New South Wales Supreme Court CITATION : Tracewska v Goonetilleke [2007] NSWSC 340 HEARING DATE(S) : 19 and 28 March 2007 JUDGMENT DATE : 28 March 2007 JURISDICTION : Equity JUDGMENT OF : Hamilton J DECISION : Transaction set aside as procured by undue influence and unconscionable conduct. CATCHWORDS : EQUITY [47] – General principles – Undue influence and duress – Presumption from relationship of parties – In general – Duty arising from relationship of trust. Bridgewater v Leahey (1998) 194 CLR 457 CASES CITED : Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 547 Johnson v Buttress (1936) 56 CLR 113 Quek v Beggs (1990) 5 BPR 11,761 PARTIES : Jolanta Tracewska by her tutor The Protective Commissioner of NSW (P) Tishan Goonetilleke (D) FILE NUMBER(S) : SC 4260/06 COUNSEL : A J McInerney (P) No appearance (D) SOLICITORS : Lee & Lyons (P) No appearance (D) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HAMILTON J WEDNESDAY, 28 MARCH 2007 4260/06 JOLANTA TRACEWSKA by her tutor THE PROTECTIVE COMMISSIONER OF NEW SOUTH WALES v TISHAN GOONETILLEKE JUDGMENT 1 HIS HONOUR: These are proceedings brought by the plaintiff by her tutor, the Protective Commissioner of New South Wales, claiming an order that the defendant pay her the sum of $193,513.83 being a sum obtained from her by the defendant as a result of the exercise of undue influence or in circumstances which amount to equitable fraud or as money had and received by the defendant from the plaintiff. 2 The defendant has been served with the statement of claim under an order for substituted service. He has been informed of the hearing fixed before me by a communication sent to him in the same fashion. He does not appear. THE FACTS 3 The plaintiff was born in Poland on 6 March 1940. The evidence shows that she is estranged from her family both in Poland and in Australia. She bought a house at Ambarvale near Campbelltown ("the Ambarvale house"). The transfer to her was registered on 24 October 2001. Before that time, during her searches for a property to buy, she came to know the defendant. The defendant is also known as Tishan Garls. 4 At the beginning of July 2003, the plaintiff had no substantial assets other than the Ambarvale house. She had no debts other than about $6,000 still owing to the ANZ Bank under a mortgage of the Ambarvale house. 5 On 17 July 2003 she signed a form of application for a loan from First Mortgage Company Home Loans Pty Ltd ("First Mortgage") through a mortgage originator, Thi Hoa Trieu trading as ET Financial Services. The loan application contained untrue statements that she was working as a hairdresser for Layla Hairdressers and had an income of some $800 per week. She was not working and had never worked as a hairdresser, having been a teacher when she did work. She was not employed at the time. 6 On 15 September 2003 she signed a loan agreement with First Mortgage and a mortgage of the Ambarvale house. Her signature on each of those documents was witnessed by the defendant. On the same day she received from First Mortgage the sum of $193,813.83, which was the proceeds of the mortgage loan after deduction of the moneys owing to the outgoing mortgagee and expenses. She deposited that money into an Access Account with the ANZ Bank which had been opened on 9 September 2003. On 19 September 2003 she transferred that precise sum to a bank account of the defendant. 7 Her own account on affidavit as to how this transaction came about is as follows: "4 I remember Tishan. I got to know him about six years ago when I was looking to buy a house. That was before I bought the house at Ambarvale. I went from one real estate agent to another looking for a house in Fairfield. He was working when I met him at Fairfield. He gave me his cards and he used to call by to see me from time to time. 5 Tishan used to say that he was very lonely. I remember him saying that he had parents and a sister in Sri Lanka. He once told me that he lived near Campsie. He used to say things about church and I can remember that once he said 'you can trust me'. 6 One day Tishan told me 'I want to make a business and you have to apply for a loan for me'. I said 'I do not think I will get a loan because I am a pensioner'. He said 'If you get this loan I will pay it off'. 7 I can remember going with Tishan to the office of an Asian man at Liverpool. He opened some documents and said 'put your signature here, and here'. I did not read the documents." 8 The Ambarvale property was subsequently let, apparently on the instructions of the defendant. The defendant for some time made instalment payments under the mortgage, although he subsequently ceased to do so. 9 On 16 October 2004 the Protective Commissioner was appointed by a Magistrate to manage the affairs of the plaintiff and on 27 October 2004 she was admitted to Braeside Hospital under the Mental Health Act 1990. Subsequently, on 2 November 2005, the Guardianship Tribunal appointed the Protective Commissioner to manage the plaintiff's affairs on a permanent basis and the management of her affairs remains subject to that order. 10 The evidence concerning the plaintiff's mental state is as follows. Although she was not admitted to the Braeside Hospital under the provisions of the Mental Health Act until 27 October 2004, she was in that hospital prior to that time. She was discharged from the Braeside Hospital on 29 November 2004 to her home with the diagnosis of late onset schizophrenia involving persecutory and paranoid ideations. 11 There is a report concerning her condition by Judy Sajn, Inpatient Social Worker, Aged Care Psychiatry Service, Braeside Hospital, dated 19 October 2004. Ms Sajn expressed the view that the plaintiff was "suffering from an acute psychosis involving persecutory and paranoid ideation". As well as stating that diagnosis, Ms Sajn gave an account of "psychotic reactions and persecutory fears that have no basis in reality". Ms Sajn believed that she was "not capable of making rational decisions regarding her financial affairs". 12 Ms Sajn recorded the following: "Mrs Tracewska has not received any visitors on the ward apart from one brief visit from a man called Mr Tishan Garls whom Mrs Tracewska says has been a friend for 'a long time'. She tells me she trusts Mr Garls. However, she did not know his surname and did not know where he lived or how he was employed. She did not want to tell me how she came to know him. She only had his mobile phone number as a contact and would refer to him only as Tishan." 13 Ms Sajn also recorded that there was evidence that payments due by the plaintiff had fallen into arrears and that during a weekend leave she had gone to the Ambarvale house and had been horrified to discover that there were people living in it about whom she did not know. 14 In a further note dated 21 October 2004, Ms Sajn recorded: "I met Mr Tisan [sic] Garls yesterday morning while arrangements were being made for Jolanta to be scheduled to Liverpool Hospital. He feels he has been innocently caught up in Jolanta's affairs without realising there were problems with her decision-making capacity. He says he does not know Mrs Tracewska well. He has only had brief contacts with her when she has approached him for assistance with various matters. He has obliged up till now as he felt sorry for her and could see she needed help. He knows Mrs Tracewska from church he says." 15 The next reports concerning her condition date from about October 2005 preparatory to the hearing before the Guardianship Tribunal. There is a report by Leena Purathure, Social Worker, Aged Care Psychiatry, Braeside Hospital. Ms Purathure recorded the following: "Still Mrs Tracewska has got weekly contact with her friend Tishan she describes him as 'very nice man'. She doesn't know anything about his back ground [sic] or where he lives. He usually comes to her place to spend half an hour and according to her he is a very busy man. Mrs Tracewska believes that he is unable to pay her money because of his financial difficulties. She believes that once he sale [sic] his houses which she belives [sic] that he had bought with her money, he would pay back her loan. She doesn't want to hurt him and he doesn't like any discussion regarding this loan. …… Although she believes that her friend Tishan is selfish and has cheated her, still she doesn't want to hurt him by going against him. She doesn't want to loose him as her friend. She says she doesn't want to hurt anybody." 16 There was a psychiatric report from Dr U Bardulis, Advanced Trainee, Old Age Psychiatry, Braeside Hospital. He records two admissions to Braeside Hospital for late onset schizophrenia. He states: "She had well systemised delusions about being controlled by others with computers and radiation." He further stated: "Her Cerebral CT scan in 2004 had shown periventricular lucencies consistent with deep white matter ischaemia and a few low-density lesions in the temporal lobes that were suggestive of a lacunar infarct. …… Her neuropsychological assessment in June 2005 revealed defects in verbal working memory, speed of information processing, perceptual judgement and verbal generativity and inhibitory control. There was a limited frontal system dysfunction consistent with schizophrenia but possibly reflecting her vascular pathology as mentioned on her CT scan. In the course of treating her in the community she has become more open and trusting of the professional relationship. She explained to me she took out a loan of $200,000 using her house as collateral (which was worth $300,000 at that time). She gave the money to a friend who was a real estate agent and Ms Tracewska is now left trying to repay all her bills and this loan. She is very upset by this past action and says 'How can I do this?' She felt that the money and the house were not really hers at the time, a nihilistic delusion, like Cotard's Syndrome. As she did not really feel she owned these things she did not miss them at the time but regrets her actions now. She describes the real Estate agent as a 'nice man' who is 'unable to pay' for the loan now. In view of the above information I feel ti [sic] is essential that Ms Tracewska remains under a Financial Protection Order." 17 The Ambarvale house has since been sold by the Protective Commissioner and the loan repaid. The Protective Commissioner is holding on the plaintiff's behalf some $35,000, which was received from the proceeds of sale. THE LAW 18 I take the law relating to undue influence and to unconscionable transactions to be as follows. 19 The classic statement of the law in Australia in relation to undue influence is that of Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 134 - 136. A useful up-to-date statement of the law is contained in the judgment of McClelland J in Quek v Beggs (1990) 5 BPR 11,761 at 11,764. "Generally speaking, the law permits a person of full age and capacity to dispose of his or her property by gift or otherwise in such manner as he or she may choose. However in certain recognised categories of case, principles of equity intervene to render such a gift liable to be set aside by the Court. One of those categories is where the donor makes the gift as a result of 'undue influence' of the donee. In this context 'influence' means a psychological ascendancy by the donee over the donor, and 'undue influence' means the donee's taking improper advantage of such ascendancy: Union Bank of Australia v Whitelaw [1906] VLR 711 at 720. It is not necessary that the ascendancy amount to domination: Goldsworthy v Brickell [1987] Ch 378 at 402-6. A donor (or if he or she is deceased, a representative of his or her estate) will prima facie be entitled to have a gift set aside on the ground of undue influence upon proof of: (a) facts establishing that the gift was made by the donor as a result of undue influence of the donee; or (b) facts that give rise to a presumption that the gift was so made, unless the donee rebuts the presumption in the manner mentioned below. A presumption of undue influence arises if it is proved – (a) that at the time the gift was made there existed a relationship between the donor and the donee of such a nature as to involve reliance, dependence or trust on the part of the donor resulting in an ascendancy on the part of the donee; and (b) that the gift is so substantial, or so improvident, as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary persons act: Allcard v Skinner (1887) 36 Ch D 145, 185; Johnson v Buttress (1936) 56 CLR 113, 134-5; Yerkey v Jones (1939) 63 CLR 649, 675; Goldsworthy at 400-1. In such cases, 'the Court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused': Allcard at 171 per Cotton LJ, applied in Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 at 133, Bank of NSW v Rogers (1941) 65 CLR 42, 85 and Antony v Weerasekera [1953] 1 WLR 1007, 1011, PC. The donee 'has chosen to accept a benefit which may well proceed from an abuse of' his position of ascendancy 'and the relations between him and the donor are so close as to make it difficult to disentangle the inducements which led to the transaction. These considerations combine with reasons of policy to supply a firm foundation for the presumption against a voluntary disposition in his favour': Johnson at 135. …… The donee may rebut the presumption of undue influence, when it arises, by proving that the donor (i) knew and understood what he or she was doing; and (ii) was acting independently of any influence arising from the ascendancy of the donee: see Lancashire Loans Ltd v Black [1934] 1 KB 380 at 409; West v Public Trustee [1942] SASR 109 at 119; Inche Noriah at 135; Wright v Carter [1903] 1 Ch 27 at 52, 57." The jurisdiction to set aside is not limited to transactions by way of gift but applies equally to other improvident transactions. 20 The plaintiff also claimed relief on the basis that the transaction was a transaction procured by the unconscionable conduct of the defendant under the principle in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 547. A comparison between the principles relating to transactions procured by undue influence and by unconscionable conduct was set out and the present law as to the latter stated in the judgment in the High Court of Gaudron, Gummow and Kirby JJ in Bridgewater v Leahey (1998) 194 CLR 457 at [74] to [76] as follows: "[74] In Commercial Bank of Australia Ltd v Amadio [(1983) 151 CLR 447], Deane J said that the two doctrines are distinct, undue influence looking to 'the quality of the consent or assent of the weaker party', whilst unconscionable conduct looks to the attempted enforcement or retention of the benefit of a dealing with a person under a special disability. Further, the recognition of certain special relations, the existence of any of which would itself support a presumption of undue influence, could provide a particular forensic advantage to plaintiffs. [75] Sir Anthony Mason, with reference to the well developed Australian body of authority on the subject, has contrasted the two doctrines as follows [in Mason, 'The Impact of Equitable Doctrine on the Law of Contract', Anglo-American Law Review vol 27 (1998) 1 at pp 6-8]: 'My understanding of undue influence ... is that it denotes an ascendancy by the stronger party over the weaker party such that the relevant transaction is not the free, voluntary and independent act of the weaker party: [ Commercial Bank of Australia Ltd v Amadio ]. In other words, it is the actual or presumed impairment of the judgment of the weaker party that is the critical element in the grant of relief on the ground of undue influence[: see Peter Birks and Chin Nyuk Yin, 'On the Nature of Undue Influence' in Beatson and Friedmann (eds), Good Faith and Fault in Contract Law , 57 et seq.]. ...… Unconscionable conduct, as the term suggests, focuses more on the unconscientious conduct of the defendant. As a ground of relief in England unconscionable conduct has been confined largely to 'catching bargains' with expectant heirs and others in particular categories of disadvantage eg those who are illiterate. ... In Australia, it has been recognized that unconscionable conduct is a ground of relief which will be available 'whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is taken of the opportunity thereby created': Commercial Bank of Australia v Amadio at 462. Unconscionable conduct is also recognized in New Zealand as a ground of relief in these circumstances: Hart v O'Connor [1985] AC 1000; Bowkett v Action Finance Ltd [1992] 1 NZLR 449.' In Commercial Bank of Australia Ltd v Amadio , Deane J spoke of unconscionable conduct as occurring where, in the circumstances, it is unconscientious to 'procure, or accept, the weaker party's assent to the impugned transaction'. It also should be noted that in Hart v O'Connor , an appeal from New Zealand, the Privy Council described unconscionable conduct which provided a basis for equitable relief as 'victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances' [at 1024 (emphasis added)]. In so giving the judgment of the Privy Council, Lord Brightman was reflecting a general proposition put by James LJ in Torrance v Bolton [(1872) LR 8 Ch App 118 at 124]. This was that it was the 'ordinary jurisdiction' of the Court of Chancery to deal with instruments and transactions 'in which the Court is of opinion that it is unconscientious for a person to avail himself of the legal advantage which he has obtained'. In any event, it will become apparent from the facts of this case that more was involved than passive acceptance by Neil of Bill's bounty and that, at a crucial juncture, the initiative came from Neil. …… The position of disadvantage which renders one party subject to exploitation by another such that the benefit of an improvident disposition by the disadvantaged party may not in good conscience be retained may stem from a strong emotional dependence or attachment[: Louth v Diprose (1992) 175 CLR 621 at 626, 629-630, 637-638, 643]. Louth v Diprose was such a case. In his judgment in the South Australian Full Court [ Diprose v Louth (No 2) (1990) 54 SASR 450 at 453], a decision which was upheld in this Court, Jacobs ACJ said: 'It is an oversimplification to say that because the respondent acted as he did with his eyes open, and with a full understanding of what he was doing, he was not in a position of disadvantage, and therefore not the victim of unconscionable conduct.'" CONCLUSIONS 21 As I have already observed, the defendant has not come forward to rebut any presumption of undue influence or otherwise to justify his conduct. I am of the view that, on the evidence, there was a relationship between the plaintiff and the defendant of such a nature as involved reliance or trust on the part of the plaintiff resulting in an ascendancy on the part of the defendant. This is established by her readily agreeing to enter into a transaction in which there was no benefit whatever to the plaintiff and great benefit to the defendant. He was to repay the mortgage loan, but she received nothing and would not have been under the burden of the mortgage loan except for the transaction which he initiated. This transaction was so improvident as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary persons act. 22 By reason of that relationship there is a presumption that the transaction was entered into by the plaintiff under the defendant's undue influence. There is nothing in the evidence to rebut that presumption. 23 Equally, I find that the plaintiff is entitled to relief on the basis that the transaction was procured by the defendant's unconscionable conduct. He initiated and procured the plaintiff's assent to the impugned transaction in circumstances where, in my view, he must have been aware of her vulnerable situation and of the lack of benefit to her in the transaction. 24 As I am prepared to grant the plaintiff relief on both these bases, there is no need for me to determine her claim for money had and received. 25 The relief claimed on the plaintiff's behalf is an order for the payment by the defendant of the sum of $193,513.83, which was the sum that he received from her on 19 September 2003. No claim is made on the plaintiff's behalf for interest. It may be that the defendant repaid some small amounts of capital under the mortgage and perhaps one slightly larger sum. On the other hand, the evidence shows that after he ceased to make payments, payments had to be made out of the plaintiff's own money to keep the mortgagee at bay and ultimately to pay it out. I think that substantial justice will be done if more money is not spent on disentangling the details of these payments, but an order is simply made for payment of the claimed sum. I also propose to order, as asked, that the defendant pay the plaintiff's costs of the proceedings. 26 The orders of the Court will therefore be: (1) Order that the defendant pay the plaintiff the sum of $193,513.83. (2) Order that the defendant pay the plaintiff's costs of the proceedings. ********** 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.