MATTER : Section 58 of the Public Trustee Act 1991

The Estate of VITALINA FERRARI, Leighton Nursing Home, 40 Florence Street, West Perth in the State of Western Australia, Widow, A represented person

THE PUBLIC TRUSTEE AS PLENARY ADMINISTRATOR OF THE ESTATE OF VITALINA FERRARI

Public Trustee - Directions to commence litigation - Undue influence - Unconscionable conduct - Gift of estate after reservation of life interest - Effect of Alzheimer's disease - Whether justification for commencement of litigation

1 McKECHNIE J**:** This is an application under the Public Trustee Act 1991 s 58 which reads:

"The Public Trustee may, ex parte, take the opinion or obtain the direction of the Supreme Court upon any question, whether of law or of fact, arising under this Act, or in the course of his duties, or with respect to the exercise of any of the powers over persons or estates conferred upon him by this Act."

"The Judge shall give his opinion or direction to the Public Trustee, who shall thereupon act in accordance with such opinion or direction, and shall, upon the request in writing of any such interested person, communicate to him the effect of such opinion or direction."

2 The Court is given little discretion as to whether or not it may proffer the opinion sought. It is not necessary, for the resolution of this case, to determine whether there is a discretion because in any event I propose to provide to such an opinion. This is an appropriate matter for the Public Trustee to seek directions.

3 The general powers of the Public Trustee are enumerated in the Public Trustee Act s 49, and include the power to bring and defend actions, suits and other proceedings, s 49(j), and generally to do all such acts and exercise all such powers as effectively and in the same manner as the person whom the Public Trustee represents might have done, s 49(r).

"1. The opinion of and obtain the direction of a Judge of this Honourable Court on whether an action should be brought by the applicant against ATTILIO FERRARI seeking directions that the Transfer of Land 6242209 registered on Certificate of Title Volume 1147, Folio 597 on 31 July 1996 pursuant to a deed of gift dated 18 June 1996 wherein Vitalina Ferrari transferred her estate in fee simple as the sole registered proprietor to an estate for life to herself and an estate in fee simple to Attilio Ferrari upon her death, be set aside on the grounds that Vitalina Ferrari at the time she executed the Deed of Gift:

2. An order that the costs of the application be paid from the estate of Vitalina Ferrari."

5 It can be seen immediately that the orders sought are, in the words of s 58, with respect to the exercise of the powers over the estates conferred upon the Public Trustee.

6 On 9 January 1998 the Guardianship and Administration Board made the following order, appointing the Public Trustee as administrator:

"Upon an application dated 19 November 1997 by the applicant in respect of the represented person and upon the Guardianship and Administration Board ("the Board") being satisfied that the represented person -

(a) is unable, by reason of mental disability, to make reasonable judgments in respect of matters relating to all of her estate; and

(c) and cannot have such need met by other means less restrictive of her freedom of decision and action.

1. THE PUBLIC TRUSTEE of 565 Hay Street, Perth IS APPOINTED PLENARY ADMINISTRATOR of the estate of the represented person with all the powers and duties conferred by the Act.

2. This Administration Order be reviewed by 9 January 2001.

3. The administrator is exempted from submitting to the Board accounts in respect of the represented person."

7 There follows then a direction to the administrator from the board:

"The administrator is directed to examine any significant financial transactions and the transfer of title to the property at 31 Dangan Street, Perth to ensure that the best interests of the represented person are protected."

8 Mrs Ferrari is now aged 83, and a widow. In September 1997 she was diagnosed with Alzheimer's disease and it was that diagnosis which appears to have led to the making of the order. Dr Spear, a consultant psychiatrist for older people, says that in his experience Alzheimer's disease develops over a number of years.

9 Her general practitioner was Dr Pham. He looked after Mrs Ferrari from 5 October 1993 to 10 August 1997. She did not speak English and attended Dr Pham with her son Attilio. In Dr Pham's opinion her mental state was considered to be normal until 20 August 1997.

10 A question which arises is the extent to which the onset of Alzheimer's disease may have affected Mrs Ferrari's mental capacity prior to 1997. Dr Spear doubts her mental capacity in 1996, and says:

"In my opinion Mrs Ferrari may well have been demented in 1995."

11 In 1996 Mrs Ferrari entered into a deed of gift. In that deed she gave to her son Attilio, in consideration of her natural love and affection, her house at 31 Dangan Street, Perth, together with all household chattels. The gift was to remain expectant upon her death.

12 Attilio has apparently lived with his mother all his life until she was admitted to a nursing home in 1997. It is this gift which gives rise to the present application and was the subject of the direction of the Guardianship and Administration Board. It comprises nearly all her property except for some $9000 in a bank account. Mrs Ferrari is a pensioner.

13 Members of her family, other than Attilio, have expressed concern that Mrs Ferrari may have lacked the requisite legal capacity when she executed the deed of gift. They question whether she entered the deed because of undue influence by Attilio or unconscionable conduct by him. This is the reason why the Public Trustee seeks the direction of this Court

Principles for setting aside a gift inter vivos

14 In Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621, Brennan J said at 626 and 627:

"The jurisdiction of equity to set aside gifts procured by unconscionable conduct ordinarily arises from the concatenation of three factors: a relationship between the parties which, to the knowledge of the donee, places the donor at a special disadvantage vis-à-vis the donee; the donee's unconscientious exploitation of the donor's disadvantage; and the consequent overbearing of the will of the donor whereby the donor is unable to make a worthwhile judgment as to what is in his or her best interest. A similar jurisdiction exists to set aside gifts procured by undue influence."

15 His Honour then refers to the Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 and continues:

"Although the two jurisdictions are distinct, they both depend upon the effect of influence (presumed or actual) improperly brought to bear by one party to a relationship on the mind of the other whereby the other disposes of his property. Gifts obtained by unconscionable conduct and gifts obtained by undue influence are set aside by equity on substantially the same basis."

16 In Blomley v Ryan [1956] HCA 81; (1954-56) 99 CLR 362, the High Court discussed some of the circumstances in which equity will relieve against unconscionable bargains. Fullagar J, while noting that the list is of great variety and is not easily able to be classified, nevertheless included the following at 405:

"The circumstances adversely affecting a party, which may induce a Court of Equity either to refuse its aid to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other."

17 The general principles in relation to both undue influence and unconscionable conduct have been set out in a series of cases, the latest of which in the High Court is Bridgewater v Leahy [1998] HCA 66; (1998) 72 ALJR 1525, and in the Full Court of Western Australia in Beeck v Beeck, unreported; FCt SCt of WA; Library No 990209; 23 April 1999.

18 This Court is not trying an action to set aside the gift. It does not have the immeasurable advantage of seeing the parties and estimating their characters and capacities, for not only does that advantage affect credibility but it also affords the best evidence of what are the essential factors in the case, viz the intelligence and other faculties of the respective parties to the transaction - per Rich J in Wilton v Farnworth [1948] HCA 20; (1948) 76 CLR 646 at 654.

19 However, a trial Judge in any action taken by the Public Trustee is unlikely to have that advantage. I infer from the fact of the guardianship order, and from common knowledge of Alzheimer's disease, that it is most unlikely that Mrs Ferrari could now present a coherent account of her side of the transaction.

20 In my judgment the Court in giving its opinion must adopt a commonsense approach to the prospect of litigation and the possible effect of an action on the corpus of the estate. Apart from some $9000 and some household effects of little value, the estate is in fact the life interest in the land unless the deed is set aside.

21 It will be hardly sensible to commit the resources of this estate to the vagaries of litigation without substantial prospects of success. I propose therefore to examine the evidence surrounding the deed.

Mrs Ferrari's mental state at the time of the deed

22 Opinion is divided as to how far Mrs Ferrari may have been mentally incapacitated by her disease. Dr Spear is unsure as to her capacity. She may well have been demented. He did not see her until a year after the deed had been executed. In his report dated 19 November 1998 he says:

"Alzheimer's Disease causes a gradual deterioration in cognitive functioning over a period of years. However, I am unable to state whether Mrs Ferrari had the legal capacity to transfer the house into her son's name on the 18th June, 1996. However, I do believe there is doubt over her ability to give testamentary capacity at that time. Because of her language difficulties I am unsure whether she would have been able to appreciate a complex legal document and therefore any testamentary capacity at that time may have been invalid unless an interpreter was with her to explain the contents of the Will.

Reports from her sons differ. In a family meeting held on the 1st October, 1997, one of her sons claimed she had memory problems going back as long ago as four years earlier. Others claimed that she had been confused over the previous 18 months and one claimed she was confused over the previous three months."

23 He then proceeds to detail the fact that reports from her sons differ as to the length of memory problems. He tested her formally on 21 October 1997 and he concluded:

"At that time she was disoriented for time and place and unaware of her cognitive impairment. She was quite clearly unable to describe her estate and would have been unable to understand a complex legal document. At this time I recommended an application to the Guardianship Administration Board for a Guardianship Order.

In my opinion Mrs Ferrari may well have been demented in 1995."

24 Her general practitioner, Dr Pham, thought she was normal until August 1997. He thought she was quite lucid. She enunciated quite well with her son and performed Dr Pham's instructions.

25 As I have said, the balance of her family differ in their view as to how long Mrs Ferrari had memory problems.

26 I would have to conclude that in assessing whether to conduct litigation the available evidence as to Mrs Ferrari's mental state at the time of the deed does not point unerringly towards incapacity. There is a real risk that incapacity could not be proved. The evidence is equivocal.

28 The relationship between Mrs Ferrari and her son Attilio was long and they lived under the same roof. From Dr Pham's letter I infer that he looked after her.

29 In view of her advancing age and her possibly declining state I have little hesitation in concluding that Attilio stood in a special relationship with his mother, or more precisely, that she may have been at a special disadvantage in the relationship.

30 It is asserted, although without any admissible proof, that Attilio had threatened his mother that if she did not transfer the home to him, he would leave her and there would be no-one to look after her, and if she left the house to the six children then they could kick him out into the street when she died. For present purposes I accept that evidence could be obtained in admissible form if there were an action.

31 I observe that the previous mutual wills made by Mr and Mrs Ferrari (as asserted by the family other than Attilio) did leave everything to their six children as tenants in common in equal shares. If that is so then a consequence may be that on her death Attilio would need to find other accommodation if he could not buy them out. As he apparently had lived with her all her life therefore, the transfer to him of the house on her death is not such bizarre behaviour by itself to ring alarm bells as to either her mental capacity or his special position of influence.

32 It appears that Attilio consulted solicitors who prepared a deed. Mrs Ferrari did a very sensible thing. She consulted her own solicitor Mr Martella. There are important matters of significance. First, Mr Martella advised her in Italian, because she was unable to read English. It can be seen in the passage which I have already quoted from Dr Spear's letter that this deals with one aspect, namely the presence of an interpreter.

33 Secondly, she did not accept the deed as proposed by her son's solicitors. After advice she required that it be altered so that she would be able to live in the house for the rest of her life. This was done. Thirdly, in the deed she acknowledged that she had obtained independent legal advice and made the gift voluntarily and without duress or coercion by her son. Finally, Mr Martella, the solicitor, witnessed her signature, certifying that she appeared to understand fully the deed's nature and effect.

34 The case has some similarities with the facts of Inche Noriah v Shaik Allie Bin Omar (1929) AC 127. That case was decided in part on a presumption of innocence which was not rebutted but it is of some assistance in that it indicates that the intervention of legal advice is not wholly determinative of a case.

35 It is not necessary for me to make a judgment as to whether the deed is void because of a lack of mental capacity by Mrs Ferrari, undue influence and unconscionable conduct by Attilio, or both. I must decide whether there are sufficient prospects of success for the Public Trustee to embark upon potentially expensive litigation at the probable expense of the estate.

36 In my opinion the prospects of success are not so substantial as to justify the action. The relationship between the two undoubtedly gives rise to a suspicion of influence. There is, apart from the conversation attributed to Attilio about leaving, no other direct evidence of undue influence or unconscionable behaviour. Therefore inferences would have to be drawn.

37 While the circumstances give rise to a possibility of undue influence, it should be remembered that equity is concerned with undue influence in all the circumstances, not just simply influence. Mrs Ferrari's mental state at the time of the deed is problematic and the evidence is equivocal. Mrs Ferrari will almost certainly be unavailable to give evidence. This is a factor of some weight.

38 In my opinion, the interposition of a solicitor to give independent advice at the time of the deed is a substantial barrier to any successful action. The interposition of a solicitor who speaks Italian, together with the change to the deed is such that with all the other circumstances I am of opinion that, although litigation would have some prospects of success, the strength of the case is not such that justice requires an action be brought by the Public Trustee. In my opinion the Public Trustee should not commence legal action, and I make a direction accordingly.

39 Of course, this judgment does not affect the rights of others who may wish to take action.