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

2. In this appeal I have had the benefit of reading the judgment of Chernov, J.A. in draft form and, for the reasons he has expressed, I agree that the appeal should be dismissed.

5. To my way of thinking this was an action in which it was sought unreasonably to press the rules as to unconscionable dealings, catching bargains and the like to avoid transactions of a quite ordinary and natural kind. It would be a sad state of affairs if courts interfered as of course with gifts and beneficial transactions effected in favour of children in circumstances where it could truly be said that they were entered into "in consideration of the natural love and affection" that parents have for their offspring. Every day of the week, indeed far more frequently, parents make gifts to children though they might be disadvantageous to themselves. On other occasions, as was the case here, children and their parents arrange to employ their funds, primarily the parents' funds, to build "granny flats" and the like attached to new and old houses, in circumstances where it is more than apparent that the principal benefit will be received by the children either in the short or in the long term. Such demonstrations of natural generosity are not to be discouraged by the law: indeed the presumption of advancement in certain defined circumstances has been well known to courts of equity for hundreds of years.[1] If there was some disadvantage to the appellant in the present case, and that is by no means obvious as Chernov, J.A. has demonstrated, at least to the extent that the countervailing advantages and disadvantages produced no overwhelming benefit[2], that would not

call for interference by the courts, unless there were some factor which showed that such natural generosity was out of character with the parties' preceding relationship. All that went wrong here was that the appellant changed her mind, perhaps a privilege of advancing age, but not one which the courts should countenance in the ordinary course of events. Further, it would usually be unreasonable to treat 73-or 74-year old parents as incapable of deciding for themselves how they should benefit their own children, at least in the absence of some truly disabling illness of which there was no evidence in the present case.

9. The respondent bank, moreover, had no reason to believe that these transactions were other than those of a kind to be expected between parent and child and in ordinary circumstances it would be unreasonable to expect banks to deal with every transaction giving a benefit to a child upon the assumption that it was, or might be in some undefined circumstances be held to be, unconscionable. I trust no authorities are required for such obvious propositions.

19. The appellant, Marion Mitchell, appeals against the decision of a judge of the Supreme Court who dismissed her claim to have certain securities[3], which she had executed in favour of the fourth respondent, the Commonwealth Bank of Australia ("the bank"), set aside. The essential basis of the claim was that, according to the appellant, the bank and the third respondent, William Mitchell ("the son"), behaved unconscionably towards her when procuring her to execute the securities. The other parties to the proceeding were the first respondent, 700 Young Street Pty. Ltd. ("700 Young Street") and the second respondent, Galaton Pty. Ltd. ("Galaton"). 700 Young

Street is controlled by the son and is the co-owner with the appellant of a property ("Thurgoona Park") that is located at Thurgoona Park, a suburb of Albury. Galaton is the trustee of the Marion Mitchell Family Trust ("the Trust") of which the appellant was the principal beneficiary. At all relevant times, the appellant and the son were directors of Galaton and the appellant was also its secretary.

23. 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.

27. His Honour's description of the proceeding as an "unfortunate case" probably understates the lamentable circumstances that led to its institution. The appellant was born in Scotland on 5 April 1922. She was one of 12 children and was educated at a public school until she was 14 years of age. The son was also born in Scotland on 4 March 1946 and, when he was 3 months' old, was adopted by the appellant and her husband. He was their only child. In 1960, the appellant and her family emigrated to Australia, settling in Melbourne. The couple worked hard and were able to acquire, as investments, a number of residential properties in Melbourne, as well as the Richmond property which became their family home for approximately 20 years and which they held as joint tenants. The evidence before his Honour was that it was the appellant who handled the family finances and it was she who initiated the acquisition of the properties and the borrowings that were necessary to finance the purchases. Apparently, the appellant's husband did not even sign cheques on the family accounts. Acting on the advice of the son, the appellant and her husband acquired Galaton in 1980 for the purpose of it acting as trustee of the Trust. It was thought at the time that there would be a taxation advantage in using the Trust as a vehicle through which to acquire and hold family investments.

30. After a relatively short illness, the appellant's husband died on 5 January 1995 when she was aged 72. Her principal assets then consisted of the Richmond property, some funds in a bank, an interest as principal beneficiary in the Trust and, it seems, a loan account with Galaton. Galaton held passive investments valued at approximately $150,000. The funds that were used by it to acquire the investments were the proceeds of settlement of the appellant's personal injury claims. Importantly from the appellant's point of view, she was also entitled to receive the age pension and the accompanying benefits. As will be seen later, she was adamant about retaining those rights and that consideration was a principal reason why one of the impugned transactions, to which reference will be made later, was structured as it was. We were told from the Bar table that, at that time, a person of statutory age was entitled to the age pension if he or she owned no more than the permanent place of residence and assets that had a value of no greater than $80,000.

33. The son is a qualified accountant. He was made bankrupt in 1990, but was discharged from bankruptcy in 1993. Although the son has lived in Albury since approximately 1975 and had an accounting practice there, his work commitments and other interests frequently brought him to Melbourne. This allowed him to retain contact with his parents and, after the death of the appellant's husband, with her. Before the husband died, the couple made frequent trips to Albury and usually stayed with their son and his family. It seems that they enjoyed the visits and in particular, seeing their grandchildren and visiting the casino. During those visits there was talk of their moving to Albury to be near the son and his family. After her husband died, the appellant continued her trips to Albury, although on a less frequent basis. In contrast to the situation when the husband was alive, when they had many visitors to their home in Richmond, after his death, the number of visitors to her home progressively diminished. As a result, she became lonely and withdrawn and her physical and mental health deteriorated. She suffered from sleeplessness and depression and lost her confidence and was treated by her doctor for those problems in 1995 and into 1996.

36. In the latter part of 1995 or early 1996 the son and his wife entered into a contract to purchase a block of land ("the son's land") from the Albury Wodonga Corporation (N.S.W.) at the Thurgoona Park subdivision on which they planned to construct their residence. According to the son's evidence, not long thereafter, during one of the appellant's visits to Albury, it was proposed that the appellant move from the Richmond property to live with the son's family. The son told his Honour that it was apparent to him that, since her husband's death, the appellant's health and general wellbeing had progressively deteriorated, that she was lonely and missed his emotional support and that of his family. He also considered that her condition would deteriorate further if she were to remain alone at the Richmond property. After some discussion it was agreed that the appellant would move her home to Albury. This, however, necessitated a re-arrangement of the parties' respective financial and other positions. First, because a bigger house was now to be constructed, a larger piece of land had to be acquired and secondly, given the appellant's situation, the timing of the construction of the house would have to be brought forward. Next, the son was unable personally to finance the whole cost of the construction of the larger house so that it became necessary to raise at least some of the funds from the appellant's assets.

39. Consequently, the son and his wife cancelled their contract to purchase the son's land and instead, the son arranged for the appellant and 700 Young Street to enter into a contract to buy a larger piece of land, Thurgoona Park, for $64,000. He also caused a deposit of $6,400 to be paid in respect of that purchase. Under the terms of the contract, the purchasers had 12 months to complete the acquisition although they were entitled, in the interim, to take possession of the land and commence construction. It was proposed that the building works would progress in two stages: Stage 1 would involve the building of a two bedroom, self-contained, unit for the appellant and Stage 2 would consist of the construction of the larger home for the son and his family.

42. According to the son, it was accepted by the appellant that she would have to divest herself of the Richmond property because, unless she did so, she would lose her pension, given that her permanent place of residence was going to be at Thurgoona Park. If she also retained the Richmond property, the pension would be lost to her. Thus, it was common ground that the Richmond property would have to be sold. It was also realised that this would take some time so that it was decided to begin the construction of the appellant's unit without waiting for the sale to be completed and the progressive building costs were met from the sale of some of the passive investments that were held by Galaton. Although the evidence is not clear on this point, it seems that approximately $130,000 was raised through the sale of the Galaton investments and applied towards the cost of construction of the appellant's unit. According to the son's evidence, the appellant took an interest in the construction of her new home, often visiting Albury to inspect it and participating in the selection of the interior finishes. The Richmond property was put on the market, but without success in the sense that the appellant rejected such offers as were made - the highest was $160,000 - as being inadequate. At one stage, she sought a price of $205,000 for the house and made one attempt to sell it without the assistance of an estate agent. All these efforts were singularly unsuccessful. In the end, the son suggested to the appellant that the further funds that were needed to pay for the construction of Stage 1 should be raised by the sale of the Richmond property to Galaton which, in turn, would use the property as a vehicle to borrow the necessary money.

45. By late August 1996, there was some urgency about obtaining funds to pay for the building costs because the appellant's unit at Thurgoona Park was then all but complete and two rooms of Stage 2, which were to provide temporary accommodation for the son and his family, were also nearing completion. In the result, on 3 September 1996, the appellant entered into a contract of sale pursuant to which she sold the Richmond property to Galaton for $180,000. No doubt in anticipation of that transaction, on 8 August 1996, Galaton applied to the bank, through a finance broker (who had been introduced by the son), for a loan of $144,000 which was to be secured by a mortgage over the Richmond property. The application was successful and, according to the settlement statement of 20 September 1996, approximately $63,000 of the loan was paid to satisfy the balance of the purchase price of the Thurgoona Park land. Of the remainder of the loan - approximately $79,000 or thereabouts - $20,000 was paid into the appellant's account with the National Australia Bank Ltd. for the purpose of extinguishing the temporary overdraft (that had been used to pay building costs) and the balance of approximately $60,000 was paid to Galaton which, in turn, applied it, or a substantial part of it, to paying Stage 1 building costs.

48. As security for the loan of $144,000, Galaton executed a first registered mortgage (dated 22 November 1996) over the Richmond property in favour of the bank ("the Richmond mortgage"). The son signed the security as director of Galaton and the appellant signed it as director and secretary of the company. The mortgage provided that the loan was to be repaid by monthly instalments of principal and interest of $1,343. The son paid those instalments until the relationship between him and the appellant was severed in the circumstances which are described later. The appellant and the son also signed an "all moneys" guarantee, dated 18 September 1996, in favour of the bank in respect of its loans to Galaton. The son's evidence at the trial (which his Honour accepted) was that, before the security documents relating to the Richmond property were signed by the appellant, he took her through them at considerable length and explained to her their essential terms. He said that he assured the appellant that he would make the monthly payments under the Richmond mortgage and, in that context, they discussed his health and earnings. The circumstances in which the guarantee might be called up were also discussed, said the son. He further said in his evidence that, on a couple of occasions, he had suggested to the appellant that she should obtain independent legal advice about her entry into the Richmond transactions, but she flatly refused to consult a solicitor, saying that she would not waste money on "those thieving bastards".

51. In early 1997, after she moved into her new unit, the appellant began behaving irrationally and aggressively towards the son's family and made unrealistic demands on them for such matters as the provision of transport for her and for the accommodation of her other perceived personal needs. In the course of this episode it was ascertained that she had developed a brain tumour and that much of her erratic behaviour was attributable to that problem. As a result, the appellant underwent brain surgery in about February 1997 for the removal of the tumour. His Honour found that she made full neurological recovery although he recognised that she began thereafter to exhibit deterioration in walking and experienced weakness in the legs. According to the son, matters almost returned to normal although she criticised, with increasing frequency, what she called the excessive size of the Stage 2 development.

54. It seems that, in or about March 1997, the son applied to the bank on behalf of Galaton for a further loan of $175,000 in relation to the Stage 2 development. Due to the time needed for the bank to process this application and because funds were required urgently to pay for building costs, a temporary overdraft facility of $30,000 was provided to Galaton in respect of which it executed a second mortgage over the Richmond property. When the new loan became available in May 1997, the following securities were executed in relation to it: a guarantee, executed by the son and his wife, a like guarantee executed by the appellant and 700 Young Street ("the Thurgoona Park guarantee") and a mortgage ("the Thurgoona mortgage") over Thurgoona Park executed by the registered proprietors.

57. The son's evidence was that, before the appellant signed the Thurgoona Park mortgage and guarantee, he explained to her their terms and the consequences of any default that might occur in relation to them and confirmed that he would bear all of the payments required to be made under the mortgage. That the appellant was then aware that she would be at risk if payments were not made by the son under the Thurgoona Park mortgage, is made plain by the concern she expressed to him, at or about that time, about the increase in the debt level relating to the development of Thurgoona Park and about his health and other contingencies which might prevent him from meeting the required mortgage payments.

60. According to the evidence of the son, the appellant's hostility to him and his family grew as Stage 2 progressed. She constantly expressed the view that it was unnecessarily large and she vented her frustrations in that regard by abusing him and his wife. She found fault with a range of personal matters relating to the son such as his excessive weight, of which she complained to her daughter-in-law, implying that she did not properly attend to his dietary and nutritional needs. She was also apparently concerned about what might happen if he became ill and could not make the payments under the securities. The son told the learned trial judge that she became "bitter and twisted" as a result of her resentment at the seemingly large house that was being built for him and that she even refused to set foot in it during its construction phase or thereafter. Notwithstanding the son's attempts to placate the appellant, her aggressive behaviour escalated to a point when, on 22 July 1997, as his Honour found, a "blow up" occurred after which the appellant and the son's family continued to reside in their respective residences at Thurgoona Park, but effectively ceased speaking to one another. Any mail that arrived for the appellant would be put under her door.

63. On or about 24 October 1997 the bank forwarded to the appellant for execution an extension of the Richmond property guarantee of 18 September 1996 to which reference has already been made. It is not clear on the evidence whether the document ever reached her. It does, however, bear a signature which purports to be that of the appellant. It was said by Mr. Sifris, for the bank, that the appellant effectively admitted in her evidence that she had received it, while Mr. Berglund, for the appellant, contended that this was unlikely, given that the son admitted that the signature on the document did not look like that of the appellant and that this fact gave rise to an inference that it was forged. Counsel said that the probability was that the document never reached the appellant but that it was intercepted by the son, who forged the appellant's signature, and then returned it to the bank. His Honour, however, did not find that the document was forged by the son, but proceeded to determine the case on the basis that the appellant's signature on the document was forged and that this may have been done by the son. Thus it remains unclear whether the extension of guarantee document ever reached the appellant. Be that as it may, I doubt that this has any bearing on the real issues in the case, other than perhaps going to the son's overall credit, a matter which was resolved in his favour by the learned trial judge.

66. Mr. Berglund told us that the appellant first consulted her present solicitors about her current complaints in April 1998 and that, on her instructions, they registered a severance of the joint tenancy in respect of Thurgoona Park on 7 May 1998.[4] It is likely, however, that the appellant first consulted solicitors about her overall dispute with the son before April 1998 because, on 4 February 1998 she executed a will which revoked her prior will of 10 January 1996 by which she had left her estate to the son; the new will making provision for the estate to be left to the appellant's niece. Be that as it may, when the appellant severed the joint tenancy in relation to Thurgoona Park, the son stopped payment under the two Richmond mortgages although he continued to meet the payments under the Thurgoona Park mortgage at the rate of $1,517 per month. At the time of the trial those payments were not in arrears. Not surprisingly, because of the defaults under the Richmond property mortgages, the bank threatened to take possession of the property and, in the proceeding, counterclaimed possession of it as well as the arrears of payment under those mortgages.

69. The financial and like exposure of the appellant to the purchase and development of Thurgoona Park and the benefits gained by her in respect of it were, in broad terms, these. If one treats for present purposes the appellant and Galaton as one entity, then she contributed somewhere between approximately $275,000 and approximately $300,000[5] towards the cost of the purchase and the construction of the buildings at Thurgoona Park while the son's capital contribution was in the order of $80,000. The appellant also divested herself of her interest in the Richmond property and assumed potential liability to the bank under the two guarantees in respect of the Galaton loans (which totalled approximately $350,000). There is little doubt that, on the evidence, Thurgoona Park was over capitalised. The amount spent on the purchase and construction of the residences was in the order of $500,000, while its market value at the time of trial was only approximately $350,000. On the other hand, the appellant became a joint owner of Thurgoona Park and had available to her a newly built, two-bedroom, self-contained unit which was constructed to her satisfaction. Furthermore, the son undertook the responsibility for making all the payments under the two sets of mortgages and there was no suggestion before the appellant's severance of the joint tenancy that he would not honour that obligation. Indeed, until that point, he made all the necessary payments under the mortgages and continued thereafter to make the necessary payments under the Thurgoona Park mortgage.

72. So far as the bank is concerned, it was common ground that it never dealt directly with the appellant and usually communicated with her through the son, allowing him, contrary to its own guidelines, to deliver to her the security documents for execution by her rather than ensuring that they were forwarded to her directly. It is also clear that no bank officer spoke with the appellant to establish whether she understood the transactions, although it was aware that the son was an accountant and was advising her on those matters. It was said for the appellant that the bank was aware of a number of matters which should have put it on notice that she was under a disability and, therefore, it should have taken steps to satisfy itself that she understood fully the nature and effect of the transactions upon which she embarked, in particular, the securities which she executed in its favour, or that she had proper independent advice concerning them. The matters of which the bank was apparently aware included the following: that the Richmond property had been owned by the appellant for a considerable period before its sale to Galaton, that she was aged 74, and was a widow and a pensioner and that the son, an accountant, was the only person advising her in relation to the transactions in question. It also seems clear that the bank would not have made the loan of $144,000 available to the appellant, even on the security of the Richmond property, because she was a pensioner. By way of contrast, it was said, the bank was prepared to make the loan available to Galaton at the son's request partly because it considered this as a means of developing a strong business relationship with him and his companies.

76. As I have said, the case put on behalf of the appellant below and before us was that the transactions were entered into as a consequence of unconscionable conduct by the son and the bank in the sense that, in procuring the appellant to enter into the impugned transactions, they exploited or improperly took advantage of her special disability or disadvantage. While her counsel acknowledged that the case was, strictly speaking, not one of undue influence, he claimed that this doctrine served the purpose, in this case, of assessing the impugned conduct of the two respondents for the purpose of determining if it was "unconscionable". In particular, it was claimed that this concept was relevant to an assessment of the extent to which the appellant was emotionally attached to the son and the role that he played in her decision to enter the transactions. In that context, it was argued that the appellant's emotional dependence on the son was relevant to the consideration of her special disability and thus, to the question whether the impugned conduct was unconscionable. Moreover, it was said, the transactions were improvident from her point of view and this factor was also relevant to the issue of her disability and to the question whether the relevant behaviour of the son and the bank was unconscionable.

79. It was further contended that the trial judge misapplied the principles for the setting aside of transactions on the ground of unconscionable behaviour as they are set out in cases such as Yerkey v. Jones[6]; Blomley v. Ryan[7]; The Commercial Bank of Australia Ltd. v. Amadio[8]; Garcia v. National Australia Bank Ltd.[9] and Bridgewater v. Leahy[10]. More specifically, it was argued that his Honour did not consider whether the appellant had entered the transactions with full knowledge of their true nature and effect, including the possible consequences arising from a default. Rather, it was claimed, that the judge wrongly had sole (or undue) regard to the question whether the transactions were entered into voluntarily, without undue influence and with the relevant knowledge. Thus, it was said, the judge focussed excessively on the appellant's level of understanding and the opportunity that she had of having the transaction explained to her. In that context it was submitted that the explanations which the son claims he gave the appellant about the transactions were inadequate to discharge his (or the bank's) relevant obligations to her. It was further said that, in any event, this Court was not bound by his Honour's conclusion that the appellant entered into the transactions with relevant knowledge, voluntarily and without undue influence either because it was the judge's ultimate conclusion, or because it was based on inferences that were drawn by him from proven facts which this Court was in as good a position to make. It was argued that an analysis of all the evidence would disclose that the transactions were unconscionable.

82. The appellant also claimed that his Honour erred in his conclusions relating to the operation of the Act and its application to the impugned New South Wales transactions. Counsel for the bank conceded that his Honour erred when he decided that he did not have the jurisdiction to apply the Act in respect of these transactions, but argued that, for the same reason that the impugned conduct was not unconscionable, it was not "unjust" within the meaning of the Act and that, therefore, the appellant was not entitled to relief under its provisions.

86. 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]

89. Essentially, the concept of special disability or disadvantage is concerned with circumstances which seriously affect the claimant's ability to determine whether the impugned transaction is in his or her best interests. As Mason, J. explained in Amadio[24], his Honour qualified, in the passage of his judgment to which I have already referred, the word "disadvantage" by the adjective "special" in order, inter alia, "to emphasize that the disabling condition or circumstance [must be] one which seriously affects the ability of the innocent party to make a judgment as to his own best interests ...". His Honour considered that, in order to obtain relief, the innocent party must establish that "unfair or unconscientious advantage is then" taken by the defendant of his or her disabling condition or circumstance.[25]

93. As I have said, the learned trial judge found that the appellant was not under a special disadvantage in her dealings with the son and the bank, so that, unless the appellant can establish that his Honour erred in that regard, her appeal must fail.

96. In that respect, it was common ground that the appellant was an elderly widow, with a limited formal education, and had limited financial means. It also seems plain enough that she relied on the son for advice in commercial matters and was emotionally tied to him and his family. True it is that she also suffered from depression, sleeplessness and loss of confidence after her husband's death, but the evidence suggests that this occurred primarily before she moved to Thurgoona Park. But these factors, even if combined, would not of themselves put the appellant in the position of relevant disability. It seems to me that if, at the time in question, the appellant did not suffer from mental impairment and understood the relevant aspects of the transactions and entered into them voluntarily,[26] in other words, not under the emotional or other influence of the son but of her own accord and was able to determine whether they were in her best interest, it cannot be sensibly said that she was under a special disability. The learned trial judge found against the appellant on these issues. More particularly, his Honour said that, at all relevant times the appellant was cerebrally unimpaired and did not suffer from dementia or any cognitive impairment, that she was an intelligent and capable person who made up her own mind on matters, that she understood the nature, substance and effect of the security documentation and the transactions in question, that she entered into them voluntarily without undue influence of the son and that such decisions were informed, explicable and rational. Inferentially, I think, his Honour also considered that the appellant was capable of determining if the transactions were in her best interest and that she formed the view that they were so. Thus, as I have said, the critical question is whether those findings can be disturbed.

100. Contrary to the submissions made for the appellant, the judge's critical findings were not merely inferences drawn from established facts; they were made consequent upon his Honour's assessment of the credibility and reliability of witnesses, particularly of the appellant and the son. In those circumstances, this Court can only properly depart from such findings if it is "satisfied that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge's conclusion" - Watt or Thomas v. Thomas[27] - or unless it can be shown that the judge has failed to use or has misused that advantage - Pham v. Australia and New Zealand Banking Group Ltd.[28]. See also Abalos v. Australian Postal Commission[29]; Devries v. Australian National Railways Commission[30]; Mobilio v. Balliotis[31]; Aqua-max Pty. Ltd. v. M.T. Associates Pty. Ltd.[32]. In Walsh v. Law Society of New South Wales[33] McHugh, Kirby and Callinan, JJ. said, after referring to Abalos and Devries -

"the appellate court will be bound generally to defer to any conclusions on the questions of credibility formed by the court or tribunal from whom the appeal is brought where the latter has seen and heard the witnesses. In particular circumstances, it will be open to an appellate court to reach conclusions contrary to those of the court or tribunal below, notwithstanding a credibility finding. Sometimes it will be authorised to reject those findings where they are `glaringly improbable' or `contrary to compelling inferences' of the case. But the caution required for all appellate courts in such matters has long been recognised and frequently upheld in decisions of this Court".

There is nothing that has been put forward by the appellant that persuades me that his Honour misused the advantage he had of assessing the witnesses that gave evidence before him or that he otherwise erred in his findings. It should be noted that the learned trial judge had the opportunity over some days to hear and observe the appellant and the son when they gave their evidence. I have read the transcript of the evidence and have come to the strong conclusion that his Honour's findings were well open to him.

105. More particularly, in arriving at his conclusions, his Honour rejected the appellant's claim in her evidence that the son did not explain to her either in substance or in detail the contents of the documents, that she signed them in ignorance of their terms or effect and that the only reason she did so was because she trusted him and believed him when he effectively told her that it would be in her interest to do so. His Honour noted that it was not alleged by the appellant that the son forced or pressured her into signing the documents, yet she asserted that, had she known of the nature, substance or effect of the documents in question, she would not have signed them. This, too, was rejected by the learned trial judge. He accepted that the son explained to the appellant the nature, substance and effect of each of the impugned transactions before she entered into them. His Honour considered that the son's evidence in that regard was "confirmed" in significant respects by the evidence of Adrian Dodd ("Dodd"), who had been the appellant's accountant and who had remained on friendly terms with her. His Honour also found that the evidence of Elsie Marriott, a long time friend of the appellant, supported the son's version of events. Mrs. Marriott told his Honour, inter alia, that the appellant was "very clever" and "knew what she wanted".

108. Mr. Berglund attacked in particular his Honour's reliance on Dodd's evidence and his conclusion that the appellant was not unduly influenced by the son to enter into the transactions, given her emotional dependence on him. Counsel also contended that his Honour should have found that the transactions were improvident. I now turn to consider those claims.

112. The son had arranged for Dodd to provide independent advice to the appellant and gave him a written statement which showed the financing of Stage 1 of Thurgoona Park so as to enable him better to explain the relevant transactions to the appellant. His Honour found that Dodd had a number of consultations with the appellant in the son's absence. Dodd said in his evidence that he discussed with the appellant, on a number of occasions, the disposition of the Richmond property and the proposal that Galaton would acquire it and then raise the required funds on the security of it and apply them towards meeting the costs of construction at Thurgoona Park. He said that the appellant told him that such a disposal of the Richmond property would enable her to retain her age pension while moving to Thurgoona on a permanent basis. Dodd also told his Honour that the appellant appeared "to understand exactly what was going on" and appeared to know "where her money was going" and was excited about moving "to Albury".

115. It was said for the appellant, however, that his Honour made a fundamental error in his findings relating to Dodd's evidence and that this caused him to arrive at the erroneous conclusion concerning the appellant's understanding of the nature, extent and effect of the transactions. Counsel claimed, for example, that Dodd's evidence was limited to his discussions with the appellant concerning the Richmond property transactions and that these discussions were held before she moved to Thurgoona Park. It was also suggested that Dodd did not say in his evidence that he had discussed with the appellant the proposal to raise loans from the bank to finance the development of Thurgoona Park. In my view, however, this attack on his Honour's reliance on Dodd's evidence shows a misunderstanding of the consideration afforded to it by the judge in determining that the transactions had been fully explained to the appellant. It is apparent from his Honour's reasons that he accepted Dodd's evidence that he discussed with the appellant her proposed move to Thurgoona Park, her wish to retain the age pension and the consequential need for her to dispose of the Richmond property and use the proceeds towards the cost of building her unit at Thurgoona Park. It is also clear from Dodd's evidence that, according to him, the appellant told him that Galaton would raise a loan on the security of the Richmond property and apply it to meet the building costs of her unit. It is irrelevant that the financing of Stage 2 might not have been discussed between them because, as I have said, his Honour treated Dodd's evidence, as he was entitled to do, as corroborating the son's evidence as to the appellant's understanding of the transactions.

119. It was argued by Mr. Berglund that it was plain on the evidence that the appellant was dependent on the son for advice and emotional support and that the financial transactions worried her as is evidenced by the fact that she was concerned whether he would be able to meet the payments under the mortgages. In the circumstances, it was said, she was susceptible to the son's influence and that he unduly exercised it so as to have her enter into the transactions in question. In my view, however, it was well open to his Honour to conclude otherwise notwithstanding that the appellant was clearly dependent on the son for relevant advice and support. But the mere fact that she so relied on him does not mean that she was thereby robbed of the ability to make her own assessment of the situation. It was well open to his Honour to find, as he did, that the appellant understood the relevant aspects of the transactions and that she "knew what she wanted". She was, after all, no stranger to the borrowing of funds on the usual security for the acquisition of property which included the giving of guarantees by the directors of the borrowing company. Moreover, she had good reason to enter into the transactions because they would effectively give her a modern two bedroom unit, a joint ownership of Thurgoona Park, and the benefits of living close to the son and his family and she would, as well, retain the full benefit of the age pension. As his Honour put it, her decision to enter the transactions was "informed, explicable and rational".

123. 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.

No error in finding that appellant not under special disadvantage

127. In the circumstances, therefore, no appealable error has been shown to exist in respect of his Honour's conclusion that the appellant did not labour under a special disadvantage at the time of the relevant transactions. As I have said, it was open to the learned trial judge to find that the appellant was capable of deciding what was in her best interest and that she entered into the transactions for her overall benefit and not because she was overborne by her emotional attachment to the son or because of any failure on her part to understand their nature and effect.

131. I am also of the view that his Honour did not apply the wrong test in determining if the transactions were unconscionable as was contended for by Mr. Berglund. More particularly, it was claimed, as I have said, that the judge failed to consider whether the appellant had knowledge of the "true nature and effect of the transactions, including their possible financial consequences" bearing in mind the nature and the effect of the advice given to her by the son in a context where, it was said, she was unduly influenced by him because of her emotional attachment to him. It is plain, however, from the above references to his Honour's judgment, that he properly had regard to these matters in determining whether the transactions were unconscionable. Accordingly, this aspect of the appellant's case must also fail.

135. Thus, the appellant was not entitled to equitable relief on the ground that she was the subject of unconscionable conduct on the part of the son and the bank. She was also not entitled to the relief claimed under the Act in respect of the Thurgoona Park mortgage and the Richmond and Thurgoona Park guarantees. The Act only applies to transactions which are "unjust" within the meaning of s.7 of the Act. But, for the same reasons that the transactions were not unconscionable, they were not "unjust" for the purposes of the Act as that term has been interpreted by the courts - see, for example, Citicorp Australia Ltd. v. O'Brien[34], and West v. AGC (Advances) Ltd.[35]. In particular, McHugh, J.A. in West[36] considered that a contract will not be deemed "unjust" unless the party seeking relief under the Act is deprived of a "real" or "informed" choice to enter into the transaction and if the terms of the contract are not reasonable as between the parties. Consequently, the Act had no application to the transactions in question.

138. It follows that, in my opinion, the appeal should be dismissed.

[1] See, e.g., Strode v. Strode (1675) Lord Nottingham's Chancery Cases, Selden Society vol. 73, 149 Case 211. The rule used to be confined to dispositions by fathers, but in recent years it has become accepted that the same principle should be applied in favour of dispositions by mothers: see e.g. Nelson v. Nelson (1994) 33 N.S.W.L.R. 740, reversed on the ground that the presumption had been rebutted in Nelson v. Nelson [1995] HCA 25; (1995) 184 C.L.R. 538, where, however, it was held that the presumption applied in the case of a gift by a mother to a child. Clearly the doctrine does not apply to the present case, but it reflects equity's early positive, not negative, approach to parental dispositions.

[2] Doubtless the balance of financial benefits (even making allowance for the protection of the appellant's pension rights) favoured the appellant's son, but the appellant received other, immeasurable benefits.

[3] For the purpose of convenience and brevity, unless otherwise stated, I shall use the term "securities" as including guarantees.

[4] The present proceeding was filed on the appellant's behalf on 22 January 1999.

[5] The appellant's relevant contributions to the financing of the Thurgoona Park development consisted primarily of the Richmond property which probably had a market value of no more than $180,000 and approximately $130,000 from the proceeds of sale of Galaton's passive investments.

[6] [1939] HCA 3; (1939) 63 C.L.R. 649.

[7] [1956] HCA 81; (1956) 99 C.L.R. 362.

[8] [1983] HCA 14; (1983) 151 C.L.R. 447.

[9] [1998] HCA 48; (1990) 194 C.L.R. 395.

[10] [1998] HCA 66; (1998) 194 C.L.R. 457.

[11] (1881) 18 Ch.D. 668 at 669.

[13] [1948] HCA 20; (1948) 76 C.L.R. 646 at 649 per Latham, C.J.

[14] [1975] HCA 24; (1975) 132 C.L.R. 355 at 359-360.

[17] Published in Finn's Essays in Equity 1 at 3.

[18] [1948] HCA 20; (1948) 76 C.L.R. 646 at 649 per Latham, C.J. and at 650, 655 per Rich, J.

[19] At 405 per Fullagar, J. and at 413 per Kitto, J. (who dissented in that case but not on the relevant issue).

[20] At 464-466 per Mason, J., and at 474-476 per Deane, J.

[21] At 470-471 per Gleeson, C.J. and Callinan, J. (whose dissent in that case is irrelevant for present purposes), and at 490 per Gaudron, Gummow and Kirby, JJ.

[22] [2003] HCA 18, to which Batt, J.A. drew my attention at [8] per Gleeson, C.J. and at [68 (3)] per Kirby, J. in dissent. The meaning of "unconscionable" was discussed in that case by Gummow and Hayne, JJ. at [42]-[43]. Kirby, J. considered the development of the doctrine of unconscionable dealing at [98]-[99], [112] and [113].

[23] See, for example, Blomley at 405 per Fullagar, J.

[25] These passages were cited with approval in Bridgewater v. Leahy at 470 by Gleeson, C.J. and Callinan, J. (albeit in dissent on the question whether special disadvantage in fact existed in that case). See also Kitto, J. in Blomley v. Ryan at 415. C.f. Berbatis at [17] per Gleeson, C.J. and at [56] f.f. per Gummow and Hayne, JJ.

[26] It should be noted that the High Court in Berbatis pointed out that the question whether the will of the innocent party was overborne so that it could not be said that he or she acted voluntarily, is a consideration relevant to the doctrine of duress rather than to the question whether the impugned conduct was unconscionable. See, for example, Gleeson, C.J. at [18], Gummow and Hayne, JJ. at [35]-[36] and Kirby, J. at [78]-[79]. Be that as it may, as I have explained, it was pressed for the appellant, albeit unsuccessfully that her emotional dependence on the son was a factor relevant to determining whether the transactions were unconscionable.

[27] [1947] A.C. 484 at 488.

[28] [2002] VSCA 206 at [35] per Charles, J.A. with whom Batt and Eames, JJ.A. agreed.

[29] [1990] HCA 47; [1990] 171 C.L.R. 167 at 178-179.

[31] [1998] 3 V.R. 833 at 836.

[32] [2001] VSCA 104 at [63]- [65], [76]-[78].

[33] [1999] HCA 33; (1999) 198 C.L.R. 73 at 92.

[34] (1996) 40 N.S.W.L.R. 398 at 419.

[35] (1986) 5 N.S.W.L.R. 610 at 621.

[36] At 621 with whom Hope, J.A. agreed.