Dascom Pty Ltd v Lee [2002] QDC 342

DISTRICT COURT OF QUEENSLAND CITATION: Dascom Pty Ltd v Lee [2002] QDC 342 PARTIES: DASCOM PTY LTD Plaintiff and KENNETH JOHN LEE Defendant FILE NO/S: 770/2000 DIVISION: District Court of Queensland PROCEEDING: Claim ORIGINATING COURT: Southport DELIVERED ON: 18 December 2002 DELIVERED AT: Southport HEARING DATE: 14, 15, and 16 October; and, 7 and 8 November 2002 JUDGE: Alan Wilson SC DCJ ORDER: Judgment for the plaintiff, on the claim and counterclaim CATCHWORDS: CONTRACT – CAPACITY TO CONTRACT – MENTAL ILLNESS – whether defendant lacked capacity to contract by reason of mental illness – whether plaintiff knew or ought to have known of mental illness – whether contract void at law– general matters – whether contract voidable in equity Cases considered: Begbie v State Bank of New South Wales Ltd (1994) ATPR 41-288 Doull (1881) 7 VLR (IPA&M) 70 Gibbons v Wright 91 CLR 423 Imperial Loan Co v Stone (1892) 1 QB 599 (CA) NAB v Freeman [2001] QCA 473 -- 1 of 14 -- 2 COUNSEL: Mr K C Kelso for the plaintiff Defendant in person SOLICITORS: Bennett & Philp for the plaintiff Defendant self represented [1] On 12 August 1999 an auction took place at Beattie Road, Coomera. The plaintiff claims that, at the auction, it sold a tugboat to the defendant for $94,500 and that, although the defendant later paid a deposit of $10,000 towards the purchase price on 20 October 1999, he has never completed the contract. The tugboat was then, the plaintiff says, maintained for another year and resold at a further auction, but at a substantially lower price; and, the plaintiff’s claim is comprised of maintenance and other costs incurred between the two auctions, and the difference in the sale prices. The defendant counterclaims for the return of his deposit of $10,000.00. [2] Mr Lee’s defence, and his counterclaim, are based on his assertion that at the time of the auction he lacked the mental capacity necessary to create a binding contract because he was suffering a serious mental illness and, by reason of his behaviour at the auction (and in the days before it, when he had some contact with the auctioneer, and one of the plaintiff’s directors) the plaintiff and its agents knew or ought to have known that. As a consequence, he says, the contract is void. [3] Mr Lee conducted his own defence. He elected to give evidence on oath and in the course of it said, and I accept, that in the months leading up to the auction he had been receiving treatment for depression and, not long after it, was committed to a mental institution for four months and diagnosed as having, and was treated for, bi- polar disorder. He also said he continues to receive psychiatric treatment, and take medication for that condition. [4] That evidence, and other matters, gave rise to a concern that he lacked the capacity to represent himself, or that it might be unfair to proceed with the trial by reason of -- 2 of 14 -- 3 his mental state. One ground for concern arose from the chequered history of his legal representation. He had been represented in the matter until March 2002 by solicitors who did not, however, appear for or with him when the trial first came on before McLauchlan QC, DCJ in this Court on 18 March 2002. Mr Lee appeared for himself and, in effect, applied for an adjournment of the trial which was granted, his Honour saying: …It does seem to me that the defendant is quite incapable of conducting an adequate defence of the action, and there does appear to be a serious question concerning his mental capacity at the date of the transaction and whether and to what extent that was known to the plaintiff, and there is a question as to what his mental capacity has been since that time and up to the present time. In the interests of justice, it seems to me that I have no alternative but to accede to the application for an adjournment. The matter was then adjourned back to the call-over list. Subsequently, Mr Lee’s solicitors re-entered the action, and signed a consent order on his behalf on 16 May 2002 concerning amended pleadings, and directing that the defendant notify the plaintiff within seven days as to whether he would be legally represented at the trial. In June, however, the same solicitors advised the plaintiff’s lawyers that at the forthcoming call-over in this Court they would seek leave to withdraw. In fact, they did not attend the call-over on 23 August 2002 when the matter was set down for trial on 14, and 16 October. On the morning of trial the solicitors appeared, and sought leave to withdraw, which was granted without opposition from Mr Lee. [5] The second matter concerns the evidence of one of the defendant’s witnesses, Mr Hodge who, it was clear, had been a friend of the defendant for many years and had been active, since 1999, in attempting to assist his rehabilitation. In an impassioned statement toward the end of his evidence Mr Hodge said that he had made extensive efforts to help Mr Lee obtain legal representation and funds for it but the defendant consistently failed to act in his own best interest. This cri de coeur exacerbated a concern that Mr Lee might not be able to properly conduct his own defence. -- 3 of 14 -- 4 [6] I was, however, persuaded by other matters that he did possess the capacity to represent himself, and it was not unfair to continue with the trial. As he said, and other evidence confirmed, before his mental illness he had for many years been a successful operator of large fishing boats, and a good, careful businessman. By 1998, he had substantial assets. Despite his difficulties in recent years with mental illness, his demeanour throughout the trial was consistent with that kind of personal background. He generally comported himself as an intelligent person, fully aware of his surroundings, and of the nature of the case against him, and the kind of evidence he should present to resist the plaintiff’s case, and advance his own cause. [7] Although his mental illness and his treatment for it had obviously clouded some of his recollection for events in 1999 he illustrated, on other occasions, a very good memory for his various business dealings and those of others, including Mr Hodge. Throughout the trial he manifested, too, a degree of intelligence and perception about Court procedures and, in particular, the process of examination-in-chief, cross-examination, and re-examination. For example, he appeared to grasp fairly promptly (albeit with intermittent, but not surprising, lapses) how to frame questions which would extract evidence-in-chief from his witnesses, and his re- examination of his own witnesses followed, in a logical way, the course of cross- examination of each witness by the plaintiff’s counsel. [8] He did appear, from time to time, to exhibit a degree of uncertainty or confusion about some court procedures, and the nature and effect of the rules of Court, but to no greater degree than might be expected of a lay person of ordinary intelligence representing themselves in a trial of this kind. He did not, initially, take proper steps to arrange for the attendance of witnesses he wished to call (e.g., medical practitioners) by issuing subpoenas, or in the case of an expert medical witness give the requisite notice of his evidence (under UCPR rule 423), but those deficiencies did not by themselves necessarily indicate a want of capacity and, significantly, he remedied them in the course of the trial. Ultimately, I was satisfied he had adduced all the evidence he wished to present in his own case. For these -- 4 of 14 -- 5 reasons, I concluded it was not unfair to allow the trial to proceed and, as it progressed, to continue to a full hearing [9] The issues in the case are whether or not Mr Lee was unable, due to mental impairment, to understand the contract at the time of formation, and whether or not the plaintiff and/or its agents either knew or ought to have known of his impairment: re Doull (1881) 7 VLR (IPA&M) 70; Imperial Loan Co v Stone (1892) 1 QB 599 (CA); Gibbons v Wright 91 CLR 423, at 437-8. [10] Mr Lee gave evidence on oath, and I accept that in November 1998 he finished the trawling season in Torres Strait and then returned to Brisbane and commenced to refit his boat. At the time, he had substantial funds in his bank account ($420,000- 450,000), a valuable boat, and fishing licences also worth, at the time, a substantial amount. In early 1999 he began, in his own words, “doing all sorts of stupid things”. His behaviour, in the context of his fishing business, became increasingly irrational. He spent far too much time and money on the refit and other purchases, with the result that he missed the 1999 fishing season (when that was quite unnecessary), and exhausted his cash. A number of his friends, some of whom gave evidence, were aware of these matters by the time of the auction. [11] Some time in the early part of 1999 he consulted medical practitioners, and was prescribed medication for depression. He attributes what he describes as his increasingly manic behaviour to the effects of some of that medication. Dr Pun, the psychiatrist who supervised his treatment after late October 1999, confirmed this could have occurred. Two months after the auction he was detained under the Mental Health Services Act (1974) and he spent four months as a psychiatric patient at Redland Bay Hospital, between October 1999 and February 2000. His affairs were administered by the Public Trustee until the end of September 2000. [12] He admitted his memory of events around, and on the day of the auction was vague. In particular, he said he could not recall any contact or conversations with -- 5 of 14 -- 6 the plaintiff’s auctioneer, Mr Seiffert or one of the plaintiff’s directors, Mr Lyle Williams during the week preceding the auction. He said that on the day of the auction he was, in effect, manic, describing himself as consumed by the “thrill of the chase”, so he bought such things as the tugboat, and pile-driving equipment, and other items for which he had no obvious, or realistically planned, use. He said he was still inspecting the tugboat as the auction began. He does not now recall why he purchased the tugboat or the other items, and says these irrational purchases are quite out of character with his ordinary personality, and in his right mind he is careful with his money – something his witnesses confirmed, and which is consistent with his history before 1999. [13] It appears that he paid a deposit of $10,000 on the tugboat, for which he had successfully bid $94,500, on the day of the auction, but the cheque was dishonoured. It also appears, and I accept, that between the auction and October 1999 he was represented by a solicitor, Mr Litster of Deacons Graham & James, and in October that deposit was actually paid. The balance purchase price was never paid, however, and the tugboat was later sold by the plaintiff for $50,000. Mr Lee did pay, separately, for the other items he purchased at the auction that day with a cheque which was honoured. [14] Mr Lee called Dr Pun, and various persons who knew him before and at the time of the auction or, at least, at the latter time: Messrs Hodge, McQuade, Todkill, Matta, Phelan, and Harris. In a report previously provided to the defendant’s solicitors, dated 11 December 2000 (Exhibit 14), Dr Pun said: In my professional opinion, Mr Lee was impaired in his decision-making by virtue of his abnormal mental state for a period of at least six months prior to his psychiatric admission (on 22 October 1999). This would include the month of August 1999 when the above auction bids would have been made. In my opinion, Mr Lee’s elevated mood would have impaired his judgment to an extent that would have interfered with his decision-making as well as full comprehension of the terms and conditions of an auction agreement. Specifically, his grandiosity would have disinhibited him, so he would have bid money without thought about the cost and the effect on his own finances. Also, the speed of his thought processes on account of his manic state would have made it very difficult for him to assimilate properly the terms and conditions of the auction agreement he was entering into. -- 6 of 14 -- 7 [15] During his evidence Dr Pun conceded, however, that the form in which the defendant’s mental illness manifested itself might not have been apparent, or readily apparent, to a person who did not know him. He said 1 : …Your mania was not of the classical kind that you see on movies or on television. It was not the joyous kind. It was more of a dysphoric mania or a mixed effective state mania which may be difficult to pick for a lay person who had actually not met you before. It would be easier to pick if a lay person had actually known you for a long period of time, for example, had known you for years and they saw you on the particular day, they would have found you to be quite different, but if a person had met you for the first or second time on this particular day it may be difficult for a lay person to pick that up. In cross-examination, Dr Pun also conceded that, on the day of the auction, Mr Lee would probably have understood that he was attending an auction; the purpose of the auction, and what he could do at it; and, the general nature of the auction proceedings. [16] Mr Hodge was present at the auction and, as noted earlier, had been a friend of the defendant’s for many years. He had serious doubts about the defendant’s mental state before the auction began because, to his observations, the work being undertaken on the refitting of the defendant’s boat was unnecessary, extravagant and superfluous; the defendant had missed a fishing season, which no prudent fisherman ever allowed to happen; and, to Mr Hodge’s knowledge, he had run out of money and was not paying tradesmen. Mr Hodge said that in the course of the auction the defendant’s behaviour had been so unusual that he went across and spoke to him on at least one occasion and told him he should sit down and shut up, because he was making a fool of himself. Mr Hodge said the behaviour which prompted these remonstrations involved the defendant making bids which constituted ridiculously low increases over preceding bids, of only $5 or $10 (at a time when a logical bid, or the increase the auctioneer was calling for, would have been in a much larger amount) which, he said, had the whole crowd laughing at times. [17] His evidence was, with respect, often discursive and it was clear his recall of these events was not particularly good. No other witness clearly recalled these very low -- 7 of 14 -- 8 bids although one, Mr Phelan, remembered the crowd laughing. In cross- examination Mr Hodge was pressed with the proposition that the auctioneer had not accepted the defendant’s very low bids and that, when that occurred, the defendant had then made a “sensible” bid reflecting an appropriate increment over competitive bids. Mr Hodge appeared, ultimately, to accept that proposition. [18] Mr McQuade also attended the auction, but did not clearly recall the course of bidding. He had known the defendant for many years and described him as, in the past, a “very level-headed sort of bloke, who you could take a bit of notice of”. On the day of the auction, however, he said the defendant was “pretty all over the place”. He had some conversations with the defendant and noticed he was buying equipment, but could not see any sound plan behind the purchases. When asked by the defendant whether he thought the auction process had been fair to the defendant “in my condition” Mr McQuade said: Oh, I don’t have a problem with it, really. I don’t consider the auctioneer would be a psychiatrist or a psychologist or any such. We do get some rather odd people around auctions. I don't know. I can’t – it’s out of my field there. [19] Neither Mr Todkill, nor Mr Matta attended the auction, but both were involved in and around the boatyards where the defendant had been working on his boat for some months before it. Both spoke of the defendant’s odd, and sometimes aggressive, behaviour in the earlier parts of 1999 but neither, ultimately, expressed the view this behaviour would necessarily have alerted someone who did not know the defendant to the fact that he had a mental illness. Mr Todkill agreed with the proposition that for someone who did not know him, he would come across as “quite normal” 2 . Mr Matta said3 : A lot of things that he said were I suppose a bit ambitious or silly business-wise. Some of the business ideas that he had and the things that he wanted to do with his boat couldn’t really be described as rational. As to whether they’d be interpreted as mental illness, people do a lot of silly things in business and the only thing that I would say that seemed to be very inconsistent was the moods, that a lot of days he would be totally indifferent and other days he just couldn't stand still and always wanted to do one thing or another. -- 8 of 14 -- 9 That’s the main – inconsistency, I guess, would be the thing that I noted more than anything else. [20] Mr Phelan and Mr Harris did attend the auction and, in the course of his evidence- in-chief, Mr Phelan described the defendant’s behaviour there as that of a “crazy man” and the auction itself as a “stupid fun auction”, and said he was waiting for the auctioneer to actually stop the auction. He said the crowd was often laughing, at the defendant, and the whole proceedings were “a joke”. When pressed, he said that the elements of the auction which led him to these conclusions were the number of times the defendant made very late bids, i.e. just as the auctioneer was about to finally knock the boat down to another bidder (which he said occurred 12 or 14 times, at the defendant’s behest); the defendant’s conduct, which involved walking around the area of the auction quite quickly; and, his conduct in approaching the only other bidder (after the price reached something higher than $50,000) and having conversations with him. He conceded, however, that the other bidder also made very late bids, albeit on a smaller number of occasions; and, that the auctioneer would probably not have heard conversations between the defendant and the other bidder. [21] Mr Phelan was in company with Mr Hodge and both were, their evidence reveals, embarrassed by the conduct of their friend, and embarrassed for him. Like Mr Hodge, Mr Phelan’s evidence was, too, discursive at times but, when pressed in cross-examination, he ultimately conceded that his concerns about the auction were based, in some part at least, on his previous knowledge of the defendant and the fact that his behaviour on the day of the auction “…was not the Ken Lee that I knew” 4 . It is also relevant that Mr Phelan had no recollection of the ridiculously small bids which, Mr Hodge said, the defendant made from time to time and which amused the crowd. Mr Harris, too, agreed that the only reason he thought the defendant was “…out of his tree is that he was bidding on a tug, and he is really a fisherman or trawlerman”. -- 9 of 14 -- 10 [22] The auctioneer, Mr Seiffert gave evidence, which I accept, that he did not observe or recall anything unusual at the auction that day, save that at one point the defendant moved across to, and stood near and spoke with, the only other remaining bidder as the auction drew toward its close. Mr Seiffert also said, and I accept, that he tries to keep auctions relatively light-hearted and that he would likely have spoken, in that fashion, to the defendant and the other bidder when he saw them conferring. Mr Seiffert said, and I also accept, that his observations of the defendant during the day led him to conclude he was a fairly astute bidder. He later bid for, and bought items which were sensible in the context of the uses to which the tugboat might be put. He did not bid for everything. He did not win with all his bids, and stopped bidding at various times. [23] The other items purchased by Mr Lee in separate auctions that day had a value of about $10,000, for which he paid by a separate cheque which was, apparently, honoured. Mr Seiffert said, I thought tellingly, that if he had any concerns about Mr Lee’s mental state he would not have allowed him, as he did, to take those items in exchange for his personal cheque that day. Nor, he said, would he have allowed him to purchase the tugboat on arrangements involving a deposit, something which occurred as a result of conversations which, he said, he had with Mr Lee in the week preceding the auction. Surprisingly, Mr Seiffert did not have his diaries with him but he said, and I accept, that he was contacted by telephone by Mr Lee some days before the auction and, as a result, sent him out documents concerning the tug and its specifications; and, later (but before the auction day) had another conversation by phone concerning finance when Mr Lee asked him whether, if he was the successful bidder on the tugboat, he could pay a deposit and the balance some days later, and Mr Seiffert agreed to that. He also said, and I accept, that Mr Lee attended for an inspection some time before the auction, and that he arranged the meeting between Mr Lee and one of the Plaintiff’s directors, Mr Williams, also before the auction. -- 10 of 14 -- 11 [24] Mr Williams said, and I accept, that through the arrangements made by Mr Seiffert the defendant and another person, whom Mr Williams thought was an employee of the defendant, attended at the Coomera property and inspected the tugboat in company with Mr Williams on an occasion about four days before the auction. Mr Williams said that the defendant’s conduct throughout the inspection was entirely normal and, indeed, he impressed Mr Williams as someone who was obviously very knowledgeable about boats and knew the right questions to ask (e.g., to inspect relevant certificates, and documents). The vessel had some five fuel tanks distributed throughout it for reasons to do with its stability and is, in its engineering aspects, quite complicated, and Mr Williams said the defendant’s questions about features of the boat like the tanks, and behaviour and conversation during a lengthy inspection were intelligent, and entirely normal. He described the conversations as ones “…you’d have with anybody who wanted to buy a vessel”. [25] Mr Williams impressed as a careful, credible witness. He was clear in his evidence about what he said he remembered, and forthright about what he did not. He spoke of a vague recollection the defendant may have visited the vessel a second time but he could not recall any detail about it, and would not venture more. These failures of recollection were understandable because, as he said and I accept, there was a great deal of interest in the vessel and a large number of people visited it before the auction. Mr Williams said, and I accept, that he saw nothing in the defendant’s behaviour on that occasion which suggested mental illness or, indeed, anything less than full mental capacity. [26] The defendant bore the onus of establishing the elements necessary to negate the contract, on the balance of probabilities. Those elements have been mentioned earlier. No fixed measure of impairment need be shown. In Gibbons v Wright (supra) Dixon CJ, Kitto and Taylor JJ observed, at 437-8: The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his -- 11 of 14 -- 12 participation…ordinarily the nature of the transaction means in this connection the broad operation, the general purport, of the instrument; but in some cases it may mean the effect of a wider transaction which the instrument is a means of carrying out… [27] In the equitable jurisdiction, the test is that stated by Drummond J in Begbie v State Bank of New South Wales Ltd (1994) ATPR 41-288, at 41, 896 (and see NAB v Freeman [2001] QCA 473, per White J at p 11): It is also clear from the statements in Amadio that if one person has actual knowledge that another occupies a position of special disadvantage in relation to an intended transaction or, without actual knowledge is aware of the possibility that the situation of special disadvantage may exist or is aware of facts that would raise that possibility in the mind of a reasonable person, then that person’s conduct in entering into the transaction from which he benefits against such a background of knowledge or awareness on his part will be unconscionable. [28] The evidence of the defendant, and Dr Pun, and the observations of the defendant’s various witnesses about his behaviour in the months before, and including August 1999 persuades me that the defendant was suffering from a mental incapacity at the time of the auction, but not one which deprived him of the means of knowing or understanding the nature of the auction process, or the ultimate effect of his bids, and the general nature of the legal obligations to which a successful bid would give rise. The evidence of Dr Pun, combined with the auctioneer’s evidence (which I accept) that, in bidding for other items at the auction on that day, the defendant acted in a way which showed he apparently perceived the nature and consequences of the process (e.g., by stopping short of successful bids for other items, and not bidding at all auctions of all the various items offered) is, I think, persuasive that the defendant understood, at the least, the broad operation or general purport of the auction process, and its essential elements. [29] Even if that conclusion is wrong, however, I am not persuaded the plaintiff, or its agents or representatives and, in particular, Mr Williams or Mr Seiffert, either knew or ought to have known of the defendant’s mental impairment. There is, indeed, no evidence at all that any person on the plaintiff’s side actually possessed -- 12 of 14 -- 13 knowledge of that kind. As to the other possibility – constructive knowledge - the evidence of Mr Williams and Mr Seiffert, which I accept, that the defendant behaved in an apparently normal and, indeed, knowledgeable fashion on the occasion of the inspections before the auction, combined with the evidence of the defendant’s various witnesses (traversed, at length, earlier) falls far short, in my view, of establishing the plaintiff, by its officers or agents, ought to have known of an impairment or, according to the test in equity, have been aware of a possibility that a situation of special disadvantage might exist. [30] The defendant’s witnesses were, I am sure, entirely truthful when they spoke of their own concerns about the defendant’s behaviour in the course of the auction, but the weight of evidence points very strongly to the conclusion that those concerns had their root in knowledge of the his odd behaviour in the months before it, and his apparently poor financial circumstances. While the evidence of Mr Hodge and Mr Phelan suggests aspects of the defendant’s behaviour at the auction were unusual, that behaviour does not, when weighed against the evidence of the other witnesses there (including the auctioneer), establish anything more than some conduct which was somewhat out of the ordinary. It was vivid and troubling to those who knew Mr Lee and his recent personal history well, but not so surprising or abnormal as to alert those who did not, to the possibility he was unwell. Those circumstances fall far short of establishing grounds for a finding that it would be unconscionable for the plaintiff to attempt to hold him to the contract. [31] In summary, I am not persuaded there is evidence of acts done or words spoken by the defendant before or in the course of the auction which should reasonably have alerted the auctioneer, or anyone else on the plaintiff’s behalf, to the possibility some mental illness existed in the defendant which meant he lacked the mental capacity to contract, or which in all the circumstances mean the transaction is tainted with unconscionability and should be nullified. -- 13 of 14 -- 14 [32] The defendant’s pleadings did not put the quantum of the plaintiff’s claim in issue and that was raised, for the first time, on the fourth day of the trial during the defendant’s cross-examination of the plaintiff’s director, Mr Williams. The plaintiff submitted, and I accept, that it gave disclosure of all the documents tendered in the course of Mr Williams’ evidence touching quantum in December 2000 and nothing in the pleadings, or ensuing correspondence between the solicitors (when the defendant had legal representation) indicated the matter was in issue. Nevertheless, I allowed the defendant to cross-examine the plaintiff’s director, Mr Williams, about parts of the claims for maintenance, etc, to the boat between the first and second auctions; but, was not persuaded any of the sums claimed were unreasonable, excessive, or inappropriate; and, that the sums claimed were the proper measure of the plaintiff’s damages. The fact of the defendant’s non-performance of the contract, (save for the late payment of the deposit) was not of course in issue. [33] For these reasons, I give judgment for the plaintiff, on the claim and counterclaim. I will hear submissions about costs. ----- 1 Transcript p 347, ll 40-50 2 T 261, ll 50-51 3 T 267, ll 15-27 4 T 364, ll 1-11 -- 14 of 14 --