Mitchell v 700 Young Street Pty Ltd & Ors [2003] VSCA 42

Mitchell v 700 Young Street Pty Ltd & Ors [2003] VSCA 42 - VSCA 2003 case summary — Zoe

[10]

The appellant alleged in the proceeding that, in light of her circumstances, she was at a special disability or disadvantage and that the son and the bank exploited her situation and engaged in unconscionable behaviour towards her in relation to the impugned transactions which are described below and which, she claimed, ought to be set aside. She made similar claims under the Contracts Review Act 1980 (N.S.W.) ("the Act") in respect of the securities that were executed in New South Wales ("the New South Wales securities"). An unusual feature of the trial was that, although the first three respondents had filed Defences, none of them participated in the trial. The son, however, was called by the bank as its witness. The trial lasted seven sitting days which, due to the appellant's illness during part of this period, were spread over the period 16 October 2000 to 31 January 2001. As will be seen later, the learned trial judge essentially accepted the evidence of the son and rejected that of the appellant on critical matters. His Honour concluded that the appellant was not under a special disability at the relevant time, that the son had sufficiently explained the nature, substance and effect of each of the impugned transactions to the appellant before she embarked upon them and that she entered into them with the relevant knowledge, voluntarily, and not under undue influence. The learned trial judge also found that the decision by the appellant to enter into the transactions was informed, explicable and rational and that her claim that the transactions were unconscionable was not made out. Neither the son nor the bank, said his Honour, behaved unconscionably towards her. His Honour also rejected the appellant's contention that the Act applied to the transactions in question and held that the Supreme Court of Victoria lacked jurisdiction to apply the Act. Consequently his Honour dismissed the appellant's claim and entered judgment for the bank on its counterclaim against the appellant in the sum of $233,188. He also ordered that the bank recover possession of a property known as 17 Green Street Richmond ("the Richmond property") of which Galaton was the registered proprietor. Further, his Honour entered judgment in favour of the bank against each of the son and Galaton in the above sum.

[30]

I now turn to consider whether his Honour erred as is alleged by the appellant. It seems to me that, as a matter of basic principle, where a person of full age and sound mind voluntarily executes a deed or a contractual document by which he or she assumes an obligation to another party, that person is ordinarily bound by that document - Henry v. Armstrong[11], Yerkey v. Jones[12] and Wilton v. Farnworth[13]. See also Petelin v. Cullen[14]. In order to obtain relief on the basis of unconscionable conduct, such a person must establish at least two matters. One is that, at the relevant time, he or she was in a position of special disadvantage, and the second is that the other party took advantage of that position by unfair or unconscientious means. In the leading case of Amadio Mason, J., while recognising[15] the impossibility of describing definitively all situations in which relief will be granted on the grounds of unconscionable conduct, said[16] that the court has equitable jurisdiction to set aside, as unconscionable, a transaction where "one party by reason of some condition of circumstance is placed at a special disadvantage vis-â-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created." As Dr. Hardingham Q.C. noted in his useful paper Unconscionable Dealing[17], the courts have recognised that "[t]he occasions upon which a party may be said to be at a special disadvantage in this context cannot be comprehensively classified". Nevertheless, as the learned author acknowledged, various cases have provided an indication of the attributes of such special disadvantage. They include age, sex, illness, lack of education, drunkenness, financial needs, ignorance, mistake as to matters relevant to the extent of the other party's potential liability, inexperience, impaired facilities and strong emotional or other attachment to or dependence on the procurer of the impugned transaction. See, for example, Wilton v. Farnworth[18]; Blomley v. Ryan[19]; Amadio[20]; Bridgewater v. Leahy[21] and Australian Competition and Consumer Commission v. CG Berbatis Holdings Pty. Ltd.[22] It has also been recognised that the improvidence of the transaction may show that the innocent party laboured under a special disadvantage just as it might also be evidence of the stronger party's wrongful exploitation of the position of special disadvantage.[23]

[42]

In support of his case that the transactions were improvident and that his Honour's finding to the contrary could not stand, Mr. Berglund pointed in particular to the fact that the appellant was never paid the purchase price for the Richmond property, that she invested a disproportionate amount in Thurgoona Park, that Stage 2 was developed for the son's benefit and that, instead of having access to the Richmond property and the $150,000 held by Galaton, she was left with an over capitalised unit in an Albury suburb. In my view, however, this submission must also be rejected. It is true that Galaton did not pay the appellant the sale price for the Richmond property, but that must always have been contemplated in the sense that, if the property had been sold on the market, the proceeds would not have gone to the appellant, but would have been applied for her benefit in paying for the construction of her unit. Since the Richmond property could not be sold on the market, Galaton used its equity in the Richmond property towards raising loan funds which were then applied as was always intended, namely, to pay the building costs relating to the appellant's unit. In any event, it is apparent that the price of $180,000 was inflated, no doubt in order to persuade the bank to lend $144,000 on the security of the property. It will be recalled that his Honour rejected the appellant's evidence that she always understood that she would effectively retain the Richmond property notwithstanding her move to Thurgoona Park. Such a claim was, of course, inconsistent with her admitted insistence that she retain the entitlement to the age pension and with her conceded understanding that she could not move to Thurgoona Park and retain both the Richmond property and her right to the pension. It is also true that the development of Stage 2 was primarily for the benefit of the son and that the buildings erected at Thurgoona Park were over capitalised. But in determining whether the transactions were collectively improvident from the point of view of the appellant, it needs to be borne in mind that she thereby obtained the prospect of care and attention from her family and on the material side, she retained, as she wished, her right to the pension, and became joint owner of Thurgoona Park; importantly, it was the son who undertook the payment obligations under the Thurgoona Park and Richmond mortgages. As to her interest in the investments that were held by Galaton, it must be borne in mind that, whatever may have been her moral rights to those funds, from a legal point of view, she was only a beneficiary of the discretionary trust that held those moneys. In any event, the application of the bulk of those moneys contributed to her obtaining the tangible and intangible benefits to which I have referred. In the circumstances, therefore, I consider that the transactions could not be properly characterised as improvident, unlike those which were examined in Amadio and Bridgewater.

At a glance

Court

Decision date

Before

Source

Judgment (78 paragraphs)

Parties