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This is the author’s version of a work that was submitted/accepted for publication in the following source: Cockburn, Tina & Hamilton, Barbara (2011) Equitable remedies for elder financial abuse in inter vivos transactions. The Queensland Lawyer, 31(2). This file was downloaded from: https://eprints.qut.edu.au/45773/

c Copyright 2011 Please consult the authors.

Notice: Changes introduced as a result of publishing processes such as copy-editing and formatting may not be reflected in this document. For a definitive version of this work, please refer to the published source: http://sites.thomsonreuters.com.au/journals/2011/06/30/queenslandlawyer-update-june-2011/

Equitable Remedies for Elder Financial Abuse in Inter Vivos Transactions By Tina Cockburn and Barbara Hamilton1 Introduction Elder law is a growing area of legal practice due to the increasing numbers and proportions of older people in Australian society.2 With a growing elderly population and greater access to financial resources by way of retirement capital (since the introduction of compulsory superannuation in 1992) the potential for elder abuse is also increasing. This risk may be compounded by the current generation’s high level of debt and an increasing dependence on inheritances to meet these debts.3 Elder abuse occurs when the relationship of trust between an older person and another is abused and results in harm – financial, psychological, physical, social, neglect or sexual – to the older person.4 Because elder abuse frequently occurs in the context of family or carer relationships, elders are frequently reluctant to pursue legal avenues for redress, particularly if it means bringing criminal proceedings against family members. When an elder has impaired capacity, the guardianship jurisdiction in each State or Territory is invoked and remedies may be available in a cost-effective way through these tribunals. The guardianship jurisdiction is not the focus of this paper. This paper examines how equitable remedies can be used (at an increasing rate in recent times) as an avenue of redress for elder financial abuse. The effectiveness of these remedies, and in particular the prospect of a costs order being awarded against the perpetrator of the abuse in successful claims, may act as a deterrent and assist in preventing elder financial abuse from occurring. Elder financial abuse In relation to elder financial abuse, Robinson and others have said: Financial abuse of older people, defined as ‘the illegal or improper use of older person’s property or finances’ (Kurrie and Dadler, 1944:6), is a common, growing and little researched area of elder abuse. Though older people often fear abuse by strangers, abuse of older people largely occurs within families, with adult children being the main perpetrators.5

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Faculty of Law, Queensland University of Technology. The population of Australia aged 65 and over is expected to increase from 12% in 1998 to 26% in 2051, with the proportion aged over 85 almost quadrupling: Australian Bureau of Statistics, 2000. See generally The University of Western Sydney Centre for Elder Law http://www.uws.edu.au/law/elderlaw/ and R Lewis Elder Law in Australia, Lexis Nexis, 2004. 3 Daniela Intili “Dividing Up the Family Pie” Money Magazine November 2002, cited by A Lyons “Enduring Powers of Attorney – Common Problems and Emerging Issues” paper presented to Queensland Law Society Succession Law Conference, Brisbane, October 2004, page 13. 4 Australian Network for the Prevention of Elder Abuse, 1999 5 Robinson, Setturlund, Wilson, Tilse, Rosenman “Financial Abuse within families: Views from Family Members and Professionals” paper presented to Australian Institute of Family Studies Conference Melbourne February 2003; cited by A Lyons ‘Enduring Powers of Attorney – Common 2

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Reporting on initiatives by the Law Institute of Victoria in recognition of the significance of elder law as a growth area of legal practice, including establishment of the LIV Council Elder Law Committee and submissions to the federal government’s Inquiry into Older Persons and the Law, Geoff Provis, in his position as President, Law Institute of Victoria, said:6 “This abuse has a devastating effect on older people. A blow to financial security can often be a permanent and life threatening setback, characterised by fear, a sense of betrayal, depression, guilt, shame, denial, anger and a lack of trust, which can in turn give rise to acute and chronic anxiety and physical illness. The legal profession is well placed to identify possible financial abuse of older people”. A key reason for the significant role which lawyers have to play in supporting older people to overcome situations of abuse and protect their basic human rights is that, in Australia, unlike in the United States and Europe, there is no mandatory reporting scheme for cases of suspected elder financial abuse. Given the increasing numbers and proportions of older people in Australian society, there is a need to at least consider whether such a scheme should be adopted in this country. As noted by Ann Lyons, former President of the Queensland Guardianship and Administration Tribunal: If such a mandatory scheme were to be adopted it would clearly have important policy and resource implications which need to be thought through but other jurisdictions are asking the question and we also need to be having the discussion as well.7 In any event, it is acknowledged that without a register for powers of attorney, or mandatory reporting of elder abuse it is impossible to determine with any accuracy exactly how widespread elder financial abuse is within the community. However, a study conducted by the Office of the Public Advocate in Western Australia reported that almost 10% of all cases which came before the Guardianship Board in February 1999 were elder financial abuse cases.8 Elder financial abuse by trusted persons may take a variety of forms, such as misappropriation of money and property, facilitating changes to wills and other Problems and Emerging Issues” page 12 fn 8, paper presented to Queensland Law Society Succession Law Conference, Brisbane, October 2004. 6 Geoff Provis, “Ageing the next sure thing” (2007) May Law Institute Journal 4 7 A Lyons “Enduring Powers of Attorney – Common Problems and Emerging Issues” paper presented to Queensland Law Society Succession Law Conference, Brisbane, October 2004, page 14. For a discussion of these issues see Radio National’s The Law Report, Tuesday, 19 July, 2005 “Elderly Abuse” http://www.abc.net.au/rn/talks/8.30/lawrpt/default.htm 8 Brill D, “Safeguarding the Financial Interests of Vulnerable Seniors”, a Research Project by the Office of the Public Advocate Western Australia, 1999 cited by A Lyons “Enduring Powers of Attorney – Common Problems and Emerging Issues” paper presented to Queensland Law Society Succession Law Conference, Brisbane, October 2004.

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documents, taking benefits under guarantees and loans, and misuse of enduring powers of attorney. This paper will focus on recent decisions relating to claims for equitable relief for elder financial abuse and misuse of enduring powers of attorney. Although some degree of increasing dependency on others may always come with the onset of ageing, it is desirable that older people do not lose control of their own destiny. Protection is important. Independence is also important. Getting the balance right between preventing financial abuse and allowing older people to dispose of their own property as they want is challenging due to the inherent tension between protection and ensuring independence and decision making autonomy. EQUITABLE CLAIMS FOR ELDER FINANCIAL ABUSE In the absence of specific legislation to prevent elder financial abuse and provide appropriate remedies, although a variety of doctrines and remedies may be available for those affected by such abuse,9 in practice, in the majority of cases equitable doctrines and remedies are relied upon to provide relief. It is the flexibility of equitable remedies which enables equity to play such an important role in responding to elder financial abuse. There have been several recent examples in the reported cases where equitable doctrines of undue influence, unconscionable bargains and constructive trusts (to recognise an elderly parent’s property interest following the breakdown of a family relationship and prevent the unconscionable denial of a beneficial interest) have been relied upon as the basis of relief in cases of elder financial abuse, which will be considered below. 1. Undue Influence Elderly people are particularly vulnerable to financial abuse by persons upon whom they have become dependent. The equitable doctrine of undue influence may provide relief in such cases. Undue influence arises when a person in a position of influence over another improperly uses that position for his or her own or another’s benefit, so that the acts of the subordinate person are not free and voluntary.10 Certain types of relationship, such as the relationship between trustee and beneficiary; solicitor and client; doctor and patient; parent and child; and future husband and fiancée attract a presumption of undue influence due to the high levels of trust and confidence which arise in such relationships and the consequent capacity to exercise dominion. In addition, a presumption of undue influence may arise where the elements of dominion and dependency are found to exist on an analysis of the particular facts and 9

In addition to equitable claims common law remedies such as mistake, breach of contract, misrepresentation and duress may be available, as well as statutory remedies under the Trade Practices Act (in respect of misleading and deceptive conduct, unconscionable conduct), the Fair Trading Acts, Contracts Review Act, Consumer Credit Code etc For an overview of common law and statutory claims and remedies, see Ben Slade “Remedies for financial abuse: advising older clients” (2002) June Plaintiff 6. For a recent example of relief under the Contracts Review Act see Higgs v Thompson BHT The Protective Commissioner [2006] NSWSC 920 (mortgage given by elderly father over home to secure loan for daughter’s business – relief granted to father by way of indemnity from daughter under Contracts Review Act following default by daughter) 10 Union Bank of Australia Ltd v Whitelaw [1906] VLR 711

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circumstances of the relationship.11 A relationship of influence may be found to exist on the facts where the plaintiff establishes that the circumstances are such that there is reliance upon guidance and advice; awareness of the reliance by the dominant party; a benefit being received by the adviser; and some element of confidentiality in the relationship.12 Evidence of old age, physical or mental infirmity, financial distress, illiteracy, ignorance of business affairs, humbleness of station, poverty and eccentricity will be relevant in establishing a special relationship of influence.13 In cases where a special relationship of influence is found to exist, there is a presumption that a transaction entered into by the subservient party with the dominant party resulted from undue influence and it will be set aside unless the dominant party proves that it was an “independent and well understood act”,14 entered into “after full, free and informed thought”.15 Relevant factors in this determination include whether the dominant party has made full disclosure to the subservient party;16 the righteousness of the transaction, that is, is the transaction something which a right minded person would be expected to do?;17the presence of improvident provisions in the deed such as the absence of a power of revocation and the size of the gift compared to the donee’s total assets;18 the adequacy of consideration, though this is not decisive;19and whether the subordinate party received independent advice. Where the defendant purports to rely upon independent advice to rebut the presumption, the nature and quality of the advice must be examined.20 Relevant matters include that the advisor must be absolutely independent of the dominant party and therefore cannot act for both parties; the advice must be meaningful, for example, the terms of the transaction may need to be explained, as well as its propriety and alternatives; the independent adviser must be fully informed of all material facts such as the circumstances of the plaintiff and defendant including the nature, value and extent of assets of the donor, particularly if the property is the donor’s only asset; and there is no requirement that the advice be actually followed unless the decision to disregard the advice is a result of the influence. 1.1 Case example: Trevenar v Ussfeller [2005] NSWSC 582 In Trevenar v Ussfeller,21Justice Gzell of the Supeme Court of New South Wales considered whether alleged gifts exceeding $500,000 which had been made by an 83 year old widow to a trusted friend and confidante should be set aside on the grounds of undue influence. The claim was successful as the defendant conceded that a presumption of undue influence arose and was unable to rebut the presumption in circumstances where there was no evidence of independent legal or financial advice to

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Watkins v Combes [1922] 30 CLR 180 Lloyd’s Bank Ltd v Bundy [1975] 1 QB 326 13 Johnson v Buttress (1936) 56 CLR 113 (Johnson v Buttress) 14 Johnson v Buttress at 134-135 15 Zamet v Hyman [1961] 1 WLR 1442 16 Bank of Credit and Commercial International SA v Aboody [1989] 1 QB 923 17 Spong v Spong (1914) 18 CLR 544 18 Bester v Perpetual Trustee Co Ltd [1970] NSWLR 19 Johnson v Buttress 20 Inche Noriah v Shaik Allie Bin Omar [1929] AC 127 21 [2005] NSWSC 582 12

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support the suggestion that the gift was a product of the exercise of a free and independent will. Trevenar v Ussefeller: The facts The plaintiff (Mrs Trevenar) was born in April 1920. The first defendant (Mrs Ussfeller), her husband Mr Ussfeller (the second defendant) and her father, Mr McGuinness (the third defendant) lived across the road from the Mrs Trevenar. Mrs Ussfeller became a close friend and confidante of Mrs Trevenar. As Mr Trevenar had heart disease and could not drive, Mrs Ussfeller provided transport for them both. Mrs Ussfeller also read Mrs Trevenar’s mail to her and wrote out cheques on Mrs Trevenar’s bank account for her signature. Mr Trevenar died in July 2003. Mrs Ussfeller said that before he died, Mr Trevenar asked her to promise him that she would look after Mrs Trevenar. Mrs Trevenar, who had not lived alone previously, became more dependent upon Mrs Ussfeller. Mrs Trevenar had no children and no surviving siblings. Mrs Ussfeller visited Mrs Trevenar three to four times a day. During 2003 Mrs Ussfeller wrote several cheques made payable to herself and her family members totalling $577,200, which were signed by Mrs Trevenar, including sufficient funds to aquire a property at Singleton. The plaintiff’s claim Mrs Trevenar sought an order for the recovery of $577,200.00 on the alternative grounds of fraud22 and undue influence against Mrs Ussfeller and also orders against Mr Ussfeller and Mr McGuinness.23 The decision The defendants admitted that Mrs Ussfeller’s relationship with Mrs Trevenar was such as to give rise to a presumption of undue influence and the position of both Mr Ussfeller and Mr McGuinness as volunteers left them also affected by the presumption,24 but argued that the presumption was rebutted in the circumstances of the case. In particular, it was submitted that the evidence demonstrated that Mrs Trevenar entered into the transactions by exercising free will on a purely voluntary basis, the consequences of which she well understood, both at the time they occurred and subsequently. It was also submitted that Mrs Trevenar still had substantial assets after the gifts were made and improvidence or folly were not grounds for setting aside the gifts25. Justice Gzell held that the concession as to a relationship of influence had been 22

Gzell J found it unnecessary to determine the allegation of fraud (at para [56]), but made findings of fraud in the event that it had been necessary for him to do so (at paras [57]-[60]). 23 Interestingly no claim was made for a constructive trust over the property acquired with the plaintiff’s money. 24 para [47]; as to the circumstances in which third parties may be liable for the undue influence of another see Dal Pont and Chalmers Equity and Trusts in Australia 4th ed Law Book Co, 2007 [7.130][7.155]; Dal Pont and Cockburn Equity and Trusts in Principle Law Book Co, 2005 at [7.70]-[7.80]. 25 see para [49]

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properly made,26 citing the classic statement of the presumption of undue influence set out by Justice Dixon in Johnson v Buttress27 as follows:

“But the parties may antecedently stand in a relation that gives to one an authority or influence over the other from the abuse of which it is proper that he should be protected. When they stand in such a relation, the party in the position of influence cannot maintain his beneficial title to property of substantial value made over to him by the other as a gift, unless he satisfies the court that he took no advantage of the donor, but that the gift was the independent and wellunderstood act of a man in a position to exercise a free judgment based on information as full as that of the donee.”28

His Honour then found that the defendants had failed to rebut the presumption of undue influence and that the alleged gifts must therefore be set aside.29 Given the amount of the gifts, they could not be explained on the basis of gratutude for friendship and support, and there was no evidence of independent legal or financial advice so as to support the suggestion that the gifts were the product of an “independent and well understood act”.30 His Honour concluded: “Neither Mrs Ussfeller, nor Mr Ussfeller, nor Mr McGuinness, acted in the interests of Mrs Trevenar. No consideration was given to having her independently advised by a solicitor or accountant. Indeed, on the occasions after the initial gift of $520,500.00 was made that Mrs Ussfeller took Mrs Trevenar to see Mr Hannaford, no mention was made of any gift. No consideration was given to the effect on Mrs Trevenar’s assets or income of the making of the gifts. This is not a case of a gift commensurate with services provided that can be explained as an act of gratitude for the support provided by a neighbour. If it were only a matter of a gift of $6,500.00 said to have been compensation for Mrs Ussfeller’s failure in her nursing examination the morning after the death of Mr Trevenar, that gift might have stood. But in this case, the gifts totalled $577,200.00. They were large gifts. As Griffith CJ said in Spong v Spong (1914) 18 CLR 544 at 549 large gifts made by a person incapable of managing his own business without independent advice cannot stand unless it is made abundantly plain that the donor fully understood what he or she was doing. Mrs Trevenar was emotionally dependent upon Mrs Ussfeller. Mrs Usfeller has failed to establish that Mrs Trevenar made the alleged gifts in exercise of independent judgment, fully aware of the consequences of her actions. Dr Strum’s examination of her, led him to the view that she was a dependent personality who did not understand the nature of the cheques she was asked by Mrs Ussfeller to sign. That opinion was borne out by Mrs Trevenar’s evidence 26

at para [48] (1936) 56 CLR 113 28 ibid at 134 29 at para [55] 30 Johnson v Buttress (1936) 56 CLR 113 at 134-5. 27

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in the witness box. In cross examination she was, on many occasions, unable to understand the question being put to her and she could not give a rational explanation of many of her actions”.31 1.2 Case where claim for undue influence failed: Christodoulou v Christodoulou [2009] VSC 583 By contrast, the plaintiff’s claim failed in Christodoulou v Christodoulou.32 In that case the evidence did not establish that a special relationship of influence existed and in any event the frail, elderly and illiterate Greek woman received legal advice from a Greek speaking solicitor prior to entry into a transaction whereby she held her home as tenant in common with her son following an advance from him to buy out her estranged husband’s share. Christodoulou v Christodoulou: The facts Mrs Christodoulou and her husband migrated from Greece in 1974. By 2005 their marriage was in such a bad state that Mr Christodoulou had partitioned the house. He lived in the rear of the house and Mrs Christodoulou in the front part. The toilet, bathroom and kitchen facilities were in the rear part of the house and although Mrs Christodoulou was supposed to have access to these facilities, in fact Mr Christodoulou denied that access. Mrs Christodoulou either used her neighbour’s facilties or a bucket as a toilet. Each had taken out domestic violence restraining orders against the other. As a result of family court proceedings it was ordered that the house be sold. Mrs Christodoulou wanted to remain in her home of 35 years and wanted to buy out Mr Christodoulou’s share, but had no resources to do so. The couple had five children - two daughters sided with their father, but one son in particular, Andrew, was very sympathetic to his mother’s plight and had given her a great deal of support and assistance. He mortgaged his own home to buy out his father’s share of the matrimonial home, so that Mrs Christodoulou could continue to live in her home. The home was then held by Mrs Christodoulou and Andrew as tenants in common in equal shares. Mrs Christodoulou was elderly and frail and illiterate in English. However she had been represented by a Greek speaking solicitor (Mr Anthony) in relation to her marriage breakdown. Although she had received considerable support from her son Andrew, it was accepted that she had an independent disposition in relation to daily life and decision making. She initiated a transaction by which she requested her solicitor Mr Anthony to transfer her half-share in her property to her son Andrew in gratitude for his support and assistance and to ensure the daughters who had sided with their father could not benefit on her death by way of family provision. Mr Anthony proposed other options such as leaving her share to Andrew in her will or a life interest, but, knowing she was transferring her main asset and the consequences of the transaction, Mrs Christodoulou wanted to go ahead.

31

at paras [52]-[54]

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[2009] VSC 583

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The claim A number of years later, Mrs Christodoulou (by her administrator) sought to set the transaction aside on the grounds of undue influence and/or as an unconscionable bargain. The decision The court declined to set aside the transaction, refusing to hold that a presumption of undue influence (or unconscionable bargain) arose. Despite her vulnerability due to old age, frailty, and her distressing personal circumstances the court found she was a feisty woman of independent judgment. In any event, even if a presumption of undue influence/unconscionable bargain arose, she had the benefit of fully informed independent legal advice, as it was clear at all times Mr Anthony had been acting for her.33 Comment The case illustrates that serious vulnerability is not sufficient to set aside a transaction where it is clear the transferor knows what s/he is doing and is making an independent judgment to do so. Naturally where a person has the benefit of informed independent legal advice (as in an appreciation of other possible options in the circumstances and all material circumstances are clear) it will be easier to establish that the transferor has made an informed decision to enter into a transaction and was aware of the consequences of doing so. 2. Unconscionable Bargains34 The doctrine of unconscionable bargains may be invoked to set aside contracts and voluntary transactions where one party unconscientiously takes advantage of a party at a special disadvantage.35 To establish unconscionable dealing the plaintiff must show that he or she is at a special disadvantage; and “that the other party has unconscientiously taken advantage of his or her special disadvantage.”36 The jurisdiction is invoked “whenever one party to a transaction is at a special disadvantage in dealing with the other party because of illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affecting his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands”.37The disadvantage must be a special disadvantage in the sense that it must have seriously affected the disadvantaged party’s capacity to protect her or his own interests vis a vis the other party in the context of the particular transaction.38

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[2009] VSC 583 at [108]. see generally Fiona Burns “The Equitable Doctrine of Unconscionable Dealing and the Elderly in Australia” (2003) 29 Monash University Law Review 336 35 Blomley v Ryan (1956) 99 CLR 362 (Blomley v Ryan); Amadio. 36 Amadio. 37 Blomley v Ryan per Kitto J at 415. 34

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Amadio

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The disadvantage must have been “sufficiently evident” to the other party and that other party must have taken advantage of the disability, for example, by securing an unfair bargain with inadequate consideration. Factors relevant to determining knowledge include the expertise and conduct of the stronger party, such as discouraging the other party from seeking advice. Once the elements are established, the defendant must show that the bargain was fair, just and reasonable.39Adequate consideration is strong evidence of fairness,40although inadequacy will not necessarily impeach a contract unless gross.41 The courts are reluctant to enforce an unfair bargain in the absence of independent advice.42 The doctrine of undue influence is distinguishable from unconscionable bargains, although often both doctrines apply to the same facts and it has been argued that the doctrines are converging.43 Undue influence applies where the will of the subordinate party is not independent and voluntary because it is overborne, therefore the court considers the quality of consent.44 In the case of an unconscionable bargain, the will of the innocent party, even if independent and voluntary, is the result of his or her disadvantageous position and the other party unconscientiously taking advantage of this, therefore the court considers the conduct of the stronger party in seeking an unconscionable advantage.45 2.1 Case example: Sleboda v Sleboda [2007] NSWSC 361 The recent decision of Justice Gzell of the Supreme Court of New South Wales in Sleboda v Sleboda46 is a helpful illustration of how the two closely related equitable doctrines, undue influence and unconscionable or unconscientious bargains may provide relief to vulnerable elders who have been deprived of an interest in property as a result of unconscionable conduct. This is particularly so in cases where there is no evidence of effective independent legal advice. Sleboda v Sleboda: The Facts In 1979, the plaintiff, Jozef Sleboda, and his son, the defendant, Joseph Jan Sleboda (known as John), bought a farm in Phoenix Park, New South Wales, as tenants in common in equal shares. In 1981, John was faced with the prospect of criminal charges and, on advice, transferred his interest in the property to Jozef. In 2002, Jozef transferred the entire interest in the property to John. Jozef said that he understood the documents he signed were to return the property to him and his son as tenants in common in equal shares. A dispute arose between John and his father, following which John asserted his interest in the entire property and denied his father access.

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Amadio Amadio 41 Blomley v Ryan 42 Amadio 43 Louth v Diprose (1992) 175 CLR 62 per Brennan J 44 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (Amadio) 45 Amadio 46 [2007] NSWSC 361 40

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The claim Jozef commenced proceedings seeking a declaration that John held the property on a constructive trust for both himself and Jozef as tenants in common in equal shares.47Jozef alleged that the transfer arose as a consequence of undue influence and unconscionable conduct. The evidence There was conflicting evidence as to the terms of the 2002 agreement to transfer the property to John. Jozef’s evidence was that John “asked: ‘What about signing the farm back to me like it was before’. He said he replied: ‘Alright, we go back half and half.’ John’s evidence was that while that was the initial proposal, his father later said he might as well transfer the lot to John48. Josef’s evidence was preferred over John’s.49 His Honour made the following observation in relation to the circumstances surrounding the transfer of the property from Jozef to John: “The documents were executed at the property on the evening of 13 August 2002. Mr Jozef Sleboda was born in 1923. He was then 79 years old. Mr John Sleboda knew that his father had difficulty with the English language and that he was partially deaf. Mr John Sleboda knew that his father trusted him. In particular, Mr John Sleboda knew that his father was prepared to do whatever he asked him to do in relation to the property and he knew that his father was relying upon him to accurately convey to Mr Lee the terms of any agreement that had been reached between them as to how the title should be held. Mr Jozef Sleboda said that his son and Mr Lee sat in the lounge room for some time. He said he could not understand what they were saying. Mr John Sleboda asked him to come and sign and he did so, where indicated by his son, without reading the documents. …50.” John’s solicitor, Mr Lee, gave evidence that he had no difficulty communicating with Jozef or making himself heard. He said that he suggested that Jozef should seek independent legal advice, but this was declined, as Jozef was happy to go ahead and wanted the matter to be finalized then. Mr Lee said that he explained that the transfer was a very important document which involved Jozef transferring everything over to John and that if there was ever a fight, John could throw him out of the house. Mr Lee also said that he took Jozef through the contract point by point, starting at the front page.51 The file note documenting this said “- Attended on John and his father at 47

Despite evidence, which was accepted (at [7]-[11]; [29]), that Jozef made contributions to the property which exceeded 50% of its value – by way of deposit, mortgage repayments, payment of outgoings and costs of construction of improvements on the property, Jozef did not pursue a claim for recognition of his beneficial interest in the property to a greater extent than a half interest in the property on the basis of a resulting trust (Calverley v Green (1984) 155 CLR 242) or constructive trust (Muschinski v Dodds (1985) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137. See Sleboda v Sleboda at [7]. 48 Sleboda v Sleboda at [13]-[14] 49 Sleboda v Sleboda at [25] 50 Sleboda v Sleboda at [18]–[19] 51 The solicitor’s evidence is set out in Sleboda v Sleboda at [23]

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home. - Confirm above instructions. - Father does not want independent advice. Proceed – signed”.52 After noting that “Mr Lee had an extensive conveyancing practice with approximately 150 conveyances a year” and that three years had elapsed since the transaction in question, during which he conducted many conveyances and followed a set routine, Justice Gzell concluded “I have no doubt that Mr Lee was sincere in the evidence he gave, but I put it down to reconstruction on his part”.53 The decision His Honour concluded that both the claims of unconscionable bargain and undue influence were made out. He said: “I find that Mr Jozef Sleboda was under a special disability in dealing with his son. I find that the relationship between them was such that Mr John Sleboda had such influence over his father that Mr Jozef Sleboda’s decision to sign the documents without taking independent advice, without having them read to him and without explanation was not voluntary but was overborne by Mr John Sleboda’s instruction to his father to sign the documents. His decision to do so did not arise from an independent and well-understood act on his part. Mr John Sleboda cannot rely on the transfer unless he satisfies the court that he took no advantage of his father. He has not done so. I also find that in October 2002, the relationship between Mr Jozef Sleboda and Mr John Sleboda was such that Mr John Sleboda was in a superior position to his father. He was aware that his father trusted him and that that trust was such that his father would do anything he asked him to do with respect to the property. I find that Mr John Sleboda made unconscientious use of his superior position to the detriment of Mr Jozef Sleboda. I find that Mr Jozef Sleboda was in a special situation of disadvantage. He was partially deaf following his heart by-pass operation to the knowledge of Mr John Sleboda and he had difficulty reading English, again to the knowledge of Mr John Sleboda. He placed his complete trust in his son. I find that Mr John Sleboda unconscientiously took advantage of that situation by calling on his father to sign the documents. In arriving at this conclusion, I do not overlook the fact that Mr Jozef Sleboda had commercial experience. He had bought and sold realty previously and had instructed solicitors with respect to those conveyances. But his partial deafness and difficulty in reading the English language led him to place complete trust in his son and, so doing, he was in such a disadvantageous position as made it unconscionable for Mr John Sleboda to rely on that trust in asking his father to sign the documents without them being read to him or explained to him.”54 Remedy Justice Gzell declared that the property was held on a constructive trust for Jozef and John as tenants in common in equal shares. John was ordered to execute all documents and do all things necessary to transfer a half interest in the property to his father Jozef. John was ordered to pay his father’s costs.55 52

Sleboda v Sleboda at [24] Sleboda v Sleboda at [37] 54 Sleboda v Sleboda at [51]-[53] 55 Sleboda v Sleboda at [54] 53

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2.2 Case where claim for unconscionable bargain failed: Christodoulou v Christodoulou [2009] VSC 583 By contrast, the Christodoulou decision discussed above illustrates that even in cases where there is sufficient vulnerability to suggest a person is in position of special disability, it will be very difficult to set aside a transaction where the party at a disadvantage has had the benefit of fully informed independent legal advice. 3. Constructive trust imposed to recognise elder’s property interest after breakdown of family relationship Families often enter into arrangements whereby an ageing parent will reside with an adult child, often in a granny flat, so that the ageing parent can be cared for in that home environment in a family environment in his or her old age. Sometimes a property is acquired or modified for this purpose using funds provided by the parent; often the registered title does not reflect the contributions made by the parent and there is no formal agreement confirming the arrangements or making provision as to what is to happen in the event that the relationship breaks down and the parties can no longer live together. As observed by Justice Bryson in Bennett v Horgan:56 It is a sadly recurring judicial experience to see that family relationships do deteriorate and become intolerable, and that the persons involved did not foresee that this might happen. In such circumstances equity may intervene and provide relief by recognising the contributions made by the elderly parent and imposing a constructive trust over the property where appropriate, or awarding equitable compensation secured by an equitable lien over the property.57 Where a party transfers property in the absence of consideration or pays the purchase price to acquire a property, a presumption of resulting trust arises.58 Where, however a parent transfers property to a child, a presumption of advancement arises.59 Presumptions may be rebutted by evidence of contrary intention. In addition, a constructive trust may be imposed, irrespective of the parties’ intentions,60in cases where there is a dispute over the beneficial entitlement to property, and money or property is applied on the basis of some specific relationship or endeavour, in order to prevent a party from asserting or retaining the benefit of property to the extent that it would be unconscionable to do so.61Thus, to justify equitable 56

Bennett v Horgan (unreported, Supreme Court of New South Wales, Bryson J, No 4056 of 1991, 3 June 1994); 57 see generally Dal Pont and Chalmers Equity and Trusts in Australia 4th ed Thomson LawBook Co 2007 chapter 38; Dal Pont and Cockburn Equity and Trusts in Principle Thomson LawBook Co 2005, chapter 36 58 Calverley v Green HCA 59 Nelson v Nelson HCA 60

Allen v Snyder [1977] 2 NSWLR 685 at 692, 699.

61

Muschinski v Dodds (1985) 160 CLR 583 per Deane J at 613; Baumgartner v Baumgartner (1987) 164 CLR 137 per Mason Wilson and Deane JJ at 148

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intervention, it is necessary to establish that retention of the benefit is unconscionable. In Muschinski v Dodds62 Justice Deane observed that: “...where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it ... equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do.”63 3.1 Case example: Swettenham v Wild [2005] QCA 264 In Swettenham v Wild,64 the Queensland Court of Appeal held that a constructive trust should be imposed to reflect an elderly widower’s significant contributions to a property which was registered in his adult daughter’s name, in circumstances where the family relationship had irretrievably broken down and no provision had been made as to what would happen in that event. Sweetenham v Wild: The facts In 1999 after his wife’s death, Leonard Swettenham (the appellant), an elderly widower, aged 82 years at the time of trial, sold his house in Victoria to move to Queensland to be with his daughter, Rose-Marie Wild (the respondent). From the sale proceeds he gave his sons, Alan and Barry, about $100,000 each as gifts (with nothing expected in return) and repaid a $60,000 debt owing to his son Barry. He also told the respondent, who lived in rented accommodation in Queensland, that he wished to buy her a house and that in return he would live in a granny flat on the property and she would look after him as he aged.65 The appellant bought a property at Nerang, in the Gold Coast Hinterland, for $235,000, which was registered in his name. He contributed $190,000 of the purchase price. The respondent and her husband were supposed to contribute the remaining $45,000, but as neither had sufficient funds or capacity to borrow, the appellant borrowed $55,000.66It was agreed that the respondent and her husband would make all loan repayments. In about June 2000, the appellant, the respondent and her family moved into the Nerang property. The appellant lived in the granny flat; the respondent and her family lived in the main house and the family lived together harmoniously in their respective living areas for some time.

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(1985) 160 CLR 583 at 620 64 [2005] QCA 264 McMurdo P, Williams JA and Atkinson J, Court of Appeal Queensland 65 The agreement was that the respondent was to provide an evening meal for the appellant and he would get his own breakfast and lunch. She also cleaned his bathroom. Initially, the appellant gave her $40.00 per week, which was subsequently varied so that instead of Mr Swettenham giving that money weekly to Ms Wild, he undertook the responsibility of paying the rates and insurance for the property which worked out to about the same amount. 66 $10,000 was used by the respondent’s husband to buy a car 63

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In late 2002, the parties agreed that the appellant would transfer the property to the respondent and that she and her husband would borrow sufficient funds (secured by first mortgage over the property) to discharge the appellant’s mortgage. The arrangement between the parties was otherwise to continue as before. In January 2003 a transfer of the property from the appellant to the respondent was registered. In February 2003, shortly after the transfer, there was a serious family dispute which caused a complete break down in the relationship between the parties. After that, the respondent no longer cared for the appellant in accordance with the agreement.67It became impossible for the appellant to continue living in the granny flat and in October 2004, he borrowed $105,000.00 (secured against his son Barry’s house) and purchased a unit in a retirement village and moved there to live. The trial The appellant commenced proceedings in the Supreme Court of Queensland, claiming a declaration that he held an equitable interest in the Nerang property. The trial judge found that it was the appellant’s intention at the time of purchasing the property to ultimately benefit the respondent by giving the property to her, whether under his will or by way of gift in his lifetime. It was also found that the relationship between the parties irretrievably broke down from 23 February 2003 without any attributable blame. An order was made that the apellant had an equitable interest in the property, but limited to an entitlement to equitable compensation (secured by equitable charge) measured by the cost of his residing in similar accommodation for the rest of his life (assessed at $45,000.00). The appeal The appellant appealed from the trial judge’s decision, arguing that a constructive trust should be imposed to reflect the breakdown of the joint endeavour pursuant to which legal title in the property had been transferred to the respondent.68 The decision Justice Atkinson delivered the leading judgment.69As to the law to be applied to the facts of the case, Her Honour said: The correct decision in this case depends on a consideration of the interplay of three equitable doctrines or principles – the presumption of a resulting trust in 67

After that time, the doors to the respective areas occupied by the appellant and respondent were locked. The respondent no longer provided the appellant with an evening meal or cleaned his bathroom and the respondent did not pay the rates or insurance for the property. He was unable to access the garden or enjoy the companionship of the family; he especially missed his grandson, Robert. 68 Relying upon Muschinski v Dodds (1985) 160 CLR 583 69 McMurdo P at [1] agree with Atkinson J that the appeal should be allowed for the reasons she gives and with the orders she proposes; Williams J at [2] agree with Atkinson J’s analysis, but added some brief of his own.

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favour of the person who provided the purchase price; the presumption of advancement in favour of the child who receives property from a parent; and the doctrine of a constructive trust arising where it would be unconscionable for one party to retain the benefit of the equitable as well as the legal interest in the property where the common endeavour between the parties failed without attributable fault.70 Her Honour found that in this case the presumption of resulting trust was rebutted by evidence of intention71 and also by the presumption of advancement.72 However, she continued: That is not, however, the end of the matter. The circumstances surrounding a relationship may be used to rebut the presumption of advancement. The learned trial judge found that the presumption of advancement was not rebutted in the circumstances but I am respectfully unable to agree with that conclusion. The presumption or inference of advancement is capable of being rebutted usually by evidence of actual intention not to pass the equitable title leading the court to enforce a resulting trust rather than an express trust. In my view, the inference of advancement may also be displaced where the common intention of the parties, which was consistent with the presumption of advancement, was dependent on a continuing state of affairs or relationship or common endeavour. Where that common endeavour breaks down, the presumption of advancement may no longer apply. The difference can be seen by comparing the gifts of money made to Barry and Alan Swettenham compared to the gift made to Ms Wild of a house in which Mr Swettenham could also reside in a granny flat while enjoying the advantages of living in a family environment and being looked after by his daughter and her family as he aged. The gifts to Barry and Alan were absolute. However the gift to Ms Wild was dependent upon the ongoing relationship or joint endeavour. If the joint endeavour failed, then a constructive trust may arise.73 After referring to the leading cases, and citing with approval74 the observation of Justice Deane in Muschinski v Dodds,75 Justice Atkinson found that the joint endeavour between the parties was that the appellant intended that the repondent would take the legal title to the property, and “in return he (the appellant) was to retain not only a right to reside in the granny flat but also receive the support and comfort of living in a family environment with his daughter and her family as he aged76” (and not simply that the respondent would confer on the appellant a right to reside in the granny flat for the rest of his life as found by the trial judge). Her 70

at [31] at [32] – [33] citing Calverley v Green (1984) 155 CLR 242 at 268-269. 72 At [34], citing Calverley v Green at 267 and Nelson v Nelson (1995) 184 CLR 538 at 547 per Deane and Gummow JJ 73 at [35] citing Nelson v Nelson at 547; see also Williams J at [9]. His Honour agreed that the respondent’s conduct was unconscionable and equity would intervene and impose a constructive trust: at [11]-[14]. He also noted: “I am also of the view, although it is not necessary in the circumstances to elaborate on the reasoning, that the same conclusion could be reached by relying on the concept of unjust enrichment as it has been developed in a number of recent cases.” 74 at [36] 75 (1985) 160 CLR 583 per Deane J at 620 (see footnote 6 above) 76 at [42] (emphasis added). 71

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Honour concluded that after the joint endeavour failed, given that the appellant contributed a large proportion of the purchase price which was not reflected on the title, “it would be unconscionable for Ms Wild to retain the beneficial interest in the whole of the property subject only to Mr Swettenham’s right to reside in the granny flat.”77 Justice Atkinson held that a constructive trust should be imposed so that the appellant would prima facie recieve a proportionate share of the property relative to his capital contribution.78However, as he only sought repayment of his original contribution plus interest from the time of the break down of the relationship (a total of $213,760.00), Her Honour allowed the appeal and declared that the respondent held the property on trust to pay the appellant $213,760 plus costs.79 3.2 Case example: Field v Loh [2007] QSC 350 Field v Loh makes clear that where an elder purports to make a gift of funds to contribute to the acquisition or development of a property for his or her habitation, but does not obtain independent legal advice regarding the full nature of the transaction the gift is likely to be set aside. Field v Loh: The facts Mrs Field, an elderly Cantonese widow with poor eyesight, met Mr and Mrs Loh at her church. Mrs Field said she was concerned about her living arrangements as her daughter had refused to allow her to continue to live with her. The Lohs (also immigrants of Chinese background) offered to allow her to live with them at their rented home. Mr Loh was an undischarged bankrupt. After some months Mrs Field (having sold a block of vacant land) offered to contribute $180 000 to allow the Lohs to purchase a home. Without this sum as an undischarged bankrupt Mr Field would not have been able to borrow the balance to purchase a home. The trial judge accepted that the money was advanced on the understanding Mrs Field would have a home for life. Mr and Mrs Field’s solicitor of 20 years (Mr Leonard) strongly advised her against proceeding with the transaction, particularly in consequence of knowing Mr Loh was an undischarged bankrupt. Mr Leonard withdrew from acting for her in the transaction. A finance broker advised the Lohs they would have a better chance of getting a loan if Mrs Field signed a statutory declaration that the payment of $180 000 was a nonrefundable gift. Mrs Field signed the declaration but did not receive legal advice concerning it and Mr Leonard (the solicitor who withdrew from acting) did not know of it.

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At [42]; see also [43] at [44] – [45] Such an order would have given the appellant the benefit of increases in the value of the property - the property had increased in value from $235,000.00 when it was purchased in 2000 to $390,000.00 at the time of trial. 79 At [45]-[46] 78

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Claim A few months later the parties fell out and Mr Loh asked Mrs Field to leave the home. Mrs Field sued for return of her money on the basis the money was paid on the understanding the parties would live together as a family for life, to enable the Lohs to obtain finance and the money would be reimbursed if the arrangement did not continue. The basis of the claim was for either a resulting or constructive trust over the property to the extent of the money advanced. Alternatively it was argued the transaction should be set aside as an unconscionable bargain and the money repaid, Mrs Field being in a position of special disadvantage due to old age, poor eyesight, and because of her need for accommodation, which disadvantage was exploited by the Lohs. The decision Douglas J held that the statutory declaration did not describe the real nature of the transaction:80 “To hold her to the description that her payment was a non-refundable gift would be unconscionable in the circumstances. It was actually made in the expectation that the family would continue to live together as a family until her death, and to assist the defendants to obtain a loan.” Further the money was advanced on the basis Mrs Field would continue to live with the Lohs for life, and if that did not occur the money was to be repaid. A constructive or resulting trust was ordered over the property to the extent of monies advanced plus interest from the time of breakdown of the relationship, subject to an allowance to the Lohs for accommodating Mrs Field for some months. As Justice Bryson observed in Bennett v Horgan,81 if the parties had foreseen that their relationship would change so that the shared accommodation arrangement would become intolerable, the arrangement to share occupancy would probably never have been made. However, given that “family relationships do deteriorate and become intolerable” it is of course desirable that the parties do enter into a simple, formal agreement setting out what is to happen in this unfortunate event with a view to avoiding protracted and costly litigation. What is independent legal advice? Independent advice must not only be given by a solicitor who is independent of the party taking the benefit of the transaction, and aware of all material circumstances; it must be full advice in relation to all aspects of the transaction, including the nature and consequences as well as alternative options. In Field v Loh Mrs Field’s own long-standing solicitor had clearly advised her against the transaction, yet she proceeded anyway. Despite this, she was successful in her claim because she did not 80

[2007] QSC 350 at [23] Bennett v Horgan (unreported, Supreme Court of New South Wales, Bryson J, No 4056 of 1991, 3 June 1994);

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receive independent advice in relation to the signing of the statutory declaration that the transfer of the money was a nonrefundable gift. Comment Where an elderly person makes a significant contribution to a property registered in another adult name (often a child or carer) or he/she would have the benefit of living in a family atmosphere in his or her advancing age and receiving comfort and care from the child, and there is no agreement as to what will happen upon breakdown of the relationship, if the relationship does break down and the parties are unable to continue to live together, equity may intervene and provide relief by imposing a constructive trust to prevent the unconscionable denial of the elderly parent’s beneficial interest in property. 4. Misuse of enduring powers of attorney: Intermingling Equitable and Statutory Remedies Where an enduring power of attorney has been misused, equitable and statutory remedies may both provide relied to victims of elder financial abuse. 4.1 Case example: Smith v Glegg [2004] QSC 443 Smith v Glegg provides a good illustration of how statutory and equitable remedies can intermingle to provide a remedy in the case of misuse of an enduring power of attorney. The case also highlights the importance of appropriate safeguards being in place to minimise the risks of elder financial abuse eg conflict permission clauses should not be standard in EPAs, except where the parties have joint property, particularly spouses.

Smith v Glegg: The facts In 1999 Daphne Smith (an 85 year old widow) granted an enduring power of attornery (EPA) to her daughter Marlene. She also made a will in favour of Marlene. This will and EPA were as a result of estrangement from her two other daughters. Daphne had become almost entirely dependent on Marlene, relying on her for company, domestic assistance, transport to shops and medical appointments and to manage her financial affairs. Daphne had no friends other than Marlene. In 2000 Marlene and her husband took Daphne to the solicitor’s office (who prepared the will and EPA). Daphne executed a transfer of her house in favour of Marlene’s son without consideration. As it happened, a contract of sale was also prepared with a sale price of $150 000. The solicitors also lodged an application for a first home owner’s grant in favour of the son. The contract of sale was contrary to the deed of gift and no consideration was paid. The solicitors believed they were acting for Marlene’s son (who was giving instructions through his mother) and that the home was an unconditional transfer to him without consideration. The son did not attend the solicitor’s office or give any instructions; a question was raised as to whether he even knew of the transaction. Daphne, who at the time was legally blind, signed the relevant documents where indicated. Marlene, acting as her son’s attorney, sold the

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house and applied the proceeds to her own benefit. Daphne moved into a nursing home and her other daughters were not advised of her whereabouts. Eventually one of the estranged daughters tracked her mother down and the daughters reconciled. Daphne revoked the will and EPA in favour of Marlene and brought proceedings to recover the proceeds of sale of her home. The claim The claim was argued on three grounds: 





Statutory claim that under s 66 Powers of Attorney Act (Qld) 1998 (PAA) Marlene as her mother’s attorney was required to exercise power honestly and with reasonable diligence. Having failed to do so she was obliged to compensate her mother for her loss under s 106 PAA. Marlene procured the transaction by the exercise of undue influence. Undue influence was presumed as result of s 87 PAA and in equity because the relationship was one of almost total reliance/dependence of mother on daughter. Such presumption arising, it was up to Marlene to rebut the presumption, which would be difficult as her mother was not independently legally advised. Marlene was in breach of fiduciary duty (as attorney under her mother’s EPA) as she owed a duty not to put her own interest ahead of her mother’s interest. She made a profit in breach of the duty not to conflict with duty and selfinterest.

The decision It was significant in Smith v Glegg that Marlene was not acting under her mother’s EPA in relation to the transfer to her son. Her mother transferred the property to her grandson directly, signing all the relevant documents. It was only after the transfer by Marlene had been perfected that Marlene, acting as her son’s attorney, sold the property and applied the proceeds to her own benefit. In view of this, s 66 PAA was not invoked and no claim for compensation under s 106 PAA was possible. However, the claim was ultimately successful as it was held that the transaction was procured by the exercise of undue influence, either because a presumption of undue influence arose from circumstances of almost total reliance and dependence on the daughter by the application of equitable doctrine to inter vivos transactions. Acting in accordance with the policy of the statute, McMurdo J also held that the transaction raised a presumption of undue influence under s 87 PAA, even though the transaction was not effected by the exercise of Marlene’s powers as her mother’s attorney. Unsurprisingly as Daphne was not independently legal advised in relation to gifting her sole asset (the solicitor was adamant they believed they were acting for the son and addressed their bill to him – Marlene paid this from her mother’s funds) the court held the presumption of undue influence was not rebutted. In relation to the claim for breach of fiduciary duty, Marlene argued that any duty was negatived by the inclusion of a conflict authorisation clause in the following terms:

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“I expressly allow and authorise my attorney to enter into transactions on my behalf where my interests and duty would conflict with my attorney’s interests and duty in relation to the transaction even though my attorney might derive a direct or indirect benefit therefrom.” Here as Marlene had not acted as her mother’s attorney in transferring the property to her son, but had nevertheless benefitted from the transaction by selling the property (acting as attorney for her son) and pocketing the proceeds of sale, the conflict permission clause did not negative her fiduciary duty “to manage and apply the plantiff’s property only for the support, health and comfort of the plaintiff..”.82 The Decision As the transaction was vitiated by Marlene’s undue influence and breach of fiduciary duty, Daphne was entitled to equitable compensation to the extent of the proceeds of sale of her property ($180 000) plus the legal costs she paid and interest. As Marlene had used part of the money to purchase other property an equitable lien was applied to Marlene’s current property to secure part of these monies owing.

Conclusion In the absence of a mandatory reporting scheme for cases of suspected elder abuse and without a register for powers of attorney, equitable doctrines and remedies remain the most effective remedies for elder financial abuse, supplemented where appropriate by statutory provisions, such as those contained in the Powers of Attorney Act (Qld) 1998. The guardianship jurisdiction is also protective and preventative of elder financial abuse, but its jurisdiction is limited and only comes into effect where the elder has ‘impaired capacity’. There are some indications that the guardianship jurisdiction may expand as the definition of ‘capacity’ under the Powers of Attorney Act (Qld) 1998 and the Guardianship and Administration Act (Qld) 2000 includes ‘freely and voluntarily making decisions about a matter’83 – it seems that where a person is capable of being unduly influenced there is potential for a person to be considered to lack ‘capacity’ within the meaning of these statutes. Any expansion of the guardianship jurisdiction would be welcomed as proceedings in QCAT are far more cost effective compared to proceedings in the Supreme Court. On the other hand, whilst many elders do have capacity issues, many elders are nevertheless exploited by family members and others absent any capacity issues. In such cases lawyers will play a key role in preventing and detecting elder financial abuse through the provision of independent legal advice, but only where such advice is sought or made available, and only where the advice is truly independent, based on full information and effectively advises the elder about the nature and effect of the proposed transaction and its alternatives.

82 83

[2004] QSC 443 at [61] See sched 3 PAA (Qld) and sched 4 GAA (Qld).

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