Solicitors:
Philip Gengos & Co (Plaintiff)
Deane & Dean Lawyers (Defendants)
File Number(s): 2015/247204
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Judgment (EX TEMPORE - REVISED 21 SEPTEMBER 2015)
HIS HONOUR: The plaintiff Dale Verner sues by his tutor, his sister Michelle Verner. Michelle has been appointed as the financial manager of Dale's affairs. That appears to reflect Dale's incapacity, as a result of the schizophrenia that he suffers and with which he was first diagnosed in 1998.
In these proceedings, Dale (if I may call him that without being offensive) seeks relief in respect of a property formerly owned by him located at Dulwich Hill. He says that the defendants have acquired his legal interest in that property by means of unconscientious dealings, or in breach of fiduciary obligations. It appears to be reasonably common ground, or at least not actively disputed, that Dale's father, the late Leonard Verner, transferred that property to Dale in the 1980s. There is some evidence that Leonard, (and again I hope I will not be thought disrespectful by so referring to the late Mr Verner), did so because Dale was incapable of supporting himself.
Leonard had a close friend, the late Ross Giannaros. The evidence suggests that Leonard and Ross (if I may so call him) discussed Dale's care. It is reasonably apparent, even on the defendants' evidence, that Ross was aware in the early 1990s, and perhaps before, that Dale was incapable of looking after his own affairs.
In 1994, Leonard and Ross put together a proposal whereby Dale would transfer a half interest in the Dulwich Hill property to Ross's children, the defendants Michael Giannaros and Effy Pantechis. As before, if I refer to those people by their given names for convenience, I do not do so intending to be familiar, condescending, or offensive.
Ultimately, what happened is that a solicitor retained by Leonard drafted a deed under which a one-half interest in the Dulwich Hill property was to be transferred to Michael and Effy for nominal consideration, they were to hold the income of the property on trust for Leonard during his lifetime, and they were to be responsible for repairs and outgoings. The trust was to endure only for Leonard's lifetime.
After some discussion (and Ross, Michael and Effy sought independent legal advice), a transaction along those lines was put together. Dale signed a contract for sale and transfer in favour of Michael and Effy, for which the consideration for transfer of the one-half interest was ten dollars. At that time, it appears, the property had been valued at $220,000 at least for the purposes of stamp duty. Accordingly, on that valuation, there was effectively no consideration for the transfer apart from the promise to be responsible for repairs and outgoings. The parties executed the deed which gave effect to the balance of the transaction.
The plaintiff's evidence is that as at 1994 and for some years earlier, Dale had been incapable of looking after himself. Michelle says that Dale could not hold down a job. He had anger issues. He had been homeless for some periods of time. He had been unable to sustain a stable home life or meaningful relationships with others.
Although this was well before the formal diagnosis of schizophrenia in 1998, it is apparent on the defendants' own evidence, as I have said, that at least Ross was well aware that Dale was incapable of looking after his own affairs. After all, on Effy's account of the events of 1994, that was the very reason for putting together the plan that was effected through the deed, the contract, the contract for sale and the transfer.
It is clearly arguable that the transaction was improvident from Dale's perspective.
On one view of the facts, there might have been countervailing benefits to the apparent improvidence of disposing of one half of a valuable piece of real estate for nominal consideration. On Michelle's evidence, Ross undertook the responsibility of caring for Dale and managing his financial affairs, because at that stage Leonard was becoming incapable of doing so. However, the defendants Michael and Effy deny that there was any such arrangement, although they do accept that, thereafter, Ross and for a time they, did help Dale in his daily affairs.
As I have said, in 1998 Dale was formally diagnosed with schizophrenia.
In 2001, there was another event which according to the plaintiff was improvident. On that occasion, Dale signed a transfer of his remaining half interest in the property in favour of Michael and Effy. The consideration stated on the transfer was the sum of one dollar. Michael and Effy say that in fact the consideration payable was a further $200,000. They rely on a valuation then obtained which valued the property in whole at $400,000. Thus, they say, the transfer of the half interest was for them current market value.
The evidence of payment of the consideration is somewhat scanty. Michael and Effy say that they made payments in cash, in part from the proceeds of a cafe business then conducted by Effy and her husband and, a year or so later, from the proceeds of a loan obtained from the National Australia Bank over the security of the Dulwich Hill property.
Michael and Effy rely on a record said to have been kept by Ross and, for a period of time, by Ross' widow (as she now is) Theodora Giannaros. That record could show that, over a period of years from 2001 to 2005, sums totalling $200,000 were paid in cash to Dale. It cannot be said that the records are particularly clear. Nonetheless, they exist.
I should note that Michael and Effy say that the consideration was paid over a period of time at Dale's request, because he did not want all the money in his hands at once.
A solicitor, Ms Georgia Panagopoulos was retained (it would seem, by Ross) to act for Dale on the 2001 transaction. She also appears to have acted for Michael and Effy. The firm at which Ms Panagopoulos then worked has no records of the transaction. Her name does not appear as the lodging party on the transfer, nor does the firm's name. There is also some mystery as to why, if the transaction were as Michael and Effy say it was, Ms Panagopoulos would have recorded it as a transaction for nominal consideration.
The Dulwich Hill property was sold in May 2014. The sale price was $1,515,000. Approximately half the proceeds were paid to Michael, and the other half to or for the benefit of Effy (I say "for her benefit" because the NAB mortgage was discharged out of her share of the proceeds).
Michael has used his share of the proceeds substantially to enable himself and his wife to purchase another residence. That residence appears to be unencumbered. He has kept part of the proceeds to pay estimated capital gains tax.
Effy used her share of the net proceeds principally by giving $400,000 to her daughter to assist the daughter in purchasing her own residence. $100,000 has been retained, together with a few thousand dollars in a savings account. The balance, Effy says, has been used for living expenses and expenses for her daughter's forthcoming wedding.
It is apparent that Michelle became aware of concerns (as she would have it) in the administration of Dale's affairs as far back as June of 2014. She swears that she then contacted Michael to see what was happening and to "finalise any matters which you have with Dale" (on Michelle's account).
Although the account that Michelle gives of the conversation is substantially in conflict with the account given by Michael, nonetheless it is clear that Michelle was then concerned about what had happened to her brother's assets. However, she did not move until approaching the Court ex parte on 24 August 2015 this year.
It is apparent from Michelle's affidavit that she sought and obtained the consent of NSW Trustee and Guardian to commence and continue with these proceedings. That consent was given on 14 August 2015. The financial management order had been made in 11 November 2014. There is no evidence as to the reasons why it took some eight or nine months thereafter to obtain authority to commence and prosecute these proceedings.
Michelle also expresses concerns at a legacy that Dale received from their late aunt. That legacy was in the sum of about $31,000. According to Michelle, the legacy was paid into Dale's bank account. She says that she spoke to Ross who said that he would make sure the proceeds were invested so that Dale could not spend them. Michelle says that this was confirmed by Dale himself. However, Michael and Effy deny any knowledge either of the bank account into which the legacy is seen to have been paid or of the legacy itself or its suggested investment by Ross.
In all the circumstances, it seems to be reasonably clear that there is a serious question to be tried as to whether the transactions in question (specifically, the dealings in the Dulwich Hill property) were improvident, and whether this was or should have been known to the beneficiaries, Michael and Effy, at the time.
Ms Jones of counsel, for Michael and Effy, suggested that the case was weak. I am not sure that I would characterise it in this way. It appears to be plain on the face of things that the 1994 transaction was improvident. Although Ms Jones submitted that there was no evidence that Dale was then suffering from schizophrenia, the reality is that on her own client's evidence, as I have pointed out, there was obvious concern at the time as to his ability to look after himself; indeed it was said that this was why the transactions were implemented. Not only did Ross know of those concerns, it is apparent from Effy's affidavit that she too, and I would infer her brother Michael, were aware of them.
Thus, although the case could perhaps not be described as being cast iron, it does not seem to me at present to be weak.
In relation to the 2001 transaction, there is some evidence that the consideration (I should have said "the real consideration") was paid to Dale. There is also evidence on which Michael and Effy rely that he was capable at the time. That is because Ms Panagopoulos apparently had concerns as to his well-being, and requested a certificate from his treating psychiatrist Associate Professor Brendan O'Sullivan. Associate Professor O'Sullivan certified that Dale was his patient and currently under medication. He said that Dale "is quite well and is competent to manage his own finances and to instruct his solicitor".
As against this, there is evidence, again in the defendants' own affidavits, that Dale was not capable of looking after his interests in a rational way. Effy said that a meeting was organised by Ross to discuss the Dulwich Hill property because it needed repairs. Dale, according to her, said that he did not want to talk about it, he did not care, he did not want anything to do with it and the others should do what they wanted.
According to Effy, Ross at that stage suggested selling the property and proposed that they could buy his share from him. She says that Dale said, "I don't want it, just take it...I don't want it".
It is difficult to believe that Effy could have thought that those were the words of a man capable of dealing in a logical, rational and competent way with a valuable parcel of real estate, or more precisely his half interest in it.
Thus, as to the 2001 transaction also, I am satisfied not only that there is a serious question to be tried but that it is not appropriate to characterise the case as "weak".
However, the conclusion that the case may have some strength does not mean that orders in the nature of freezing orders should be granted. One of the things that the Court is required to consider is whether there is any risk of dissipation of assets. Another thing that the Court is required to consider is the impact of any order on the persons to whom it is directed.
In this case, as I have said, it would appear that Michael's share of the net proceeds of sale has been invested substantially in a home occupied by him and his wife. There is certainly no evidence of any intention to sell. Nonetheless, experience teaches that the asset may be rendered unavailable to creditors by a variety of means, including encumbering the property and disposing of the proceeds.
As to Effy, the position is less clear. There is little enough left of the proceeds, partly because she gave the major part of her share of them to her daughter.
On the case advanced for the plaintiff, the defendants undertook fiduciary obligations. Quite apart from that, if either or both of the transactions were improvident to the knowledge of the defendants at the times they were entered into, a likely result is that the defendants would be found to hold their interests in the property on trust (perhaps not as to all, bearing in mind the apparent payment of $200,000) for Dale. In those circumstances, I think, the question of relief should be looked at bearing in mind the potential obligations that the defendants would have in equity, as fiduciaries and trustees, if Dale's case is made out.
Balancing those considerations - the familiar but entirely factually dependant exercise of analysis of balance of convenience - is never easy. One of the matters to be considered is the impact on Dale if the orders were not made, the assets were in some way dissipated and he were later held entitled to succeed. From a financial perspective, the effects would be catastrophic.
On the other hand, the defendants have put on no evidence whatsoever to suggest that the effect of the orders would have any real disadvantage, particularly if (as now appears to be accepted) there should be the usual carve-out for ordinary living expenses and legal expenses.
Further, from the defendants' perspective, this is not the last opportunity that they would have to be heard. If circumstances changed, and any order made proved to be unduly burdensome or restrictive, they have the right to approach the Court to seek to have the orders discharged, or the conditions varied.
I earlier referred to circumstances of delay on the part of Michelle to approach the Court for relief. Ms Jones submitted that this was a bar to the grant of relief. I accept that delay in seeking the assistance of the Court may tell against the grant of ex parte interlocutory relief. However, in this case, there are two reasons for thinking that the delay should not have dispositive significance.
First, the parties are now before the Court. The defendants have had the opportunity to put their case before the Court. They have taken advantage of that. It has not been suggested that they have been impeded in putting their case before the Court.
Second, this is not a case where the defendants have sought to suggest that they have in some way changed their position in reliance upon the apparent silence of Dale and Michelle. Of course, given their stance overall - namely, that there is no legitimate complaint available to Dale - that is hardly surprising. Nonetheless, when the chronology of relevant events is examined, it becomes clear that the defendants have not been influenced, in what they did or omitted to do, by the delay on the part of Dale in seeking relief.
Thus, although I accept that the delay is significant and is unexplained, it did not seem to me to be sufficient to tell against the grant of the relief that, in my earlier reasons, I indicated should be given.
Finally, I take into account that, on the state of the evidence, there is no any evidence of impending detriment to the defendants' interests. Thus, although Dale's capacity to meet the usual undertaking for damages that Michelle offers on his behalf may be thought to be essentially nugatory, this is not a case where obvious risk to the interests of the defendants might go uncompensated if, on a final hearing, their case succeeds.
Balancing all those considerations, I have come to the view that it is appropriate to make the orders sought, subject to the appropriate carve-outs.
It is really difficult to intellectualise the reasoning process beyond referring to the matters, pro and con, to which I have referred already.
The plaintiff also seeks various procedural orders. In circumstances where the orders propounded do not reflect what I understand it is that the plaintiff now accepts (in part because they do not indicate, in relation to Michael, that the freezing order sought is subject to a carve-out of the kind that was imposed vis-à-vis Effy), I think that the appropriate course, having regard to the time, is to stand the matter down to 2pm so that the parties can discuss the precise form of the orders and the directions that need to be given.
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Decision last updated: 28 September 2015