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Bridgewater v Leahy

High Court of Australia (1998) 194 CLR 457 [1998] HCA 66

Facts and overview

The family: Bill and Neil

Bill York was a farmer with substantial pastoral holdings. Neil was his nephew (son of his younger brother, Sam). Bill had a close relationship with Neil who had worked on the properties of his father and uncle most of his working life; since 1981 he had been primarily responsible for managing a partnership between himself, Bill and Sam. At trial, de Jersey J found that:

"[t]here is no doubt that Bill greatly admired Neil, and fully trusted him.  For his part, Neil appreciated the high regard his uncle felt for him." 

Bill had four daughters and no sons. He was married to Stella York.

The last will

In April 1985 Bill made a will (at his own initiative). He gave his house, car and money held in his bank to his widow, with the residual for his four daughters.

However, the residual was subject to an option given to Neil to purchase all of Bill's pastoral holdings and interest in the partnership, livestock and machinery for $200,000. At the time the will was made the value of the option was $694,922.

Neil was not with him when he instructed preparation of the will or when he signed the will.

The 1988 sale

In 1988 Neil offered to purchase part of the pastoral holdings for $150,000. The amount proposed was the price he had received for selling his own land, Injune, which he had done at the suggestion of Bill. Bill agreed. Chief Justice Gleeson and Justice Callinan described the land being transferred in the following way:

[12] The land which Neil York suggested should be the subject of the transfer represented a substantial part, but not the whole, of the land the subject of the option in the will.  Its value in July 1988 was $696,811.  Bill York agreed to Neil's proposal.  Neil York's father, Sam, also had an interest in part of the subject land as co-owner, and he agreed to transfer his interest to Neil for no consideration.

[16] ...the substance of the transaction, as agreed between Sam, Bill and Neil York, was a sale of Bill's land for $150,000, and a gift of Sam's land.  In the background stood the provisions of the 1985 will.

The solicitor handling the transaction suggested that the sale be made at a price of approx $697,000, with a deed of forgiveness of approx $547,000, leaving $150,000 paid. It was agreed and transaction went ahead (the sale being to Neil and Beryl York).

Immediately prior to the contract being signed the solicitor arranged for Bill to be examined by a doctor to ensure he was of sound mind and capable of making the relevant decisions. Although he was not directed to receive independent legal advice, there was evidence that had he been so directed he would still have agreed to the transaction in the form proposed.

The property the subject of the sale represented part of the property that could be purchased via the option in the will; by acquiring the property early the total cost of the holdings to Neil would become $350,000, representing the amount paid in 1988 and the amount that needed to be paid under the option for the remaining property.

The unhappy daughter

In late 1988 Mrs Leahy (one of Bill's daughters) and her husband (executor of the will), took Bill to see Mr Pack (the solicitor that had drawn up the contract), complaining to her father about the generosity afforded Neil in the will.

The judgment of Gleeson CJ and Calinan J explain that:

Bill York justified his conduct, saying that he had made provision for his daughters in past years, giving details, and that he regarded the provision in the will as adequate.  He also explained his generosity towards Neil, saying that Neil was a capable manager of the land and that he had worked, and was still working, to help Bill.  Notes taken by the solicitor record Bill York as saying "I think he (Neil) is entitled to it.  Neil has stuck with me through thick and thin."  The notes also record that Bill York discussed the value of the land, and spoke in terms which showed that he was aware that market values had risen. [para 18]

The death and the challenge

Bill died in April 1989 (aged 85). Neil exercised the option and the daughters (then aged between 44-50) each received $50,000, representing their share of the proceeds of the $200,000.

Kevin Leahy (his son-in-law) had been appointed by Bill as executor of his will (for this reason he was a named respondent).

[facts derived predominantly from the judgment of Chief Justice Gleeson and Justice Callinan]

 

Facts

See above

 

Trial judge (Supreme Court of Queensland)

At first instance the appellants/plaintiffs failed to successfully challenge Bill York's will. They also unsuccessfully challenged the sale of land transaction entered into between Bill York and Neil & Beryl York in 1988. Justice de Jersey stated:

"In light of Bill's enormous affection for Neil, Neil's life-long dedication to those particular properties, and Bill's determination to keep Neil in the partnership, it is hardly surprising that Bill would wish to pass the properties to Neil – especially regarding him, as he did, as the 'son' he always wanted but never had".

de Jersey J found that Bill York "had the capacity then to know what he was doing and to make informed decisions about the disposition of his property". 

He further found that had independent legal advice been received 'the end result would likely have been the same'. 

On the relationship between the parties his Honour stated:

"Bill was a quiet, reserved man of limited education, who travelled only infrequently away from his home at Wallumbilla. His health was always frail, and deteriorated in his last 10 years, especially after his driver's licence was not renewed in February, 1988. He had a reasonable relationship with his daughters, although he really excluded both them, and Stella his wife, from his business affairs, and rather stolidly considered their true place to be 'in the home'. Bill's life revolved substantially about his interest in cattle, and the recreations of shooting and football.

Bill and his younger brother Sam enjoyed a very successful business relationship over many years. The business of their first partnership, York Brothers, was breeding stud cattle and farming. As a youth, Bill's nephew Neil worked on Bill's and Sam's properties. Neil's relationship with Bill became very close over the years.

In 1981, Bill, Sam and Neil formed a new partnership, 'Mt. Leigh Pastoral Co'. That partnership took over the assets of York Brothers, then valued at approximately $229,500 ... . Bill and Sam admitted Neil as an equal partner, even though Neil made no capital contribution of his own. Neil took over responsibility for the day to day management of the partnership business. He lived rent free on the property 'Wonga Park' which was the best of the partnership properties. Bill had previously looked after the paperwork. Neil assumed responsibility for that when he joined the partnership. As time went on, through the eighties, Bill's role reduced and Neil's increased.

There is no doubt that Bill greatly admired Neil, and fully trusted him. For his part, Neil appreciated the high regard his uncle felt for him."

Mental state when executing the will

His Honour rejected the allegation Bill was in poor mental health when he executed the will:

"He was certainly a physically frail 81 year old man, but nevertheless knowledgeable about his property and affairs generally, and not so enfeebled as to render him especially vulnerable to the influence of a person inclined to take unfair advantage of him."

In addition, it was Bill who initiated the writing of the new will and when Bill gave instructions and signed the will, Neil was not present. Nor had they had prior discussions about its contents.

I accepted the evidence of Neil and Alan Pack as to the circumstances in which the will was prepared and executed, and I find that when Bill executed the will, he understood what he was doing and was acting voluntarily, not subject to the influence of any other person.

... Bill could have treated Stella and his daughters more generously. That he did not do so is consistent, however, with the fairly ungenerous way he treated them throughout his life. ...

Apart from those matters, the will did reflect, in a rational way, Bill's wish to achieve the goal, probably very important to him, of retaining the properties as an integrated farming enterprise. ...Bill felt that the place for Stella and his daughters was in the home, not on the land or engaged in business affairs ... .

Mental state when executing the 1988 agreement

... Probably from ... February, 1988, [Bill's] condition deteriorated more rapidly [although the] recollection of the witnesses certainly varied. ...

I conclude that Bill's condition did probably wax and wane, leaving open the possibility that 19 July, 1988 [the day the 1998 agreement was signed] was a 'good' day. ...

...

Before Bill and Sam signed the transfers and the deed on 19 July, Alan Pack had them examined by Dr Hatcher. Dr Hatcher's report, confirming them to be of sound mind and capable of making decisions about their personal affairs ... I am satisfied that he was properly briefed about the relevant issue by Mr Pack, and that he sufficiently explored with Bill the question of his relevant capacities. I accepted Dr Hatcher's evidence: it was of considerable significance to my resolution of this issue.

... I am satisfied ... that this was 'a good day', and that Bill had the capacity then to know what he was doing and to make informed decisions about the disposition of his property."

On lack of independent advice

On the question of independent advice, his Honour expressed the view that it would have been preferable that it was recommended and received; he concluded that the solicitor probably did not refer Bill for independent legal advice for fear of offending them. However, he concluded that had Bill been advised independently the end result 'would likely have been the same'.

Undue influence

The plaintiffs contend that Neil improperly used his ascendancy over Bill for his (Neil's) own benefit, so that Bill's acts, in agreeing to those transfers and the deed, were not his free voluntary acts ...

Undue influence should be presumed, Mr Cooper submitted, because of Neil's relationship with Bill. The relationship between Bill and Neil was not sufficient to raise a presumption of undue influence. I accept Desley's description of Bill as a "very independent man".... Mr Maunder said that he had an "opinion of his own" .... According to Joan, he "made his own decisions and stuck" to them .... There was obviously a lot of other evidence bearing on this matter. Bill was extremely fond of Neil, certainly, but I do not conclude that that degenerated into utter, questioning reliance or dependence. [emphasis added]

In fact, there was no undue influence exerted by Neil upon Bill to induce these transactions. I note at once that they helped to achieve Bill's general intention that Neil should acquire all of the properties, ... The transactions were generally consistent with the intent of the 1985 will. According to Joan, Bill went off "quite happily" with Neil on the relevant day, 19 June .... Mr Pack's evidence is inconsistent with Bill's being subject to improper influence. So is Dr Hatcher's. If, as alleged, Mr Pack was party to the alleged impropriety, it does seem odd that he would have taken the precaution of having Bill examined by Dr Hatcher. ....

The allegation of undue influence was not made out.

Unconscionability

This concept is explained in Amadio, and, more recently, Louth v. Diprose ... From what I have said already, it will be apparent that I do not regard Bill as having been in a position of "special disability" vis-a-vis Neil, in July, 1988, and so that doctrine does not apply.

 

Court of Appeal

Before the Court of Appeal the claim in relation to the validity of the will was not challenged; Bill had testamentary capacity, had initiated the proposal, was not pressured by Neil and it reflected his 'strongly felt personal wishes', in particular that the property not be brought up (per Gleeson CJ and Callinan J para 10].

Macrossan CJ

Found no undue influence and no unconscionable conduct that would invalidate the 1998 agreement.

It cannot be regarded as impermissible for a person to desire to secure the advancement of a nephew, particularly perhaps in furtherance of an objective of ensuring the continuance of an operation in which he is involved and to implement the plan by favouring the nephew to some extent above others to whom he is more closely related. Something more than a preference of this kind would need to be shown to make the transaction unconscionable.

... there was ample support for the trial judge's conclusion that the testator was not placed in any situation of special disability in his relationship with his nephew in which the latter, in the transactions in question, acted unconscionably. The transactions of July 1988 were not unfair or unjust from the deceased's point of view having in mind what he, for his own part, wanted to achieve. It should also be concluded that there was ample support for the finding that the transactions were not the result of undue influence. Both findings were positively grounded in the evidence led and did not depend upon decisions concerning presumptions or onus of proof.

The attempt by the appellants in mounting their case to separate for tactical reasons the two aspects of the July transactions, that is into transfers for full value and an associated gift of part of the consideration, should be rejected. To permit it and to grant relief upon the basis of it would be to treat the respondents unjustly and penalise them in a way that the circumstances did not justify.

Fitzgerald J (dissenting)

Would have set aside that part of the 1988 transaction that involved forgiveness of debt.

... the basis of the appellant's claim to relief was that, contrary to the findings of the trial judge, Neil obtained the gift for himself and his wife by undue influence and/or acting unconscionably.

On undue influence

His Honour considered that the trial judge's findings on undue influence were 'plainly correct': 'There is no basis for a conclusion that the deceased was overborne by Neil or that the gift to Neil and his wife did not result from the deceased's independent and voluntary decision.'

On unconscionability

His Honour disagreed with the trial judge, finding there was unconscionable conduct. In particular, he differed on the question of whether Bill suffered a special disadvantage vis-a-vis Neil.

Neil knew, on the assumptions most favourable to the respondents, that the deceased was, throughout the period February to August 1988, old, frail if not ill, and susceptible to requests from Neil, for whom, in the words of the trial judge, he had "enormous affection". As Neil knew, his relationship to the deceased was akin to that of an admired and trusted adult son.

... the gift which the deceased made to Neil and his wife cannot be explained by reference to the deceased's "... goal, probably very important to him, of retaining the properties of an integrated farming enterprise ... under reliable and experienced management", or on any other basis except the relationship between the deceased and Neil; that relationship was patently the dominant reason why the deceased agreed to the transaction of 19 July 1988, including the gift to Neil and his wife, just as it had earlier caused the deceased to prefer Neil over the deceased's wife and children in his will.

Davies JA

Found no undue influence and no unconscionable conduct that would invalidate the 1998 agreement.

It is plain that on these facts the learned trial Judge's finding that no undue influence was exerted cannot be disturbed. As his Honour noted, the transactions were consistent with Bill's general intention, evident in the Will option, that Neil should acquire all of his properties at a generous price amounting to a substantial gift. The finding was also consistent with the evidence of Mr. Pack, Dr. Hatcher and Neil all of whom his Honour generally accepted.

Also on those facts the learned trial Judge was justified in concluding that, at the relevant time, Bill was not under a special disability in dealing with Neil. Far from showing that he was unable to make a judgment as to what was in his own interests, he was pursuing a course consistent with that on which he had commenced in 1985 when he executed his Will and, it would seem, for the same reasons. That is supported by the evidence of Neil, by that of Mr. Pack and Dr. Hatcher as to events on 19 July and by the evidence of Mr. Pack as to events on 28 July and 24 November.

If it matters I would also conclude that it was implicit in the learned trial Judge's findings of fact that neither in making the offer to Bill nor in anything he subsequently did was there any exploitative conduct on Neil's part to procure the inter vivos transactions or their general effect.

 

High Court

Chief Justice Gleeson and Justice Callinan (dissenting)

Their Honours set out the facts giving rise to the proceedings.

They observed that a great deal of evidence had been given as to Bill York's mental state in 1988:

As would be expected of a person of his age, his capacities deteriorated. de Jersey J concluded that his condition probably waxed and waned. His eyesight was failing. His driver's licence was cancelled. The evidence of witnesses as to his mental acuity varied. His wife, although one of the plaintiffs in the action, gave no evidence.

They further observed that the transaction did not 'proceed with any haste'.

In relation to relief sought, their Honours observed that the appellants did not seek to set aside the whole of the 1988 agreement, just that portion involving forgiveness of debt. Had the whole agreement been set aside they would have been in a worse position; Neil would have been able to acquire the whole of the property (including the portion the subject of the option in the will) for $200,000 rather than the $350,000 he ultimately paid.

They went on to say (emphasis added):

The relief primarily sought by the appellants would involve leaving intact the transfer of the land the subject of the 1988 transaction from Bill to Neil and Beryl York in consideration for $696,811, (a price which Neil never agreed to pay and Bill never intended to seek), together with the payment of $150,000, but cancelling the deed by which the balance of $546,811 was forgiven. The result would be to defeat the intentions of all the parties to the transaction. The appellants, however, would be substantially better off than they would have been had the transaction never been entered into. Neil would be compelled to pay for the land transferred in 1988, not only an amount over and above that for which he was entitled to acquire that and other land under his option, (which he exercised), but also an amount over and above that which he offered to Bill York and which Bill York accepted.

Undue influence

Undue influence was not relied upon in the High Court, having failed at first instance and on appeal.

Unconscionability

Their Honours observed

[34] That Neil and Beryl York acquired property from Bill York at a substantial undervalue is not in doubt. Both Bill York and Neil York were well aware of that. As part of the same transaction, Neil York acquired property from Sam York for no consideration.

[35] The essence of the appellants' claim is that, in 1988, Neil York took unfair advantage of Bill York.  His conduct, it is said, involved an unconscientious use of power arising out of the circumstances and condition of the parties to the transaction, of the kind considered in Blomley v Ryan.  On this approach, Bill York was a "victimised party".

That the transaction was unfair to Bill's wife and daughters is not a sufficient justification - taking advantage of special disability is required. On this point:

[37] What was the special disability? The trial judge, and the majority in the Court of Appeal, found there was none. They found that Bill York knew and understood what he was doing in 1988, and that the transaction into which he entered gave effect to his long standing and firmly held wishes. They also pointed out that it is impossible to separate the 1988 transaction from the 1985 will, and that any characterisation of the dealings between Bill and Neil York in 1988 must take account of their common understanding of what was to take place on the death of Bill in relation to the subject lands. There is no evidence, and no finding in the courts below, that the 1988 transaction resulted from any apprehension on the part of Neil York, either that his uncle would alter his will to Neil's disadvantage, or that a successful challenge to the will might be made after Bill York's death. As was noted above, almost a year elapsed between the time when the 1988 transaction was first proposed and the time when it was completed; and this was when Bill York was aged about 84. The transaction can scarcely be regarded as some kind of pre-emptive strike.

Their Honours noted that the nature of the relevant disadvantage 'concerns the ability of the weaker, or victimised, party, to make an informed judgment as to his or her interests' (para 39). Absence of independent legal advice may be of factual importance, but 'it is important to bear in mind the essence of the supposed disability or weakness' (para 41).

Here there were concurrent findings below and ample evidence that Bill was not suffering from a special disability in the sense described in Amadio. 'His justification of his conduct, when he was challenged by his daughter in November 1988, indicates both independence of mind and determination.' (para 42)

Their Honours noted the facts of this case were far removed from those in the leading cases of Wilton v Farnworth, Blomley, Amadio and Louth.

[47] The findings deny the existence of any special disability in Bill York, and they acquit Neil York of unconscientious conduct.  

The claim on unconscionable conduct failed.

Gaudron, Gummow and Kirby JJ

On the question of unconscionable conduct their Honours observed that the challenge in this Court:

The challenge in this Court is not to concurrent findings of fact but to concurrent misapplication of principle to uncontentious primary facts. ...

After going through the judgment of the primary judge and describing the parties and the arrangements, their Honours discussed the factual findings in more depth, including evidence that when speaking to Mr Pack in 1988 Bill had said that his daughters and son-in-laws did not 'give me a tremendous lot of help' and explained that he had often helped his daughters and that the reason he was giving Neil the land was that he'd worked hard, stuck with him through thick and thin and that he was 'entitled to it'.

[113] ... Of his daughters, he said that they "married blokes and they never helped me", that they had "never worked on the place", "never picked up sticks", had "got their own jobs" and that he had "never asked them to do anything for [him]".  He also said to Mr Pack that he was "very disappointed I never had a boy" ...

Their Honours then referred to evidence they described as showing a closeness of relationship between Bill and Neil and tendency for Bill to 'fall in with the wishes of the younger'.

They then observed that a position of disadvantage that may render a party subject to exploitation may stem from 'a strong emotional dependence or attachment' (para 115), referring to Louth v Diprose as an example. Physical frailty is not required.

They noted the initiative for the 1988 agreement came from Neil and rejected the claims made below that this would ensure Bill's goal of maintaining properties under one manager after his death [emphasis added]:

[121] The Transfers and the Deed, as a means to attain that goal, involved an improvident transaction which was neither fair nor just and reasonable.  The effect of the Transfers and the Deed was to dispose of a significant portion of Bill's assets not for their value of $696,811 but for $150,000.  This transaction put it out of Bill's power to change his testamentary arrangements with respect to that portion of its assets.  Further, for all his deep concerns that all his properties be kept together under the one manager, even at the expense of the interests of his children, the form of the transaction was such as to provide no certainty that this necessarily would follow for the remainder of Bill's life or after his death.  Nor is it any sufficient response that, were Bill to retain the $150,000 or assets representing such sum, this would augment the $200,000 which would fall into the residue under cl 4 of the Will upon exercise of the option after his death.

[122] Bill's goal to preserve his rural interests intact and his perception that Neil was the candidate to provide reliable and experienced management thereof were significant elements in his emotional attachment to and dependency upon Neil.  The initiative to utilise the circumstance of the sale of the Injune Land (to the retention of which Bill had been opposed) for the irreversible implementation of Bill's wishes during his lifetime came from Neil.  It is not an answer that there was no finding that Neil had pursued the initiative to its implementation in July and November 1988 with the motive or purpose of forestalling any change in Bill's testamentary intentions.  The equity to set aside the Deed may be enlivened not only by the active pursuit of the benefit it conferred but by the passive acceptance of that benefit.

Their Honours found that the parties were meeting on unequal terms when Neil proposed buying the land in 1988 and that Neil had taken advantage 'of this position to obtain a benefit through a grossly improvident transaction on the part of his uncle' (para 123).

'It is unconscionable for Neil and his wife to retain the benefit of the improvident transaction by asserting the forgiveness of the whole of the debt which would otherwise be owing to Bill's estate. On the findings of fact made by and available to him, the primary judge should have held that the Deed should not be allowed to stand and be given its full effect; the Court of Appeal also should have intervened. ... In the circumstances of this case and consistently with the framing of relief which, in Lord Blackburn's phrase, is "practically just", the appellants, as representatives of Bill's estate, properly may elect that only the Deed itself be set aside. However, in seeking equity, the estate must be prepared to do equity. In particular, weight has to be given to the testator's wish significantly to benefit his nephew which was expressed in cl 4 of the Will.'

[126] In the course of argument on this appeal, there was discussion as to the appropriate form of equitable relief if the appeal was successful.  In accordance with the authority referred to above, counsel for the respondents stressed the requirements of "practical justice".  ...

[127] Once a court has determined upon the existence of a necessary equity to attract relief, the framing, or, as it is often expressed, the moulding, of relief may produce a final result not exactly representing what either side would have wished.  However, that is a consequence of the balancing of competing interests to which, in the particular circumstances, weight is to be given.

...

[132] Had the Transfers not been made and cl 4 had been left to operate in its terms at Bill's death, then, in exchange for the $200,000 he later paid on exercise of the option, Neil would have received value in a sum greatly exceeding $248,000 which, as we have indicated, represented that which Neil acquired when he exercised the option after Bill's death.  ...

[133] The status quo with respect both to the Deed and the Transfers cannot be restored. The issue then is whether, in the situation presented by the setting aside of the Deed but not the Transfers, an allowance should be made by the estate in favour of Neil which qualifies what otherwise would be the full recoupment to the estate of the amount forgiven by the Deed. This was $546,811 of the purchase price under the Transfers of $696,811. Should the estate, as a term of the restoration of its rights to recover the debt, be required to make a provision in Neil's favour? 

Their Honours ultimately referred the matter back to the Supreme Court to determine the amount of allowance in favour of Neil and Beryl from the 'indebtedness which may be recouped' following the setting aside of the deed (para 134).

 

Commentary