Can the alleged unconscionable conduct by a beneficiary of an estate form the basis for a challenge?  Nitopi v Nitopi (2022)

Unconscionable conduct can be seen where a benefit is gained by one party through the deliberate exploitation of an imbalance of power relative to another party.  An example is when someone close to an elderly person with a mental disability, in the act of elder abuse, persuades the elderly person to transfer property to them.

Unconscionable conduct is unacceptable in both equity and statute (such as under Australian Consumer Law). Equity (see below) can intervene where a dominant party has taken advantage of a weaker party’s ‘special disability’ or disadvantage.  A person might be said to have a special disability because of, for example, their age, infirmity, financial need, or education.

For conduct to be considered unconscionable, the conduct needs to be more than what might simply be considered unfair. It is a statement or action that is so unreasonable that it ‘defies good conscience'. There is no precise definition. The Courts will look at a number of factors on a case-by-case basis, as is illustrated by the recent case of Nitopi v Nitopi (2022).  In this case, the Full Court of the NSW Supreme Court of Appeal considered whether constructive notice (where a party knows or ought to know) of a special disability is sufficient to successfully argue unconscionable conduct and set aside a series of transactions.

Case Study: Nitopi v Nitopi (2022)

The deceased, Edigio Nitopi, died in 2014, aged 73, leaving a substantial estate in excess of $21million to his three children equally.

Between July 2009 and June 2010, the deceased had made six substantial payments specifically to his daughter Cristina amounting to $1.26 million. The last payment made in June 2010 amounted to $202000.

The administrator of their father’s estate, his son Giuseppe, challenged these transactions seeking their repayment on behalf of the estate. Their father had been suffering memory loss and had eventually been diagnosed with alcohol-related dementia. As such, the son argued that their father was suffering from a ‘special disability’ and payments to Cristina were the result of her unconscionable conduct.

Initial Findings

The case was first heard in the NSW Supreme Court. The primary judge held that the deceased did suffer from a ‘special disability’ that seriously impacted his capacity to protect his interests. His daughter Cristina had ‘exerted a degree of moral pressure on the deceased who was not in a position to conserve his own interests in the face of this pressure’. She failed to demonstrate that the transactions were fair, just and reasonable. She was aware of her father’s special disadvantage from June 2009 onwards and was ordered to repay the estate the payments made after June 2009 plus interest to then be distributed on the terms of the father’s Will.

 The Appeal

 The key issues for the Court were whether the primary judge had erred in:

•  finding that constructive notice was sufficient to engage the principle against unconscionable dealing;
•  applying the equitable presumption that there had been exploitation of the father’s special disadvantage and the daughter had, in a predatory way, taken advantage; and
•  finding that the daughter had exerted moral pressure on the deceased sufficient to support a conclusion of exploitation.

The appeal against this decision was partly upheld. Having considered these matters, the Full Court held that the daughter Cristina did not have the requisite knowledge in order to apply the doctrine of unconscionability, except for the final payment of $202,000, where she admitted to knowing her father’s condition.

What does it mean?

The role of equity and its remedies

Equity is a system of doctrines and procedures which has developed side by side with the common law and statute law. It originated in England’s Court of Chancery, before 1873, in an attempt to remedy some of the defects of the common law where it was seen to be too rigid and inflexible.

The importance of equity today is seen in several areas of law, particularly that of equitable protection. Equity has always protected persons at a disadvantage, and one of its so-called historical maxims is ‘equity acts on the conscience’.

The elements of equitable unconscionable conduct consist of:

•  the presence of a disability or disadvantage that affects an individual’s ability to make a judgment     in their own best interest;
•  the disability or disadvantage was sufficiently evident to the alleged wrongdoer; and,
• that the alleged perpetrator has acted unconscionably in taking advantage of the disability such that the benefit gained should be removed by equity.

The lessons from the featured case

 In practice, a successful challenge to a transaction or series of transactions, on the grounds of equitable unconscionable conduct, will turn on its own facts. As one of the appeal judges in the case study commented:

‘The more acute or severe the disadvantage, and the more extensive the knowledge of that disadvantage, the more difficult it will be to justify any transaction as fair, just and reasonable. This both illustrates and serves to reinforce the fact that questions of unconscionable dealing are notoriously fact intensive and intimately associated with the nature of the special disadvantage and the degree of knowledge of that special disadvantage by the stronger party’.

The outcome of the appeal had turned on the extent of Cristina’s knowledge of her father’s circumstances at the time he made the payments to her. The case illustrates the need to consider the degree of the disability, the extent to which the person alleged to have benefitted was aware of this or had constructive knowledge of it, and when and if this knowledge arose relative to events.

Contact our Wills and Probate Lawyers in Sydney, NSW

Szabo & Associates Solicitors have many years’ experience advising on all aspects of Wills and inheritance. If you have any questions about unconscionable conduct or wish to challenge a Will, whatever the grounds, please get in touch with our specialists on 02 9281 5088 or fill in the online contact form.