Smith v Smith [2004] NSWSC 663

The plaintiff, Pauline Smith, was a woman aged 61 years. The defendant, Helen Smith, was her daughter. The proceedings involved a house property at Wyoming of which the plaintiff and the defendant were registered proprietors as tenants in common in equal shares.

The property was purchased under a contract made in 2004. Completion occurred in February 2004. The purchase moneys were provided out of the proceeds of sale of a house property at Ryde. Contracts for the sale of that property were exchanged in December 2003. Completion of the Ryde sale occurred at the same time as completion of the Wyoming purchase in February 2004.
 
The vendors under the contract for the sale of the Ryde property were the plaintiff and her husband, who were registered as proprietors of the Ryde property as joint tenants and after his death she became the sole registered proprietor of that property. The plaintiff alone then conveyed the Ryde property to its purchasers upon completion. The full proceeds became payable to the plaintiff accordingly. Part of those proceeds was applied in meeting the balance of purchase moneys payable under the contract for the purchase of the Wyoming property

The deposit payable upon exchange of contracts for the purchase of the Wyoming property was funded out of the deposit received under the contract for the sale of the Ryde property, by way of partial release with the consent of the purchasers of the Ryde property; also Mr Smith’s will named the plaintiff as sole executrix and beneficiary.

The plaintiff, the defendant, the defendant’s partner (now her husband) and the defendant’s two children moved into the Wyoming property shortly after completion of the purchase on 4 February 2004. The plaintiff left about two weeks later, on 19 February 2004. She went to stay with one of her sisters. There was evidence of a dispute between the plaintiff and the defendant.
 
On 23 February 2004, the plaintiff’s solicitor, Mr Eakin, wrote to the defendant saying, among other things:
Your mother’s instructions are that when you signed the Wyoming contract she thought that you were doing so as your father’s attorney. You have no beneficial interest in the Wyoming property. You are a bare trustee for your mother who wants the half-share in your name transferred to her

The plaintiff sought:

  1. an order appointing trustees for sale of the Wyoming property under s.66G of the Conveyancing Act 1919;
  2. a declaration that the defendant held her interest in the Wyoming property subject to a constructive trust in favour of the plaintiff as to the whole of the defendant’s interest;
  3. a declaration that the half share of the defendant in the proceeds of sale be held by the trustees in trust for the plaintiff.

The plaintiff had been profoundly deaf since birth. She relied entirely on lip-reading in her attempts to understand the spoken word and had mixed success, depending on the extent and nature of the facial movements of the relevant person when speaking. She also communicated by hand signing.

The plaintiff’s case was that a constructive trust of the undivided interest in the Wyoming property of which the defendant is proprietor arose in favour of the plaintiff on one or more of several bases. The first was that the plaintiff did not know of or consent to the defendant’s becoming a party to the contract for the purchase of the property or the recipient of the interest that accrued to her as one of two tenants in common in equal shares; and that the plaintiff therefore entered into the contract under a mistake and did not intend to contract in the form in which she appeared to contract. The second basis was that, if the plaintiff did, impliedly or otherwise, consent to the defendant’s becoming a co-purchaser with her under the contract, she did so in circumstances making it unconscionable that the defendant should retain the resultant benefit. The third basis is that, in signing the contract as purchaser in her own right rather than as attorney for her father, Mr Smith, the defendant was in breach of a fiduciary duty owed by her as attorney.

The first basis advanced by the plaintiff for claiming the defendant’s interest in the Wyoming property was unilateral mistake. The alleged mistake upon which the plaintiff relied was a mistake attending the agreement between the plaintiff and the defendant to contract with the vendors as co-purchasers. That agreement, the plaintiff said, was actuated by a misapprehension on the plaintiff’s part that the defendant, in signing the contract, was doing so on behalf of Mr Smith so that the plaintiff’s co-purchaser was him, not the defendant.

In the case of unilateral mistake, where the actuating misapprehension is said to have operated upon one party but not the other, rectification is generally not permissible. There is, however, an exception where the party not under the misapprehension is guilty of fraud, whether actual, constructive or equitable. See Taylor v Johnson (1983) 151 CLR 422 at 432-433.

The essential elements are, first, that one person enters into a contract under a serious mistake about its content in relation to a fundamental matter; second, that the other party is aware that circumstances exist indicating that the first person is entering into the contract under a serious mistake about the content or subject matter of that aspect of the contract; and, third, that the second party deliberately sets out to ensure that the first party does not become aware of the existence of the mistake, either by positive acts or omitting to bring it to their attention.

The first question was whether the plaintiff, when agreeing on 13 January 2004 to become co-purchaser with the defendant of the Wyoming property, knew that the effect of what she was doing was to put the defendant in a position where she would become the owner of an undivided one-half interest in the property.

In this matter, the Court was satisfied that the plaintiff failed at the second stage of the inquiry – that is, the need to show that the defendant was aware of circumstances indicating that the plaintiff was acting under a serious mistake as to the identity of her co-purchaser.

The second basis on which the plaintiff put her constructive trust claim in respect of the defendant’s interest in the property was that the circumstances in which the defendant obtained the interest made it unconscionable for her to retain it as against the plaintiff. It was in this part of the case that the effective movement of value from the plaintiff to the defendant, without consideration or countervailing advantage, became a relevant factor.

Equity will intervene where an unconscientious use of power is perpetrated by a stronger party upon a weaker. See Blomley v Ryan (1956) 99 CLR 362:

Speaking of the jurisdiction of courts of equity to relieve against unconscionable dealing, Deane J made the following observations in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447:

“The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable.”

The relationship between such unconscionable dealing and undue influence was then described by Deane J:

“The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party.Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.”

The real point is that equity will neither allow advantage to be taken of a person labouring under a disability nor sanction an overbearing of a vulnerable party’s judgment by a stronger party’s influence. These forces may be at work even though the person affected becomes a willing participant in a transaction which on its face shows no real sign of unfairness. The equitable wrong lies in the taking of the benefit produced by unconscionable conduct in circumstances where the person engaging in that conduct knows or is to be taken to know of the circumstances of unconscionability.
In Turner v Windever [2003] NSWSC 1147, Austin J pointed out that a case of unconscionable dealing involves five elements: 

  1. the weaker party must, at the time of entering into the transaction, suffer from a special disadvantage vis-a-vis the stronger party;
  2. the special disadvantage must seriously affect the weaker party’s capacity to judge or protect his or her own interests;
  3. the stronger party must know of the special disadvantage (or know of facts which would raise that possibility in the mind of any reasonable person)
  4. that party must take advantage of the opportunity presented by the disadvantage; and
  5. the taking of advantage must have been unconscientious.

In the present case the plaintiff was profoundly deaf. The defendant was not. The plaintiff was entirely reliant upon others to relay to her the content of oral statements made by persons whose manner of speaking did not allow her to lip-read. The defendant was not reliant in this way. The plaintiff had, throughout her marriage of 39 years, relied on her husband to advise and help her with financial and business matters. The defendant was not reliant in this way. The plaintiff’s husband was gravely ill and expected to live only a few days. He had told her that the defendant had agreed to look after her. The plaintiff was thus in a state of extreme anxiety and isolation. In these ways, the plaintiff suffered from a special disadvantage vis-à-vis the defendant.

In the present case regarding the second element, the plaintiff’s isolation from the spoken word, coupled with the absence of both an interpreter and the husband from whom she had for so many years derived support and help, meant that she was, during the meeting of 13 January 2004, not able to judge or protect her own interests. She believed that the defendant – the daughter who had promised to look after her – would see to her interests and was for that additional reason affected in her capacity to protect her own interests.

The third element is that the stronger party knew of the special disadvantage or of facts that would raise that possibility in the mind of any reasonable person. In the present case, the defendant was fully and intimately aware of her mother’s condition, both physically and emotionally, including by way of reliance on Mr Smith. The defendant knew of her mother’s special disadvantage.

The fourth element is that the stronger party takes advantage of the opportunity presented by the disadvantage. In the present case, the defendant made it her business to pursue a course of obtaining for herself either full ownership of the Wyoming property or, as eventually happened, a one-half interest. She did this in circumstances where she knew that her mother would probably do and sign whatever she asked when they visited the solicitors’ office on 13 January 2004. The defendant thus took advantage of the opportunity presented by the plaintiff’s disadvantage.

The fifth and final element is that the taking of advantage was unconscientious. That element was found here. The transaction was, an improvident one from the plaintiff’s viewpoint. It was, on no view, beneficial to the plaintiff that a one-half share in the Wyoming property should accrue to the defendant through expenditure of funds that were to be received by the plaintiff and Mr Smith but were, in the events that happened, eventually received by the plaintiff alone. The defendant simply appropriated her mother’s property.

The Court found that the plaintiff’s special disadvantage in the course of the meeting on 13 January 2004 made her vulnerable by depriving her of the ability to give a competent and informed consent to the defendant’s becoming a co-purchaser and to appreciate where her own interests lay. The defendant knew fully of the limitations and disabilities under which the plaintiff was labouring. The defendant took unconscientious advantage of those limitations and disabilities and is not entitled to rely on any apparent assent of the plaintiff. Equity’s intervention against unconscionable dealing will not allow the defendant to retain the interest she obtained by becoming a co-purchaser with the plaintiff under the contract signed on 13 January 2004. The defendant held that interest upon a constructive trust for the plaintiff.

Accordingly it was unnecessary to consider the third basis on which the plaintiff’s case was put. The plaintiff’s first claim is for an order for sale of the Wyoming property under s.66G of the Conveyancing Act. Given the conclusion that the defendant held her interest as co-owner upon trust for the plaintiff, the Court did not consider it appropriate to approach the question of relief on the basis that the plaintiff and the defendant were co-owners as the findings meant that the defendant was, in equity, not a co-owner at all. The Court ordered that the defendant transfer her half share in the property to the plaintiff.

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