The Court
of Appeal of the Supreme Court of Victoria recently had to decide whether gifts
by a wealthy man to a woman 30 years his junior were induced by unconscionable
conduct (in Mackintosh v Johnson [2013] VSCA 10).
As
readers will know, to establish unconscionable conduct, it is necessary to
establish that the gifts were made at a time when the man was at special
disadvantage.
In the
event, and disagreeing with the Trial Judge, the Court of Appeal concluded that Mr Johnson's
infatuation with Ms Mackintosh and ‘clouded judgment’ were not sufficient to
constitute special disadvantage.
The Court
closely analysed the High Court decisions in Commercial Bank of Australia
Ltd v Amadio (1983) 151 CLR 447 and Louth v Diprose (1992) 175
CLR 621 and concluded that unconscionable conduct was not made out on the
facts.
In those
circumstances, the gifts of a house and substantial sums of money stood.
Of
particular note was the court's rejection of the Trial Judge's finding that
infatuation in the circumstances of this case was enough to amount to a special
disadvantage, which was the first step required in order to prove
unconscionable conduct in taking advantage of that special disadvantage.
Background facts (taken from the
Court of Appeal decision)
Mr
Johnson was a long-divorced man aged 73, and Ms Mackintosh was a woman aged 45,
in the course of separating from her husband, with a four year old child and
two teenage children from a prior marriage. Although brief, the relationship
was interspersed with separations and reconciliations.
After the
relationship finally broke down permanently, Mr Johnson sued Ms Mackintosh in
the County Court. He claimed (amongst other small claims) repayment of the
$175,000 paid for the purposes of her business and a transfer to him of the
house purchased in her name with his money.
Mr
Johnson claimed that he was entitled to that relief in equity, on three
grounds: (1) unconscionable conduct, because he made the payments acting under
a special disability, that Ms Mackintosh knew of that disability, and that she
unconscientiously exploited it; (2) constructive trust, because he made the
payments in the course of a joint endeavour with Ms Mackintosh and the basis of
that joint endeavour, a continuing relationship between them, ceased to exist;
and (3) equitable estoppel, because Ms Mackintosh promised she would live with
him in the house if he paid for it and she unconscionably resiled from that
promise.
By the
time of trial, Mr Johnson was 76 years old and was dying from mesothelioma. He
gave evidence from a hospital bed in Mackay and died three days after the
conclusion of the trial. At the time judgment was given, his sons, Christopher
and Stephen, were substituted as plaintiffs to represent his estate.
Applicable
law – unconscionable conduct
In Commercial
Bank of Australia Ltd v Amadio, the High Court considered
the equitable jurisdiction to set aside a transaction on the ground of
unconscionable conduct where a party to the transaction, who suffers detriment
by reason of the transaction, is suffering from some special disability or is
placed in some special situation of disadvantage at the time of the
transaction.
The Court
of Appeal noted that the High Court in Amadio emphasised two threshold
requirements before the principle can operate. First, the need for the
suggested disability or disadvantage to affect the ability of the party said to
be suffering from it ‘to make a judgment as to his [or her] best interests’. Second, the need to demonstrate that the special disability or
disadvantage was known or ‘sufficiently evident’ to the other party.
The Court
noted at paragraph 12 of its judgment that:
It is only if these two threshold requirements are
established that the Court then considers the third requirement: whether or not
the other party acted unconscionably so as to be deprived in equity of the
benefit of the transaction in issue.
Mr
Johnson pleaded special disadvantage constituted by his age, the fact that he
was lonely and vulnerable, and the fact that he was retired and desirous of a
companion. In the course of the trial he was permitted to amend to add the fact
that he was ‘infatuated’ with Ms Mackintosh, and that in February 2009 he was
recovering in hospital from heart surgery.
Ms
Mackintosh argued that:
(1) Mr Johnson was not under any
special disadvantage. He knew precisely what he was doing and simply made
improvident gifts.
(2) If Mr
Johnson was under a special disadvantage, that special disadvantage was not
sufficiently evident to Ms Mackintosh at the time the gifts were accepted.
(3) Ms
Mackintosh did not exploit the situation to procure the gifts, but merely
accepted them. Something more than passive acceptance is required.
Mr
Johnson was a successful and wealthy businessman. He was well able to afford
his dispositions in favour of Ms Mackintosh.
The Trial
Judge found that Mr Johnson signed a $436,000 cheque while he was in hospital
on 13 February 2009, following heart bypass surgery. He sent the cheque to Ms
Mackintosh under cover of a letter written that day, in
the following terms:
I was deeply concerned to hear you say you had put
all your expectations for your lakeside dream on hold. However, I guess I have
to be realistic & agree with you health & life are very unpredictable.
After seeing the happiness in your face each time we drove past or talked about
the house, to me it would be a tragedy if you did not get it. To ensure you get
your dream I am enclosing a cheque to cover same.
Based on the house price of $435,000 plus stamp
duty (Approx $15,000) house should cost $450,000 less deposit of $44,000 Bal =
$406,000.
May this be the foundation for many more beautiful
dreams that we can share together.
Eternal love. Dick XXXXXXXXX
The
effect of Ms Mackintosh’s evidence was that Mr Johnson paid for the Foster
Street house as a gift to her. Mr Johnson said that he wanted Foster Street to be registered
solely in Ms Mackintosh’s name, and that this was because he was concerned to
ensure that, upon his death, no claim could be made by his children against her
in respect of the property. In Mr Johnson’s words: ‘Because I told her I wanted
to be sure that the children wouldn’t make her move or take ownership when I’d
passed away.’
The trial
judge accepted this evidence.
Ultimately,
the Court of Appeal concluded that evidence meant that the property was a
gift.
81 Mr Johnson was 73 years old and in hospital when
he wrote the February letter and sent the cheque for $436,000 to Ms Mackintosh.
But there is no evidence that those matters affected his judgment, the judge made
no finding that they did, and they formed no part of his reasons for concluding
that Mr Johnson was suffering from a special disability.
82 The facts of this case are a long way from those
in Louth v Diprose. Mr Johnson was a wealthy, successful businessman who,
although infatuated with Ms Mackintosh, was not emotionally dependent upon her
in the way the donor was in Louth v Diprose. He made payments to her which were
well within his means in the hope of an enduring relationship with her. Having
regard to his wealth, the payments were not of a size which permit any
inference of emotional dependence, or inability to make decisions in his own
interests. This is a case of mere folly by Mr Johnson.
83 Louth v Diprose was an extreme case. So was
Williams v Maalouf, on which both parties relied. This is not. The trial judge
set the threshold for a finding of special disability too low. On his findings
and reasoning, any person who becomes infatuated with another, and has ‘clouded
judgment’ as a result, is suffering from a special disability. That is not in
accordance with principle.
84 Mr Johnson was not affected by a special
disability at the time he made the payments to Ms Mackintosh. It is accordingly
unnecessary to decide whether Ms Mackintosh exploited him and thus acted
unconscionably. The judge found that Ms Mackintosh acted deceitfully, by
concealing the true nature of her feelings for Mr Johnson from him. In our
opinion, conduct of that kind would not, on its own, be sufficient to amount to
exploitation of the kind required to establish a case based on unconscionable
conduct. It is the stuff of ordinary human relationships.
Although
the decision is based upon the particular facts, the Court of Appeal has undertaken
a useful analysis of the requirements that need to be satisfied in order for a
claim based upon unconscionable conduct to succeed.
It is also interesting to note the perhaps jaded view of ordinary human relationships that the Court of Appeal has taken!
W G Stark
Hayden Starke Chambers
