The need for vigilance with the elderly, frail and suggestible

 
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Stop Elder Financial Abuse

Raoul, a widower and pensioner without immediate family, transferred his home to Hanna, a nephew of his late wife, in return for Hanna repaying a debt which was secured by a mortgage over Raoul’s home, and the grant of a life estate to Raoul. There was no dispute that the transfer was for less than full value. Raoul wanted it set aside.

That issue reached the Court of Appeal of NSW. One basis for setting aside the transfer was Raoul’s alleged lack of mental capacity. The court decided that Raoul understood the ‘broad operation’ or ‘general purport’ of the transactions. The absence of legal advice about alternatives didn’t affect a determination of mental capacity.

Another basis to challenge the transfer was that it was unconscionable. The court said that Raoul was in a position of special disadvantage by reason of his age, frailty, extreme personal and financial stress, deteriorating mental health, being highly suggestible, failing memory, and confusion about personal and financial circumstances. Hanna was found to have acted unconscionably by attempting to retain the benefit of the arrangement in light of Raoul’s frailty. Raoul’s loss of recourse to capital (for possible later aged accommodation) was another pointer to unconscionability.

Sometimes a transaction is not treated as unconscionable if the wronged party, here Raoul, receives independent legal advice. And here, Raoul did obtain advice about the transactions. He got advice from two solicitors. One of them acted for Hanna and therefore was not independent. In any event, the advice was inadequate as it didn’t deal with Raoul’s possible need for future capital. The second solicitor didn’t advise on the shortcomings in the arrangement, so it was also inadequate.

Lastly, the court found that the transactions were ‘unjust’ within the meaning of the Contracts Review Act 1980 having regard to the material inequality of bargaining power between the parties; the absence of negotiation as to their terms; the imposition of conditions not reasonably necessary for the protection of the parties’ interests; Raoul’s inability to reasonably protect his interests; and the absence of independent advice.

The case is Hanna v Raoul [2018] NSWCA 201.

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