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  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