Tillett v Varnell Holdings Pty Ltd & ors - [2009] NSWSC 1040 - NSWSC 2009 case summary — Zoe

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Tillett v Varnell Holdings Pty Ltd & ors

[2009] NSWSC 1040

Supreme Court of NSW|2009-03-24|Before: Brereton J

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Court

Supreme Court of NSW

Decision date

2009-03-24

Before

Brereton J

Source

Original judgment source is linked above.

Judgment (69 paragraphs)

[1]

Background 2 Mr Tillett was educated at Sydney Grammar School, and although he ultimately obtained his Higher School Certificate at a technical college in 1978, he had 12 years of schooling and obtained entry to a Bachelor of Arts in Archaeology course at the University of Sydney. Although he did not graduate, he was in employment between 1980 and 1990 as a security guard, a security officer, a prison officer and a footman at Government House, before focussing from 1990 on his chosen career in music. An accomplished jazz/blues/rock musician, he has recorded a number of albums, both as a member of various bands and as a solo artist, and has performed widely both in Australia and overseas, particularly in Europe where he has a significant following. However, since the 1980s, he has been afflicted by a lengthy history of mental illness, and has been variously diagnosed with schizophrenia, schizo-affective disorder and depression, for which he has been medicated. He also has a long history of alcohol abuse. His psychiatric conditions have, at various times, caused him to become suicidal and delusional, and to experience auditory and visual hallucinations, thought disorder, panic attacks, depression, sleep disturbance, lethargy, anxiety and a lack of assertiveness. His mental illness and alcoholism have seen Mr Tillett hospitalised on many occasions, although his own estimation that he has spent one third of his adult life in psychiatric hospitals appears exaggerated. 3 Despite his profile as a musician, Mr Tillett has not been commercially successful. He has accumulated no resources, and is homeless. He received financial support from his family - particularly his father (until his death in 1988), his brother, and his mother. In 1995, Mr Tillett was living with his mother, and Mrs Tillett and Dr Tillett conceived the idea of purchasing a property that Mr Tillett might renovate and occupy. Dr Tillett and Mrs Tillett knew that Mr Tillett was not then, and in the foreseeable future would not be, in a position to pay for a house himself. At one stage they contemplated that a property might be purchased in the name of Varnell in which Mr Tillett might live, but Dr Tillett commented - and Mrs Tillett appears to have accepted - that it would be better for Louis' self esteem if the property were purchased in his own name, lest otherwise he feel that he was renovating it for Varnell's enrichment. And so they decided that the house would be purchased in Mr Tillett's name, with the purchase price and costs of acquisition to be funded by Varnell and secured by a mortgage over the property. Mr Tillett would reside in the property, and would be expected to contribute to rates and outgoings according to his ability. According to Dr Tillett, the main purpose of the mortgage - as there was no real anticipation that Mr Tillett would be able to repay the debt except by sale of the property - was to ensure that, if Mr Tillett were ever to find himself in financial difficulty and with debts, the property would not be at risk because Varnell's mortgage would give it effective control and priority over any other creditor; he told Mr Tillett something along these lines. I am also satisfied - despite Dr Tillett's frank concession that he could not be certain that he had such a conversation with Mr Tillett - that all three parties understood that an element of the arrangement was that Mr Tillett would make some contribution to outgoings (Mrs Tillett's subsequent complaints recorded by the social worker in 1997, referred to below, that he had not paid any "rent" - which is how she described this contemplated contribution - is some contemporaneous confirmation of this). Importantly, the arrangement had the additional consequence that there was no outright gift of the property to Mr Tillett, because it was subject to the mortgage, and thus the rights and powers the mortgage would give Varnell as mortgagee. 4 Mr Tillett, in the presence of Dr Tillett, bid for the Erskineville property at auction on 12 August 1995, and was ultimately successful at $183,000. Mr Tillett executed the contract, and Dr Tillett, on behalf of Varnell, paid the deposit. Mr Neville Menlove, solicitor of Molloy & Schroder, who routinely acted for Mrs Tillett, Dr Tillett and Varnell, was retained by them to act on the purchase and the mortgage. He prepared a mortgage, which was expressed to secure to Varnell the sum of $191,000, and contained the following provisions: Firstly The Mortgagor will pay the Mortgagee the principal sum, or so much thereof as shall remain unpaid, on 26 September, 2000 Secondly the Mortgagor will pay interest on the principal sum or on so much thereof as for the time being shall remain unpaid, and upon any judgement or order in which this or the proceeding covenant may become merged at the rate of 12% per annum as follows, namely by equal quarterly payments of the 26th days of the months of March, June, September and December in each and every year. Provided always, and it is hereby agreed and declared, that if the Mortgagor shall on every day on which interest is hereinbefore made payable under this security, or within fourteen days after each such days respectively, pay to the Mortgagee interest on the principal sum or on so much thereof as shall for the time being remain unpaid at the rate of 10% per annum, and shall also duly observe and perform each and every covenant on the Mortgagor's part herein contained or implied then the mortgagee shall accept interest on the said principal sum or on so much thereof as shall for the time being remain unpaid at the rate of 10% per annum in lieu of 12% per annum for every quarter for which such interest shall be paid to the Mortgagee within such fourteen days aforesaid. ... Eighteenthly Notwithstanding the provisions of Clause Secondly hereof interest shall only become payable by the Mortgagor under the Mortgage from the date which is 30 days after the service of a written notice on the Mortgagor by the Mortgagee requiring payment of interest at the expiration of such period of 30 days.

[8]

11 On 29 May 1997, Mr Tillett injured himself when he fell down the stairs at the Erskineville property and through a plate glass window. He suffered severe lacerations and was admitted to RPAH for repair of cuts and a blood transfusion. On admission, he was observed to smell of alcohol. He remained in hospital until 3 June, and was still complaining of hearing voices when discharged on that day. Following discharge, he resided with his mother. 12 The critical events in the case commenced at about this time, when Mr Tillett was told that he would no longer be permitted to reside in the Erskineville property, and culminated with the retransfer of the property to Varnell in October 1997. Before considering them in greater detail, it is appropriate to say something about the evidence that reveals those events. There are several sources: Mr Tillett, Dr Tillett, Mrs Tillett, and the documentary record provided by hospital and medical notes and contemporaneous correspondence. 13 I have found the documentary record of most assistance - even more than usually so - not only because of its contemporaneity, and the circumstance that it is unaffected by the interests that had arisen by the time the affidavits were prepared, but because it contains independent observations and records of Mr Tillett's conduct, condition and behaviour, which are central to the case. I found Dr Tillett entirely credible. He freely made concessions adverse to his interests. Although it was suggested that his credit was affected by the circumstance that he was "willing to defraud the revenue" - I found his admission that he would have leapt at any suggestion by Mr Menlove that he might try to put the transfer through at the original $183,000 and thereby save some stamp duty more indicative of his honesty as a witness. There was nothing in his evidence to indicate any inclination to favour his own interests; to the contrary, his admission - volunteered in re-examination - that he could not be certain about his version of an important 1995 conversation with Mr Tillett, was uncommonly frank. I unhesitatingly accept his evidence. While Mrs Tillett (though her evidence is somewhat marginal) harboured some bitterness which requires that there be some reservations about her objectivity, ultimately I found her also a credible witness.

[9]

14 Mr Tillett generally presented as a watchful, cautious and protective witness who, on occasion, became argumentative and combative. I do not accept all the attacks that were made on his credit: although his misstatements to doctors about his medical and psychiatric history in 2005, in connection with renewal of his pilot's licence, were deliberately untrue, they were explained on a basis which left me unpersuaded that he would deliberately make false statements to support his case in court; and although his reluctance to concede that Belinda was his de facto partner is surprising, perceptions as to when a close personal relationship becomes a de facto marriage can differ. However, on any view, Mr Tillett's recollection was deficient. He professed no recollection of most of the relevant events. Despite this, he was very reluctant to concede even the obvious, if it appeared adverse to his case, unless confronted with compelling evidence. He said that he met Mr Menlove for the first time in about 2005; this is clearly wrong, as they met at the time of the purchase of the property in 1995. For example, he would not accept that, shortly after 5 October, he knowingly received from Dr Tillett and deposited a cheque for $5,000 (which clearly enough was the case); nor that in 1998 he had knowingly given Belinda a power of attorney, witnessed by a solicitor, immediately prior to his departure overseas. It was striking that while he could remember many events during the relevant periods which were not adverse to his case, he professed no memory of the significant events potentially damaging to his case - including the consultation with Mr Menlove in 1995, and signing the Varnell mortgage (although he could recall the auction and the contract only a short time before); any conversations or events leading to his exclusion from the Erskineville property; and any conversations or events leading to the retransfer of the property to Varnell. His evidence contained a substantial amount of reconstruction. His lack of recollection of many important events meant that he was unable to deny them, and in this context he repeatedly resorted to statements to the effect that the adverse version could have happened "but only if I was seriously deluded or incapacitated" at the time, a response which had the appearance of rehearsal. I do not think that Mr Tillett endeavoured to mislead the Court, but all these matters undermine the reliability of his evidence, which must be treated with considerable caution.

[20]

26 The 29 May - 3 June admission was not to the Missenden Unit (for psychiatric patients), and the clinical notes contain no social work entry. The 30 June - 14 July admission was to the Missenden Unit, and the social worker who mainly saw him (except on the occasion of 1 July) - and the one who spoke to his mother - was M Calligeris; it is probable that Mr Tillett's recollection is of a conversation with her. However, it is manifest from the history obtained on admission, and by the other social worker Stacey Lewis on 1 July, and by the doctor on 2 July, that he had already been told that he would not be permitted to remain in the property - and that he understood as much. There is also a tension between Mr Tillett's protestation that he felt cheated and betrayed because his family would not let him return to his house on the one hand, and his assertion that he was not entirely sure that he had ever owned the property on the other - although, given the practical control that the mortgage gave to Varnell, some confusion as to "ownership" is understandable. Moreover, the hospital notes attribute to Mr Tillett the statement that the house was owned by the family company but in his name, a not inaccurate description of the position in lay terms: it is commonplace for the owners of properties subject to mortgage to speak of their property as being owned by the mortgagee to the extent of the mortgage, and in this case the family company had advanced the whole of the purchase price. 27 For Mr Tillett, it was suggested that his brother and mother had already determined, even prior to the fall, to retake the property back and re-develop it. As has been noted above, the property was in a state of disrepair when it was purchased in 1995, and it was always contemplated that some renovations would be undertaken. Mr Richard Keayes, architect, says that he was approached by Mrs Tillett on or about 28 May 1997 to provide architectural services in connection with renovations, which were to involve the kitchen, bathroom and laundry being totally demolished and being replaced with a new living room, kitchen, laundry and bathroom, to the extent that the property would be uninhabitable during the period of renovation. It was suggested, in cross-examination of Mrs Tillett, that this manifested an intention to renovate the house in order to let it for rent. Mrs Tillett denies that there was any such intention, until after Mr Tillett's May 1997 accident in the property, but says that there had been an intention to renovate the property in 1997, irrespective of whether Mr Tillett had been living there.

[21]

28 I accept Mrs Tillett's evidence that she would have been content for Mr Tillett to continue to reside in the property, but for the accidents and his failure to contribute at all to repairs and outgoings. While some arrangements were already being made, prior to the fall, to effect some repairs to the premises, it is improbable that, having initiated the purchase of the property for her son's accommodation, Mrs Tillett would have sought to dispossess him in order to exploit the property for her own benefit, moreso as there could be no real benefit to her: she was but a minor shareholder in Varnell - having only 2 shares, while Dr Tillett held almost 6,000 and Nina almost 3,000. Given the proximity of the date mentioned by the architect and that of Mr Tillett's May 1997 accident, the better view is that it was only after the fall that a decision was made that Mr Tillett ought not live in the premises any longer, and to undertake more extensive renovations with a view to Varnell letting the property for rent. 29 In the light of the documentary record, as well as my general reservations about the reliability of Mr Tillett's evidence, I accept that Dr Tillett told Mr Tillett, following the fall, that if he returned to the property, Varnell would charge interest under the mortgage - which Mr Tillett would not be able to service. Significantly, Mr Tillett conceded - if somewhat diffidently - that there was a conversation in which interest was demanded. In any event, it is clear that even if not told as much by Dr Tillett, Mr Tillett by the end of June 1997 was aware that his family did not want him returning to the property, and appreciated that that made it impracticable for him to do so. 30 Following his discharge on 14 July, Mr Tillett was seen again by Dr Khan, on 1 August, when he was intoxicated and expressed suicidal ideas. Dr Khan arranged for him to be re-admitted to the Missenden Unit, for suicidality and alcohol abuse. He feared he would self-harm, and was again hearing the voice of the "Angel of Death". He had drunk a cask of wine that day. He referred to "major conflict with his family with whom he has been staying". He improved rapidly and had weekend leave on 2 and 3 August, during which period he moved, with Belinda, into his new rental accommodation, in Zamia Street, Redfern. He was discharged on 4 August.

[40]

52 Thus, where a party impugns a transaction on the ground that it is a unconscionable dealing: (1) the plaintiff must establish that there was a relevant relationship of "special disadvantage"; (2) the plaintiff must establish that the defendant understood that the plaintiff was at a special disadvantage. 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 Mr Tillett was not in a position to look after his own interests; and (3) the defendant then bears the onus of establishing that the transaction was "fair, just and reasonable" [Amadio, 474 (Deane J)], which involves showing either that the plaintiff received full value or was independently advised [Cope, Duress Undue Influence and Unconscientious Bargains, 1985, [260]]. 53 In this context "special disadvantage" is usually associated with conditions that make people vulnerable to exploitation and less able to conserve their own interests. Mason J, in Amadio, explained the concept in the following terms: It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. As Fullagar J said in Blomley v Ryan , at p. 405: The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or 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-a-vis the other. Likewise Kitto J. spoke of it as "a well-known head of equity" which- ... applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands". It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party. 54 At the heart of the doctrine is the prevention of unfair exploitation of a disadvantage or vulnerability. 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]. But not every case of illness, impairment or emotional dependence is a case of special disadvantage. The cases to which reference has so far been made show that it is insufficient to attract the doctrine merely that there be an inequality of bargaining power, or that the plaintiff be affected by one or more of the relevant conditions; it is critical that the condition be such as to impact on the plaintiff's ability to conserve his or her own interests and render him or her vulnerable to exploitation. One can be ill, or poor, or even affected by delusions, and still perfectly capable of robustly conserving one's own interests [cf, albeit in a different field, Banks v Goodfellow (1870) LR 5 QB 549, in which it was established that the circumstance that a testator, who managed his general affairs perfectly capably, entertained certain insane delusions which did not impact on the will-making process, was not inconsistent with his having testamentary capacity]. Was Mr Tillett under a special disadvantage? 55 The case for Mr Tillett was that he was in a position of "special disadvantage" by reason of the combination of his mental illness, his alcoholism, his lack of commercial acumen, his poor financial position, and the absence of legal advice.

[49]

64 In cross-examination, Dr Khan still further resiled from his original position, particularly in respect of the September/October 1997 period. He agreed that his first report was in error in attributing to Mr Tillett a diagnosis of schizophrenia or schizo-affective disorder at that time, whereas his condition was (as stated in his second report) that his schizophrenia was then in remission. After being taken through his clinical notes for the period September/October 1997, he agreed that Mr Tillett was not suffering from the effects of alcoholism, schizophrenia or depression at all during the period September/October 1997. Indeed, he agreed that the signs of depression and a relapse in drinking referred to in his reports occurred only in late October and into November 1997. Dr Khan had asserted that during the time he treated Mr Tillett, Mr Tillett was never able to think clearly; but he agreed that Mr Tillett was lucid when he was not drinking. This was consistent with Dr Tillett's observation that Mr Tillett had no difficulties of expression when he was not drinking. 65 It is not apparent on what observations Dr Khan's perception that Mr Tillett "lacks a sense of money" was, or could have been, founded - especially bearing in mind that his clinical notes contain no history or observations relevant to such a perception prior to 4 April 2002. Mr Tillett was able to retain managers, solicitors, and accountants, to enter into contracts and to negotiate - as illustrated for example by the written communications of late 1994 and early 1995 from Mr Tillett in Greece to both Dr Tillett and his manager, Mr Beaumont-Edmonds. Mr Tillett was actively engaged in the management of his musical career. Correspondence between Mr Tillett and Mr Beaumont-Edmonds deals with performances, payment of royalties, contracts with record companies, supporting acts, and commissions to be paid to managers when he was performing overseas. In a letter to Dr Tillett on 9 November 1994, Mr Tillett wrote: As you may have guessed I am no longer interested in simply making a record and playing a few gigs just for the hell of it. I need to work to a particular strategy next year and not the half-interested, shortsighted scattergun approach of John Needham. 66 Dr Khan was unaware that Mr Tillett had written correspondence of that quality. When confronted with it, Dr Khan thought that the letters of late 1994/1995 demonstrated considerable clarity of thought, a familiarity with the commercial world and an ability to look after his interests as and when required. Nor was Dr Khan aware that Mr Tillett had engaged a manager, used a corporate structure, or changed his bank accounts.

[57]

72 The instant transaction was not a complex one - it involved, in essence, return of the property in return for a discharge of the Varnell mortgage, in circumstances where Varnell had advanced the whole of the purchase moneys and costs of acquisition. It is unnecessary to go so far as to accept the defendants' submission that Mr Tillett "was a skilled commercial negotiator"; the plaintiff cannot succeed unless his ability to conserve his own interests was compromised, or he was vulnerable to exploitation. I accept that some limited business competence is not inconsistent with special disadvantage in relation to financial matters generally [cf Clarke v Lopwell Pty Ltd [2008] NSWSC 615, in which it was held that plaintiffs, who had managed successfully to operate a dairy farm over many years, an activity clearly requiring some business skill, were still at a special disadvantage in relation to other commercial transactions, as they were "unworldly" and naive in their dealings with the defendant]. But Mr Tillett was not in my view unworldly or naive, and neither his correspondence nor his conduct portrays him as such - instance his dealings with his agents, and his understanding of performing rights. That he had not accumulated wealth from his musical career does not mean that he was disabled from conserving his own interests: my impression is that he was more interested in making music than in making money, and that he did not exploit his music for commercial advantage as some might have, but this does not bespeak vulnerability or disadvantage in the relevant sense. That his financial circumstances were less than modest - including that he did not generate sufficient income after his personal living expenses to contribute to rates and outgoings for the Erskineville property while he was residing there, sometimes received financial assistance from his family, and was unable to repay loans made by family members - does not mean that he was unable to conserve his own interests: prominence as an artist, including as a musician, is no assurance of financial success. His poverty, if it be that, did not expose him to exploitation by his family, or by anyone else. 73 In its context, the transaction was not so irrational as of itself to suggest, let alone evidence, vulnerability or inability to conserve his own interests. Important surrounding circumstances which inform this conclusion are that (as Mr Tillett had told the social worker at RPAH) he thought he would be better off in rental accommodation independent of his family; that he was planning to move to Europe, or at least spend lengthy periods there; that he had no further use for the Erskineville property; that he owed Varnell at least $191,000, although it was not payable until 2000; that he was not in a position to meet interest (which was lawfully payable if demanded, as he had been told it would be); and that he had not been contributing to insurance, rates and other outgoings or repairs - despite requests from his mother that he do so - so that she and/or Varnell had had to pay those expenses. In effect, a venture by his family to provide him with accommodation had failed. While the precise form and structure of the October 1997 transaction was documented by Neville Menlove, its substance was to reverse the 1995 transaction and restore the parties to their previous position. Although the venture had taken the form of a purchase in Mr Tillett's name, subject to a mortgage to Varnell, many would have seen in those circumstances at least a moral obligation, upon failure of the venture, to restore the parties to their original position, by returning the property to Varnell, which had funded its acquisition, and discharging the mortgage. At least, that was not an inequitable result. Indeed, it would have been inequitable for Mr Tillett to make a profit from the transaction in circumstances where its purpose - provision of accommodation for Mr Tillett - had failed. [I do not, however, accept the defendants' submission that Mr Tillett effectively received full value "as the mortgage was discharged and it is apparent that Varnell Holdings through its directors as well as Dr Tillett and Mrs Tillett regarded the obligations of Mr Tillett to them for the debts which existed as at 5 October 1997 as discharged by reason of the gift back" - such obligations including that Mr Tillett owed Dr Tillett $20,000 and Mrs Tillett $5,000, and other expenses incurred by Dr Tillett and Mrs Tillett in respect of maintenance of the property. While, in return for the transfer of the property, the Varnell mortgage was discharged, this was not "full value" in the context that there had been an appreciation in value while Mr Tillett had been the registered proprietor; and the evidence does not reveal any contemporaneous intention at the time that the other loans be treated as discharged]. 74 Mr Tillett's conduct and condition throughout the relevant period, as appears from the documentary record, simply does not accord with his evidence that he could have acted as the defendants claimed "only if seriously deluded or incapacitated". The hospital notes of the July 1997 admission reveal him as having a reasonable understanding of the arrangements concerning the house, and an ability to identify and act in his own interests. It is notable that, although at times Mr Tillett was depressed, he was able to describe the arrangements - which the social worker described as "complex" - concerning the property; as already noted, his description of the property as being owned by the family company but in his name was a fair lay explanation; he recognised that there were issues that required legal advice, and sought and apparently obtained advice from Redfern Legal Aid in respect of those arrangements (though not the transfer, which had not yet been proposed); and he appears to have concluded that it would be beneficial for his welfare to live in independent rental accommodation not dependant on his family. As the clinical notes record, he spent his time organising new accommodation and looking for work; he was concerned that he might not be able to afford the rent ($260 per week) for one of the properties identified; his condition gradually improved, and he was much better once accommodation was found. And although at times Mr Tillett was psychotic, there is no suggestion that his delusions or hallucinations related to the property; nor - for example - that the "voices" were telling him to vacate or transfer the property. The "Angel of Death" may have been urging Mr Tillett to commit suicide, but there is no suggestion that any of the "voices" had anything to say about the property. 75 And whatever was the case at the time of his exclusion from the Erskineville property, his subsequent decision to retransfer the property to Varnell was made and maintained over a period of nearly two months - from mid-August until early October - when, on all the evidence, he was well. In my view, at the time of the transaction on 5 October 1997, Mr Tillett was not compromised in his ability to conserve his own interests in respect of the transaction. Throughout September and early October he had been well. His psychosis was in remission, and in any event was not such as to impact on his decision-making ability concerning the subject transaction. He was not drinking. According to Dr Tillett, during September and early October 1997, Mr Tillett looked well, spoke well and was well kempt and tidy, and he appeared entirely rational. This assessment accords with Mr Tillett's apparent rationality in the interview with Drum Media, and with the circumstance that, having been given a cheque by Dr Tillett for a $7,000 loan on 7 October 1997, he caused it to be banked on 8 October 1997. It is supported by Dr Khan's notes, Dr Parmegiani's assessment, and - at least to a substantial degree - by Dr Khan's concessions in cross-examination. Mr Tillett had had since mid-August to reconsider his decision to retransfer the property to Varnell. He was not without sufficient acumen to appreciate the nature and effect of the transaction, which was not complex - namely, a transfer of the property in return for a discharge of the mortgage - and he knew lawyers and other advisers whom he could consult if he wished; the absence of legal advice was in that context not significant. Neither his poor financial position, nor his mental illness, exposed him to exploitation or predisposed him to improvidence. 76 As Mr Tillett was not unable to conserve his own interests, nor vulnerable to exploitation, he was not at a relevant "special disadvantage". His claim to have the October 1997 transaction avoided as an unconscionable dealing therefore fails.

[58]

Undue influence 77 The alternative basis on which Mr Tillett impugns the October 1997 transaction is that of undue influence: he contends that his assent to the transaction was procured by the undue influence of Dr Tillett and Mrs Tillett. The equitable doctrine of undue influence holds that a transaction that has been unconscionably procured in consequence of a relationship of influence between the parties is voidable [Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th Edition, [15-005]]. The doctrine can be attracted in two ways. First, the nature of some relationships - specifically, priest and penitent, doctor and patient, solicitor and client, parent and child, guardian and ward, and (more controversially) fiancé and fiancée - is such that they are presumed to be relationships of influence, because they are considered to involve such a reposing of trust and confidence in one party by the second, and likelihood of the exercise of authority by the second party over the first, that any substantial gift had to be justified by the recipient, so that the gift would otherwise be presumed to be the result of exertion of influence which was "undue" [see Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th Edition, [15-055]]. Secondly, in other relationships, not presumed to be relationships of influence, proof of particular aspects of the relationship may nonetheless show the relationship to be one of influence, in that one party is in a position of ascendancy or dominion over the other, who is in a position of dependence or subjection. As Barrett J has recently explained in Winfield v Clarke [2008] NSWSC 882 (at [27]): Presumed undue influence may arise from the existence of a relationship where one person has assumed a position of ascendancy or influence over the other person or the other person has reposed trust and confidence in the former, and the former has used that relationship to achieve a transaction in which the first person benefits. … In the case of presumed undue influence the onus will rest on the ascendant or trusted party to rebut the presumption and prove that the transaction was voluntary and a result of a free exercise of will or a well understood decision-making process: Johnson v Buttress (1936) 56 CLR 113. 78 Once there is a presumed or proved relationship of influence, the dominant party bears the onus of showing that a transaction for his or benefit was not procured by undue influence. In this respect, it is not sufficient to show that the plaintiff understood what he was doing or its significance thereof; it must be established that his intention was formed free from the influence of the defendant, and that he was at the time of the gift "emancipated" from the influence. In many cases the courts have placed particular reliance upon the presence or absence of improvidence and independent advice [Meagher, Gummow and Lehane, [15-125]]. 79 Mr Tillett relies on both: a presumed relationship of undue influence arising from the relationship of parent and child with Mrs Tillett, and a "proved" relationship of influence with his brother Dr Tillett. 80 The relationship between parent and child is one of presumed influence, but only for so long as the child is yet to be "emancipated" from the control of their parent. At what point a child becomes emancipated is not fixed. While some authorities have focused on the age of the child, and assumed that a child becomes emancipated in the years shortly after attaining majority [Lamotte v Lamotte (1942) 42 SR (NSW) 99, 102-3], the better view is that emancipation is to be determined by reference to the ongoing nature of the relationship between parent and child [see Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 4th Edition, [15-075]]. How long the influence can be regarded as continuing depends upon each particular case. However, where the parent is elderly and the child is in middle age - having left home years before - it is unlikely that there will be an ongoing relationship of undue influence [Lamotte v Lamotte, 102-3]. 81 In 1997, Mr Tillett was 38 years old, and well passed the age at which the presumption of undue influence is ordinarily thought to have expired, though this is simply one factor to be considered [Lamotte v Lamotte, 102-3]. Mr Tillett has, for most of his adult life, lived apart from his mother - although for some periods he resided at her home in Villawood. He has lived his life for the most part independently from his mother - although he has received financial assistance from her in the form of loans and gifts, and she paid some of the outgoings associated with the Erskineville property. For reasons explained above, his mental illness was not such as to prevent his becoming emancipated. In my judgment, Mr Tillett was well and truly emancipated from his mother's influence by 1997, and the relationship between them by that time was no longer one of presumed influence.

[59]

82 So far as Dr Tillett is concerned, the relationship between siblings is not a presumed relationship of influence. 83 The evidence of Mr Tillett's state of mind, dealings and activities over the second half of 1997, and before and since, does not show that he was in the habit of reposing trust and confidence in his mother and brother or unquestioningly acting on their advice. Dr Khan's opinion - that "even at his best in 1997, Louis Tillett lacked a sense of money and was generally fearful of the other family members whom he could not deny or challenge if demands were made on him" - finds no objective support in the evidence. 84 For Mr Tillett, it was submitted that Dr Tillett and Mrs Tillett had assumed a position of ascendancy over him through their control of Varnell, holding as it did a mortgage over the property. When they decided that they no longer wished Mr Tillett to live in the property, they told him that if he did not move out Varnell would exercise its right under the mortgage to require him to pay interest, which they knew he would be unlikely to be able to pay. No doubt this threat involved the imposition of some pressure on Mr Tillett. But it arose from the exercise of a legal right, arising not from a relationship of influence, but from conditions attached to the initial acquisition of the property in Mr Tillett's name. The relationship of mortgagor and mortgagee necessarily gives the mortgagee an ascendancy of sorts over the mortgagor, but it is not a relationship of undue influence. Mr Tillett's argument amounts to one that, Varnell having conferred on him the benefit of the property subject to a mortgage which entitled it to charge interest if it so wished, it was an exercise of undue influence for it to threaten to exercise its right to do so, moreso as he was told of their decision while in hospital recovering from a serious fall, a condition that would have compounded his vulnerability. But any position of ascendancy enjoyed by Varnell arose from legal right descending from a condition attached to the acquisition of the property in Mr Tillett's name, not from an influential relationship. In circumstances where they had in effect caused the property to be given to Mr Tillett but subject to a mortgage which enabled them to charge interest if they wished - in order to maintain some element of control over the property - I see no element of undue influence in their exercising that control. They were within their rights to demand interest, and though this right gave them some power over the plaintiff, it arose from their legal right as mortgagee - not from a relationship of influence. 85 Accordingly, because Mr Tillett was "emancipated" from his mother's influence, there was no presumed relationship of undue influence. Nor does the evidence reveal an actual relationship of undue influence. Any power that the defendants had over Mr Tillett arose from Varnell's position as mortgagee, and derived from what was in substance a condition attached to the acquisition of the property in Mr Tillett's name; it did not constitute a relationship of "undue influence". Laches and delay

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87 An equitable claim may be defeated if the plaintiff, by delaying in bringing the claim, acquiesces in the defendant's conduct, or causes the defendant to alter its position in reasonable reliance on the status quo, or otherwise permits a situation to arise that it would be unjust to disturb [see Meagher Gummow and Lehane's Equity Doctrines and Remedies [36-005]]. The doctrine of laches was explained by the Privy Council in Lindsay Petroleum Company v Hurd (1873-74) LR 5 PC 221, where Lord Selborne LC said (at 239-240): Now the doctrine of laches in Courts of Equity is not an arbitrary or technical doctrine. Where it would practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as equivalent to a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material. ... Two circumstances, always important in such cases, are, the length of the delay and the nature of the acts done during the interval, which might affect either party and cause a balance of justice or injustice in taking the one course or the other, so far as relates to the remedy. ... In order that the remedy should be lost by laches or delay, it is, if not universally at all events ordinarily ... necessary that there should be sufficient knowledge of the facts constituting the title to relief. 88 The plaintiff did not commence these proceedings until 2008. Mr Tillett made no complaint about the retransfer of the property for many years. Even in 2005, when he "demanded his inheritance", he made no complaint about the October 1997 transaction. In 2006 a psychiatrist he was consulting suggested that he might be able to make some sort of claim, but he did not seek advice until 2007. Counsel for Mr Tillett sought to explain and mitigate his delay by reference to his mental condition, which was said to have been poor for many years, with his thinking becoming clearer only in recent years following electroconvulsive therapy in 2003; and by reference to his confusion as to whether he in fact ever had any interest in the property. It was suggested that it was only in recent years, when the issue was brought to his attention by his psychiatrist, following which he sought legal advice, that the matter was crystallised in his mind. My findings that he in fact had a better understanding of the nature of the transaction at the time undermine these submissions. Indeed, he admitted to feeling "cheated and betrayed" at the time. Mr Tillett had sufficient knowledge of the facts that founded his potential claim for equitable relief: he knew of his relationship with the defendants; he knew that he had retransferred the property to Varnell; and he knew he had received no actual payment for the transfer. 89 As part of the October 1997 transaction, the Varnell mortgage was discharged. After the October transfer, Mr Tillett, Dr Tillett and Mrs Tillett continued their long-standing generosity to Mr Tillett, supporting him financially. Between the transfer and 21 August 2008, Dr Tillett advanced about $55,294.82 for the benefit of Mr Tillett; Varnell expended $37,606.13 on support to him in the same period and Mrs Tillett spent $66,121.74 for Mr Tillett's benefit. These sums do not include payments made in respect of a boat purchased by Dr Tillett, he claimed for the benefit of Mr Tillett). 90 The defendants submit that they would not have incurred this expenditure, had they known the retransfer was ineffective. In my view, it is inconceivable that Mrs Tillett and Dr Tillett would have continued to confer these benefits on Mr Tillett, had they known that he impugned the October transfer. In essence, what happened was that, having come to the view that their attempt to provide for him through the Erskineville property was misconceived, and having recovered the Erskineville property, they reverted to providing ongoing financial assistance for him from time to time. It is unthinkable that they would have continued to do so, had he asserted that the reconveyance of the Erskineville property was voidable. 91 In my opinion, therefore, Mr Tillett is barred by laches from obtaining equitable relief.

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Remedy 92 Had I concluded that Mr Tillett's October 1997 transfer of the property to Varnell was the product of unconscionable dealing or undue influence, and that laches did not disentitle him from equitable relief, it would have been necessary to consider what remedy would have been appropriate. Mr Tillett claimed a reconveyance of the property subject to the reinstatement of the Varnell mortgage; alternatively, equitable compensation representing the current value of the property, less the amount owing under the mortgage; in addition, $260,000 in equitable compensation, representing the rent derived by Varnell from the property since the transfer. 93 The prima facie response of equity to unconscionable dealing and to undue influence is to declare the impugned transaction void and make orders reversing it and effecting restitutio in integrum. However, mirroring the flexible and pragmatic approach of equity in other fields where the prima facie remedy would lead to an unjust outcome [cf Alati v Kruger (1955) 94 CLR 216, 223; Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102, 113; Giumelli v Giumelli (1999) 196 CLR 101], where restitution is impracticable, or for other reasons it would be unjust to set aside the transaction, equity will resort to "the minimum equity necessary to do justice" between parties in order to achieve "what is practically just". In Amadio, Deane J acknowledged that while the usual remedy in cases of unconscientious bargains was to rescind the transaction, where appropriate a lesser response may be adopted - taken including rescinding part only of a transaction. Thus, while in Amadio the High Court set aside the guarantee given by the appellants in its entirety - even though they had believed they were giving a guarantee of $50,000, because had they been fully aware of the state of their son's finances they would not have agreed to the arrangement at all - by way of contrast, in Vadasz v Pioneer Concrete the Court held that a guarantee given by the appellant should be set aside only to the extent that it applied to past liabilities, with the appellant remaining responsible for liabilities arising after the agreement was entered into - because the appellant had knowingly received the benefit of goods supplied on the security of the guarantee and restitution was not possible because of the nature of goods supplied so that it would be inequitable to allow the appellant to retain the benefit freed of the obligation of the guarantee in respect of them [Vadasz, 576]. In Bridgewater v Leahy, Gaudron, Gummow and Kirby JJ referred (at 494) to "the importance of the consideration that in the particular circumstances of a case the equity may be satisfied by orders having the effect of setting aside no more than so much of a disposition as prevents the moving party 'obtaining an unwarranted benefit at the expense of the other'. "

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94 In the present case, several factors tell in favour of the view that setting aside the transfer and returning the property to the plaintiff would be inequitable. First, there are the matters already referred to in connection with laches: even if those matters did not disentitle Mr Tillett to equitable relief, the circumstance that since the transaction Dr Tillett and Mrs Tillett have laid out substantial funds in providing assistance to him, which would not have been expended had they known that the transaction would be impugned, tells strongly against reversing the transaction so many years later. 95 Secondly, since the retransfer of the property, Varnell has undertaken significant renovations, at a cost of approximately $150,000, in order to make the property liveable and lettable. While it was submitted, for Mr Tillett, that the defendants should not be given an allowance for this expenditure - on the basis that they should bear the "consequences of their own iniquity" [cf Berridge v Public Trustee (1914) 33 NZLR 865], there is authority for the view that a defendant is entitled, at the very least, to an allowance for improvements made to the property: in O'Sullivan v Management Agency Music Ltd [1985] 1 QB 428, Fox LJ said (at 466): If, for example, a person is, by undue influence, persuaded to make a gift of a house to another and that other spent money on improving the house, I apprehend that credit could be given for the improvements … 96 See also Brown v Smitt (1924) 34 CLR 160. In Berridge, the Court acknowledged the wide discretion to do equity depending on the circumstances of each individual case. In that case, it was an important consideration that the defendant had made fraudulent representations and was aware of the defect in its title [at 872]. The resultant disentitlement from an allowance is consistent with the Court's refusal to make allowances to a constructive trustee in a case of fraud. There is no equivalent factor in the present case. In my view, at the very least the defendants would be entitled to an allowance for improvements made to the property. 97 Thirdly, Mr Tillett would likely have transferred the property, to a third party if not to Varnell, within a relatively short timeframe, irrespective of Varnell's conduct of which complaint is made. Dr Tillett and Mrs Tillett were adamant that Mr Tillett should not return to live in the property after his accident. To this end, they intended to exercise Varnell's entitlement under the mortgage to charge interest. Had Mr Tillett not transferred the property to Varnell, it is probable that Varnell would have required him to pay interest within a short period. It was known to all that Mr Tillett would not have been able to meet such a requirement - indeed, that is why Varnell financed the purchase in the first place. And even had Mr Tillett been able to service the interest, he would certainly have been unable to discharge the mortgage when the principal became repayable in September 2000. The property would have had to be sold, by Varnell as mortgagee if not by Mr Tillett,

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99 If the transaction were disadvantageous for Mr Tillett, the disadvantage lay in the circumstance that, while the value of the property had increased in value since its purchase in 1995 for $183,000, Mr Tillett - who, as registered proprietor, was entitled to the benefit of any increment in value - received no such benefit, the retransfer being at the same price as the original purchase (although, in reality, the consideration was the discharge of the mortgage securing $191,000). The benefit that Varnell derived from the transaction, which corresponds in this case with the detriment to Mr Tillett, was the difference between the market value of the property in October 1997, and the sum of $191,000 being the value of the discharge of mortgage. 100 According to the valuation evidence, the market value of the property at the time of the October 1997 transfer was $220,000, which exceeded the amount of $191,000 required to discharge the mortgage by $29,000. That is the amount of the benefit received by Varnell and the disadvantage incurred by Mr Tillett, would reflect the amount of any benefit obtained by Varnell at the expense of Mr Tillett, and would be the minimum equity necessary to do justice between the parties in this setting. 101 Accordingly, had unconscionable dealing or undue influence been established, the prima facie remedy of a retransfer to Mr Tillett subject to reinstatement of the Varnell mortgage would not have been appropriate: it was not have been equitable for Mr Tillett to retain the property, with the benefit of its appreciation in value, and the improvements effected by the defendants, in circumstances where, in the absence of unconscionable dealing or undue influence, Mr Tillett would still not likely have retained the property. In those circumstances, rescission of the transfer and a reconveyance - or equitable compensation representing the current value of the property (less the amount owing under the mortgage) - would be unduly generous to Mr Tillett and unduly harsh to the defendants. The appropriate remedy to prevent Varnell obtaining an unwarranted benefit at the expense of Mr Tillett would have been equitable compensation for $29,000, with interest from October 1997.

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103 At the time of the transaction on 5 October 1997 Mr Tillett was not unable to conserve his own interests, nor vulnerable to exploitation, and he was therefore not at a relevant "special disadvantage". Mr Tillett's conduct and condition throughout the relevant period, as appears from the documentary record, simply does not accord with his evidence that he could have acted as the defendants claimed "only if seriously deluded or incapacitated". In its context, the transaction was not so irrational as of itself to suggest, let alone evidence, vulnerability or inability to conserve his own interests. He had had since mid August 1997 time to reconsider his decision to retransfer the property to Varnell. During that period he had been well: his mental illness was in remission, and in any event was not such as to impact on his decision-making ability concerning the subject transaction; he was not drinking at the time; he was not without sufficient commercial acumen to appreciate the nature and effect of the transaction. Because of the uncomplicated nature of the transaction, which he understood, the absence of legal advice was not significant; and his poor financial position did not expose him to exploitation or predispose him to improvidence. The claim to have the October 1997 transaction avoided as an unconscionable dealing fails. 104 The October 1997 transfer was not affected by undue influence. Long before October 1997, Mr Tillett had been emancipated from his mother's influence, so that the relationship between them was no longer one of presumed influence. The relationship between Mr Tillett and his brother was not one of presumed influence. Nor has it been proved that the relationships were relationships of influence: Mr Tillett was not in the habit of reposing trust and confidence in his mother and brother or unquestioningly acting on their advice; and although Dr Tillett and Mrs Tillett, through Varnell, had a measure of power over Mr Tillett by virtue of Varnell's rights as mortgagee, that arose from Varnell's legal rights which attached as a condition to the acquisition of the property in Mr Tillett's name, and not from any relationship of influence. 105 Mr Tillett is barred by laches from obtaining an equitable remedy. Mr Tillett had sufficient knowledge of the facts that founded his potential claim for equitable relief: he knew of his relationship with the defendants; he knew that he had retransferred the property to Varnell; and he knew that he had received no actual payment for the transfer. It is inconceivable that Mrs Tillett and Dr Tillett would have continued to provide for Mr Tillett the financial support and assistance that they did, had they known that he would impugn the October 1997 transfer. In essence, having come to the view that their attempt to provide a home for him through the Erskineville property was misconceived, and having recovered the Erskineville property, they reverted to providing ongoing financial assistance for him from time to time. It is unthinkable that they would have continued to do so, had he asserted at an earlier time that the retransfer of the Erskineville property to Varnell was voidable.