A recent Supreme Court of NSW case, Rydzewski v Rydzewski [2024]NSWSC 802, involved a dispute regarding the validity of the subject transfers without consideration between the aged mother and her daughter- in- law and the granddaughter, and all the relevant legal issues involved in the case. This article will look at how the case was disputed and the reasoning behind judgement.
Case Summary
This case concerned a cross-claim brought by Stan (the son), who is one of the beneficiaries of the mother Maria’s estate. Stan sought to set aside the three transfers of property (Transfers) made by Maria at the age of 92 years old, to Jenny and Krystina (the wife and daughter of Maria’s other son Kevin).
Maria was born on 2 August 1925 and has four children Kevin, Barbara, Danuta and Stan. Maria initially lived with Danuta, and then both Kevin and Stan shared the caring responsibility for Maria, later Maria lived with Kevin and under the care of Kevin and his family members (Jenny and Krystina). On 25 October 2017, Maria executed transfers of her inherited three properties to Jenny and Krystina for a nominal consideration of $1 on each Transfer. Maria is also liable to pay stamp duty on each transfer.
Stan challenged the validity of the transfers. The reasons based on which Stan believes that the Transfers are invalid because of various legal issues, including the mental incapacity issue, the unconscionable conduct issue, the undue influence issue, and or the unjust contract issue.
All the relevant family members, solicitors, medical staff and experts provided their evidence regarding all the factual situations and circumstances in which Maria made the transfers.
The main issues and legal reasoning
Did Maria have the legal capacity to execute the Transfers on 25 October 2017
Principles: The question of capacity is to be determined by reference to the particular transaction in question in the proceedings and asking whether the person concerned could understand the nature of that transaction when it is explained. Gibbons v Wright (1954) 91 CLR 423 AT 438. The assessment must consider all the circumstances surrounding the impugned transaction: Scott v Scott [2012] NSWSC 1541 at [199]. The assessment of mental capacity is a task-specific and time-specific endeavor. Capacity is task-specific means that a person may have the capacity to do one thing (like execute a will) but may not have the capacity to do another (like manage financial affairs): Turner v O’ Bryan-Turner [2022] NSWCA 23 at [81]. Capacity is also time-specific in the sense that incapacity at one point in time does not necessitate a finding that there is mental incapacity at another, and vice versa: IP V Chiang [2021] NSWSC 822 at [110].
The cross-claimant submitted that Maria could not execute the Transfers as Maria was of advanced age being 92 years old; did not speak English and was entirely reliant on her carers to explain any transactions to her; suffered from significant ill health and disability; suffered from memory deficits and cognitive impairments, experienced progressive cognitive decline; dependent on the cross-defendants, etc.
The cross-defendant’s submission is that the expert conclusion on the medical evidence that it is impossible to assess Maria’s capacity retrospectively is correct.
Based on the above principles and the evidence presented, the Court cannot be satisfied on the balance of probabilities that Maria did not have mental capacity when she signed the Transfers.
Are the Transfers voidable as a result of unconscionable conduct from Jenny and or Krystina?
Principles: Three elements to be established are first, the weaker party to a transaction is placed at a special disadvantage, vis-à-vis the stronger party; second, the weaker party has knowledge of that special disadvantage; and third, there is an unconscientious exploitation by the stronger party of the weaker party’s special disadvantage. Mentink v Olsen [2020] NSWCA 182.
The evidentiary onus shifts to the stronger party to prove that the transaction was fair, just and reasonable by showing that the weaker party received adequate independent advice: Aboody v Ryan [2012] NSWCA 395.
Based on consideration of all the evidence, the Court considers that Kevin, Jenny and Krystine unconscionably took advantage of the special disadvantage under which Maria was operating to bring about the Transfers.
Whether are Transfers affected by undue influence?
Principles: The High Court in Thorne v Kennedy at [34] stated that common experience gives rise to a presumption that a transaction was not an exercise of a person’s free will if (i) the person is proved to be in a particular relationship, and (ii) the transaction is one, commonly involving a “substantial benefit” to another, which cannot be explained by “ordinary motives”, or “is not readily explicable by the relationship of the parties”.
The Court believes that Jenny and Krystina have not discharged their evidentiary onus of establishing that Maria knew what she was doing and that the transaction was the result of her free will.
Some considerations and inferences from this case
- If there is any doubt in the client’s capacity after initial consultation with clients, it is important to raise alarms and make arrangements for a specialist assessment of cognitive capacity by a specialist, such as a Geriatrician, etc to ascertain the client’s capacity and be satisfied that the client understands the nature of that transaction when it is explained before signing any documents.
- To see the client individually without the company of family members to avoid the situation in which the client may potentially be affected by other people.
- This case reminds us again that it is essential to ensure that the client receives independent legal advice and makes his or her own informed decision of the free will.
- It is important to use an independent professional translator/interpreter rather than relying on the translation and or interpretation from family members, in the case of family members who are also or possibly be the beneficiaries of the tarnation.
- It is essential to find out all the circumstances in which the transaction without consideration between the aged parents and children arises and advise clients not only about the nature of the subject transaction but also legal issues about estate planning as the gifts to children would effectively be treated as if they had been an early distribution of part of clients’ estate.
- It is essential to have a file note for any meetings and or important conversations with clients, as “the fallibility of human memory and the risk of reconstruction rather than a recollection of past conversations, is particularly acute in circumstances where the relevant witness have been in litigation on the matters about which they give evidence”.
Reference:
Rydzewski v Rydzewski [2024] NSWSC 802
When a Client’s Mental Capacity is In Doubt- A Practical Guide for Solicitors
