BETWEEN : EDNA MAY COLLINS by her next friend GLENYS LESLEY LARAINE POLETTI

Contracts - Particular parties - Mentally disabled persons - Capacity of parties - Gift of half interest in land to granddaughter - Whether gift made at time when donor of sound mind - Donor suffering from early senile dementia - Whether deprived of capacity to understand nature of transaction

Public Trustee Act 1941

Allcard v Skinner (1887) 36 Ch D 145

Bank of New South Wales v Rogers [1941] HCA 9; (1941) 65 CLR 42

Beverley & Anor v Watson & Ors, unreported; SCt of WA; Library No 940502; 14 September 1994

Garcia v NAB [1998] HCA 48; (1998) 155 ALR 614

Imperial Loan Co v Stone [1892] QB 599

Inche Noriah v Shaik Bin Omar [1929] AC 127

Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113

Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621

Watkins v Combes [1922] HCA 3; (1922) 30 CLR 180

1 OWEN J: This is an action in which the plaintiff seeks to set aside a deed of gift and a transfer of land by reason of which a residential property was transferred by the plaintiff to the defendant. It is one of those very sad cases that arise from the breakdown of family relationship.

2 The plaintiff is now 89 years of age and is a resident of a Nursing Home operated by the Churches of Christ Inc known as Warwick Village Hostel ("the Hostel"). It is not in dispute that she now suffers from conditions that render her incapable of managing her own affairs. She brings this action by a next friend.

3 The plaintiff had one child, namely Glenis Poletti ("Poletti"), who is the plaintiff's next friend in this action and who was born in 1946. In 1967 Poletti married Thomas Price and they had two children. The defendant was their first child, born in 1969. They had a second child, Jeremy Price ("Price"), born in 1972. The defendant and Price are, of course, respectively the granddaughter and grandson of the plaintiff.

4 In 1941 the plaintiff and her husband acquired the property at 60 Hovea Terrace Kensington ("the Property") as joint tenants. It was the family home from that time on. In January 1968 the plaintiff's husband died and the plaintiff became the sole registered proprietor by survivorship. She continued to reside in the Property until she left to take up residence at the Hostel in circumstances which I will describe shortly.

5 It is apparent that Poletti and the defendant have had an uneasy relationship for many years. It is also apparent that the plaintiff and the defendant had a close relationship. During her primary school years the defendant spent many weekends and holidays with her grandmother. She continued to do so, although with less frequency, when she was at Secondary School. The defendant left school in 1986 and began work as a beauty therapist. She continued to see the plaintiff regularly. By about 1992 the defendant was spending about one night every four to six weeks with the plaintiff. By 1993 this had increased to about three nights each week and in April 1993 she moved in permanently. I accept that the defendant paid some of the expenses concerned with the Property and helped with its maintenance.

6 The plaintiff had been in reasonably good health for most of her life, at least up until about 1990, except that for many years she had been hard of hearing. During 1991 the plaintiff had an operation for a gastric condition. It was performed under emergency conditions. Late in October 1992 the plaintiff suffered an episode where she became disoriented and had hallucinations. She remained for some weeks with Poletti before returning to the Property. She went into respite care for about six weeks over the Christmas and New Year period in 1992/93. It seems she was having greater difficulty in caring for herself, even with the defendant's assistance. In May 1993 the plaintiff moved from the Property and took up residence at the Hostel. Almost immediately she came under the care of Dr David Mathias, a general practitioner. She has been under his care ever since.

7 The defendant continued to live at the Property. In January 1994 Martin May moved in as a boarder. He and the defendant had known one another for some time. Some time later they formed an attachment and married. They now have a child and live at the Property as a family.

8 The relationship between Poletti and Thomas Price broke down. In July 1994 Poletti left the family home and began to live with a neighbour, Mario Poletti. It is apparent that this caused further fractures in the already brittle relationships within the Price family. It seems that the defendant and Price sided with their father and blamed their mother for the problems. In March 1996 Poletti married Mario Poletti.

9 On 19 July 1994 the plaintiff signed a Will. In it she appointed Price as executor. She left her money to Poletti, her motor vehicle to Price and the Property and the residue to the defendant.

10 On 10 September 1994 the plaintiff executed a transfer document transferring a one half interest in the Property to herself and the defendant as joint tenants. On 12 September 1994 the plaintiff executed a deed of gift in which it is documented that the one-half interest in the Property was transferred to the defendant in consideration of her natural love and affection for the defendant. The transfer was registered at the Land Titles Office on 26 September 1994.

11 Poletti found out about the transaction in late 1994 or early 1995. She commenced proceedings in the Guardianship and Administration Board in relation to the plaintiff's affairs. On 4 April 1995 the Board made a declaration that the plaintiff was unable, by reason of mental disability, to make reasonable judgments in respect of matters relating to her estate and appointed the Public Trustee as plenary administrator. The Public Trustee applied to this Court under s 27 of the Public Trustee Act 1941 to have the transaction set aside, essentially for the same reasons as the plaintiff now advances. The Court declined to make the order on the grounds that it had no jurisdiction under s 27 to grant equitable relief of the nature sought: Collins v Price, unreported; SCt of WA (Wheeler J); Library No 960747; 1 November 1996.

12 On 19 June 1997 the order appointing the Public Trustee as administrator was revoked and the Board appointed Poletti as plenary administrator. The writ was issued in October 1997.

13 The defendant admits that pursuant to the deed of gift and transfer she became registered as the proprietor of a one-half interest in the Property as a joint tenant with the plaintiff. In other words the critical documents are not in dispute. The plaintiff attacks the transaction on three bases. First, the plaintiff says that at the time when she executed the documents she was not of sound mind, memory or understanding and was incapable of understanding the terms and effect of the documents. Particulars of the medical conditions and the symptoms on which that assertion is based are given. It is also alleged that at the time when the documents were signed the defendant was, or ought to have been, aware of the plaintiff's lack of capability. The defendant denies both those allegations.

14 The second basis for the attack is that, because of the plaintiff's condition and the circumstances in which the documents were signed, the defendant unconscionably used a superior position of knowledge and trust reposed in her by the plaintiff. Finally, it is alleged that the defendant overbore the will of the plaintiff and her agreement was not independent and voluntary. The defendant denies those allegations.

15 This is, as I have already said, the result of the breakdown in family relationships. Poletti and the defendant have been at odds for many years. It seems Price originally sided with his father and sister but the indications are that he has now reconciled, at least to some extent, with his mother. There were many charges and counter-charges as to who was close to the plaintiff and who was not. Various charges of mercenary motives were made by and about some of the participants. I gained the very clear impression that the bitterness was so deep that it had clouded memories and, perhaps, led people to read more into things that were (or were alleged to have been) said than was warranted.

16 This has led me to question the reliability (rather than the veracity) of some of the evidence given by the main witnesses, namely Poletti, the defendant and, to a lesser extent, Price. The latter described himself as "neutral" in the dispute. I felt rather more comfortable with his evidence than that of the others. It has, of course, been necessary for me to look at what they have said, particularly in relation to the circumstances in which the documents came to be prepared and signed. There are some aspects on which I can come to findings on the basis of the testimony of those witnesses. This is particularly so in relation to the period before the plaintiff entered the Hostel. However, I have had to treat with caution some of the evidence of what transpired between the plaintiff, Poletti, Price and the defendant in and after July 1994 and particularly events and conversations after September 1994. I would put into the same category the argument that took place at the Poletti residence shortly after Poletti and Thomas Price had separated and the allegations that Poletti was set on a deliberate course to ruin Thomas Price and the family business that he and Price operated. In the end, wherever possible I have looked to and relied on the more objective evidence of persons a little further removed from the family and of the transaction so as to decide the critical issues. Accordingly, there will be some testimony that I do not specifically mention.

17 In this respect my sense of unease about acting on evidence of what the plaintiff is alleged to have said to people after September 1994 about the impugned transactions is heightened by the evidence of some people, particularly Beryl Wilson and Dr Mathias. I will describe their evidence in more detail later. It is sufficient to say at this stage that Wilson described her as "always following instructions and, given her eagerness to please, not always questioning them." Dr Mathias said: "Her usual disposition is of wishing to be of no stress to anyone. When she is asked to do simple commands and help, she is very anxious to know that she has been effective in doing what she has been requested to do".

18 I can, however, make a number of initial findings about matters that are important in the background matrix.

19 I am satisfied that the plaintiff was very attached to the Property. After all, it had been her family home for 50 years. As Price said: "Ideally, my grandmother wanted the Property to remain in the family and for Melissa to be able to keep living there as it was close to her work. By doing this, she was helping Melissa and providing her with a place to live and Melissa was helping my grandmother by maintaining the Property. My grandmother was extremely concerned that the Property be well looked after. She would often say her heart was still there. To my grandmother it was still her house and still should be".

20 I have absolutely no doubt that the defendant and the plaintiff had a close relationship. I accept that the plaintiff was pleased when the defendant moved in to the Property on a permanent basis.

21 I accept also that from time to time the plaintiff had said to the defendant things such as: "you will live in this house one day when I am gone" and "you will be bringing your children up here". This was the evidence of the defendant and Price said that while he could not remember exact conversations it might have been said. When asked whether he recalled the plaintiff saying that one day the house would be the defendant's, he said that while it wasn't a general conversation it was a "known thing" in the family. I think, therefore, that before these events, the plaintiff had a general intention to benefit the defendant in relation to the Property. But that does not answer the question in this action. It still remains to be decided whether the plaintiff had the requisite capacity at the relevant time.

22 I also accept that the fact of the separation between Poletti and Price disturbed the plaintiff greatly. The defendant and Poletti each claim to have been the first to have broken the news to the plaintiff. I am not sure who did and perhaps it doesn't matter. Poletti says while it distressed the plaintiff and she didn't approve of the new relationship, she understood. The defendant, on the other hand, says it remained a matter of grave concern to the plaintiff throughout these events. I am not sure I can resolve the conflict.

23 The defendant and Price came to the view that Poletti intended to sell the house. The source of that information and whether or not it was true (and Poletti denies it was true) does not matter a great deal. The fact is that the defendant and Price came into possession of that information and they confronted Poletti with it. This was the cause of the argument at the Poletti residence to which I have previously referred. The defendant, Price and possibly May went to visit the plaintiff at the Hostel. They told her Poletti was planning to sell the Property. The plaintiff was concerned and said it must not happen. I am satisfied that these conversations took place. The evidence is not sufficiently precise for me to make a finding as to exactly what was said but that is the general tenor of what took place.

24 This is the genesis of the transactions in July and September 1994. I must now turn to consider the circumstances in which the Will and, later, the deed and transfer came to be prepared and executed.

25 Price's evidence was that at around the time of his parents' separation he was visiting the plaintiff on a weekly basis. It was necessary to speak to the plaintiff "as one speaks to a child, by putting simple propositions to her". After the question of the possible sale of the Property by Poletti was raised the issue of the Will came up. There were many conversations between the plaintiff, the defendant and Price concerning the Property. He says the plaintiff told him she wanted to change her Will. The suggestion did not come from him and it arose from the discussions between the three of them about the Property. Price obtained the name of a solicitor, Don Cockle, from his father's accountant, Cuzens. He went to see the solicitor himself and instructed him to prepare a new Will for the plaintiff leaving the Property to the defendant and everything in it to Poletti.

26 On 19 July 1994 the defendant and Price collected the plaintiff from the Hostel and took her to the accountant's office to sign the Will. Because she had difficulty walking, Cuzens and one of his colleagues came out to the car in the carpark. The Will was executed by the plaintiff with the two accountants as attesting witnesses. Price thought Cockle was present at the signing but Cuzens thought he was not. If Cockle was present it is hard to see why the second accountant came to the carpark and acted as a witness. Cuzens' evidence was that there was no conversation about the contents of the Will in his presence before it was signed. He also said he could not recall anything remarkable about the plaintiff's behaviour while he was at the car, such as her speech being incoherent or her having any difficulty in placing her signature on the Will. He left the Will in the plaintiff's possession.

27 Whether or not Thomas Price was present when the Will was signed is not clear. In any event it appears that he took physical custody of the Will and kept it at the Bank. When the Guardianship Board became involved early in 1995 the defendant obtained the Will and provided a copy to the Board. The defendant's evidence was that this was the first time she became aware of the contents of the Will, specifically that the Property had been left to her. She did say that at some time her brother told her generally of its contents. However, in a letter which she wrote to the Public Trustee in June 1995 she said that at that time (June 1995) she was unaware of the contents. In her evidence she conceded that this was wrong because by then she had previously provided a copy to the Board. Her explanation that this was simply a mistake was not particularly convincing. The circumstances are that the changes to the Will arose from discussions about the possible sale of the Property, at which the defendant was present. The defendant was present at the signing of the Will. She acknowledges that at some time Price told her of its contents. In cross-examination she conceded that she was aware of the contents of the Will, at least so far as concerns the Property, before 16 August 1994. Even if she did not actually read the document, I think, and I find, that she knew of its contents from around July 1994.

The Preparation and Execution of the Deed and Transfer

28 The defendant's evidence was that a few weeks after the signing of the Will the plaintiff expressed to the defendant and May that she wanted to transfer the whole of the Property to the defendant. The defendant said she was aware that a Will could be challenged based on the capacity of the person who signed it and that "there might still be a challenge that might see [Poletti] get her hands on the house". It was a fear the defendant had. There was an exchange in cross-examination about whether the defendant and the plaintiff had both expressed that fear and who was the first to raise it. In the end the defendant conceded that it was logical and probable that she had first raised it with the plaintiff and that this was how the transfer of the Property came to be discussed.

29 The defendant says she was never comfortable with the idea that the entire Property be transferred to her. She asked May to check with Social Security as to whether such a transaction would have an effect on the plaintiff's pension. May's evidence was different. He said that he raised the potential pension problem and initiated the idea of a call to Social Security. In his evidence in chief he said that he telephoned Social Security and asked whether the transfer of a half interest would affect the pension. However, in cross-examination he seemed to be saying that the question to Social Security and the answer given was in relation to the whole of the Property. The answer seems to be that because of her age the plaintiff need not report the transaction and thus there would be no effect. However, if she did report it her pension may suffer and "once I'd explained that to [the defendant] it vindicated [her] position; that 'No, I don't want to own the house because it will affect her pension' ". May said that when this was raised with the plaintiff she had come up with the idea of transferring a half interest in the Property as had been done between the plaintiff and her late husband. May said he had not then made further inquiries whether the transfer of a half share, as opposed to the whole, would affect the pension.

30 In cross-examination of the defendant this exchange occurred:

"So the solution that you came up with after Mr May spoke to the Tax Department was that if she only gave away half her house that wouldn't create a problem from the pension point of view?---Yes.

But it had the advantage to you that if it was a joint tenancy then that was as good as giving you the whole house because when she died you would get the house automatically?---Yes.

So that was the solution which presented itself to your concern that your mother might somehow challenge the will successfully?---Yes.

So when you say ... , 'I discussed this with my grandmother a number of times and my grandmother was adamant that she wanted to give me a half share in the house.' The notion of half share was something you told her about or you had come up with?---Yes."

31 I think, and I find, that the proposal to transfer a half interest in the Property was first raised by the defendant and it had very little to do with the possible consequences for the plaintiff's pension.

32 The defendant then sought legal advice as to how the transaction could be effected. She chose from the "Yellow Pages" the firm of solicitors Peter E Nettleton. There was an argument at trial as to whether the solicitor's file notes were admissible. Counsel for the plaintiff sought to tender them during cross-examination of Nettleton, the principal of the firm. Counsel for the defendant objected on the basis that they were so unclear that their relevance was questionable. The initial interview that the defendant had with the firm was with an employed solicitor, Mr Ritchie. He prepared the documents and Nettleton settled them. Ritchie was not called. As Nettleton relied on the notes in giving his testimony I think they are admissible but in the end, the resort that I felt I had to have to the notes was not extensive. The issue of the plaintiff's pension is referred to in the notes but it is not clear what part it played.

33 On 16 August 1994 the defendant went to see Ritchie. According to May, although he accompanied the defendant to the solicitor's office he was not present during the interview. May says that there was a second interview at which he was present and at which the defendant gave to Nettleton more detail about the situation. Neither the defendant nor Nettleton gave evidence to that effect and I think May's recollection of events is faulty in that respect. The defendant was, and was regarded by the firm as, the client. In her examination in chief the defendant says that she received initial advice and went to discuss it with the plaintiff. It was then that the plaintiff instructed her to go ahead and have the documents prepared. That is not borne out by the solicitor's notes. In cross-examination she said she could not remember the sequence of events. It is more probable, and I find, that the defendant instructed Ritchie there and then on 16 August 1994 to prepare the documents. Instructions were given to transfer the Property from the defendant to the defendant and the plaintiff as joint tenants by way of gift. Ritchie prepared a deed of gift and transfer. On 19 August 1994 the defendant collected the documents from the solicitors. For some reason they remained with the defendant, not acted on for about three weeks. The defendant could not recall whether she had visited the plaintiff in the period between 19 August and 10 or 12 September 1994.

34 She says that on about 12 September 1994 she received a telephone call at work from the plaintiff who told her she wanted to sign the documents that night. Just why the defendant says, all of a sudden, the matter took on such urgency in the plaintiff's mind was not explained. May and the defendant went to the Hostel and saw the plaintiff. The defendant says that May read the deed and part of the transfer document to the plaintiff although, when pressed, she was vague as to which parts were read and which were not. Her evidence was that the plaintiff said to her: "This means I still own the Property but you can live in it". The defendant answered: "Yes". May's evidence was that the defendant asked him to read the documents to her. He read the deed, start to finish, explained the contents and witnessed her signature. He had no recollection of reading the transfer document to her. This exchange occurred during his cross-examination:

"Melissa said to her on that occasion, 'This means you'll be the owner, you still own the property, but I'll live there,' or words to that effect?---She never said that.

Did you explain to her what joint tenancy means?---I explained to her what the document would mean in relation to joint tenants, the ownership, yes.

What did you explain to her?---I simply went following the instructions of Mrs Collins. She said simply without going into legal matters, 'I want the house jointly owned by Melissa and myself and should one person pass away then it falls to,' in her case Melissa because she thought at her age Melissa would benefit.

Mrs Collins said all that to you?---Prior to getting the document drawn up, yes. That's where the document came from and she--

I asked you if you knew about joint tenancies, and tenancies in common?---Mm.

Did you know about that before she said this to you?---I knew nothing about tenants in common and I knew even less about this document.

So you now know the difference, do you?---I've been told in the last few years that the joint tenants document is quite a binding document, yes.

You know that if you're joint tenants then if one joint tenant dies the other immediately succeeds to the whole interest. Do you know that?---Yes.

Whereas if it's a tenancy in common it's a separate interest and if you die it passes under your will?---Yes, I know that now, yes.

But Mrs Collins did because she in effect explained to you what a joint tenancy is?---Mrs Collins said to both Melissa and myself what she wanted and asked us to pass that on to a lawyer, who happened to be Peter Nettleton.

When she said what she wanted, she put it in the terms you told his Honour a minute ago, that when one party died the other party would get it?---She equated it to her husband, that they had owned it jointly and they were happy when he passed away it went directly to her ownership and why can't it be like it was then. That's how that document came about essentially, yes.

So going back to my original question, did you explain that to her, did you say, 'This is a joint tenancy that is created here'?---Yes, and I said - I mean, obviously we hope Melissa wasn't going to pass away but given Mrs Collins's age, and I don't know how she was feeling at the time but she said that would mean it would pass to Melissa and there would be no arguing and that would be the end of the matter."

35 The fact that the plaintiff did make reference, at some stage, to the fact that in earlier times she and her late husband had owned the Property together was confirmed by Price as well as the defendant. However, Price did not say when, or in what context, that comment had been made.

36 There are some important differences between the testimony of the defendant and May in this respect. On May's account the plaintiff gave no indication of what she understood the effect of the document to be. His comment that in late 1994 he did not know of the ramifications of joint tenancy and tenancy in common is at odds with his statement that he explained the contents of the document to her. Even the defendant's comment as to what the plaintiff said to her is equivocal.

37 Neither May nor the defendant could recall Price being present when the documents were signed. Price says he was and I have no reason to disbelieve him. It was put to him in cross-examination that he was not present. He was then not as adamant and conceded that he might have been mistaken but I think the tenor of his answers was to the effect that he was present at the signing of these documents. He says that at some time the defendant had told him that she was intending to transfer half of the Property to her own name so that when the plaintiff died the Property would go to her. He says he neither condoned nor opposed what the defendant was doing. He played no part in giving instructions to the solicitors. He says he recalls the plaintiff saying: "This just means that you can live in the house. It will still be mine". He also recalls the defendant answering: "Yes, this means that it is still your house and I will be there".

38 The defendant obtained the title deeds to the Property from her father, who had the custody of them, and gave the documents to Nettleton. The defendant paid the stamp duty on the documents. On 26 September 1994 the transfer was registered at the Lands Titles Office.

39 In January 1995 solicitors then acting for Poletti wrote to Nettleton asking various questions about the deed. He wrote to the defendant. On 24 January 1995 he received a telephone call from the defendant and they had a discussion about the issues raised in the letter. The defendant said she would arrange for the plaintiff to telephone Nettleton and give him instructions. He still did not regard the plaintiff as his client. On 24 January 1995 he received a telephone call from the plaintiff. In essence the plaintiff told him she had given the house to the defendant and wanted her to stay in it and be happy. She also said she was not upset about what Poletti was doing and he was "to do what you can". I have no idea of the circumstances in which this call was made. Accordingly, I am not prepared to give it any weight. It is for similar reasons that I am not prepared to give any weight to the evidence that I heard from Poletti and Price about comments said to have been made to them by the plaintiff on occasions since September 1994 and which is to the opposite effect.

40 In relation to the plaintiff's mental capacity at the time the documents were signed I have, fortunately, some more objective and independent evidence to which I can have resort. It is the evidence of medical practitioners, staff at the Hostel and a family friend. I also have the benefit of the Hostel records that show notes of observations made by those in charge of the plaintiff's care from time to time.

41 Beryl Wilson was a Care Manager at the Hostel from the middle of 1994 until May 1995. Her recollection was that Poletti visited the plaintiff about once a week during this period and that the defendant and Price also visited but at rather less frequency. She said that when Poletti's marriage broke down the plaintiff became distressed and emotional and remained so for a number of months. At some times she had moments of real understanding but on other occasions appeared very confused. She was not able to hold a conversation and would forget things. She had a poor short term memory. On several occasions she said to Wilson: "I want [the defendant] to live in my house but it is still my house". She was clear about that. She was very forgetful and could not remember clearly what she had done or discussed shortly after a conversation with staff members. She would often have to be reminded to come to meals and be guided through washing and cleaning.

42 Some of the Hostel records were admitted into evidence. One is called a "Care Plan". On admission to a Hostel every client has a full assessment undertaken by staff both for internal and Commonwealth funding purposes. The operator needs to be able to demonstrate the level of care that it is providing to residents. So, every client has base line data taken and it is reviewed from time to time. The document was prepared by a staff member of the Hostel. The staff member would be a care manager at the facility, that is a person with professional caring qualifications but not necessarily a registered nurse. Exhibit 15 was prepared on the plaintiff's admission to the Hostel and was reviewed in September 1993, December 1993 and April 1994. It carries the notation that the plaintiff has "an altered mental state". Under a heading "Behaviour/Cognition" ticks next to pre-printed words indicate that, in the view of the care manager, the plaintiff was "confused, wandering, oriented" and had "memory loss" and was "asking repeated questions". The following handwritten comments are relevant:

"Need to make direct eye contact when speaking to her.

Has hearing aid, doesn't fit well, so doesn't wear it.

Tends to forget needs to explain as doesn't always understand what is said.

Has only just moved in so is tending to lose direction, needs reassurance, confused about routines and times, remind about same. Asks questions repeatedly so needs time spending with her until settled. Does not always know whether she should be doing things for herself without asking permission.

Has now settled well, finds her way around, still needs reminding sometimes to come to meals and take medication."

43 Another type of document was described as "Progress Notes". These were a series of running sheets on which were recorded notes of observations made by those commissioned with the plaintiff's care. Some of the phrases in the notes have circles around them. The circled notes are in particular terminology which is used for both internal and Commonwealth audit purposes. The notes throughout the relevant period make constant reference to the need to make eye contact with the plaintiff and to speak clearly to her. There are other references to the plaintiff having a "poor memory". Exhibit 14 contains the progress notes for the month of September 1994. I think it is fair to say that there are no entries that indicate any particular cognitive problems in that period.

44 Dr David Mathias gave evidence. When he first saw the plaintiff she had the following conditions evident at the time:

(a) There was deafness requiring the use of a deaf aid. This is an ongoing state and merely needs the appropriate use of the deaf aid that she has.

(b) The plaintiff had hypertension, that is a raised blood pressure. Her hypertension produces no symptoms and requires regular 2 monthly check ups to make sure that it is controlled. To maintain control it had been necessary occasionally to vary her therapy in response to excessive increases or decreases in blood pressure.

(c) She had an auricular fibrillation which led to a minor degree of heart failure. There were symptoms also of angina pectoris and this was being treated with the use of a Nitro lingual spray. This condition had not been a problem in recent years.

(d) The plaintiff had a thyroid deficiency which requires replacement oral therapy.

(e) The plaintiff had a duodenal ulcer that had perforated and had required surgical correction at Royal Perth Hospital. She had not had any further symptoms with her upper gastro intestinal tract.

(f) The plaintiff presented with a rather nervous anxious disposition. She was able to describe where she came from and her past quite well but it was soon evident that the mild senile dementia that was present did prevent her from being able to remember recent events, although she was able to discuss immediate activities clearly and appropriately.

45 In late 1997 and early 1998 she had treatment for a severe hip condition but strong analgesics have been adequate to keep her comfortable and mobile. During the period around September 1994, if he asked the plaintiff to do the simplest of procedures such as an exercise pattern, or to wash something, or to take medication, she would look to the Hostel supervisor to ensure that she would remember to do it. She was generally incapable of performing any of those tasks if left to her own devices and she appeared to have difficulty in retaining in her memory the instructions that she had been given for more than the briefest time period.

46 At this time (September 1994) she became easily confused by any explanation of any matter that required close attention and was other than a simple explanation or statement of fact. Her emotional distress was very evident in 1994. At this stage Dr Mathias was not aware of the background that there had been allegedly a family separation. Although her physical conditions did, and do not, interfere with her ability to be able to communicate with her friends and advisers, she does have the problem of senile dementia. Her usual disposition is one of wishing to be of no stress to anyone.

47 When she is asked to do simple commands and help, she is very anxious to know that she has been effective in doing what she has been requested to do. The plaintiff can understand matters of reasonable content if they are explained to her carefully and she has the matter explained fully. If she is approached and asked to recall matters discussed approximately 10 minutes beforehand, it is more than likely that she will only have a vague, if any, recollection of the detail.

48 Dr Mathias was cross-examined at some length by counsel for the defendant. In particular, he was taken to the statement of Dr Choon Boon Loke, a Consultant Psychogeriatrician who was called by the defendant. In his statement Dr Loke had said that Dr Mathias' written opinion to the effect that the plaintiff did not have the mental capacity to understand documents was inadequate because:

"Dr Mathias in his report diagnosed Mrs Collins as suffering from 'early senile dementia'. Senile dementia is an old term for Alzheimers' [sic] type dementia. A diagnosis of dementia per se does not preclude a person from maintaining his or her mental capacity in managing their own affairs. Carmelle Peisah and Henry Brodaty, in the Medical Journal of Australia, (page 382, 19 September 1994, volume 161) STATED, 'It may be assumed that capacity is preserved in early dementia and lost in late dementia. Any further delineation depends on the pattern of decline.'

As suggested by Dr Mathias in his report, Mrs Collins' deafness complicated her comprehension of verbal instruction. There is no indication in Dr Mathias' report that visual aids such as questions in writing or some reading materials were presented to Mrs Collins to assess her comprehension. Therefore her apparent impairment of comprehension of oral instructions could not be accurately translated to represent her mental capacity to read and understand documents.

Dr Mathias, in his report dated 3 February 1995, indicated that he did not examine Mrs Collins' mental capacity to execute an enduring power of attorney. It is therefore unclear if Mrs Collins had a reasonable awareness of the nature and extent of her estate at the time."

49 The cross-examination in which Dr Mathias was given the opportunity to respond to the matters raised by Dr Loke is to be found at transcript 85 - 89. I do not intend to reflect in these reasons in any detail what is there said. I think it is fair to say that Dr Mathias was completely unmoved from the position that he had expressed in chief. In relation to the subject matter of the action, Dr Mathias said:

"I have read a copy of a document described as Deed of Gift of Freehold between Edna May Collins and Melissa Anne Price dated 12 September 1994.

On the basis of the matters referred to above, it is my opinion that Mrs Collins would not have had the mental capacity to sufficiently understand the nature, purport and effect of the Deed of Gift signed in September 1994."

50 Dr Loke pointed out that no particular tests had been done to assess the plaintiff's mental capacity. He thought it was important to do so rather than rely on impressions, as some general practitioners who visited Nursing Homes tended to do. He also thought that short term memory deficiency may not correlate to a lack of mental capacity in relation to documents. Similarly the description "confused" in the Hostel notes did not necessarily reflect on the plaintiff's capacity to execute legal documents. His opinion was summarised in this comment:

"In general at the early stage of senile dementia, or Alzheimer's type dementia, the elderly person would still have that capacity. In fact that opinion is expressed by my colleague Prof Henry Brodaty in the paper that I think I quoted in my statement of evidence; that for Alzheimer's type dementia while the cause is progressive, at early stage one can usually assume that they still maintain their testamentary capacity. At middle stage that's when we're not sure, when they just cross the threshold and at late stage they often do not have the testamentary capacity. So there's a threshold effect if the cause has been progressive."

51 There was evidence that the plaintiff had completed a taxation return for the year ending 30 June 1994 (exhibit 26). Dr Loke thought this was a significant indicator on mental capacity. Dr Mathias thought much would depend on the complexity of the document. There are two things to be said about the taxation return. The first is that, as taxation returns go, it is a simple document. Secondly, the circumstances in which it was prepared and the degree to which the plaintiff personally contributed to it is not clear. It was apparently prepared with the assistance of a Mrs Isaacs, about whom I was told very little other than confirmation that she is an old friend who had also lived in a self-contained unit. It may be inferred that she is, therefore, of greater competence. The fact is that it was, on the evidence, completed only with external assistance.

52 The legal principles on which the decision falls to be made in this case were not seriously in dispute. Nonetheless, I think I should set out what I see as the legal framework.

53 The authorities generally speak in terms of "unsoundness of mind". I will continue to use that phrase even though it may not be particularly exact in this context. The contract of a person of unsound mind is binding upon her unless it can be shown that at the time of making the contract she was wholly incapable of understanding what she was doing and that the other party knew of her condition. In Imperial Loan Co v Stone [1892] 1 QB 599 Lord Escher MR said at 601:

"When a person enters into a contract, and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is binding on him in every respect whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about."

54 The onus of establishing that the contracting party was mentally incapable at the time when the contract was entered into lies on the person seeking to set aside the transaction: In the Estate of Daniel Doll [1881] VicLawRp 178; [1881] 7 VLR (IP & M) 70. Of course, mental disabilities are not necessarily present at all times. A person may be incapable due to mental disturbance at one time but quite capable at another. In such a case, the dicta of Griffiths CJ in McLaughlin v Daily Telegraph Newspaper Co Ltd [No 2] [1904] HCA 51; (1903-1904) 1 CLR 243 at 277, is apposite:

"It is not disputed, however, that when it is once established that a person is of unsound mind the burden of making out that a particular transaction took place during a lucid interval is cast upon the person alleging the fact."

55 Thus, the person who alleges that a contracting party is of unsound mind must first satisfy the Court of that fact. Only then does the burden shift to the other party to establish that the transaction occurred at a time when the contracting party possessed contractual capacity. Generally speaking, in assessing the evidence on the threshold question (that is, whether the contracting party was of unsound mind) it would not be enough for the plaintiff simply to raise a suspicion or a doubt. If that were to be the case the defendant would have the task of allaying the suspicion or doubt. However, the plaintiff could not succeed in the action simply because the defendant had failed to negate the doubt or suspicion. The onus still rests with the plaintiff to establish positively the allegation that the contracting party was suffering from unsoundness of mind. I accept that submission. It seems to me to follow from Worth v Clasohm [1952] HCA 67; (1952-1953) 86 CLR 439, a case concerning the testamentary capacity of a testator, where the court said at 452 - 3:

"After anxious consideration of the whole case we are of the opinion that there is no sufficient reason for denying that a testatrix who appeared to so many competent observers to be completely sane, and made a completely rational will, lacked a sound disposing mind. A doubt being raised as to the existence of testamentary capacity at the relevant time, there undoubtedly rested upon the plaintiff the burden of satisfying the conscience of the court that the testatrix retained her mental powers to the requisite extent. But that is not to say that he was required to answer the doubt by proof to the point of complete demonstration, or by proof beyond a reasonable doubt. The criminal standard of proof has no place in the trial of an issue as to testamentary capacity in a probate action. The effect of a doubt initially is to require a vigilant examination of the whole of the evidence which the parties place before the court; but, that examination having been made, a residual doubt is not enough to defeat the plaintiff's claim for probate unless it is felt by the court to be substantial enough to preclude a belief that the document propounded is the will of a testatrix who possessed sound mind, memory and understanding at the time of its execution."

56 The effect of this is that if the plaintiff raises a doubt as to the contracting party's capacity at the time the evidence must be examined carefully and a view taken on the whole of the evidence. However, this does not translate to a proposition that the onus shifts to the defendant resulting in the defendant losing the case if he fails to discharge it. Rather the issue is whether, on the whole of the evidence and despite the doubts, the contracting party was of unsound mind or not.

57 It has been suggested that in the case of a voluntary disposition it is not necessary to establish that the other party was aware of the mental disability affecting the party with whom he or she was dealing: Elliot v Ince [1857] EngR 392; [1857] 7 De GM & G 475 . I do not think this is correct. In Crago v McIntyre [1976] 1 NSWLR 729 Holland J suggested, at 740, that even if there is a rule that a transaction for value will not be set aside in equity if the party dealing with the person of unsound mind dealt fairly and in ignorance of his condition, the rule does not apply in the case of a voluntary settlement of his own property by a person lacking mental capacity. I think that the emphasis there is on the word "fairly". In such a case the transaction may still be set aside, but not on the grounds of the mental disability. Rather, the focus of attention shifts to issues such as fraud, undue influence or unconscionability: see Hart v O'Connor [1985] UKPC 1; [1985] AC 1000 at 1004 - 05; see also "The Law of Contract, Greig and Davis" (1987) at 794. In this case the plaintiff alleges that the defendant was, or ought to have been, aware of the plaintiff's mental state. In any event issues such as unconscionability and undue influence are also raised.

58 The extent or degree of unsoundness of mind that must be established depends on the nature of the transaction under scrutiny. In Gibbons v Wright [1954] HCA 17; (1954-1955) 91 CLR 423 the Court said at 438:

"The principle which the case supports, and for which Boughton v Knight; Jenkins v Morris; Birkin v Wing and Estate of Park may also be cited, appears to us to be that 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 the transaction when it is explained. As Hodson L.J. remarked in the last-mentioned case, '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: Manches v Trimborn."

59 This was clearly a voluntary transaction and, in my view, the principles applicable to cases of testamentary capacity are largely applicable. Resort can be had to the testamentary capacity cases to ascertain the extent or degree of the understanding necessary in a particular case.

60 In Timbury v Coffee [1941] HCA 22; (1942-1943) 66 CLR 277 Dixon J at 283 approved this statement taken from In the Will of Wilson (1897) 23 VLR 197 at 199:

"Before a will can be upheld it must be shown that at the time of making it the testator had sufficient mental capacity to comprehend the nature of what he was doing, and its effects; that he was able to realise the extent and character of the property he was dealing with, and to weigh the claims which naturally ought to press upon him. In order that a man should rightly understand these various matters it is essential that his mind should be free to act in a natural, regular and ordinary manner."

61 This test was explained in Crago where Holland J said at 740 - 1:

"In establishing that test the courts have endeavoured to reconcile acceptance of the right of a testator to dispose of his property as he pleases with a desire to protect the interests of those whom society has accepted as having a moral claim on a testator's bounty. For this reason it is not enough for the testator to know and understand how he is leaving his property when he executes his will. He must also possess sufficient capacity to appreciate what his property is and recognise the persons who have a moral claim upon him and, more importantly for present purposes, a capacity to exercise a balanced judgment as to such claims. In my opinion, there is much to be said for applying the same standard to a voluntary settlement by a settlor of his own property. The positions of a settlor and a testator are not, of course, identical. In the case of a testator the law has no concern to look after the donor's own interests because he is dead, but equity has always shown some concern for the interests of a person who makes a voluntary settlement of his own property inter vivos. Maybe this is because the trusts created by such a settlement are enforceable only in equity, and this has given the equity courts, as courts of good conscience, an opportunity to apply to such settlements general concepts of fairness and protection of the weak, particularly when they are for some reason disabled from exercising a proper judgment of their own interests. No question of depriving another party of the benefits of a fair and proper bargain for which he has given consideration arises on a voluntary settlement, but such a settlement may put a settlor in a position in which he has failed to do justice, not only to himself, but also to those who may become dependent upon him, or to whom he might owe or acquire a moral duty to provide. For these reasons I think that there should be applied to the case of a voluntary settlement the same test of mental capacity as is applied to the creation of a testamentary trust."

62 Reference should also be made to Re Beaney [1978] 2 All ER 595 in which it was held that the subject matter and value of the voluntary disposition might be relevant to the particular transaction. If the effect of the transaction was to dispose of the donor's only asset of value the degree of understanding is as high as that required for a will and the donor must understand the claims of all potential donees and the extent of the property to be disposed of.

63 I have to make a decision on the conflict in the medical evidence. I prefer that of Dr Mathias for the simple reason that he had actually seen the plaintiff on numerous occasions over the relevant period and since. Dr Loke had never actually seen the plaintiff. I appreciate Dr Loke has specialist qualifications and Dr Mathias does not. However, it is apparent that Dr Mathias has had long experience, albeit as a general practitioner, in the treating geriatric patients. I acknowledge the part that formal testing procedures (CT scans, questionnaires and the like) play and that there is no evidence that they were done in this case. I also accept that, ideally, an assessment of mental capacity should be done in close temporal proximity to the impugned incident. But no one knew at the time that this problem would arise and the critical time had passed before an opportunity to do so arose. Dr Loke felt uncomfortable with the diagnosis of early senile dementia but he acknowledged that he was not, on the information available to him, able to make a definite diagnosis himself. If the diagnosis of early senile dementia is accepted, and I do accept it, I think Dr Mathias, with his regular visits to the plaintiff was the person in the best position to make an assessment of its degree and progress in the plaintiff's case.

64 I am fortified in my acceptance of Dr Mathias evidence by answers he gave in response to questions that I raised by way of what I then saw as a summary of the general approach taken in his cross-examination. It appears at transcript 91 - 92. The answers that he gave are long but in my view they indicate that his position on the relevant issues was reasoned and well thought out.

65 There is other independent support for the types of observations that Dr Mathias found important in forming his opinion. I have already referred to the evidence of Beryl Wilson as to the plaintiff's confusion and forgetfulness. Malcolm Stokes also gave evidence. He was a family friend. He said he had been influential in the decision that the plaintiff should move into the Hostel. He had become concerned at her ability to make the decisions necessary when she was living alone. She was disorganised and disorientated. Since she moved to the Hostel he had visited her "every few months". He said there had been a noticeable decline in her mental and physical capabilities since moving into the Hostel. The change has been steady rather than sudden. He said it was only possible to discuss with her things that had happened in the past. When saying things to her she would often give a response that was inappropriate so that the questioner would be unsure whether she had heard or understood the question. There was also a lot of repetition in what she would say. He also said that apart from her declining mental state she was someone who had not had dealings with legal documents. He also said that from time to time, probably from 1997, she has said things to him to the effect that she was unhappy with what had been done about the Property and was upset about it.

66 The essence of Dr Mathias' opinion was that due to her problems and despite her attachment to and familiarity with the Property the documents contained terminology with which she would not have been familiar. She could not have comprehended it unless it had been dissected sentence by sentence giving her the opportunity to digest one aspect before moving to the next. There was no evidence that the explanation to her of the documents was carried out in that way. I have not relied only on Dr Mathias' opinion. I think it fits with the totality of the evidence that I have heard and especially the evidence given by the more independent and objective witnesses.

67 There was no evidence that bore directly on the size of the plaintiff's estate or the relative position that it held in her asset base. However, what is clear is that it was an asset of special significance to her. I think this is a factor that can be taken into account. In accordance with Re Beaney the subject matter, if not the value, of the asset which was disposed of in a voluntary transaction means that the degree of understanding of it by the plaintiff must necessarily have been high. I am satisfied that she did not have that degree of understanding. In my opinion, and I find, as at the relevant time the plaintiff lacked sufficient mental capacity to comprehend the nature of what she was doing and its effects, and to be able to realise the extent and character of the property she was dealing with, and to weigh the claims which naturally ought to press upon her. That, I find, was the plaintiff's mental state generally during the relevant period. The defendant has not persuaded me that at the time when she executed the documents the plaintiff was in a "lucid period" or otherwise as not then subject to the mental deficiencies that generally afflicted her.

68 The next question is whether the defendant knew or ought to have known of the plaintiff's lack of capacity. Counsel for the plaintiff submitted, and I accept, it is not necessary to establish that the defendant had precise knowledge of her medical condition and her mental capacity. Rather the focus of attention is on all of the factors surrounding the execution which gave rise to an apprehension that she may not have sufficient capacity. It is not actual knowledge that is necessary. Constructive knowledge will suffice. In this respect the type of considerations mentioned by Mason J in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1982-83) 151 CLR 447 at 467 are apposite even though that case dealt with unconscionable conduct rather than contractual capacity.

69 In this case the defendant was aware of a number of things. She knew that the plaintiff was of advanced years and that she had been forced to leave her home and move to the Hostel because she could no longer live independently. She knew that the Property held special significance for the plaintiff. She was aware of some difficulties in communicating with the plaintiff, although the defendant says that she felt able to do so. The independent evidence (and that of the defendant herself) was that the news of the breakdown of Poletti's marriage had caused the plaintiff quite severe emotional distress. The defendant knew that the plaintiff was worried the family situation and what was going to happen to them all. The defendant felt there was a danger that Poletti would sell the Property and she conveyed that concern to the plaintiff. Very importantly, the defendant conceded in her evidence that she had a fear that Poletti might challenge the Will on grounds of capacity. Finally, the defendant was visiting the plaintiff on a regular basis. The gradual decline in her condition, as testified to by Dr Mathias and Stokes, should have been apparent to the defendant.

70 Against this background, we come to the events of August and September 1994. I find that it was the defendant, not the plaintiff, who raised the issue of further developments in relation to the Property, the earlier development having been the Will. It was the defendant, not the plaintiff, who suggested a transfer of a half interest. It was the defendant who sought the legal advice and who gave the instructions for the preparation of necessary documentation. At no stage until her mother queried the transaction in January 1995 was any step taken to have legal advice given to the plaintiff directly, and even then it was in a somewhat half-hearted manner. I find that the reading of the documents to the plaintiff by May prior to her signing them was perfunctory and not done in a way that would allow her to digest and understand them as described by Dr Mathias. Finally there is the rather curious description of the result of the documents given by the defendant in answer to a question put to her by the plaintiff immediately after they were signed. The plaintiff asked: "This means I still own the Property but you can live in it", and obtained an affirmative answer. It would be trite to say that this is not the true purport and effect of the documents. It raises the question whether the plaintiff, as a question of fact, actually understood the documents. Of course, the critical question is whether she had the requisite capacity rather than whether she actually understood the documents. But a lack of actual understanding may point to a lack of capacity. It will not necessarily be so. It is merely one of the factors to be taken into account.

71 All of that may sound more appropriate to the pleas of unconscionability and undue influence than to the question of knowledge of the plaintiff's mental capacity but it is not. In my view what the defendant knew of the background and her conduct in implementing the transaction is relevant to her state of knowledge, or what she ought to have known about the plaintiff's capacity.

72 In my view the deed of gift and transfer of the Property should be set aside because at the time of signing them the plaintiff lacked the capacity to understand their terms and effect.

73 This conclusion makes it unnecessary for me to deal specifically with the alternative claims based in unconscionability and undue influence.

74 I have already said that I am satisfied that the plaintiff was more than happy for the defendant to reside in the Property rent-free provided she maintained it. I also believe that the plaintiff did express an intention that eventually the Property should go to the defendant. I realise that as a consequence of this decision all of that is at risk. I also accept that the defendant has expended moneys on maintenance and improvements. The latter issue was not, of course, developed in the evidence.

75 The question of the plaintiff's testamentary capacity as at 19 July 1994 was not in issue in these proceedings. I would not wish it to be thought that I have taken a view on that issue or that the findings that I have made here inevitably flow on to the Will. There are marked differences between the circumstances in which the Will was signed in July and those that pertained when the deed of gift and transfer were executed in September. For a start, there were independent witnesses to the signing of the Will and Cuzens testified that he noticed nothing abnormal in the plaintiff's behaviour. While the defendant was present during the discussions about the Will, knew of its contents from that time on and was in the vehicle at the signing, I accept that she played no part in the instructions to the solicitor for its preparation. That was all done by Price. There is no evidence from Price or anyone else to suggest that the terms of the Will were other than in accordance with the plaintiff's wishes.

76 It is a curious and unsatisfactory situation. The result of this decision is that the defendant and her family may be removed from the Property and the plaintiff's wishes subverted. It leaves open the potential for further litigation. That result will not necessarily follow but the potential is there. In a family context that is to be regretted. The parties may be required to make some difficult decisions before all issues are resolved. I can only hope that good conscience and fair dealing will govern the approach of all concerned.

77 The plaintiff is entitled to a declaration in the terms that I have outlined and to an order that the deed of gift and transfer be set aside. There may be consequential orders and I will hear the parties accordingly.