Usefulness of causes of action in equity
Equitable causes of action might be appropriate to try to recover a client’s assets where preventive measures were not put in place or were inadequate. Note that these actions are lengthy, stressful, expensive, and hard to make out. For these reasons, an older person may not want to pursue an action in equity (see Referring to other services). Arguing equity, however, may be useful in negotiating a settlement.
The risks of litigation are illustrated in Hamilton v Carter ([2011] NSWSC 394) where a claim that a nephew had taken advantage of his aunt’s known position of disadvantage was not made out. There was no finding of undue influence or unconscionability and the claimant had to pay costs to the defendant.
Determining what cause of action to pursue must be done on a case-by-case basis. Running a case on grounds of unconscionability, for example, may not help where a parent has voluntarily (but ill-advisedly) transferred land or provided their son or daughter with the purchase price for a property that is then registered in their child’s name. For a property that has significantly increased in value, a constructive trust is a more favourable remedy than a lien (Barkehall-Thomas 2008).
Constructive trusts
A constructive trust can be imposed in equity on the basis of unconscionability or common intention. In relation to unconscionability, where a defendant unjustly gains a benefit at the expense of a plaintiff, this is arguably an unjust enrichment in restitution law. (See Goff & Jones 1986, pp. 13 and 16; and Baumgartner v Baumgartner (1988) 62 ALJR 29, and Muschinski v Dodds (1986) 160 CLR 583.)
Parties may be found to hold their respective interests on trust to repay other parties’ contributions and to divide the residue between them. Some cases have drawn the analogy between the failure of a relationship and the failure of a joint endeavour in terms of the rights and interests created. In Swettenham v Wild ([2005] QCA 264) a joint endeavour (a granny flat), which was to be for mutual benefit, failed through no attributable fault of either party and gave rise to a constructive trust so that the elderly widower had a proportionate interest in the property. And see Giumelli v Giumelli [2007] VSCA 89 for an example of the fulfillment of an equitable obligation by ‘making good the expectation’ that had been encouraged (cited in Barkehall-Thomas 2008, p. 154).
Resulting trusts
A resulting trust could be created where an informal agreement to transfer assets in exchange for care has failed, for example, where an older person contributes to the purchase of a property (in which they understood they were to reside with their adult child and their family) and legal title equivalent to their contribution was not given.
- What was the intention in transferring the assets?
- Was a resulting trust intended or is there evidence that a gift was intended (presumption of advancement)? (Herd 2002, p.76)
A major obstacle for your client is rebutting the presumption of advancement because equity presumes, subject to contrary intention, that the transfer by the older person was intended to be an advancement or gift. You will therefore need to show that such a gift was not intended, for example, with evidence that a life interest was reserved, or that the transfer was motivated for reasons inconsistent with an intention to give beneficial ownership.
Case study
A man helps his daughter buy a house and moves in with her, but she abuses him and excludes him from the house
Alan, a 75-year-old man, contributes $100,000 towards the purchase of a home for his only daughter. He moves in with his daughter, who later becomes verbally and physically abusive. She forces Alan to let her make direct debits from his bank account. She also withdraws money regularly. His pension is his only source of income. One afternoon she locks him out of the house.
In Alan’s mind, the transfer of money to his daughter for the house was not a gift but his contribution to a joint venture whereby he would be provided with a home and care in exchange for money.
Possible causes of action and remedies:
- Resulting or constructive trust
- Equitable charge or lien
- Caveat
- Orders sought for repayment or sale of property to compensate him
Equitable liens and charges
In cases such as Alan’s, it may be argued that the older person has an equitable charge or equitable lien over the property. Charges and liens are not estates of any kind, but merely a right to secure the performance of an outstanding obligation (Dal Pont et al. 2007). They are available in similar circumstances to a constructive trust and arise where it would be inequitable for one party (such as an adult child) to retain the benefit of the older person’s contribution to the property (Burns 2002a, p. 1).
Australian courts in recent times have been using equitable liens or charges over constructive trusts where a court finds that this would satisfy the demands of justice and good conscience (Burns, 2002a, p. 1).
If an equitable lien is imposed, payment can be made without the owner of the property being compelled to sell it. Also, if a lien is imposed, the claimant is not entitled to any appreciation in the value of the property.
Estoppel
For estoppel cases it needs to be shown that the older person relied on an assumption created or encouraged by, say, their adult child.
Example
A widow sells her home to pay for construction on her son and daughter-in-law’s property on the understanding that she would live in an extension on the property for the rest of her life. The relationship between them breaks down and she is asked to leave.
What needs to be proved is:
- the existence of an expectation that she could live in the property for the rest of her life;
- her son created the expectation; and
- she relied on the expectation to the extent that she would suffer detriment if the expectation was not enforced and the son knew of her reliance (Barkehall-Thomas 2008, p. 25).
The detriment suffered by the older person may be, in addition to the loss of a property interest, loss of expectation of family companionship and care in old age, and it may involve ‘life-changing decisions with irreversible consequences of a profoundly personal nature’; as such it may be ‘beyond the measure of money’ (Donis v Donis [2007] VSCA 89; see also Barkehall-Thomas 2008, p. 31).
Possible remedy: Fulfil the expectation/reverse the detriment.
Undue influence & unconscionable dealing
These two doctrines (sometimes referred to as the doctrines of equitable fraud, Hall 2006) are designed to achieve fairness in transactions by providing remedies to overcome the effect of an unfair transaction (Davis 2008, p.50). The distinction between the doctrines was discussed by Deane J in Commercial Bank v Amadio (1983) 151 CLR 447 at 474. They do not require intent to be shown although sometimes undue influence may be exercised intentionally.
It is quite difficult to make out a case of undue influence or unconscionable conduct in Australia for the assets for care arrangements covered by this guide (Burns 2002, 2003).
Undue influence
The doctrine of undue influence refers to a situation where the weaker party is influenced into entering into an agreement. Undue influence can be ‘actual’ or ‘presumed’. Actual undue influence may arise as a result of physical coercion which prevents the exercise of independent judgment. Certain relationships also create a presumption of undue influence. However, a relationship between an older person and their adult child does not result in an automatic presumption of undue influence.
For undue influence, what needs to be shown is that:
- ‘there was such a strong relationship of trust and confidence that the court should be compelled to presume that the transaction was not the result of the free and independent will of the older person; and
- the transaction was manifestly disadvantageous to the older person’ (Burns 2002, p. 517).
When identifying whether a case of undue influence could be made out, you should look at things like:
- intelligence, education, character of the older person,
- age, state of health of the older person,
- the older person’s previous experience in business and finances, such as selling a house before and whether they manage their business affairs,
- strength of character and personality of the younger person,
- period of closeness of parties and their relationship,
- vulnerability of the older person in relation to the younger family member,
- opportunity of the younger person to influence the older person,
- whether the older person received independent legal advice.
If the presumption is raised, what needs to be shown by the other party is that the transaction was a result of the donor’s independent and informed judgment. If your client initially obtained independent legal advice about the nature and effect of the transaction, then the presumption can usually be rebutted. (This underlines the importance of fully and properly advising your client at the outset – see Professional duties.)
- Is it the action of the perpetrator or the experience of the plaintiff that counts?
It is the experience of the plaintiff that counts. Consequently, the focus is on the common situation of older people in relationships with family members where dependence exists (situations of trust), rather than just situations of clearly abusive behaviour such as threats and coercion. (Such behaviour in itself could amount to common law duress.) The attention is on the circumstances of the transaction and the alleged perpetrator is required to establish consent, such as by providing evidence that the older person received independent legal advice (see also Burns 2002b on cases concerning trust and dependence).
- Did the plaintiff consent? Did they have the ability to consent?
That is, what was the integrity of the plaintiff’s consent? (See Hall 2006, citing Birks & Chin 1995).
Although a parent/child relationship is not in itself sufficient basis to presume a transaction between them is tainted by undue influence (Kaye J in Christodoulou v Christodoulou & Anor [2009] VSC 583), the fact that a daughter acts towards her mother out of respect and affection does not change the conclusion that a daughter may unduly influence her parent (Barrett J in Winefield v Clarke [2008] NSWSC 882 at para 43).
See the case study under Undue influence and unconscionability in Professional duties.
Possible remedies: Rescission
Unconscionable dealing
This doctrine can help prevent benefit being gained through deliberate exploitation of a power imbalance or ‘special disadvantage’. Its focus is on the conduct of the more powerful party. If applied successfully, a transaction can be set aside as unconscionable (Hall 2006).
Case law determines that an older person’s emotional dependence can be a ‘special disadvantage’. (See Louth v Diprose (1992) 175 CLR 621; Bridgewater v Leahy (1998) 194 CLR 457.) For example, the older person and an adult family member meet on unequal terms and the adult family member takes advantage of their position to obtain a benefit through an improvident transaction (Bridgewater v Leahy at para 123).
Some examples of special disadvantage include ‘poverty or need of any kind, sickness, age, sex, infirmity of body, mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary’ (Blomley v Ryan (1956) 99 CLR 362 at para 9).
Case study
A son persuades his elderly mother with a range of disabilities to buy property and transfer it to him
Magda was 90 years old, partly deaf, poorly educated, with limited experience in practical affairs, and limited ability to read and write English. She was accustomed to rely on her son Vlad for financial affairs. She bought a property from her own funds with the belief, created by Vlad, that she had to transfer a one half interest in the property to herself and the other half to Vlad. Magda claims that no explanation of the effect of the documents had been given to her, she was unable to read them and she did not receive independent legal advice (see Sleboda v Sleboda [2008] NSWCA 122 (3 June 2008)).
Possible remedy: Recission