In the recent case of Bale v Kimberley Developments Pty Ltd  NSWSC 820 (23 June 2022), a property developer has been found to have preyed on an elderly property owner to dupe him out of a valuable land holding in Forest Lodge, New South Wales.
In 2009, Michel Schein employed Albert Darwiche (Darwiche) to perform demolition and clean-up works at his Forest Lodge property.
At the time Darwiche undertook the works, Schein had already been diagnosed with Alzeimer's Disease and was starting to experience severe cognitive decline.
Following the demolition work Darwiche stayed in regular contact with Schein and in 2011 entered into a contract of sale with him to purchase the Forest Lodge property for $590,000 - with no cash paid and the consideration being comprised of 60% of shares in a newly incorporated company called Kimberley Developments Pty Ltd (and the clearing of the existing mortgage). This sale must be seen in the context of Schein having previously obtained a valuation of $1.2m for the property five years earlier.
Schein died several years later and the executor of his estate, his only daughter, brought an unconscionable conduct claim against Darwiche and Kimberley Developments seeking to have the sale set aside on the basis that Schein had been suffering from a special disadvantage at the time the sale was made.
Findings as to special disadvantage
Darwiche met the Schein in 2010;
by 2011, Darwiche had become aware of Schein's metal condition and cognitive decline and knew he was vulnerable to being taken advantage of financially;
there are a number of indications that support the conclusion Schein was vulnerable to exploitation from 2008:
he was elderly;
he was grieving the loss of his first wife;
he was seeking a companion;
he had formed a new relationship with a much younger woman;
he had allowed an associate of his new companion to move into their home and gain access to his financial affairs; and
he frequently displayed confusion or would suffer from a loss of consciousness.
At a minimum, it would have been clear to Darwiche that Schein:
was under financial pressure from lenders;
was dependent on his much younger companion (whom had been appointed his attorney); and
had been made aware of Schien's family's concerns about his cognitive decline and inability to make informed decisions.
Justice Ward applied the well-known principles of Blomley, Amadio and Garcia to hold that:
At general law, a transaction may be voidable where a party makes unconscientious use of his or her superior position or bargaining power to the detriment of a party who suffers from some special disability or is a placed in some special situation of disadvantage (see Amadio at 412 per Mason J). The essence of such disadvantage or weakness is that the party is unable to judge for himself or herself (see Amadio at 425 per Deane J, there citing McTiernan J in Blomley v Ryan at 392). Accordingly, it is not necessary to show that the ascendant party is dishonest; rather, what must be shown is that the ascendant party either had actual knowledge of, or knew of the facts which are such as to raise in the mind of any reasonable person a very real question as to the weaker party’s ability to make a judgment as to what was in his or her best interests
where a special disability is found to exist along with evidence that disability was known to the stronger party, “an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable”.
Justice Ward held that there had indeed been unconscionable conduct on behalf of Durwiche and Kimberley Developments and that a constructive trust should be imposed over the property from the time the relevant transaction and property transfer was completed in 2011.