June 2020

Elder financial abuse: When the Court will set aside ‘gifts’ from elderly relatives as unconscionable.

This article was published in the Financial Standard Advice on 28 September 2020 (Volume 15, Issue 4).

Time and again the Courts hear cases concerning vulnerable elderly people who have been taken advantage of financially by their own family members. This bulletin briefly examines the circumstances in which the Court will set aside ‘gifts’ from elderly relatives as ‘unconscionable’.

Financial abuse

Sadly, elderly people are vulnerable to being taken advantage of financially. Adult children and other adult relatives have been known to persuade elderly parents/relatives in their care to part with property or significant sums of money without any independent legal or financial advice in circumstances where the elderly parents/relatives are left with no security in return for the funds advanced and insufficient funds for their own care and maintenance including future nursing home care.

What can be done to put things right?

The Court has the power to set aside unconscionable dealings. An unconscionable dealing involves the following:

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

Once the points in (a), (b) and (c) above have been established there is then a presumption at law that the improvident transaction was a consequence of the special disadvantage and that the stronger party has unconscientiously taken advantage of the opportunity presented by the disadvantage. The onus of proof then shifts to the stronger party to prove that the transaction was fair, just and reasonable.

Some examples

Transfer of a house from elderly uncle to nephew set aside:

In Hanna v Raoul [2018] NSWCA 201 a transfer of a house from an elderly uncle to his nephew was set aside. The Court held that the elderly uncle was at a special disadvantage due to his age, frailty and state of health and that the nephew had taken unconscientious advantage of the elderly uncle by entering in to the transaction. The nephew sought to argue that the transaction was fair and reasonable. One point that he put forward was that he was not the instigator of the proposal. However, the Court held that this was not the point in determining whether the transaction was unconscionable.

In this case the Court summarised some earlier cases with respect to unconscionable transactions and said that an unconscientious transaction in respect of which equity would intervene (i.e. to set it aside) is one “whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands”.

Daughter and her partner required to refund money to late mother’s estate:

In Grant v Grant [2020] NSWSC 760 the Court ordered a daughter and her partner to repay funds back to the estate of the daughter’s late mother.

The Court found that even if the late mother had intended to make a gift of the funds, she did this in circumstances that made it unconscionable for her daughter and her daughter’s partner to retain the benefit of those gifts. Those circumstances included: the late mother’s age and frailty; her dependence on her daughter; the fact that she received no independent advice concerning the transactions; and the fact that the late mother believed that payment of the funds was the only way to ensure she had a roof over her head if she was to avoid going in to a nursing home, as her daughter had threatened her would occur.

Given the Court’s finding that the late mother was at a special disadvantage, the onus fell on the daughter and her partner to demonstrate that the transactions were fair and reasonable and they failed to do so. In fact, the Court held that they were not fair and reasonable and set them aside.

The Court held that since the money that the late mother had transferred was to be put towards the daughter and her partner’s property it accorded with the ‘solid and substantial justice’ of the case that there be imposed on the property an equitable lien to secure the judgment including interest.

Adult son required to transfer funds back to elderly mother:

In Johnson v Smith [2010] NSWCA 306 the Court of Appeal upheld a decision of the primary judge to require an adult son to transfer funds back to his elderly mother together with damages for losses. The Court held that the adult son had ascendency over his mother given her age, her dependence upon him as her carer, the bonds of love and affection and given that the son instigated the transaction.

Furthermore, given the relationship of influence and the lack of independent advice as to the improvident transaction the Court upheld the primary judge’s finding of undue influence. The Court stated that the son “was aware of his mother’s position and was or ought to have been aware of the potential for real disadvantage to her if the transfers were to be by way of outright gift with no legally enforceable protection to have the moneys used for her benefit”.

The difference between undue influence and unconscionable dealing

The Court has held that the equitable doctrines of undue influence and unconscionable dealing are distinct. Undue influence looks to the quality of consent or assent of the weaker party whereas unconscionable dealing (or conduct) looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so [2].

Considering whether to bring court proceedings

It is an unfortunate reality that some elderly people are vulnerable to financial abuse even from those closest to them. However, if the points above under the heading ‘What can be done to put things right?’ can be proven then it is possible to apply to the Court to seek orders for any monies obtained to be repaid. The receiving party will then have to prove that the transaction was fair, just and reasonable or risk orders being made setting aside the transaction.

Author: Jennifer Shaw

[1]Hewitt v Gardner [2009] NSWSC 1107 at [106]

[2]Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; Bridgewater v Leahy [1998] HCA 66