Mentink v Olsen - [2020] NSWCA 182

Unconscionable conduct — Special disadvantage — Whether unconscientious advantage taken — Whether gift fair, just and reasonable — Undue influence 

This case presents itself with a not uncommon set of facts. Wealthy elderly woman gifts substantial sum of money to her daughter just days prior to death and widower is left to challenge the gift.

In Mentik v Olsen [2002] NSWCA 182, the Court of Appeal in New South Wales recently considered the case of a terminally ill woman aged 75 years who was survived by her husband and daughter of a previous marriage. In the course of the deceased's life time, she gifted the sum of $2.2m to her daughter being cash from a term deposit. The widower sued his step daughter alleging that she procured this money from her mother by placing undue pressure and influence on the deceased and by contriving her mother's change of mind to gift that money to her. In so doing, the widower argued further that his step daughter had taken advantage of her mother's vulnerability in unconscionable circumstances. The primary judge accepted that there were facts against the step daughter to support these findings. The step daughter appealed the learned primary judge's findings of unconscionable conduct and undue influence.

In this article, I will focus on the findings of unconscionable conduct.

Legal Principles of Unconscionable conduct

The elements for the equitable cause of action of unconscionable conduct are taken from the well known High Court decision of Commercial Bank of Australia v Amadio (1983) 151 CLR 447. They are summarised as follows:

1. There must be proof that one party to the transaction is at a special disadvantage in relation to the other party to the transaction, such that the latter's ability to make a decision that is in their own best interests is seriously prejudiced and affected; and
2. The stronger party was aware of and understood the weaker party's disabling condition or circumstances and the special disadvantage that person would be placed in by not being able to make a decision that was in their own best interests.

Once a prima facie case is shown that there are facts pointing to it being unfair for the stronger party to accept the weaker party's consent to the transaction sought to be impugned, the onus shifts to the stronger party seeking to justify the transaction to show that it was a fair, just and reasonable transaction for the weaker party to enter into.

Findings at first instance as to "special disadvantage".

The parties on appeal did not challenge the findings at first instance that the deceased was in a position of special disadvantage by reasons of her sickness and infirmity.

The deceased was the primary carer for her own mother who was ill. She moved into her mother's home with Mr Olsen and cared for her when her mother was not in hospital. The deceased's daughter then took over the care of her grandmother and managed that household's expenses. The deceased had trouble signing cheques and so her daughter was also added as a signatory on that cheque account. After some time in hospital, the deceased then returned home by which time she was aware that she was terminally ill. Indeed the deceased was told she was terminal in the presence of her daughter (the appellant) at which time the evidence was that the deceased became extremely anxious and exhausted because she felt she had had no time to organise her affairs. The evidence further disclosed that the deceased was heavily reliant on her daughter for assistance with managing her household and dealing with her medical affairs.

The learned trial judge relied on the decision of Fullagar J in Blomley v Ryan (1956) 99 CLR 362 at 405 in which it was observed that “sickness, age, infirmity of body or mind... [and] lack of assistance or explanation where assistance or explanation is necessary” are all paradigmatic examples of special disadvantage. The learned trial judge found that all of these factors were in some degree present and it was in these circumstances that the considerable gift of $2.2m to the daughter was made. Moreover, the transfer of this money was made to the daughter just 4 or 5 days before the deceased's demise. The learned primary judge's findings of this conduct was unambiguously condemning. Of the daughter's conduct, His Honour held thus at [372]:

"It was an act of self-indulgence, somewhat callous and extraordinarily selfish on the part of the defendant. The defendant took no opportunity to suggest her mother seek independent advice, nor speak to anyone else in the family about such a large gift. The only concern the defendant had was to hurriedly consult her own accountant to ensure that the gift, was ultimately tax neutral in her hands. She knew her mother was otherwise without any independent and objective sounding board".

Findings at first instance as to unconscionable conduct.

What if the daughter had nothing to do with the mother's decision to gift her $2.2m? What if she just stood by and let her mother gift her the money and said nothing to encourage or discourage her from so doing? Is that a sustainable defence for the daughter? We often here clients make such statements like; "Mum wanted to gift me this money! She loved me and it made her happy to do this. Who am I to stop her?" Is this enough to fend off an allegation of unconscionable conduct? The answer is, no. There is a significant misconception in the community whereby children and other close family members of a deceased, assume that their loved one wants to do something for their benefit; whether that is transferring the family home; or making significant gifts of money or other valuable chattels. Such assumptions on the part of the recipient may lead to exposure from someone challenging the transfer or the gift. In the same way that the assumption is made that "mum or dad wanted this for me" then it would not be unreasonable for the intended recipient to hold a further assumption that "despite what [mum or dad] want to do for me, my sister, or brother is going to fight me for this, so I better be prepared to answer the allegation."

In this case, the Court at first instance held that even if the evidence disclosed that the daughter had nothing to do with her mother's decision to transfer $2.2m to her just days before her death, what was relevant in relation to the question of unconscionable conduct was whether the daughter took advantage of her mother in the knowledge of her mother's impending demise and inability to make rational decisions about her legal and financial affairs. This finding of fact is critical to an understanding of what constitutes unconscionable conduct. What is clear from this case is that it is no defence for a party against whom an allegation of unconscionable conduct is made, to say that they had no proactive involvement in the party's decision to enter into the transaction sought to be impugned. Just like silence is no defence to a claim of misrepresentation in commercial transactions, it is no defence in equity to say that a party did not actively encourage or discourage the party from entering into the transaction hence the disputed transaction is not impeachable. Indeed, inaction to actively discourage the transaction may be relevant in showing that the party took advantage of the situation.

The learned primary judge's summary of the daughter's conduct in this regard makes for compelling reading. At [373] His Honour held thus:

"Although the precise sequence of events is not clear. I am satisfied either the defendant initiated or contrived, despite her denials, her mother’s change of mind to her own benefit or she took advantage of her vulnerability in circumstances which were unconscionable. I would nonetheless find, that in this case even if she did not specifically initiate the gift, the defendant’s passive acceptance of the large gift was, in all the circumstances unconscionable. In particular, if the defendant did not initiate the gift, she witnessed at close range, her mother’s indecisiveness and impulsivity, in circumstances where she was receiving a substantial benefit and in circumstances where her mother had no independent or objective advice".

Findings on Appeal in relation to unconscionability

Was the gift unconscionable?

The daughter argued that the gift was not unconscionable because:

• it was the deceased who initiated it, not her and the evidence was that the deceased was consistent in her desire to so do;
• the daughter was a beneficiary under the Will of the deceased as to a financial bequest of $2.2m however this Will was not executed because the deceased had already made the gift to the daughter; and
• the daughter was aware for some time that she was going to receive the gift; either inter vivos or by Will hence opening up a bank account to receive the gift was consistent with that knowledge and expectation and was not done to exploit the deceased at the daughter's advantage.

The providence of the $2.2m gift was the focus. The evidence was that it came from a term deposit that was a partnership asset, or, more likely than not, a partnership asset shared by the deceased and Mr Olsen. This was an important consideration because the daughter's knowledge of her mother's intermingled funds with Mr Olsen was relevant to the question of whether or not it was necessary for the deceased to seek independent financial advice from her accountant before she gifted this money to her daughter. If it was not solely the deceased's money to gift, this shone a spotlight on the question of the daughter's unconscionable conduct. The daughter argued that she had distanced herself from any detailed knowledge of her mother's financial affairs and so she had accepted the gift in a vacuum. However, the question was relevant because the term deposit was gifted by the deceased to the daughter from funds that were not solely the asset of the deceased but were rather funds that were intermingled and shared in the partnership between the deceased and Mr Olsen.

The Court of Appeal found that regardless of the daughter's knowledge of where the term deposit funds originated from, the real issue was that she could not be satisfied that her mother was capable of making the decision to gift this money to her without any accounting or legal advice. That advice was critical to ensure that the deceased understood whether or not it was her money to gift at all. It followed that the daughter could not be satisfied that her mother gave due and proper consideration to the question whether it was in her best interests to make the gift to her daughter.

There was evidence that the deceased and Mr Olsen had intended to leave the residue of their estates to each other and for the surviving partner to divide their property in four ways: in the case of Mr Olsen 1/4 was to go to the appellant and each of his two children and the remaining quarter to Mr Olsen's grandchildren (the children of his deceased's daughter). The evidence disclosed that the deceased had different intentions when it came to how she chose to distribute the assets she inherited from her own mother's estate. The appellant sent a letter to her mother's solicitor enclosing a letter of instruction from her mother to the effect that everything the deceased inherited from her mother was to go to the appellant. This included "considerable money in houses (in my [the deceased's] name only)." In order for the appellant to understand the above testamentary intentions of her mother, she needed to know which "houses" were in the deceased's name purchased directly or indirectly with moneys received from her grandmother's estate. Therefore, it followed that contrary to the daughter's arguments that she did not have a detailed knowledge of her mother's financial or legal affairs, the above evidence disclosed that she must have had this knowledge and must have been directly involved in her mother's testamentary decisions. At trial the appellant denied having read her mother's letter to the solicitor which disclosed testamentary intentions. Under cross examination the appellant conceded that she may have "glanced at it."

The Court of Appeal held that the primary judge was correct to find that the appellant's denials at not being intimately acquainted with her mother's legal and financial affairs 'defied belief' and was also correct to hold that on any view the appellant was 'entirely privy' to her mother's testamentary intentions. The clincher in the above findings was that the deceased's letter to her solicitor in which she expressed her "...very serious addition to my Will – Immediately please!" was to leave the residue of her estate to Mr Olsen (as was their joint intention) and to leave to her daughter her inheritance from her mother's estate. What was clear from the deceased's testamentary intentions was that she did not express any wish or intention to leave to the appellant, funds which Mr Olsen had or was likely to have a substantial claim in as an asset of their joint partnership.

Another point of contention and which was the subject of investigation for both the primary judge and the Court of Appeal, was the deceased's knowledge of how the term deposit came to have a balance of $2.2M. There is a complex web of facts with properties being sold and contracts of sale being rescinded with deposits returned and banked into this term deposit that comprised the $2.2M ultimately gifted to the appellant. The relevance of the discussion of these facts, is to show that the primary judge was correct to find that the appellant had not distanced herself from knowledge of her mother's financial and legal affairs and in fact was proactively instrumental in attending the bank with her to effect the transactions that resulted in the final balance of the term deposit being $2.2M.

The evidence also disclosed that after she had gifted this sum of money to the appellant, the deceased instructed her solicitor to revise her Will to take out the bequest to the appellant of $2.2M (given that she had already gifted it to her). A subsequent meeting was arranged by the appellant with another local solicitor at which Mr Olsen attended for the purposes of discussing further amendments to the deceased's Will and Mr Olsen's Will. Only hours before that meeting, the appellant had received her mother's revised Will from the other solicitor, taking out the $2.2M bequest to her under the Will. There was no mention by the appellant at this meeting with Mr Olsen and the other local solicitor of the revised Will of the deceased nor of the fact that she had already received the $2.2M gift from her mother. The local solicitor's file notes simply disclosed that the deceased "was at home unwell." This complex web of facts ultimately laid bare the implausible denials of the appellant that she was not involved in her mother's legal and financial affairs and more importantly that she played an active and instrumental role in obtaining a significant financial inter vivos gift from the deceased in circumstances where the deceased was not able to decide for herself whether she (i) could make the gift to her daughter at all; and (ii) should so do.

At [32] of the Court of Appeal's decision, the finding on unconscionable conduct was justified by the primary judge as follows:

"Essentially, the primary judge found that the appellant was intensely involved in her mother’s affairs, and showed a degree of obsession with receiving what she thought she was entitled to receive; that ... she was aware of the term deposit, and initiated the amendment of her mother’s will to include it; and that she “initiated or contrived” the decision to make her a gift of the term deposit on the following day. The contemporaneous documents, oral evidence and probabilities justify the primary judge’s findings in the general terms in which they are made. It follows that the appellant’s submission that the deceased initiated the gift of $2.2 million on 10 October 2016 must be rejected".

And further at [41] and [42]:

"On the version of events most favourable to the appellant, the deceased was confused and unsure as to what to do with the term deposit, and whether and to what extent it was composed of funds inherited from her own mother. On learning of the term deposit, the appellant took advantage of the deceased’s confusion by persuading her to make a gift of it. The deceased was the party in need of advice and assistance, but the appellant’s concern was to ensure that no legal or tax problems stood in the way of her receipt of a gift of $2.2 million. Although her evidence was that she asked about tax implications for both herself and the deceased, it is to be remembered that the appellant visited her own accountant while the deceased waited in the car".

"The making of the gift was inconsistent with the deceased’s testamentary intentions, to which the appellant was privy. Although the appellant did not know that the term deposit was wholly or partly a partnership asset – she may even have thought the $2.2 million largely represented the proceeds of her grandmother’s estate – her subsequent behaviour demonstrates that she was aware the gift was suspect and potentially subject to challenge. And she encouraged the deceased to make a gift of the term deposit, with the result that it could not be as readily discovered or challenged by John Olsen as a bequest might have been".

Practice Points

This case is a really good illustration of the importance of chronological ordering and understanding of the facts. The dates of when things happened and how were critical in understanding whether or not the appellant's behaviour fell in the category of being unconscionable.

Of course, in a perfect world, our clients would come to us first before accepting such gifts or making such gifts in difficult circumstances. Time is more often than not the enemy.

What I found useful in reading this case in particular, was the strong visual understanding of the facts as they were unfolding in the first instance judgment and on the appeal. For me, it was a vivid movie in my head. In taking instructions from one's client, it help to picture this movie unravelling and the possible sequel to it. What would you have done to advise the appellant if she had disclosed all of these facts to you and gave the detailed chronological order of facts as they unfolded here? It is of course all very well to be learned in hindsight! Alas, we don't have that elusive crystal ball (sigh...) But it isn't too difficult to sympathise with the learned judge in his judgment of the appellant's conduct when the facts are accepted in the manner that they were. Nor is it difficult not to see how the Court of Appeal could have come to a different conclusion.

If there is the luxury of time, and your client comes to you seeking advice on how to handle a potential inter vivos gift coming from their elderly parent, warning bells should immediately sound and all steps taken to ensure that the parent is afforded every opportunity to seek independent legal and financial advice as well as confirmation that they have the requisite capacity and willingness to enter into the transaction.

In my (admittedly cynical view held with proper bases) the assumption must be made that the transaction or gift is more likely than not an impeachable one that will be closely scrutinised, especially where it involves an elderly parent or vulnerable person with a disability, without the necessary and expected protections around them to ensure their faultless understanding of what they are doing, and why.