Kenneth Charles Ward v Brian Charles Ward & Anor

JUDGMENT (ex tempore) 1HIS HONOUR: The Plaintiff Kenneth Charles Ward sues his son, the First Defendant, Brian Charles Ward, and his grandson, the Second Defendant David Brian Ward, as against the First Defendant to have set aside a transaction whereby the Plaintiff made a gift to the First Defendant of a one third interest in a property purchased in 2003 by the Plaintiff from the son of his de facto spouse, in the names of the Plaintiff, his de facto spouse, and his son; and as against the Second Defendant, to recover a loan of $140,000 and interest advanced on behalf of the Plaintiff by the First Defendant as his Attorney Under Power to the Second Defendant, the advance being derived from the proceeds of sale of the Plaintiff's former home at Marrickville. 2The Plaintiff, who was born on 2 August 1926, was at the time of the relevant events in 2003 some 77 years of age. His wife Nonie had died in 1988. They had two sons - Brian, the First Defendant, who is now aged 60; and Anthony, who is now aged 51. 3The Plaintiff had retired from his employment as a driver for Marrickville Council in 1991 at the age of 65. Previously, he had been a service station proprietor. He lived in a house, which he had inherited from his mother, in South Street, Marrickville. From 2001 his younger son, Anthony, and Anthony's partner, lived with him there. 4In April 2003, the Plaintiff was assaulted by Anthony and his partner. Subsequently there were criminal and domestic violence proceedings against Anthony and his partner. Following that the Plaintiff re-established contact with Brian - with whom he had had virtually no contact since the early 1990's - in about April of 2003. 5In May 2003 he made a will of which Brian was the substantial beneficiary. In June 2003 he spent some days staying with Brian while his de facto spouse, Iris Lawson, underwent surgery. 6On 27 June 2003 he appointed Brian his attorney under a General Power of Attorney of that date which was prepared by a solicitor, Rudolf Franco Bergagnin of Marrickville, who it is said, was introduced to the Plaintiff by Brian. 7He was the subject of an application for guardianship and financial management to the Guardianship Tribunal, commenced in 2002, which was dismissed in 2003, in circumstances where, not long before its hearing, Brian was appointed his attorney. 8In July 2003, the Plaintiff apparently instructed Mr Bergagnin that he wished to sell his Marrickville property and purchase a property at 7 Marcus Street Kings Park, which was owned by Iris Lawson's son, who had expressed a willingness to sell the property but indicated that he wanted some assurance that his mother's interests would be looked after. The Plaintiff decided to purchase the property in the names of himself, Iris, and Brian as joint tenants, intending that the survivors succeed to the property. 9It would seem that having lost the relationship he had previously enjoyed with his younger son Anthony, he anticipated resumption of a close relationship with his older son Brian. 10In order to purchase the Kings Park property he would sell the Marrickville property. The Marrickville property sold on 5 July 2003 for $586,000. On 31 July, contracts for the purchase of the Kings Park property were exchanged naming the Plaintiff, Iris and Brian as purchasers as joint tenants. The purchase was completed on 12 September 2003 for $340,813.54, including adjustments. This left a surplus of about $166,000 from the proceeds of sale of the plaintiff's Marrickville property. Brian moved permanently into the Kings Park property where he cohabits with Iris Lawson. 11On 5 November 2003, Brian told the Plaintiff that he would invest $140,000 for the Plaintiff, and that the remaining $26,000 would be provided to the Plaintiff for living expenses. Apparently Brian said that he would invest the $140,000 in an entity called the 'Beachblast Trust', and that the Plaintiff would receive interest of $20,000 each 18 months. 12A document bearing date 26 November 2003, produced from Mr Bergagnin's records, suggests that on that date $160,000 was paid to Almanac Pty Limited, and $6,231.73 was remitted to Mr Ward. According to a corporation search, Almanac Pty Limited had its place of business in Campbelltown. Strike-off action commenced against it in March 2008, and it was deregistered and dissolved on 11 May 2008. The Second Defendant, David Brian Ward, was a Director of Almanac from 14 January 2005 to 11 May 2008. 13It appears that on 27 November 2003, the First Defendant, Brian claiming to act pursuant to the Power of Attorney, executed a loan agreement between the Plaintiff as lender, and the Second Defendant David Brian Ward, purportedly as trustee for the Ward Trust, as borrower, by which the Plaintiff agreed to advance to the borrower $140,000 with effect from October 2003. 14The agreement has its difficulties, and does not appear to have been carefully drafted with the interests of the lender in mind. It defines the maturity date as 6 September 2009, and "agreed interest" as interest at the rate of 15 percent per annum to be capitalised into the loan and payable upon maturity. Clause 6, entitled 'Repayment of the Loan', provides as follows: 6.1 Loan Repayment. The Borrower and the Lender agree that the loan will not be repaid prior to the Maturity Date; (a), it is agreed that the borrower will use its best endeavours to repay the loan upon maturity, however, it is understood the proceeds from The Project sales will be required to repay the Agreed Interest and Agreed Advance; (b), it is agreed that the payments stipulated in clause 6.2 will be paid in priority to any investor or receiving any proceeds once funds become available for distribution from the project. 15It seems to me that the reference to clause 6.2 is mistaken, there being no clause 6.2 in the document, and is intended to be a reference to 6.1 (a) 16In the loan agreement, "Project" is defined to mean "The proposed development at ... Campbelltown of 69 residential and four commercial units". 17The relationship between the Plaintiff and Brian appears to have been maintained in late 2003 and 2004. 18On 21 April 2004, the Plaintiff received a payment of $20,000 - apparently the difference between the $6,000 odd remitted to the Plaintiff and the $26,000 remaining after the investment in the 'Beachblast Trust,' which he was to receive for "living expenses", from the Marrickville proceeds. He received a further payment of $20,000 on 30 August 2005. This, at least so far as he was concerned, was the initial payment of interest in accordance with the representation attributed to Brian. 19In February 2007, by which time the next interest payment, according to that representation was due, it had not been received. When the Plaintiff made an inquiry about that, Brian said that he would see what was happening. 20In January 2008, Brian suggested that a payment of $5,000 might be forthcoming. By February 2008, the relationship was deteriorating and contact became infrequent. Brian did not respond to a telephone call that month from the Plaintiff. 21On 3 April 2008, the Plaintiff revoked the Power of Attorney and made a new will. He instructed Mr Bergagnin to demand an accounting for the $140,000 said to have been invested on the Plaintiff's behalf. Nothing that could be described as an accounting was ever forthcoming. But it was at about that time that Brian provided to Mr Bergagnin a copy of the loan agreement to which I have referred. 22On behalf of the Plaintiff, Mr Bergagnin made further requests for information in September and October 2008. None of them produced a response. 23Meanwhile, a different firm of solicitors, Matthews Dooley & Gibson, who now in these proceedings act for the Plaintiff, prepared on his behalf a further will, which he executed on 10 June 2008, the effect of which was that Brian, who had previously been an executor, was no longer named as an executor; instead, the plaintiff's de facto wife, Iris Lawson, and her son Anthony James Lawson, should she predecease him, were appointed as executors. 24The will substantially benefits Iris Lawson, but some provision was still made for Brian - including the residuary estate in the event that Iris should predecease the Plaintiff. 25Concurrently with the will, the Plaintiff made a statement described as "Statement Pursuant to S32 of the Family Provision Act", in which he recorded inter alia : "I have bought a house with Iris Mary Lawson, my present partner, and my son Brian Charles Ward, and Iris and I are living in it". Although the statement went on to explain why only limited provision was made for Anthony Ward, it said nothing adverse to Brian Ward, nor did it indicate any resiling from the joint tenancy arrangement in respect of the Kings Park property. Later, however, the joint tenancy was severed by the Plaintiff. 26Brian made an application to the Guardianship Board for review of the revocation of the Power of Attorney, which was subsequently dismissed. On 25 February 2009, Brian responded to a letter from Matthews Dooley & Gibson disputing in general terms the allegations and claims against him. Correspondence to David Ward has never elicited a response, and service on him has been by way of substituted service. Furthermore, on 11 February 2009, Matthews Dooley & Gibson sent him a letter enclosing a copy of the letter to Brian Ward of the same date and urging provision of evidence of capacity to repay, which elicited no response. 27Neither defendant has appeared. As previously recorded, I am satisfied of service personally on the First Defendant, and by substituted service on the Second Defendant. 28The failure of a defendant who does not appear to plead to allegations in the Statement of Claim founds deemed admissions of the allegations in the Statement of Claim [see Sergi v Jurcevic (1999) 46 NSWLR 672, 676-678; MY Distributors Pty Ltd v Omaq Pty Ltd and Another (1992) 36 FCR 578; Mirembe Pty Ltd v Dangar [2009] NSWSC 1268, [4]]. In addition to the deemed admissions arising in that way, the Plaintiff has on the undefended hearing read affidavit evidence and tendered documentary evidence in support of his claim. 29The first part of the claim with which I shall deal is that against the Second Defendant, which is in substance an action on the loan agreement for the sum advanced plus outstanding interest. As I have foreshadowed, the terms of the loan agreement are not without difficulty. 30Reading the loan agreement as a whole, it does not appear to have been the intention of, or contemplated, by the parties, that there might be circumstances in which the loan would never be repayable in full. However, it is clear that it was contemplated that, in some circumstances at least, the loan would not be repayable on the so-called maturity date. The intent appears to have been that, at least so long as sales of the units in the project were proceeding, and had not been completed, the borrower - so long as it used its best endeavours to repay - would not be in default, or, in other words, that it had to make payments out of the proceeds of sales as they became available, and in priority to returns to investors, but so long as it did so, then it was sufficiently complying with its repayment obligations. 31The difficulty is that, at this point, there is a complete void of evidence as to the status of the project sales. Had the case been defended, it seems to me that the Plaintiff may have encountered great difficulties in establishing, on the present evidence, the Second Defendant's liability. However, in the absence of a defence, there are admissions on the pleadings to the effect that the sum of $140,000 had become repayable by 6 September 2009, as had interest at the rate of 15 percent per annum on that sum. In those circumstances, despite the deficiencies of evidence, it seems to me that the Plaintiff is entitled to succeed against the Second Defendant, on those deemed admissions. 32So far as the other aspect of the claim presently pressed is concerned, it is that the transfer of a one-third interest in the Kings Park property into Brian's name should be set aside in equity, on the grounds of unconscionable dealing. 33Where a party impugns a transaction on the ground that it is an unconscionable dealing, first the Plaintiff must establish that there was a relevant relationship of "special disadvantage"; secondly, the Plaintiff must establish that the Defendant understood that the Plaintiff was at a special disadvantage - although in this respect actual knowledge of any specific diagnosis or condition is not required, and it suffices that the Defendant knew, or ought reasonably have known that the Plaintiff was not in a position to look after his or her own interests; and thirdly, the defendant then bears the onus of establishing that the transaction was fair, just and reasonable, which involves showing either that the Plaintiff received full value or was independently advised. 34In this context, "special disadvantage" is usually associated with conditions that make people vulnerable to exploitation and less able to conserve their own interests. At the heart of the doctrine is the prevention of unfair exploitation of the disadvantaged or vulnerable. A relationship of emotional dependence that renders a party susceptible to improvidence in favour of the stronger party may attract the doctrine [ Louth v Diprose (1992) 175 CLR 621; Bridgewater v Leahy (1998) 194 CLR 457; Tillett v Varnell Holdings Pty Limited & ors [2009] NSWSC 1040 [52]-[54]]. 35In the present case, the "special disadvantage" is said to arise from the circumstance that the Plaintiff Mr Ward, was elderly, had been consuming substantial quantities of alcohol, had been assaulted by his younger son, and had just re-established a relationship with his elder son, the First Defendant, which he anticipated would continue. Bearing in mind that at the relevant time he was aged only 77; though he says that he was drinking five schooners a day, there is no suggestion that he was under the influence of alcohol at the time of any relevant transaction; and that it is not unnatural for a parent to make provision before, as well as after death, for their offspring, this is not a strong case of "special disadvantage". 36The notice of that disadvantage, such as it was, to the First Defendant, is said to arise substantially from the improvidence of the transaction, namely that the Plaintiff received no consideration for it, that it involved exposing him and his de facto spouse to the potentially considerable risk that, as a joint tenant Brian, could insist on a sale and effectively put them out of their home, that given the brevity of the re-established relationship with Brian, there might be grounds to doubt his long-term loyalty, and that while it may be that it was hoped that giving Brian an interest in the property would give him an incentive to be involved in its upkeep and maintenance, that was not much more than a mere hope, without any assurance. In those circumstances, it might well be said that the transaction involved practically no benefit for the Plaintiff, and incurred a substantial risk; whereas on the other hand it was entirely without risk for Brian (beyond the potential that he might be called on to contribute to outgoings), but conferred on him a substantial benefit. 37That said, again had the case been defended, I think it would have been debatable whether "special disadvantage" was established on the evidence before me. But again, the Plaintiff has the benefit of a deemed admission (pursuant to paragraph 24 of the Statement of Claim) that at the time of the transaction he was under a special disability or disadvantage known to the First Defendant, and (pursuant to paragraphs 25 and 27 of the Statement of Claim) that the First Defendant unconscionably took advantage of that disadvantage. Those deemed admissions entitle the Plaintiff to succeed on that ground. 38As I understand it, although the pleading contains allegations against the First Defendant also in respect of the loan transaction, they are not pressed at this stage. I will reserve further consideration in that respect. 39Accordingly, the Plaintiff is entitled to judgment against the Second Defendant for the amount of the advance and interest in accordance with the terms of the loan agreement. As the loan agreement provides for capitalisation of interest, that interest will be calculated on an annually compounding basis. He is entitled to a declaration that the First Defendant holds his interest in the Kings Park property upon trust for the Plaintiff. Further consideration is to be reserved of the remaining claims against the First Defendant. The Defendants should pay the Plaintiff's costs. 40I direct the Plaintiff to bring in short minutes to give effect to this judgment.