Property, Shares, Cash and Elder Abuse

May 31, 2009

A recent case in New South Wales identifies the position of the Courts in relation to elder abuse.  It also highlights the importance of the fiduciary duty of an attorney appointed under an Enduring Power of Attorney (financial).

The case Badman v Drake [2008] NSWSC 1366 relates to property, shares and cash transactions of an 87 year old woman, Mrs Badman.

A property intending to be purchased in her name was in fact purchased in the name of two friends Mr and Mrs Drake who were her attorneys.  Prior to the property being sold, Mrs Badman’s shares were sold by her attorneys with the proceeds removed for the attorney’s own purposes.

The relationship between the parties began causally: Mrs Drake was a hairdresser and they struck up a friendship.  Mrs Badman had one son but there appeared to be little contact with him and eventually Mrs Drake became a significant carer for Mrs Badman offering her support with transport and medical appointments during illness.

The Drakes had entered into a complex mortgage arrangement and Mrs Badman had indicated to them that she wanted to help by giving them the amount (over $300,000) to clear the mortgage.  In return the Drakes promised to look after Mrs Badman.

The facts are unclear as to whether Mrs Badman fully understood the nature of the gift.  Mrs Badman’s solicitor was contacted and she was concerned that Mrs Badman’s interests were not being protected.  It appears that the Drakes were keen to process the mortgage payments as soon as possible and make the most of this apparent gift from Mrs Badman.  They took matters into their hands and terminated the retainer of the solicitor.  Pursuant to the power of attorney they arranged for funds to be transferred to them and pay off the mortgage.  Mrs Badman was present with them at the meeting with the mortgagee’s solicitors who did not question the nature of the transaction or look behind it.   As far as they were concerned they only acted for the vendor and that it was none of their business to know where the money was coming from or whom the purchasers were.  The monies were eventually transferred and the Drakes took full legal ownership of the property.

In an application brought by Mrs Badman (through her son) she was successful in setting aside this gift of money.  The Drakes were ordered to repay the money with interest by way of equitable compensation secured on the house.

The presiding judge Chief Justice Young reflected:

‘It is not at all unusual … for the persons receiving the benefit to have been generous to the person whose property they have taken.  Sometimes this is out of goodness of their hearts (as may have been the case here).  Other times it is just the bait in order to secure the transaction’

In respect of the need to recognize elderly persons his Honour said:

‘ …equity works by precedent and it has almost become a rule of elder law that when one is dealing with an elderly person who is lonely and friendless, a person who befriends her must, if they are to gain a personal benefit, be extremely careful to ensure that there is no unworthy conduct…the rules that have grown up are to the effect that ordinarily it is necessary for the community to be sure there has not been undue influence over an elderly vulnerable person, for that person to have had independent advice … and their capacity to understand is established and they freely and voluntarily wished to benefit the people who now have their property …

And in respect of the solicitor, his Honour reaffirmed the Courts concern even in transactions where it appears an elderly person is unrepresented, or even if the solicitor is acting for another party, the solicitor has an obligation to respond if there are signs of potential fraud.

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