Reported Decision : (2002) NSW ConvR 55-992 New South Wales Supreme Court CITATION : Urane v Whipper [2001] NSWSC 796 revised - 8/10/2001 CURRENT JURISDICTION: Equity Division FILE NUMBER(S) : SC 4022/2000 HEARING DATE(S) : 9, 10 and 25 July 2001 JUDGMENT DATE : 12 September 2001 PARTIES : Warren Urane (Plaintiff) Julie Adele Whipper (Defendant) JUDGMENT OF : Windeyer J at 1 COUNSEL : Mr J Whittle SC with him Ms Y Holt (Plaintiff) Mr J Taperell (Defendant) SOLICITORS : Brian Arkell (Plaintiff) Cantle Carmichael (Defendant) CATCHWORDS : EQUITY - undue influence - father and daughter used proceeds of sale of their respective properties to buy property in daughter's name alone - whether transaction procured by undue influence - EQUITY - unconscionable conduct - daughter caring for father disabled by stroke - father and daughter sell properties and use proceeds to purchase home in daughter's name alone - transaction enables father to live with daugther and be cared for by her - whether unconscionable conduct by daughter Bank of Credit & Commerce Industry SA v Aboody [1990] 1 QB 923 at 953 Blomley v Ryan (1956) 99 CLR 362 CASES CITED : Bridgewater v Lacey (1998) 194 CLR 457 Commercial Bank of Australia Ltd v Armadio (1983) 151 CLR 447 Johnson v Buttress (1936) 56 CLR 113 Louth v Diprose (1992) 175 CLR 621 DECISION : See paragraph 30 15 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J WEDNESDAY 12 SEPTEMBER 2001 4022/00 WARREN URANE V JULIE ADELE WHIPPER JUDGMENT Outline 1 The plaintiff claims that the sale of his home and the application of the proceeds of sale towards the purchase of a home in the sole name of his daughter, the defendant, was procured by her undue influence or unconscionable conduct. He claims an interest in the daughter's home or a charge over it for the moneys so applied. Facts 2 Mr Urane was born on 8 March 1929. He was married in 1956. His wife died in 1992. They had four children; Bruce born in 1958, Julie Adele Whipper, the defendant, born in 1960, Keith born in 1964 and Helen born in 1966. After his wife died, Mr Urane established a relationship with a long time acquaintance, Mrs Nance Hunter, but they did not live together. 3 Mr Urane retired in 1984. He had worked as a cost accountant in Newcastle and had been a lecturer in accounting at the TAFE college in Newcastle. He remained a very active man after retirement, IN particular he was a regular tennis player. 4 Mr Urane lived alone in his home at 21 Ellen Street, Belmont South (Ellen Street). Mrs Whipper lived with her husband Peter at 8 Beath Crescent, Kahibah (Kahibah). 5 In November 1997, the plaintiff underwent an operation for a blocked left carotid artery in Lake Macquarie Private Hospital and on 28 November suffered a post-operative left hemiplegia. He was treated for this and then transferred to Toronto Private Hospital rehabilitation unit under the care of Dr Walsh. He was there from 16 December until 19 February 1998. He appeared to make a slow recovery after his return home and received considerable assistance from Mrs Hunter, the defendant, Bruce and Helen. It is clear that the plaintiff could not have lived alone without the help which he received. Mrs Whipper was closer and gave more help than other family members. 6 On 18 June 1998 the plaintiff suffered a second stroke after undergoing a right carotid endarterectomy. This time he suffered a right hemiplegia. His recovery and his treatment were difficult as he suffered pneumonia and he was ultimately transferred to Toronto Hospital rehabilitation unit again under Dr. Walsh where he remained for some weeks. He was discharged on 21 August 1998. Dr. Walsh reported that a "mini mental status examination performed on or about 10 August 1998 showed a score of 20/30 with the principal deficits being in orientation, short term memory and copying". He saw him finally in his rooms on 11 November 1998 when he thought he was functioning well and at that time "had an appropriate level of ability to make fully informed independent financial decisions". 7 On 15 August 1998, during what might be described as a period of day release of the plaintiff, there was a visit to a house at Floraville which the defendant was considering purchasing. Mrs Whipper had discussed this with her father some time previously. There was considerable dissension among the plaintiff's children at this time. It is not really necessary to go into the cause of this. On 14 August 1998 she had a telephone conversation with her brother, Bruce, after he had been told by his father that they were to inspect the Floraville house the next day. Helen was by this time also aware that Mrs Whipper was considering selling both her house and her father's house and putting the whole of the proceeds of her father's house towards the purchase of a new house. Neither sibling approved of the transaction. 8 On the morning of the inspection, Mrs Hunter was also present. She said that Mrs Whipper said to the plaintiff on the way to inspect the property at Floraville, "If you don't do it this way Dad, I won't come to Ellen Street." 9 After the plaintiff and his defendant had looked at the Floraville property, they went back to the plaintiff's home at Ellen Street. The plaintiff was quite confused at this stage, stating that his daughter Helen had not visited him for some time, whereas she had been regularly visiting him four or five times each week. He was also talking about putting $50,000 into the purchase of the Floraville property. There was quite a serious family argument and it was ascertained that the intention of Mrs Whipper was that the whole of the proceeds of sale of Ellen Street should be put into a property in her name alone. This argument was resolved by an agreement that a roster for the plaintiff's care should be put in place, so that all the family would contribute to this at Ellen Street. 10 Despite the agreement, contracts were exchanged for the purchase by the defendant of the Floraville property on 18 August 1998, or, if contracts were not exchanged, it was, at least, decided on that date that the property would be purchased. 11 When Mr Urane was discharged from the Toronto Hospital on the second occasion that his health was not good; he was suffering from some mental confusion and spatial disorientation and he could not care for himself or live on his own. None of this is denied and, in fact, the defendant claims that her father was suffering from more disabilities than were alleged by him in the statement of claim. 12 After his discharge the plaintiff went to live with the defendant and her husband at Kahibah pending the purchase of Floraville. It was originally claimed by the plaintiff that his intention was that the new property be purchased in the joint names of himself and the defendant, but there is no doubt that he was aware, prior to the purchase, that the property was being purchased in the name of the defendant alone and that the whole of the proceeds of sale of Ellen Street were to be applied towards this. 13 The Floraville property was purchased for $265,511. Settlement took place on 2 October 1998. Mr Mitchell of Thomas Mitchell Partners, solicitors, acted on the purchase. It appears that the purchase moneys, or nearly all of them, were provided by St George Bank Limited under a temporary loan. Whether or not this loan was secured over the Kahibah property and the Ellen Street property is not quite clear, although it seems likely that it was. Certainly the plaintiff signed a guarantee in favour of St George Bank to secure the moneys lent under the mortgage for the purchase of Floraville. A solicitor attended to give some independent advice about this. Mr Urane had no memory whatsoever of being given advice, although he did remember that a solicitor came to see him while he was at a parking station. I am not satisfied that he was capable of understanding whatever was said to him at that time, and no evidence was called by the solicitor who gave the advice. The total amount secured by the mortgage to the St George Bank was $280,000. The total purchase price for the property, 23 Park Royal Drive, Floraville, together with adjustments in payments required for stamp duty and the legal costs and the like amounted to $276,548.65. The plaintiff paid one half of the stamp duty. 14 In 1984, Mr Urane had executed a power of attorney in favour of his son Bruce and the defendant, Mrs Whipper. On 23 September 1998 this power of attorney was revoked and a new power of attorney in favour of Mrs Whipper alone executed. The probable reason for this was an approach by Bruce on 22 September. He said he wanted to see his father but he was not allowed into the house. Mrs Whipper said she was concerned by his aggressive approach. It does not matter who was correct. On 25 September 1998 the contract for the sale of the Ellen Street property was signed but whether by the plaintiff or by Mrs Whipper as his attorney is not clear. Mr Mitchell acted on the sale. He had acted from time to time for Mr Urane and it may well have been at the suggestion of Mr Urane that instructions were given to Mr Mitchell. (Both Mr Mitchell and Mr Arkell, the plaintiff's solicitor in the present proceedings, had done legal work for Mr Urane.) All correspondence which is in evidence shows Mr Mitchell writing to Mrs Whipper about the sale and reporting on it to her. The sale was settled on 30 October 1998. The transfer was signed by Mrs Whipper as attorney for the plaintiff. The whole of the moneys produced from the sale of Ellen Street were paid to the St George Bank in final discharge of its mortgage. The sale by Mrs Whipper of her own property at 8 Beath Crescent, Kahibah, was settled on 16 October 1998, when the whole of the balance received on settlement, namely $122,235.53, was paid to the bank. 15 Mr and Mrs Whipper and the plaintiff moved to Floraville after the purchase was completed. It is not suggested that this was not a suitable house for the plaintiff. He had separate accommodation, the site was level and he could move from his separate accommodation into that occupied by Mr and Mrs Whipper, who usually provided him with all his meals. During this time there were difficulties between the plaintiff's children and from time to time there were unfortunate arguments between the plaintiff and Mr and Mrs Whipper. 16 Prior to Floraville being purchased, Mr Mitchell had drawn up a document described as a deed of family arrangement, which recited that Mr Urane had agreed to pay $133,000 to Mrs Whipper in consideration of her permitting him to reside in the Floraville property for his life. The document provided that after completion Mrs Whipper would permit her father to remain in the property "peaceably and without expense for as long as he may wish or his health permits". It included a covenant by Mrs Whipper that she would not sell the property without her father's consent, but that she would be entitled to sell it if she used the funds to purchase another property of equal standard and allowed her father to reside there on the same terms. The draft document also stated that it was the intention of the parties that payment by Mr Urane did not give him any interest whatsoever in the property, other than the right to reside there, and that in no circumstances was the $133,000 to be refunded to him or his estate. 17 It is not explained how the $133,000 figure was arrived at. Mr Mitchell was given instructions to prepare the document by Mrs Whipper, although she said that it was a joint agreement between herself and her father that the document be signed. In any event, when Mr Mitchell attended, probably at Floraville but perhaps at Kahibah, and spoke to Mr Urane about it, he, the plaintiff, stated he was not prepared to sign it, apparently because Mr Whipper's name did not appear on it. There was no sensible explanation given about this. Mr Mitchell said to Mrs Whipper that he would amend the document and call again but, although he had made some appointments to do so, these were cancelled. He was not called to give evidence. I am not satisfied that the plaintiff ever gave instructions for the preparation of the document but his insistence about having Mr Whipper mentioned is some indication of his confused state of mind at the time. 18 Mr Urane remained at Floraville until 22 January 1999. He was then admitted to the John Hunter Hospital in Newcastle, having been diagnosed a few days before as having hydrocephalus, which was affecting his balance. It is accepted by all parties that the operation, which involved the insertion of a shunt, was very successful: in particular, Mr Urane's memory has improved considerably since the operation. He has been able to take more control of his own affairs. After the operation he was transferred once again to Toronto Hospital for rehabilitation, but not under Dr. Walsh. While there he decided that he should see his solicitor, Mr Arkell. He gave certain instructions to Mr Arkell, which included the revocation of the power of attorney in favour of Mrs Whipper. Before his discharge there was discussion about whether or not he would return to Floraville or would go into a nursing home. He returned to Floraville on 17 March 1999. The return did not start well because Mr Urane had stopped payments on certain cheques which had been written out and signed by his daughter under the power of attorney and she was distressed at having to write them all out again. There was what could be described in a neutral way as a discussion on 22 March about the difficulties of having Mr Urane in the house and the demands made on Mrs Whipper. On 23 March there was a further difficult discussion, the result of which was that Mr Urane was picked up by his daughter Helen and taken to her home. Whether or not his belongings were packed by Mrs Whipper prior to Helen being contacted or afterwards is the subject of dispute, but it is not necessary to determine it for the purposes of this action. It is clear his position at Floraville had become untenable. On 31 March 1999 Mr Urane was admitted into the Hillside Nursing Home where he still remains. It appears that he is quite happy there. He has cut off all contact with his daughter, Mrs Whipper. This is extremely sad. The last time that he saw her was on 15 December 2000. 19 I should point out that there is some dispute among the various children of the plaintiff as to some of the events, but insofar as I have set out the facts, these are the facts as I find them. To a large extent events after the purchase of the Floraville property are irrelevant to these proceedings, as the question for decision in this action is whether or not the sale of the plaintiff's house and the application of all the moneys from the sale towards the Floraville property purchased in the sole name of the defendant was procured as a result of undue influence or as the result of unconscionable conduct on the part of the defendant. The events which led up to the plaintiff leaving Floraville and being admitted to the nursing home are to a large extent irrelevant to the question, although it is necessary to say that the breakdown in the relationship between plaintiff and defendant should not be placed entirely at the feet of Mrs Whipper. It is clear that Bruce Urane was at loggerheads with his sister and some of his conduct towards her was inappropriate and aggressive. The events after purchase do have some bearing on whether it was unconscientious for Mrs Whipper to retain the benefits she received from her father. 20 One of the defences raised by Mrs Whipper was that while she admits being given the sum of $133,000 she says that it was agreed between the parties that she should receive this amount by way of gift and in satisfaction of any claim she might have on the estate of her father. I find this claim to an agreement not made out. The various wills made after the property was purchased do not necessarily support it. It was agreed that the $133,000 - which appears to be an incorrect amount - was not given by way of gift, because the plaintiff was to be entitled to live in the Floraville property as long as his health permitted him to do so. On the evidence, the attitude of the plaintiff towards Mrs Whipper seems to have hardened since he moved into the nursing home. His will of 31 March 1999 claimed that the defendant owed to him the sum of $165,000 which should be brought into account in the distribution of his estate, but otherwise gave the residue of his estate to his children equally. Over a period that provision has altered and the plaintiff has left the defendant nothing under his most recent will, there being a clause stating that no provision has been made as "she has taken unfair advantage of me financially during my lifetime and I consider that she has been more than adequately provided for". The plaintiff tried to explain in evidence what benefits had been provided other than the money used for the purchase of the house, but his explanation as to provision of a piano and some other benefits could not really be accepted. It may be that this provision of the will could be explained by an acceptance that there would be no recovery of the proceeds of sale of the Ellen Street property, but whatever was thought can really have no bearing on the decision in this action. Cross-examination of the plaintiff, which went some way towards establishing the agreement claimed, did not do so. In any event any such arrangement could operate quite unfairly against the other children without the plaintiff understanding this to be so. Undue Influence 21 The handing over of the proceeds of Ellen Street were not a payment by way of gift. It is accepted that the money was paid on the understanding that the Floraville property would be purchased and that Mr Urane would have the right to live in part of it for so long as he wished or was able. It was certainly part of the arrangement that Mrs Whipper would be able to give him considerable care and assistance and it was acknowledged that he could not live without such assistance. It was not part of the arrangement that Mr Urane would be able to live in the Floraville property whatever his physical condition. I find that it is more likely than not that Mr & Mrs Whipper made it unpleasant for the plaintiff on his return in March 2000 and that they had made the atmosphere unpleasant on earlier occasions. It is, however, easy to be critical of such conduct in these matters without taking into account the interruptions and intrusions on married life that such arrangements must necessarily carry with them. Having said that, the evidence of Mrs Hunter, which I accept in its entirety, is sufficient to establish a degree of tension between those living at Floraville. However, this is not an action for damages for breach of contract; nor is it a claim for specific performance of a contract, which would not be granted in the circumstances of this case even if there were binding agreement would not be granted. This is an action to set aside a transaction on the basis of undue influence, namely to set aside the payment by Mr Urane which was applied to discharge the temporary mortgage to St George Bank. 22 This is not a transaction where the relationship between the parties of itself raises a presumption of undue influence, as the transaction flows from father to daughter not from daughter to father. Nor is it, I consider, a relationship of the sort described as Category 2B relationships of presumed influence in Bank of Credit & Commerce Industry SA v Aboody [1990] 1 QB 923 at 953. It is not a relationship where Mr Urane reposed complete trust and confidence in his daughter, although it is clear that he needed her support and assistance if he were to continue any reasonable degree of independent living. 23 The principles as to the undue influence which I consider are applicable here are those set out in the judgment of Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 134 as follows: The basis of the equitable jurisdiction to set aside an alienation of property on the ground of undue influence is the prevention of an unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor's will or freedom of judgment in reference to such a matter. The source of power to practise such a domination may be found in no antecedent relation but in a particular situation, or in the deliberate contrivance of the party. If this be so, facts must be proved showing that the transaction was the outcome of such an actual influence over the mind of the alienor that it cannot be considered his free act. 24 The last sentence applies to this case. I have found that the defendant said she would give no further assistance to the plaintiff at Ellen Street if he did not support her proposal to purchase a new property in her name using the combined proceeds of sale of Ellen Street and Kahibah. I also find that the plaintiff was aware and understood that Floraville would not be in his name at all and that all the proceeds of Ellen Street would go towards the purchase. He was not happy about this but nevertheless he accepted it. He did not have independent advice. Nevertheless I am satisfied that he considered that accommodation of a granny flat type with his daughter was in his best interest. I am not satisfied that allowing the matter to proceed as it did was not his free act. There remained a choice for him up to the time of settlement of the sale of Ellen Street if he knew when that was to take place, although it is not clear he knew the details of this. My conclusion is that the plaintiff reluctantly accepted what was being arranged, but his will was not overborne. The strong criticisms levelled at the conduct of the defendant were not, I think, shown to be justified. It was in the plaintiff's interest to live in separate accommodation, but under the same roof as the defendant; no other family member was in a position to provide similar care; Mr & Mrs Whipper had no wish to sell their Kahibah home but if they were to care for the plaintiff then, unless they extended the Kahibah home, they would need to move. No doubt the plaintiff was influenced by the defendant to act as he did, but I do not consider the influence undue. The decision is somewhat finely balanced when the medical condition of the plaintiff is taken into account, but against that had things worked out well the arrangement might have been in place for many years. It was never put, let alone established, that Mrs Whipper set about obtaining an advantage for herself by entering into an arrangement which she intended should fail after a very short period of time. Unconscionable conduct - unconscientious dealing 25 The principles relevant to this part of the action are established in Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Armadio (1983) 151 CLR 447; Louth v Diprose (1992) 175 CLR 621 and Bridgewater v Lahey (1998) 194 CLR 457. I do not consider the decision in the last case makes any change to the requirement, clearly established in Armadio, that unconscionable conduct requires the obtaining of an advancement or benefit from a person with a special disability as a result of that disability. 26 In this case the age, health, hospitalisation and mental state of the plaintiff after his first and second strokes and his requirement for constant assistance at the time the transaction was entered into did, in my view, make him a person under a special disability. The lack of separate independent legal advice is relevant to this. Also relevant was the potential benefit to the defendant. This should not be looked at in hindsight, but what in fact happened is relevant to see the possibility of what could happen at the time the transaction took place. It was really impossible for the defendant to contend that her father was not under a special disability as claimed. She admitted the allegation made by the plaintiff in the further amended statement of claim that from the time of the second stroke until 17 March 1999 the plaintiff suffered from mental confusion, spatial disorientation, planning problems, incontinence, inability care for himself, inability to live on his own, loss of memory and delusions and misapprehensions concerning his children. Not only did she admit that, but in her defence she said that after the second stroke the plaintiff in addition suffered "significant impairment of comprehension and right sided movement, and suffered incontinence, confusion and loss of memory". In proceedings brought by the plaintiff against Mrs Whipper and her husband in the District Court at Newcastle in 1999, by her defence, Mrs Whipper challenged the retainer of the solicitor acting for Mr Urane on the basis that her father was not competent to give instructions. The evidence of Dr Walsh gives some support to the finding of special disability, although it shows an improvement between August and November 1998. The evidence of Dr. Float makes it clear the plaintiff could have had difficulties with comprehension, at least immediately after the second stroke. Mrs Whipper did not really suggest otherwise. 27 I should add that there is no evidence of the financial position of Mrs Whipper or her husband. It is probably fair to assume that they could not have brought the Floraville property unencumbered without having the benefit of the plaintiff's funds. However, the real question is whether or not they took unconscientious advantage of the plaintiff by using the whole of the proceeds of the sale of his property in the purchase of a property in the name of Mrs Whipper, without giving the plaintiff any interest in or charge over the property acquired with the benefit of his funds. It seems to me that the consideration was quite inadequate. It would have been, I think, perfectly reasonable for the funds to have been provided interest free with the plaintiff having been given a charge over the property. I would have thought it would also have been a proper bargain had the funds been provided partly by way of gift and partly by way of interest free loan secured against the property. These are all questions of degree and a court should not be too keen to upset some arrangements just because they do not seem to be perfectly fair. Members of families ought to be left free to arrange their own affairs as far as is possible without having those arrangements overturned simply because they upset another family member. But having said that I have come to the view that the bargain was an unconscionable dealing between the parties, accepted by the plaintiff in a state of weakness with little choice. Relief 28 The appropriate relief must be related to the undoing of the transaction, not to granting the plaintiff a proportionate interest in the property he was never intended to have. 29 The net proceeds of sale of Ellen Street, which were paid to discharge the St. George Bank were $158,773. In addition the plaintiff paid $4,426 stamp duty on the purchase contract of Floraville, making a total payment by him of $163,199. Mr Urane left Floraville on 23 March 1999. If an order for repayment of the sum of $163,199 is made, as I think it must be, then regard must be had to the fact that Mr Urane received the benefit of living in that property up to that time, albeit that he was in hospital for some of the time. Thus it is clear that interest should not run on the amount contributed at least until 23 March 1999. In addition the court is, I think, bound to take into account that Kahibah was sold and Floraville purchased as a means of looking after the defendant. The transaction was unconscientious because the risk to the plaintiff would be disproportionately greater than the benefit which the defendant might obtain, but nevertheless the defendant must not be unfairly punished. Countervailing considerations relevant to her position must be kept in mind. She may have to sell Floraville and incur expense in the subsequent purchase of another home and/or she may incur expenses in raising money on the security of Floraville. This must be taken into account. In deciding the question of relief the court should attempt to do what is fair: that seems to be the conclusion reached in Bridgewater by the majority decision at page 493. Had there been an agreement between the parties of that the plaintiff would contribute the moneys which he did for the purchase but that if he was no longer able to live in the property then the moneys would be refunded to him, it would seem to me that some reasonable time would have or ought to have been allowed for the repayment with no interest being required to be paid in the meantime. I consider an interest free period of one year would be reasonable for this. The evidence is very scrappy but it seems unlikely that the plaintiff was earning more than eight percent on his investments and I consider that to be a reasonable rate to apply in this case. I therefore consider that interest should be payable on the sum of $163,199 from 23 March 2000 at eight percent per annum. 30 Proposed orders: 1. The defendant pay to the plaintiff within three months the sum of $163,199 plus interest on that amount at eight percent per annum from 23 March 2000. 2. After the expiration of the said period of three months the sum of $163,199 carry interest at court rates. 3. The said sums be charged upon the property of the defendant, 23 Park Royal Drive, Floraville being the land in Folio Identifier 138/826927. 4. Liberty to apply to enforce the charge. 5. Defendant to pay plaintiff's costs. 6. Exhibits may be returned. ********** Last Modified: 10/09/2001 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.