Obiter

Louth v Diprose (1992) 175 CLR 621

In Louth v Diprose,¹ the High Court upheld the trial judge’s decision that Louth’s actions constituted unconscionable conduct. Louth manipulated Diprose’s “emotional dependency” on her, to acquire property benefiting herself.

COURT: High Court of Australia (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ).

PARTIES: Louth (Appellant), Diprose (Respondent).

PROCEDURAL HISTORY: This case is on appeal from the Supreme Court of South Australia (Full Court).

• In the Supreme Court of South Australia, Diprose (Plaintiff) succeeded at trial. King CJ held it would be unconscionable for Louth (Defendant) to retain the property in the circumstances.²
• Appeal by Louth to the Full Court of the Supreme Court of South Australia was dismissed (Jacobs ACJ and Legoe J, Matheson J diss).³ Louth’s appeal to the High Court (by special leave) granted.

FACTS:

1. Diprose formed a deep and persistent infatuation for Louth, who did not reciprocate his feelings. A platonic relationship ensued.
2. Louth told Diprose she was depressed, going to be evicted from the house she occupied, and if so, she would kill herself.
3. Diprose agreed to purchase the house. At Louth’s insistence, Diprose procured the house property registering it in her name.
4. Several years later, the relationship deteriorated. Diprose requested Louth transfer the house to him, in which Louth refused.⁴

GROUNDS FOR APPEAL:

LEGAL PRINCIPLES:

Equitable Doctrine of Unconscionable Conduct

In Diprose v Louth (No 1) (1990) 54 SALR 438, King CJ held that the principles upon which a court of equity will intervene to set aside a transaction on the grounds of unconscionable conduct were laid down by the High Court per Mason J at 461 in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (‘Amadio‘).

The equitable doctrine of unconscionable conduct is defined as a principle in equity law that addresses situations where one party has taken advantage of another’s vulnerability or disadvantage [i.e. age, education] in a manner that is considered morally reprehensible or unconscionable: Blomley v Ryan (1954) 99 CLR 362 (‘Bromley‘); Amadio; Kakavas v Crown Melbourne Ltd [2013] HCA 25. 

COURT’S REASONING:

MASON CJ:

His Honour noted the findings of fact made by the trial judge (King CJ) at 626 [6]:

That she [Louth] was under pressure to leave the Tranmere house which she was then occupying. … The appellant told the respondent that she could not face the prospect of moving elsewhere and that she would kill herself if it came to that.⁶

Mason CJ observed it was an improvident transaction at 626 [9]:

[V]iewed from the respondent’s perspective, indeed, it was so improvident, judged in the light of the respondent’s financial position, that it is explicable only on the footing that he was so emotionally dependent upon, and influenced by, the appellant as to disregard entirely his own interests. By dishonestly manufacturing an atmosphere of crisis with respect to the house, the appellant played upon the respondent’s susceptibility where she was concerned.⁷

Mason CJ further stated at 626, there was “no basis” the Court should interfere with the findings of fact made by King CJ:

[I]n particular, that the appellant manufactured an atmosphere of crisis with respect to the house when none really existed and that her conduct in that respect “was dishonest and smacked of fraud”.⁸ 

His Honour held that the appeal should be dismissed, agreeing with the primary judge’s conclusion of unconscionable conduct, at 626 [10]:

Her [Louth] conduct was unconscionable in that it was dishonest and was calculated to induce, and in fact induced, him to enter into a transaction which was improvident and conferred a great benefit upon her.⁹

BRENNAN J:

Brennan J first noted at 629, King CJ in the present case found:

[A] relationship existed between the plaintiff and the defendant which placed the plaintiff in a position of emotional dependence upon the defendant and gave her a position of great influence on his actions and decisions. From the time they first met he was utterly infatuated by her. He had had unhappy domestic experiences and was anxious to lavish love and devotion upon a woman. He fell completely in love with the defendant. … The defendant, as her evidence confirms, was well aware that the plaintiff had a deep emotional attachment to her and desired only to have her love and to marry her. He knew that he had what she accepted in evidence to be ‘an enormous weakness’ for her. His willingness to devote himself to her and to lavish her with gifts, notwithstanding that she did not return his love, is quite pathetic. The degree of his emotional dependence upon her and his susceptibility to her wishes is obvious on the evidence and was obvious to her.¹⁰

His Honour considered the principles to which the “jurisdiction of equity to set aside gifts procured by unconscionable conduct arises is from the concatenation of three factors”,¹¹ citing Amadio,¹² and Bromley:¹³

[1] A relationship between the parties which, to the knowledge of the donee, places the donor at a special disadvantage vis-à-vis the donee;
[2] the donee’s unconscientious exploitation of the donor’s disadvantage;
[3] the consequent overbearing of the will of the donor whereby the donor is unable to make a worthwhile judgment as to what is in his or her best interest … Commercial Bank of Australia Ltd. v. Amadio (1983) 151 CLR 447, at pp 461, 462, 474-475, 489;¹⁴ Blomley v. Ryan (1956) 99 CLR362, at p 415.¹⁵).¹⁶

Brennan J at 626–627,¹⁷ cited Mason J at 461 in Amadio,¹⁸ in distinguishing unconscionable conduct from undue influence:

In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position. A similar jurisdiction exists to set aside gifts procured by undue influence.¹⁹

Brennan J cited Deane J at 474 in Amadio, identified the difference between undue influence and unconscionable dealing:²⁰

Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party … Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so.²¹

Brennan J at 629, considered the nature of the relationship applying Page v Horne:²²

It was found that the personal relationship between them was such that the plaintiff was extremely susceptible to influence by the defendant, as the defendant knew. That finding makes the relationship in the present case analogous to the relationship which Lord Langdale MR thought to be subsisting between an engaged couple in Page v Horne (1848).²³

At 630–631, Brennan J cited Blomley²⁴ per Kitto J at 415:

Equity intervenes “whenever one party to a transaction is at a special disadvantage in dealing with the other party … and the other party unconscientiously takes advantage of the opportunity thus placed in his hands”²⁵

Brennan J rejected Louth’s claim that the respondent made the decision at his own will, agreeing with the findings from King CJ of an unconscientious exploitation by the defendant of the plaintiff’s weakness, and that Louth “manufactured the atmosphere of crisis” in order to compel the respondent into buying the house.²⁶

DEANE J:

His Honour preferred Diprose’s evidence over Louth’s regarding the circumstances and events leading up to the transaction:

… [T]he relationship between the respondent and the appellant at the time of the impugned gift was plainly such that the respondent was under a special disability in dealing with the appellant. That special disability arose not merely from the respondent’s infatuation.²⁷

Deane J observed Louth’s awareness of Diprose’s special disadvantage:

Indeed, to a significant extent, she had deliberately created it. She manipulated it to her advantage to influence the respondent to make the gift of the money to purchase the house. When asked for restitution she refused. From the respondent’s point of view, the whole transaction was plainly a most improvident one.²⁸

Deane J affirmed King CJ findings that “it was inevitable and plainly correct”, at 638:

… [T]he case was not simply one in which the respondent had, under the influence of his love for, or infatuation with, the appellant, made an imprudent gift in her favour. The case was one in which the appellant deliberately used that love or infatuation and her own deceit to create a situation in which she could unconscientiously manipulate the respondent to part with a large proportion of his property.²⁹

Deane J held that the appeal should be dismissed, noting that:

The intervention of equity is not merely to relieve the plaintiff from the consequences of his own foolishness (See e.g. Allcard v Skinner (1887), Nichols v Jessup (1986), The Commonwealth v Verwayen (1990)).³⁰

DAWSON, GAUDRON AND MCHUGH JJ:

Their Honours agreed with the trial judge’s findings that Louth had taken advantage of Diprose’s emotional dependence on her and that the appeal should be dismissed.

TOOHEY J (dissenting):

Of the relationship, Toohey J said at 643 [3], that the “story” is a “curious one“:³¹

The key is to be found in the following passage from the judgment of King CJ at 439:³² This litigation results from a deep and persistent, albeit unrequited, emotional attachment of the (respondent) to the (appellant), the (respondent’s) bizarre behaviour in pursuance of that attachment and the (appellant’s) response to that behaviour.³³

However, Toohey J reasoned that Diprose’s emotional dependence on Louth did not amount to a special disability, therefore did not justify setting aside the transaction due to unconscionable conduct.³⁴ In fact, Toohey J was of the opinion that Diprose was not emotionally dependent on Louth in “any relevant legal sense”, at 655:

The relationship was one which might be thought to have little to offer him [Diprose] but it was one in which he was content to persist and which the appellant in no way misrepresented or disguised. The respondent was well aware of all the circumstances and of his actions and their consequences. This applies particularly with respect to the purchase of the house. That knowledge and his clear appreciation of the consequences of what he was doing run directly counter to a conclusion that he was suffering from some special disability or was placed in some special situation of disadvantage. It is clear that the respondent was emotionally involved with the appellant. But it does not follow that he was emotionally dependent upon her in any relevant legal sense ((91) See Diprose v. Louth (No.2) (1990) 54 SASR, per Matheson J. at p 480.).³⁵

DECISION:

The High Court dismissed the appeal by majority 6:1 (Mason CJ, Brennan, Deane, Dawson, Gaudron and McHugh JJ, with Toohey J dissenting), upholding the decision of the trial judge (King CJ).

The transaction was viewed as unconscionable, as “emotional dependence” or attachment is a “special disability”, whereby taking advantage of the dependent constitutes unconscionable conduct.

The conduct of the defendant (Appellant), knowing the plaintiff’s infatuation and the defendant’s manipulation of it so that he was ‘unable to make a worthwhile judgment as to what is in his best interest’,³⁶ affirming King CJ,³⁷ Louth was “dishonest and smacked of fraud”.³⁸

ORDER:

Appeal dismissed with costs.³⁹

LEGAL SIGNIFICANCE:

Louth v Diprose (1992) 175 CLR 621 addresses the principle of unconscionable conduct in equity.⁴⁰ The High Court decision affirmed that “emotional dependency” can constitute a special disability, making it unconscionable, thus extending the scope of unconscionable conduct from Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

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