In this case a mortgage was given to finance the purchase of a block of flats from a 90 year old lady suffering from dementia. The 90 old lady did not receive any of the purchase proceeds and denied selling her property.
A caveat was placed on the property on behalf of the 90 year old lady and a lapsing notice was issued against it. The court was asked to determine whether the caveat should be extended.
Justice Hall noted various facts that confirmed the plaintiff may have lacked the capacity to enter into a contract for sale. These included a report that found her incapable of managing her own affairs, evidence by her great niece of her mental deterioration pre-dated the alleged contract, the involvement of the property management real estate agent, the fact her legal advice was obtained from a non-independent solicitor who did not hold a practicing certificate, a short period between exchange and settlement, an apparent sale at undervalue and most tellingly the fact the plaintiff received no monies.
It must be shown that there is an arguable case and the balance of convenience favours extending a caveat. Although His Honour stopped short of concluding there was fraud he did state there was enough evidence to suggest the plaintiff lacked the capacity to enter into the contract and may not have had independent legal advice. Therefore at the lowest the plaintiff may have a basis for claiming equitable relief under the Contracts Review Act and the caveat was extended to allow time for this case to be heard.
It is noteworthy that the lenders were not joined to the proceedings at this stage. There is evidence of a first and second mortgage. That is suggestive of the property being highly geared. If those mortgage were properly drafted and neither the lenders or their agents had actual knowledge of any fraud then indefeasibility will prevail and regardless of rights the 90 year old lady might have to undo the transaction on the basis of fraud the mortgages will prevail. There can be no question of setting aside the mortgages under the contracts review act because the 90 year old lady is not a party to those contracts.