New South Wales Supreme Court CITATION : Stoklasa v Stoklasa [2004] NSWSC 518 HEARING DATE(S) : 17/05/04, 18/05/04 JUDGMENT DATE : 18 June 2004 JUDGMENT OF : Gzell J DECISION : Breach of implied term not proved. Declaration of equitable interest refused. Equitable charge for value of obligation to provide accommodation and care to be determined by Master granted. CATCHWORDS : EQUITY - Equitable Estates and Interests - Sale of house to son at undervalue on terms that father provided with accommodation and care for life - Eviction of father for alleged improper suggestions of a sexual nature to grandson - Whether breach of implied term not to make such suggestions proved - Whether plaintiff entitled to equitable interest in house to extent of value exceeding purchase price - Whether unconscionable and inequitable for son to retain house freed from obligation to provide accommodation and care LEGISLATION CITED : Family Provision Act 1982 Briginshaw v Briginshaw (1938) 60 CLR 336 Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 Muschinski v Dodds (1984-1985) 160 CLR 583 CASES CITED : Baumgartner v Baumgartner (1987) 164 CLR 137 The Commercial Bank of Australia Ltd v Amadio (1982-1983) 151 CLR 447 Morris v Morris [1982] 1 NSWLR 61 Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353 PARTIES : Karel Stoklasa - Plaintiff Gary Stoklasa - Defendant FILE NUMBER(S) : SC 3959/03 COUNSEL : Mr S Galitsky - For Plaintiff Mr VRW Gray - For Defendant SOLICITORS : Lough Wells Duncan Lawyers Leo & Morrison Solicitors IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION GZELL J FRIDAY 18 JUNE 2004 3959/03 KAREL STOKLASA v GARY STOKLASA JUDGMENT 1 The plaintiff and his wife held their house as joint tenants. Following her death, the plaintiff transferred the house to one of their children, the defendant. The defendant gave the plaintiff notice to leave the house. The plaintiff claimed that so much of the value of the house as exceeded the amount he received for the transfer was held in trust for him or was charged in his favour and he sought the appointment of a trustee for sale. 2 The plaintiff said he reached an agreement with the defendant about a month before his wife died that the defendant would purchase the house for $50,000 and the plaintiff would reside in the house and be looked after by the defendant for the rest of his life. 3 Cross examination of the plaintiff revealed many inconsistencies. For example, he said there were no discussions to this effect until after his wife's dead. He denied that he had any conversation with the defendant about how much his wife wanted for her interest in the home. However, he agreed that he had asked for $25,001 as a joke. He wanted one dollar more than his wife had asked for her interest in the house. 4 The defendant said he paid the plaintiff $25,000 by way of cheque and $1 in cash. The plaintiff accepted that this was so. He was asked how he knew his wife was to get $25,000 and he asked for the additional dollar. He said the defendant came to the house with two bank cheques for $25,000 each, one made out to him and the other to his wife. It was then he asked for the additional dollar and the defendant paid it to him when they met their solicitor. 5 The defendant said his father offered to sell the house to him and told him to find out how much his wife wanted for her interest. When the defendant told the plaintiff she wanted $25,000, the plaintiff said he wanted $25,001. 6 The defendant said he had the two bank cheques with him when he went to the hospital on the day his mother died. He said he spoke with his mother at the hospital and asked her what he should do with the cheque made out in her favour. He said she told him to hang on to it for a bit and look after it for her and not to give it to her husband. She died that night following surgery. Wayne Stoklasa, a brother of the defendant, swore an affidavit in which he said he heard his mother say to the defendant: "look after it for me". He was not cross examined. 7 The plaintiff denied that the solicitor who acted for him and the defendant in the transfer warned him about his acting for both parties. The plaintiff denied he was advised to seek separate legal advice. He denied that he was advised to retain a legal interest in the property to protect his life interest. He said there was no mention of a loan agreement, a mortgage or a caveat. The plaintiff said he trusted the lawyer and probably agreed to everything he said. I reject that evidence. 8 Mark Dominic Nolan, a solicitor, gave evidence that he acted for the plaintiff and the defendant with respect to the transfer of the house. Mr Nolan took notes during the course of his meeting with the parties on 5 July 2002 which were in evidence. From them he constructed a file note, the contents of which I accept. 9 It was noted that the consideration agreed between the parties was considerably less than the market value of approximately $90,000 contained in a valuation obtained by Mr Nolan for the purpose of the transfer. Mr Nolan's file note indicated that he advised the plaintiff that he should consider obtaining independent advice for a number of reasons including the potential for conflict of interest on Mr Nolan's part in acting for both parties and, because it appeared that the plaintiff was to remain in the house, an alternative to transferring the entirety of the property to the defendant was the transfer of a half interest or other appropriate share reflecting the value of the actual consideration paid by the defendant or, alternatively, the grant of a life estate. The diary note recorded that the plaintiff advised that he intended to transfer the entirety of the property to the defendant notwithstanding the alternatives. 10 Mr Nolan recorded that he advised the plaintiff that in those circumstances he should consider whether he should obtain some security in the form of a loan agreement, caveat or mortgage. The file note recorded the plaintiff's instructions that he did not require any such security. 11 Mr Nolan noted that the copy of the death certificate recorded other children in addition to the defendant and he enquired whether the plaintiff's proposal to transfer the property would lead to any problems. The note pointed out that upon his death there was the possibility of other family members lodging a claim under the Family Provision Act 1982 and the plaintiff should consider preparing some form of agreement or statement to be considered in the context of his will. The file note recorded advice by the plaintiff that he had or would make suitable arrangements with members of the family and did not wish to take any steps in that direction. 12 The plaintiff was 74 years of age at this time. He was born in Czechoslovakia and had difficulty reading English. However, Mr Nolan's careful advice excluded any taking advantage of a special disability in the plaintiff. 13 The defendant spent a considerable sum in effecting renovations and repairs to the house. He costed this expenditure at over $50,000. The plaintiff gave an estimate between $40,000 and $45,000. Mr Nolan's file note referred to the consideration for the transfer stating that the plaintiff had advised that the defendant had already paid for some improvements and further improvements were to be effected. In addition some money was to be paid by the defendant to the plaintiff but it would depend on the cost of the work that had not been completed. The file note stated that it was estimated that the amount to be paid by the defendant to the plaintiff would be approximately $20,000 to $25,000 and that the plaintiff did not require those moneys to be paid to him at the time of transfer. That was a matter the parties would arrange between themselves. 14 That evidence was supportive of the plaintiff's case that he agreed to sell the house to the defendant for $50,001 only $25,001 of which had been paid to him. One would have expected the defendant to have challenged this statement when made to the solicitor. 15 On the other hand, the house was not the plaintiff's before the death of his wife and her involvement was necessary if an affective transfer was to take place. The demand by the plaintiff for the extra dollar is consistent only with an agreement for sale by the plaintiff and his wife of their respective interests in the house. 16 The defendant produced two cheques to the plaintiff, one made out to his wife. The plaintiff took the cheque made out to him and said he could not take the cheque made out to his wife. That, again, is consistent only with the joint agreement of husband and wife to sell the house. 17 When the plaintiff was told to leave the house, his daughter, Anna Stoklasa, picked him up. She gave evidence that she demanded from the defendant $25,000 she said he owed the plaintiff. The defendant refused. He said he would give her part and he gave her $5,000. 18 It was submitted that this evidence was consistent only with the plaintiff's case that he was owed a further $25,000. I do not agree. It was equally consistent with the defendant acknowledging a claim by his sibling on the estate of their deceased mother, the defendant having being asked to look after the $25,000 cheque made payable to her. 19 The defendant denied that there was any discussion with the plaintiff that he should remain in the house and be looked after for life. I do not accept that evidence. The plaintiff was concerned at what might happen to him if his wife died and it is inconceivable that he would not have required accommodation and care. His continued occupation of the house was discussed in the solicitor's office at a time when both parties were aware that a valuation at $90,000 had been obtained. The defendant did not challenge the solicitor's suggestion of formalising a life interest and, unless he was to be looked after, one cannot imagine the plaintiff agreeing to perfect the transfer of the house for a total of $50,001 unless he was to reside there for the rest of his life. 20 In any event, Mr Gray, who appeared for the defendant, conceded that at least it was an implied term of the arrangement that the plaintiff should remain in the house for life. 21 My rejection of portion of the defendant's evidence does not cause me to reject the balance of it. The existence of two cheques supports his assertion that there was an agreement with both parents and the evidence of his brother Wayne corroborates his statement that their mother asked him to look after her cheque. 22 I prefer the defendant's evidence to that of the plaintiff where there is conflict between the two. I find that prior to the death of his mother, the defendant entered into an agreement with his parents to purchase the house from them for $50,001. I find that it was a term of the agreement that the plaintiff should reside there for the rest of his life and be looked after by the defendant. I find that the $25,000 retained by the defendant formed part of the estate of the deceased and was not money payable to the plaintiff. I find that after the death of his wife, the plaintiff accepted a bank cheque in his favour for $25,000 and asked for an additional dollar which was subsequently paid to him in cash. 23 The defendant's son, Glen, resided in the house with his father and grandfather. He was 15 when they took up residence. He complained that shortly after they moved in, the plaintiff commenced to make improper suggestions of a sexual nature to him. He said his grandfather said to him: "I want you to suck me off". He said on one occasion the plaintiff touched him on the buttocks and he yelled out to his father: "Pop's trying to touch me up. He is rubbing the back of my leg". 24 The defendant said his son told him that the plaintiff had said he was going to hit him with a baseball bat and he wanted him to perform oral sex on him. Glen Stoklasa did not mention the baseball bat incident in his affidavit. He did not know whether the plaintiff had a baseball bat nor was one produced. The defendant said he reported the threatened assault to the police. No police report was tendered in evidence. The defendant said that on one occasion he heard the plaintiff say to Glen: "I want you to suck me off". 25 The plaintiff denied that he had made improper suggestions to his grandson. He said that on one occasion when he was sitting down playing patience, a card fell on the floor and in picking it up he had unintentionally touched the back of his grandson's leg. Glen agreed that his grandfather was sitting down playing cards when he was touched on the buttocks. 26 By a handwritten note dated 25 October 2002 the defendant gave the plaintiff notice to remove himself from the house by 1 November 2002. 27 The defendant argued that it was an implied term of the arrangement that the plaintiff would not make improper suggestions of a sexual nature to his grandson and, in the circumstances, the defendant was entitled to terminate the plaintiff's occupation of the house. 28 The Evidence Act 1995, s 140 prescribes the standard of proof in civil proceedings as the balance of probabilities and provides that the court may take into account in deciding whether it is so satisfied the nature of the cause of action or defence, the nature of the subject matter of the proceedings and the gravity of the matters alleged. This provision reflects the common law position. In Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-362 the High Court discussed the quality of persuasion required for this purpose: when the law requires the proof of any fact, the tribunal must feel an actual persuasion of its occurrence or existence before it can be found. In civil matters the affirmative of an allegation is made out to the reasonable satisfaction of the tribunal: "But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters "reasonable satisfaction" should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency." To similar effect is the statement of the majority of the High Court in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 449-450. 29 Mr Gray accepted that the seriousness of the allegations affected the question whether I should be reasonably satisfied that the plaintiff had behaved in the manner alleged by Glen Stoklasa. 30 Whether or not it is appropriate to imply the term asserted by the defence into the relationship between the parties, I do not have the degree of satisfaction necessary to conclude that the plaintiff conducted himself in the alleged manner. There was a degree of exaggeration in the evidence of Glen Stoklasa and he was vague on details. I am not satisfied that the buttock touching incident was other than unintentional. I am concerned that the baseball bat incident was not mentioned by Glen in his affidavit and the absence of a corroborating police report adds to my concerns. 31 In light of these concerns, I am not satisfied with the balance of the evidence of continued requests for oral sex. The defendant did not hear repeated requests from the plaintiff. He heard one incident only. If there was but one incident that was, of course, reprehensible. However, it would not, in my view, justify turning the plaintiff out of the house. It would require the defendant to counsel the plaintiff and if the conduct continued to seek outside assistance in dealing with the plaintiff before that drastic step was taken. The defendant made no attempt to enlist the aid of anyone. He did not approach his siblings for assistance. In my view the defendant was not entitled to oust the plaintiff from the house. 32 The plaintiff did not frame his case in contract. He did not claim $25,000 as the balance of the purchase price nor did he claim that his removal from the house constituted a breach of contract. The plaintiff claimed an equitable interest in the house to the extent that it exceeded $25,000 in value. It was only in the alternative that damages were claimed. 33 The plaintiff submitted that the matter should not be analysed in contract but in terms of the breakdown of a relationship under which the defendant obtained a substantial advantage it would be unconscionable for him to retain. 34 Reference was made to Muschinski v Dodds (1984-1985) 160 CLR 583. That was a case in which an unmarried couple purchased land in circumstances where the woman paid the purchase price but agreed to include the man's name on the title if he undertook to renovate the cottage and pay for a prefabricated house. The parties separated before the cottage was renovated or the house acquired. The woman claimed sole beneficial ownership of the land. It was held that the presumption of a resulting trust arising from her provision of the entire purchase price had been rebutted and the parties held their respective legal interests as tenants in common upon trust after payment of any joint debts, to refund each person's contribution and to hold the residue in equal shares. Mason and Deane JJ concluded that it would be unconscionable after failure of the joint venture between the parties for the man to assert his legal entitlement without recognising the woman's payment. 35 That case bears no direct correlation to the instant circumstances. It was the defendant who paid the purchase price and the defendant who provided the renovations and repairs. The only contribution made by the plaintiff being half the grocery expenses and an occasional contribution of small amounts to the payment of electricity and water. There was no element of unconscionability which would require the contractual arrangements to be put aside and a declaration made that the defendant held a beneficial interest in the house. 36 In Baumgartner v Baumgartner (1987) 164 CLR 137 the parties to a de facto relationship pooled their incomes for the payment of expenses. A house was acquired in the name of the man. They later separated and the man asserted that the land was his sole property. It was held that that assertion was unconscionable conduct which attracted the intervention of equity. Those circumstances are far different from the instant case and do not justify the relief claimed. 37 Reference was also made to The Commercial Bank of Australia Ltd v Amadio (1982-1983) 151 CLR 447. In that case two elderly migrants, unfamiliar with written English, were asked to execute a mortgage in favour of a bank to secure the overdraft of a company which the son controlled. The bank and the company had been selectively dishonouring the company's cheques to preserve the company's appearance of solvency. They agreed that the overdraft should be reduced and cleared within a short time but that these matters were not to be disclosed to the mortgagors. The mortgage contained a guarantee that secured all amounts owing or which might be owing to the bank on the company's account. Mason, Wilson and Deane JJ held that the mortgagors were under a special disability that was sufficiently evident to the bank to make it prima facie unfair or unconscientious for it to be allowed to rely on the guarantee. 38 There was nothing unconscientious in the defendant's obtaining of the transfer of the house to him. The solicitor carefully explained the position to the plaintiff thereby excluding any special disability arising from his limited facility with the English language. 39 In Morris v Morris [1982] 1 NSWLR 61 a widower paid for an extension to a home jointly owned by his son and daughter in law to provide accommodation for himself indefinitely. The son's marriage broke down and he departed from the home. The personal relationship between the plaintiff and his daughter in law also broke down and the plaintiff departed. It was held that there was nothing from which it could be inferred that there was any intention to create a trust nor anything from which a trust could be implied. It was held, however, that it would be unconscionable and inequitable for the son and the daughter in law to retain the benefit of the plaintiff's expenditure free from any obligation of recoupment and the appropriate remedy was an equitable charge to secure the amount of that expenditure and interest. 40 This was not a case of recoupment of expenditure. If the value of the obligation to provide accommodation and care was less than the difference between $50,001 and the market value of the house at the time of transfer, it was a case of sale of an interest in property at an under value to a son on terms that the plaintiff obtain care and accommodation for life. But the principle is the same. On my findings the defendant lacked cause to evict the plaintiff. It would be unconscionable and inequitable for him to retain the benefit of the transfer of the house at an under value freed from the obligation of providing care and accommodation. 41 I do not regard it as unconscionable or inequitable for the defendant to retain the benefit of the transfer at any undervalue. In my view the presumption of advancement between father and son arose (Charles Marshall Pty Ltd v Grimsley (1956) 95 CLR 353) and was not rebutted. 42 In the tragic circumstances of this breakdown in family relationships it is inappropriate that the defendant should take the plaintiff back into the house. It seems to me that the appropriate form of order is an equitable charge over the house in favour of the plaintiff for the value of the obligation to provide him with care and accommodation as at 1 November 2002 plus interest thereon and for an inquiry to be made by a Master to determine the amount of the charge. 43 That course will require some amendment to the pleadings which I will make of my own motion if necessary. I will hear the parties on the appropriate terms of the orders I propose and I will hear the parties on costs. I direct the parties to bring in short minutes of orders reflecting these reasons. ********** Last Modified: 06/25/2004 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. 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