalf, where the Power, as in the present case, is a general power under s 163B and Schedule VII of the Conveyancing Act 1919 [the precursors of s 8 and Schedule 2 of the Power of Attorney Act 2003], such a power permits the donee to exercise any function which the donor may lawfully authorise an Attorney to do. When considering whether a person is capable of giving that sort of power one would have to be sure not only that she understood that she was authorising someone to look after her affairs but also what sort of things the Attorney could do without further reference to her. ... [p 136].

... [In the present case] experienced solicitors on both sides have witnessed Powers of Attorney and Revocations of Powers. One might ask how a person who was incapable could make a Power of Attorney in the presence of such professional gentlemen. I think the answer is relatively clear. A person only seeing a little bit of the picture and seeing [the Principal] for a short time... may well form the view that it is safe to allow [the Principal] to proceed. It is only when one gets a complete overview of the evidence that one can see just how incapable [the Principal] really is. ... [p 137]."

209   His Honour's observations should not be taken as a general criticism of the utility of evidence of an experienced legal practitioner called as a witness to the execution of an instrument the subject of controversy about the mental capacity of an executing party. In Zorbas v Sidiopoulous (No 2) [2009] NSWCA 197 at [89] he recounted his experience that, in probate cases, "the most valuable evidence is usually given by the experienced solicitor who witnessed the will as opposed to a very highly qualified psychiatrist whose evidence is based not on any personal observation of the testator, but who has reasoned his or her opinion from medical and hospital notes". One is tempted to adapt Oliver Wendell Holmes' famous aphorism (in the opening lines of The Common Law, 1881): "The life of the law is not logic, but experience". That is not wholly correct, however. In particular, an acknowledgement should be made of the importance of expert medical evidence as a lens through which a myriad of facts can be seen in context, as a guide to correct decision-making and as a safeguard against error.”

51. In its critical review of the facts of the particular case the Court must make use of whatever evidence may be available as bearing upon the decision to be made. However, the nature of that decision is such as to counsel caution against undue reliance upon particular pieces of evidence. The evidence must be viewed as a whole, taking care not to make unwarranted assumptions.

EXPERT MEDICAL EVIDENCE

The opinion of Dr Boman, 16 June 2014

52. The defendant placed considerable reliance upon the opinion of Dr Bruce Boman recorded on 16 June 2014 in a Canterbury Hospital Discharge Report on the plaintiff. That report expressed an opinion that the plaintiff possessed both capacity to manage his own affairs without a financial manager and testamentary capacity.

53. The precise circumstances in which Dr Boman prepared his report – a hand written document in the form of a routine clinical note – are unknown. Dr Boman was not called to give evidence. Neither party has adduced evidence to explain his absence from the witness box. Both sides of the record disclaim knowledge of the circumstances in which the report was prepared; but the defendant invites the Court to infer (as might well be inferred) that it might have been prepared at the instigation of Mr Khalifer as a preliminary to the plaintiff’s adoption of Mr Khalifer’s draft deed dated 9 April 2014. The terms of that draft deed exhibit an awareness of a need to address the plaintiff’s mental state; they include a proposed “declaration” by the plaintiff that he was “of sound mind”.

54. The headline opinion of the report (that the plaintiff possessed capacity to transact business) attracts attention; but it also invites inquiry as to why the report was prepared at all (Did the plaintiff present as a person who needed confirmation of his capacity as a preliminary to the transaction of business?) and what information Dr Boman had when forming the opinion expressed.

55. There are two particular suggestions on the face of the report that Dr Boman might not have had the benefit of accurate information about the plaintiff’s affairs in formation of the opinion of capacity.

56. First, in its consideration of the plaintiff’s testamentary capacity, the report recorded that the plaintiff “wants a $100,000 or so to go to” a school in Egypt, without any apparent appreciation that the plaintiff had made a Will on 10 August 2011 providing for a full array of gifts to charitable organisations and others, one of which was a gift of $80,000 to a Catholic convent in Egypt.

57. On any view, the Will is a document open to debate because it both confers gifts on the plaintiff’s late wife’s family and disclaims any intention to do so. For present purposes, it is sufficient to note that Dr Boman’s summary of what he was told by the plaintiff about testamentary intentions does not sit altogether comfortably with the Will or the fact that the plaintiff evidently made no mention of the Will. It may be, as Mr Khalifer deposed in cross examination (transcript page 178) that the plaintiff wanted to change his Will. However, if that be the fact, it was evidently not communicated to Dr Boman. The possibility that the plaintiff was confused about his testamentary intentions, or forgetful about subsisting arrangements for their implementation, cannot be excluded in the absence of any evidence from Dr Boman in elaboration of the report.

58. Secondly, in its treatment of the mortgage on the plaintiff’s land, the report appears to have the plaintiff say that he wanted to “compensate his friend” (presumably Mr Khalifer) for having “saved him from his current financial problem”. In context, this suggests that the plaintiff thought, or might have thought, contrary to the fact, that the mortgage had been discharged. In any event, it suggests that Dr Boman was not provided with accurate information about the plaintiff’s financial circumstances, an important factor in consideration of the plaintiff’s capacity given the plaintiff’s preoccupation with being “saved” from the risk of a mortgagee sale.

59. Upon an assessment of Dr Boman’s opinion as evidence bearing upon the plaintiff’s capacity as at 16 September 2014, allowance must, in any event, be made for the passage of three months from June to September. The plaintiff’s mental health was in a state of decline during 2014, the rate and progress of which (Professor Coyle confirmed) cannot be known in the absence of precise, contemporaneous records.

60. Taking everything into account, the opinion expressed by Dr Boman on 16 June 2014 in the abstract is not a reliable guide to an assessment of the plaintiff’s capacity to transact the particular business purportedly transacted by the plaintiff on 16 September 2014.

The Report of Margaret Kennedy-Gould dated 27 July 2014

61. On 18 June 2014 Margaret Kennedy-Gould, an Occupational Therapist, interviewed the plaintiff in his home environment . Mr Khalifer was present at the beginning and end of the interview, but not during it . Ms Kennedy-Gould prepared a report dated 27 July 2014 (Exhibit CB6, Volume 4, pages 1397-1415) which Mr Khalifer, on 19 September 2014, assured Konstan Lawyers he had discussed with the plaintiff.

61. The Kennedy-Gould report was prepared in aid of the plaintiff’s compensation claim. It presented the plaintiff as “a rather frail elderly man, somewhat flamboyant in his appearance”. It alluded to problems experienced by Ms Kennedy-Gould in communication with him, some the product of language, some possibly attributable to capacity limitations. However, it recorded that the plaintiff “seemed to be generally oriented to time, place and person”, and that a formal assessment by a clinical psychologist and geriatrician would be required to determine whether [he had] any cognitive problems attributable to [his] accident”.

The ACAT Report dated 20 January 2015

63. On 20 January 2015 an Aged Care Assessment Team Assessor (Ms HM Hislop) reported on her assessment of the plaintiff on 16 January 2015, following his displacement by destruction of his residence by fire and as a preliminary to his possible admission to nursing home accommodation or a substitute programme of care. She recorded a diagnosis of dementia, but reported that he was alert, oriented and able to concentrate on the assessment, and apparently able to cope living on his own, with assistance: Exhibit CB6, Volume 4, pages 1578 and 1580.

64. Dr Jamieson, with whom Professor Coyle agreed, did not regard this report (prepared for the purpose of assessing a need for, and an entitlement to, government assistance) as definitive of the plaintiff’s mental state or as an impediment to her conclusion that the plaintiff was incapable of managing his own affairs when she examined him on 13 December 2014.

65. It is no criticism of an ACAT Report to recognise its purpose-driven character, as must be done in the present proceedings.

The evidence of Professor Coyle and Dr Jamison

66. In a joint report dated 15 February 2017 (Exhibit CB6, Volume 3, page 112 et seq) Professor Coyle and Dr Jamieson (at paragraph 25) expressed an opinion to the effect that, if the plaintiff had the legal capacity to comprehend legal advice and to give instructions to his lawyers in the settling of his compensation claim, then it could not logically follow that he had a lack of capacity with respect to execution of the deed of arrangement and memorandum of transfer.

67. That opinion was based upon assumptions about the nature and complexity of the two different tasks, the adequacy of legal advice and assistance given to the plaintiff in the performance of those tasks, the competency of particular legal practitioners to express an opinion on mental capacity, and the course of events relating to the performance of particular tasks not the subject of direct evidence in these proceedings.

68. When confronted (at transcript pages 203-206) with an expression of doubt on my part about the correctness of the opinion expressed in paragraph 25 of the joint report, both Professor Coyle and Dr Jamieson accepted that it was overly simplistic and based upon incomplete information. An assessment of capacity is fact-sensitive, both as to time and the nature of business to be transacted. Capacity can fluctuate over time. It can also depend upon the nature of assistance available to the person whose capacity is the subject of assessment.

69. Drawing, particularly, upon both their joint report and the oral evidence that Professor Coyle and Dr Jamieson gave in conclave (without, it must be said, the benefit of an opportunity to hear other evidence adduced at the final hearing of the proceedings), the following observations about the plaintiff’s mental capacity on 16 September 2014 can be made without controversy:

1. He was suffering from dementia, probably Alzheimer’s Disease.

2. He was highly suggestible.

3. He was vulnerable to undue influence.

4. He would not have been able to understand anything complex.

5. He probably would have understood that, if he signed the deed of arrangement and the memorandum of transfer as presented to him, that would rid him of the mortgage; but he probably would not have been able to understand any greater complexity than that.

6. His capacity to understand the deed of arrangement, the memorandum of transfer and what was proposed to be done with them would have depended upon what explanations were given to him, who was present at the time business was transacted, and other variables such as the level of stress he was under and fluctuations in his condition.

70. A critical factor in consideration of each of the central questions for decision in the current proceedings is the nature and quality of any explanation given to the plaintiff about the proposed documentation, and the underlying transaction(s), in the period between the time when such business was first proposed earlier in 2014 and 16 September 2014.

THE SEQUENCE OF EVENTS

71. In their respective submissions directed towards the validity or otherwise of the business transacted on 16 September 2014 the parties paid particularly close attention to the sequence of events between 25 February 2014 (when the plaintiff appointed Mr Khalifeh his enduring attorney and enduring guardian) and 13 December 2014, when Dr Jamieson assessed the plaintiff’s competency.

72. The beginning of the period coincided with a realisation that the plaintiff had been, and would be likely to continue to be, unsuccessful in his endeavours (through Hunt & Hunt, solicitors) to force Mr Hiley to obtain a discharge of the mortgage over the plaintiff’s land. At about the same time the plaintiff turned to Mr Khalifeh for assistance, using Konstan Lawyers, who (on the recommendation of Mr Khalifeh) were acting for him in relation to his personal injury compensation claim.

73. Between March and August 2014 or thereabouts there was a time during which the plaintiff looked to Mr Khalifeh to service the mortgage, if not to discharge it. For at least part of that time, if not the whole time, the plaintiff and Mr Khalifeh appear to have been working on the basis that, if Mr Khalifeh paid out the loan secured by the mortgage, the plaintiff would transfer his land to Mr Khalifeh, or leave it to Mr Khalifeh on his death, as a means of being able to remain in his own home for as long as he could, passing it over only when no longer needed. The draft deed dated 9 April 2014 and the medical report dated 16 June 2014 prepared by Dr Boman are consistent with steps being taken by or on behalf of the plaintiff and Mr Khalifeh towards implementation of such a proposal.

74. Whether or not, and how, that proposal would have resulted in Mr Khalifeh obtaining an interest in the land beyond a right to reimbursement of interest instalments he made on behalf of the plaintiff is a subject for speculation. It causes critical attention to be given to the evidence of Mr Khalifer and, indeed, to the whole case advanced on behalf of the plaintiff; but, ultimately, it does little more than that. It does, however, confirm the tendency of mind of the plaintiff in thinking about how to rid himself of his troublesome mortgage.

75. A turning point in the fate of the plaintiff’s land came at the end of August 2014. That is when the plaintiff showed the defendant a letter dated 28 August 2014 from his mortgagee: Exhibit CB6, Volume 4, page 1438. Absent Mr Khalifeh’s explanation of the mechanics attending his servicing of the plaintiff’s mortgage, it lent an appearance of truth to a suggestion that Mr Khalifeh, like Mr Hiley before him, had let the plaintiff down in attempts to free the plaintiff’s land from the threat of a forced, mortgagee sale. With that explanation, suspicion of Mr Khalifeh loses force. It does not dissipate entirely, but it does lose force.

76. An apprehension on the part of the defendant that Mr Khalifeh was taking advantage of the plaintiff led to a meeting between all three men in early September 2014, an encounter which set in train a tug-of-war between the defendant and Mr Khalifeh centred upon the plaintiff’s land.

77. After the meeting, according to the defendant, the plaintiff told the defendant that, if the defendant paid out the mortgage debt, he would give his land to the defendant. Whether or not (as Mr Khalifeh asserts and the defendant denies) the defendant had at the meeting asserted a claim of familial ownership of the land, the defendant readily embraced the plaintiff’s proposal that he could acquire the land if he paid out the mortgage. He actively encouraged the plaintiff to take that path. He counselled no caution.

78. Between 3-18 September 2014 or thereabouts the defendant took the initiative in arranging the plaintiff’s affairs, including execution of a revocation of the power of attorney held by Mr Khalifeh; a valuation of the plaintiff’s land; the preparation and execution of the deed of arrangement and memorandum of transfer presently under challenge; discharge of the mortgage over the land as a prerequisite for registration of the transfer; and the making of arrangements for the plaintiff both to retain the defendant’s own solicitor to do most of the legal work associated with the proposed transfer and to obtain “independent” advice from another solicitor nominated by the defendant.

79. With the defendant, the plaintiff attended upon the defendant’s then solicitor (Mr Anthony Panopolous of Alphonse & Associates) on each of 4, 8 and 16 September 2014. The first two attendances were largely preliminary to those on 16 September 2014. At the instigation of the defendant, between two separate attendances upon Mr Panopolous on 16 September 2014, the plaintiff obtained legal advice on the deed of arrangement (advice limited to the deed, without a critical examination of the whole transaction or its wisdom) from Mr Tony Taouk, another solicitor, of Magna Carta Lawyers.

80. On 4 September 2014 the plaintiff signed a letter of authority for Mr Panopolous to obtain all his files from Konstan Lawyers. On 8 September 2014 the plaintiff signed an instrument purportedly revoking Mr Khalifeh’s power of attorney.

81. On 8 September 2014 Mr Panopolous sent two letters which produced blow back against the defendant. One was a letter to Konstan Lawyers enclosing the plaintiff’s direction for release of his files. The other was a letter to Mr Khalifeh enclosing the plaintiff’s revocation of his power of attorney.

82. On 11 September 2014 Mr Khalifeh obtained from the plaintiff a typed authority to Konstan Lawyers purporting to withdraw the plaintiff’s direction that they deliver their files to Mr Panopolous, and purporting to withdraw his revocation of Mr Khalifeh’s power of attorney. That authority was not sent to Mr Panopolous immediately.

83. Between 11-19 September 2014 or thereabouts there appears to have been a period during which Mr Khalifeh was unaware that the plaintiff’s land was in the process of being transferred out of the plaintiff’s sole ownership and the defendant was unaware that Konstan Lawyers were acting for the plaintiff in compensation proceedings. That period came to an end when Mr Khalifeh discovered what had happened with the land.

84. There followed a period during which the plaintiff appears to have been torn between the defendant and Mr Khalifeh, leaning one way then the other. During that period, on or about 21 September 2014, the defendant says that the plaintiff asked him to “reverse” the land transfer on the basis that Mr Khalifeh had told him that he, Mr Khalifeh, would do for the plaintiff what the defendant was doing.

85. That period came to an end on or about 2 October 2014 when Mr Panopolous received a letter (dated 1 October 2014) from Konstan Lawyers enclosing an authority from the plaintiff directing him to forward the plaintiff’s documents to Konstan Lawyers.

86. In presentation of his case, the defendant contends that the plaintiff deliberately kept separate all business associated with his transfer of land and all business associated with conduct of his compensation proceedings. That seems unlikely. The more plausible inference is that the plaintiff, unable to manage his affairs without assistance, went with the flow of what was arranged for him, or said to him, by the defendant and Mr Khalifeh without sufficient insight to ensure that everybody was aware of the broader picture.

87. The defendant contends there is some incongruity in the fact that on 5 November 2014, apparently dealing with separate people within the office of Konstan Lawyers, the plaintiff both settled his compensation claim and gave preliminary instructions for action to be taken to recover his land. Particular incongruity is seen in the taking of instructions to settle compensation proceedings contemporaneously with the setting in train of an action which, in due course, included an allegation of mental incapacity.

88. That there is an element of incongruity cannot be denied, but the defendant makes too much of it.

89. In a state of imperfect knowledge, Konstan Lawyers instructed junior counsel for the plaintiff to provide advice and, in a conference held on 4 December 2014, having met the plaintiff, counsel recommended that a geriatrician be consulted. That led to the plaintiff being examined by Dr Jamieson.

90. In retrospect, all persons involved in these proceedings may have been better off than they now can be had steps been taken immediately to have the plaintiff’s estate subject to management under the NSW Trustee and Guardian Act 2009, whether upon an application to NCAT for the appointment of a financial manager or on an application to the Court for the appointment of a protected estate manager.

91. That would have saved both the plaintiff’s tutor and Mr Khalifeh (on the one side) and the defendant (on the other side) from a tendency to view the plaintiff’s dilemma through the prism of a mutual attribution of bad faith, subordinating the welfare of the plaintiff to a process of litigation which has exposed them all to ruinous legal costs, with consequent delay in sorting out the plaintiff’s affairs.

ASSESSMENT OF THE EVIDENCE

92. I am satisfied that:

1. the plaintiff was incapable of understanding the business purportedly transacted by him on 16 September 2014 without assistance that included a careful explanation of disadvantages (as well as advantages) attending it, taking into account his present and prospective needs and alternative courses of action open to him.

2. the plaintiff did not receive that assistance from any person.

3. with one exception, the defendant, Mr Panopolous and Mr Taouk proceeded upon an assumption that they could, and did, discharge any obligation owed to the plaintiff if they satisfied themselves (as they evidently did) that the plaintiff was sincere in his expression of a desire to transfer his land to the defendant in return for obtaining a discharge of the mortgage arising from Mr Hiley’s borrowing. The exception is to be found in Mr Panopolous’ proposal (implemented without any apparent input, and no understanding, on the part of the plaintiff) that the plaintiff be protected by securing him a life estate in the land rather than subjecting him to an absolute transfer of the land in favour of the defendant.

4. from the perspective of the plaintiff, the terms of the deed of arrangement and transfer were improvident in that: (i) they deprived the plaintiff of access to capital should he require it in his declining years; (ii) in a practical sense, they subjected him to discretionary decisions on the part of the defendant in management of the land and the provision of support; (iii) they made no provision for protection of the plaintiff from a remainderman other than the defendant should the defendant die or should his interest in the land be sold or charged to somebody else; and (iv) the remainder interest created in favour of the defendant was disposed of by the plaintiff at an undervalue.

93. Mr Panopolous impressed me as a witness prepared, as a professional man, to concede that, in retrospect, the advice he gave to the plaintiff may have been less than adequate; that he may have seen his role, primarily, as protection of the interests of the defendant as an established client; that he may have failed to comply with the plaintiff’s instructions by omitting to include in the deed of arrangement express provision for what would occur if the plaintiff needed admission to a nursing home; and that, in sending the plaintiff away to get independent legal advice, he failed to arm the plaintiff, or any solicitor prospectively advising the plaintiff, with details of the instructions given to him by the plaintiff sufficient to enable the plaintiff to receive appropriately critical advice.

94. Mr Taouk’s performance of the obligations of an independent solicitor appears to have been irretrievably compromised by an erroneous belief that it was sufficient for him to take the plaintiff through the draft deed of arrangement, without general inquiries about the plaintiff’s circumstances, because: (a) the plaintiff appeared content to transfer his land to the defendant in return for a discharge of the mortgage over the land; and, significantly (b) in Mr Taouk’s understanding of his obligations, the plaintiff and the defendant were members of the one, united family.

95. I do not share Mr Taouk’s confidence in his ability to judge the plaintiff’s capacity or to provide competent, thorough, independent advice to his elderly client. Observance of forms in the provision of independent advice is no substitute for substance in the provision of advice. It was not enough for Mr Taouk to confine his advice (as he did) to the terms of the deed of arrangement to be executed without calling for associated documentation referred to in the draft deed (such as the memorandum of transfer to be executed), without exploring the underlying transactions (the mortgage and discharge, the creation of separate property interests to be held by the parties, and loosely drafted contractual entitlements) and without testing the plaintiff’s understanding of the legal and financial implications of what he proposed to do that day (including the plaintiff’s general testamentary intentions).

96. The fact that neither Mr Panopolous nor Mr Taouk made inquiries of the solicitors who were acting for the plaintiff in his compensation proceedings, or of Mr Khalifer as the plaintiff’s attorney, cannot be excused by the closeness of any association between the plaintiff and the defendant or by the defendant’s suspicions about Mr Khalifer.

97. The plaintiff’s age, his status as a widower without children, his evident eccentricities, the nature of the transaction as a conveyance of the plaintiff’s home out of his sole ownership, his dependency upon a pension for his livelihood, and the role of the defendant in arranging for the transaction to be effected, and for legal services attending it to be provided, were sufficient to ring alarm bells about the plaintiff’s capacity and vulnerability.

98. The transaction, if effected, would operate to supplant any Will that the plaintiff may have made. Notwithstanding that, his general testamentary intentions were not explored. Neither was the possibility that there might be others than the defendant who might reasonably be thought to be objects of his bounty or to have a call upon it.

99. Instead of heeding any alarm bells, Messrs Panopolous and Taouk pressed ahead, in haste, apparently relying upon a perceived need for expedition borne of the plaintiff’s anxiety to be rid of the mortgage charged on his land, and the defendant’s desire to close his deal with the plaintiff, as quickly as possible.

100. A curious omission in steps taken by the defendant to protect the plaintiff’s interests is the fact that revocation of Mr Khalifer’s power of attorney was not accompanied by a revocation of his appointment as an enduring guardian. The defendant’s focus appears to have been overly concentrated on the plaintiff’s estate, to the exclusion of his person. This was even though, as the plaintiff’s guardian, Mr Khalifer might reasonably be expected to have a role in deciding when, and where, the plaintiff might move from his home towards nursing home accommodation.

The defendant’s application for a stay pending appeal

189. As recently confirmed in Mao v AMP Superannuation Limited [2017] NSWCA 296 at [7], the principles in relation to an application for a stay of orders under challenge on appeal are summarised in Alexander v Cambridge Credit Corporation Limited (1985) 2 NSWLR 685 and Chen v Lym International [2009] NSWCA 121 at [12]-[15].

190. No submissions were put to me about the strength, or otherwise, of the defendant’s grounds of appeal. I assume, without deciding, that the defendant has an arguable case on appeal.

191. The defendant’s essential argument in favour of a stay is that the utility of his appeal would be lost (he contends) if the subject property were to be sold before a final determination of the appeal.

192. In circumstances in which the property presently comprises a vacant block of land and, even if a new residence were to be constructed on the land, the plaintiff’s health is such that he could not live there, the defendant’s case really boils down to a submission that, pending a determination of the appeal, the property should be retained as part of the estate of the plaintiff so that he (the defendant), if he is successful on the appeal, might retain an ownership interest in the property for himself.

193. I do not accept that, if the property were to be sold pending appeal, the utility of the appeal would be destroyed. The plaintiff’s residence having been destroyed by fire, any contest between the plaintiff and the defendant about the property is essentially a contest about money.

194. In my opinion, the defendant has not established that there is a proper case for a stay of the orders under appeal. The plaintiff should not be kept out of the benefit of his property for the convenience of the defendant, especially if a sale of the property is necessary for the plaintiff’s maintenance or advancement in life.

195. That said, the appropriate course is: (a) to decline to grant a stay of the orders under appeal; but (b) to direct the NSW Trustee, as protected estate manager of the plaintiff, to give to the defendant not less than 14 days written notice of any proposal to sell the property, thereby reserving to the defendant an opportunity to renew his application for a stay (in circumstances in which evidence can be adduced about the plaintiff’s then personal circumstances and factors bearing upon the desirability, or otherwise, of a sale at that time).

196. If a stay were to be granted having the effect of restraining a sale of the property pending appeal, it would, prima facie, be appropriate to require the defendant to give to the Court the usual undertaking as to damages as defined by the Uniform Civil Procedure Rules 2005 NSW, rule 25.9.

Set off

197. The plaintiff contends, and the defendant accepts, that the Court has jurisdiction to order that the plaintiff’s liability to restore to the defendant the money the defendant paid to obtain a discharge of the plaintiff’s mortgage be set off against the defendant’s liability to pay to the plaintiff’s costs of the proceedings: Sivritas v Sivritas (No. 2) [2008] VSC 580 at [14] and [20]-[21], following Team Dynamic Racing Pty Limited v Longhurst Racing Pty Limited [2008] QSC 36; R Derham, Derham on the Law of Set Off (Oxford University Press, 2010), paragraph [2.98].

198. The defendant contends that the “debt” due to him consequent upon an allowance being made in his favour for his discharge of the plaintiff’s mortgage debt should be paid out of the proceeds of the insurance payout to the plaintiff, leaving the plaintiff to pursue the defendant for costs after an assessment of the plaintiff’s costs.

199. The plaintiff (by his tutor) apprehends that, if that course were to be adopted, the defendant might not subsequently be able to satisfy his liability for costs. This apprehension is reinforced by submissions made by counsel for the defendant that, unless allowed to have his costs of the proceedings out of the estate of the plaintiff, the defendant lacks the financial resources to acquire the subject property on any sale of it by the NSW Trustee. It should also be noted, in this context, that the defendant funded discharge of the plaintiff’s mortgage by borrowing money on the security of his parents’ residence.

200. In my opinion, the justice of the case, requires that, upon an undertaking by the plaintiff (by his tutor) to proceed to an assessment of his costs with all due expedition, the plaintiff’s liability to make restitution to the defendant be set off against the defendant’s liability to pay the plaintiff’s costs pursuant to the Court’s order for the payment of costs.

201. Implementation of that set off, grounded in the Court’s inherent jurisdiction to control enforcement of its judgments and orders, may require that directions be given, upon any sale of the subject property, to preserve part of the sale proceeds pending an assessment in due course of the defendant’s liability to pay costs.

The Court’s Orders

202. The Court makes the following orders in final disposition of these proceedings:

1. ORDER, pursuant to section 41(1)(b) of the NSW Trustee and Guardian Act 2009 NSW, that management of the estate of the plaintiff be committed to the NSW Trustee.

2. ORDER, subject to order 1 of these orders, that orders 9 and 10 of the orders made on 30 June 2017 be discharged.

3. ORDER, subject to further order, that Emanuel Karamihas by himself his servants and agents be restrained from hereafter acting as tutor for the plaintiff otherwise than:

1. as may be necessary for him to act for the plaintiff on an assessment of the costs of the plaintiff payable by the defendant pursuant to these orders;

2. as may otherwise be necessary for giving effect to these orders; or

3. as might be agreed in writing by the NSW Trustee as manager of the protected estate of the plaintiff.

4. ORDER, subject to further order, that each of Emanuel Karamihas and the solicitors on the record for the plaintiff jointly and severally account to the NSW Trustee (as manager of the protected estate of the plaintiff) for all property of the plaintiff in their possession, custody or control.

5. ORDER, subject to order 4 of these orders, that the orders made by Justice Darke on 28 August and 18 September 2005 (providing for funds to be held on trust by the solicitors for the plaintiff until further order of the Court) be varied so as to conform to order 4 of these orders.

6. ORDER that the amount of the charge referred to in order 3 of the orders made on 30 June 2017 be assessed (up to and including today) as $242,203.55, with interest accruing at the agreed rate of $33.91 per day

7. ORDER that the defendant pay the plaintiffs’ costs assessed:

1. on the ordinary basis, up to and including 11 April 2017; and

2. on the indemnity basis, thereafter.

8. ORDER, subject to further order, that Emanuel Karamihas (the plaintiff’s tutor) have no recourse to the protected estate of the plaintiff for the payment of his costs (other than by recovery of costs from the defendant) without the leave of the Court or the NSW Trustee.

9. ORDER, subject to further order, that, in management of the protected estate of the plaintiff, the NSW Trustee be at liberty:

1. to sell the land contained in folio identifier 1/103764; and

2. to apply to the Court for directions generally.

10. ORDER, pending final determination of the proceedings numbered 2017/331772 in the Court of Appeal or further orders of the Court of Appeal or this Court, that, as manager of the protected estate of the plaintiff, the NSW Trustee give to the defendant not less than 14 days written notice of any proposal by the NSW Trustee to sell the land contained in folio identifier 1/103764.

11. RESERVE to the defendant liberty to apply for an order that these orders, or the orders made on 30 June 2017, be stayed pending final determination of the proceedings numbered 2017/331772 in the Court of Appeal in the event that the defendant is given written notice by the NSW Trustee of a proposal that the NSW Trustee sell the land contained in folio identifier 1/103764

12. Conditionally upon the tutor for the plaintiff (Emanuel Karamihas) giving to the Court an undertaking that he will proceed with all due expedition to an assessment of the costs of the plaintiff payable by the defendant pursuant to these orders, ORDER that:

1. subject to any further orders of the Court, the defendant’s entitlement to enforce the charge referred to in order 3 of the orders made on 30 June 2017 be stayed pending assessment of the costs of the plaintiff payable by the defendant pursuant to these orders; and

2. the liability of the plaintiff to pay to the defendant the amount charged against the title to the land contained in folio identifier 1/103764 be set off against the liability of the defendant, pursuant to these orders, to pay the plaintiff’s costs of the proceedings.

13. RESERVE to the parties (including to Emanuel Karamihas and the NSW Trustee) liberty to apply for orders in the working out of these orders or the orders made on 30 June 2017.

Amendments

21 December 2017 - Addendum (21 December 2017) added.

22 November 2017 - Paragraph 100 first sentence last word amended to "guardian".

30 June 2017 - Paragraph 133(3) altered to correct the folio identifier number to: 1/103764.

30 June 2017 - Paragraph 133 (2)(a) altered to correct the folio identifier number to: 1/103764.

Decision last updated: 21 December 2017