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Whitehead, Peter --- "A Review of the Response of the Courts and NSW Guardianship Tribunal to cases of Financial Abuse" [2008] ElderLawRw 6; (2008) 5 Elder Law Review, Article 6

A review of the response of the Courts and NSW Guardianship Tribunal to cases of financial abuse

Peter Whitehead

Public Trustee NSW

About the Author

Peter Whitehead completed his legal studies in 1975, graduating from UNSW with degrees in Arts and Law.

He has worked for Public Trustee NSW since 1976 and in senior management since 1991.

He was appointed Public Trustee in September 2001. As Public Trustee, Peter contributes extensively in continuing legal education for lawyers, and to legislative and policy reform for succession, powers of attorney and elder law.

Peter has established the Public Trustee NSW Fellow in Elder Law at the University of Western Sydney and is a member of their advisory committee. He is also a Distinguished Fellow of the Canadian Centre for Elder Law. He has recently worked with the NSW Attorney General’s Department to prepare the Capacity Toolkit.

Peter is the National Secretary (and a former National President) of the Trustee Corporations of Australia. He is a member of many committees related to the legal profession and Government including Law Society of NSW Elder Law and Succession Committee and the Australian Guardianship and Administration Committee.

Introduction

In NSW, the Supreme Court and the Guardianship Tribunal have made it very clear that they are very supportive in protecting vulnerable persons against abuse.

They have done this by a range of measures both remedial and punitive.

This paper explores a series of key cases which will assist all of us in understanding what to do next when abuse is suspected or detected.

The key areas of focus are:

➢ Passing on liability for loss

➢ Removing the abused from a position of influence

➢ Applying criminal sanctions

Restoration of property by the Court

Once abuse has occurred the principal aim is to return the victim to the position they were in before the abuse occurred. The following cases illustrate both the remedies and the attitudes of the Court in how those remedies can be applied.

Capacity, Fraud and Contracts Review Act 1980:

Hancock V JasVentures P/L and Others [2007] NSWSC 1.

The facts of this case reflect what can only be described as a shocking example of financial abuse to a vulnerable old woman.

The Court needed to consider the rights of this woman to regain ownership to a property which she had sold with settlement already having occurred: based on a claim that the transfer was procured and registered without her knowledge and approval.

In mid December 2005 Miss Hancock sold a block of waits for $1.56m. She had lived in one of the units as her home for years. A Ms Sokol, a solicitor without a practising certificate, had acted for her, and witnessed her signature on the property transfer. Settlement of the sale occurred a week after exchange of contracts.

The property was valued in November 2006 at $2.6m i.e. $900,000 above the sale price.

The NSW Guardianship Tribunal in November 2006 in finding that Miss Hancock was not capable of managing her financial affairs observed she:

“… had no notion that she had made some kind of agreement to sell her home and it is hard to know whether she has signed some documents and forgot about it or whether the transaction is entirely fraudulent”

The Court was required to look at Miss Hancock’s capacity to enter into the agreement for sale; that she may have been subject to equitable or common law fraud or unconscionable dealing; and whether the property dealing was able to be reviewed under the Contracts Review Act 1980.

There were significant factual matters:

➢ Short time to complete the sale

➢ No agent being involved

➢ Vendor did not get the Certificate of Title from her regular solicitor

➢ No record of the Solicitor personally attending Mrs Hancock about the transaction

➢ Significant undervalue sale price

➢ Settlement monies NOT paid to Miss Hancock

➢ No information as to what happened with deposit

➢ Miss Hancock was allowed to remain in occupation even through contract required vacant property on settlement.

It was not until 8 months after the sale that the abuse had been detected. The sale was financed through a number of sources, too complicated to recount here. An employee of Miss Hancock’s former managing agent was involved.

So would the Court allow a caveat lodged on behalf of Miss Hancock to remain while further enquiries and proceedings could achieve justice for her?

Fortunately yes. Although there is a large amount of law on caveats and their lapsing, the Court was very alert to the fact that there were too many unresolved issues to prevent Miss Hancock’s solicitor from further protecting her interests. Colloquially “The dealing smelt … perhaps stunk.” There were doubts about capacity as well as the other facts which led to a conclusion that Miss Hancock’s claim “had substance.”

The Court had to decide what course it should take to “achieve justice between the parties” ( Hall J at para 40). It was found that both the evidence and inferences from the evidence raised an arguable case that Miss Hancock did not have capacity to enter into the contract and had not received independent advice and therefore had a basis for claiming relief.

The Court at this stage effectively prevented anyone from dealing with the property and so allowed Miss Hancock’s lawyer to pursue the recovery of the property. The facts must have spoken for themselves as the matter did not ultimately have to be determined by the Court: it was agreed to re- transfer the property to Miss Hancock.

Observations

If Miss Hancock’s friends had not been visited and noticed her declining capacity, and further had not gone to the managing agent for the property … when would this abuse have been detected? …. Possibly not until after death.

Miss Hancock’s long term lawyer Ms Suttor of L Rundle & Co moved quickly … and as an experienced solicitor in elder law issues, was definitely better equipped than most lawyers to deal.

The evidence had to be strong enough to draw the inference of the unjust deal … i.e. abuse… for the Court to intervene.

Undue Influence

Janson v Janson [2007] NSWSC 1344 (Biscoe A J)

This case is about a claim of undue influence by way of a transfer of a frail and elderly man’s residence (sole asset) to his nephew. There was no independent advice. The nephew held his uncle’s general (not enduring) power of attorney and had given him care and assistance for many years. The case discussed at length the principles surrounding the presumption of undue influence, including the impact of being an attorney on this presumption.

Was the relationship arising under the general power of attorney a presumptive relationship of undue influence?

Biscoe A J decided that there was undue influence but provided the following commentary answering this question at paragraphs 76 and 77

“The argument that any type of fiduciary or confidential relationship gives rise to the presumption of undue influence has been rejected: In Re Coomber [1911] UKLawRpCh 45; [1911] 1 Ch 723. In that case, a mother assigned to her son a business of which he was the manager. The Court of Appeal forcefully rejected the proposition that there was a presumption of undue influence, which he had to rebut, merely because the son was the mother’s agent in carrying on the business. It was held that the nature of the fiduciary relation must be such as to justify the presumption.

Sir Frederick Jordan in his Chapters on Equity in New South Wales, (6th ed, 1947) p 138 wrote that the relationship of principal and agent is not per se one of influence, citing In Re Coomber. Meagher, Gummow and Lehanes’s Equity Doctrines and Remedies (4th ed, 2002) at [15-100] consider in this context that “[w]hether an agent-principal relationship is one of influence as well as fiduciary will depend upon the particular case” (citing Moxon v Payne [1873] UKLawRpCh 69; (1873) LR 8 Ch App 881 which, however, was a case where a sale was set aside for fraud of the “gravest character”).”

Bryson J in Hillston v Bar-Mordecai [2003] NSW SC 89 at Paragraph 48 had clearly concluded that each case must be treated without a presumption of influence but rather that undue influence must be proven in detail.

Biscoe A J in Jansen’s case found that the case fell within the category of undue influence in that the uncle had a dependence or trust on his nephew or the nephew was in a position of influence over his uncle. Because the presumption of undue influence had not been rebutted by proof of independent, competent advice or any other evidence, there was finding of undue influence in respect of the transfer of the house.

The case is also interesting for its observations in Paragraph 86 about the distinction between undue influence and unconscionable conduct, as explained by Deane J in Commercial Bank of Australia v Amadio (at 474) as follows:

“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.”

Irvine v Irvine [2008] NSWSC 592 (Barrett J)

A 93 year old woman’s home at Orange was transferred for a purely nominal consideration to her nephew and his two sons. She had never married and had no children. She claimed a review of the dealing on three alternative bases: first, under the Contracts Review Act 1980, second, on the basis of actual undue influence that she says was brought to bear upon her by the transferees; and, third, because of unconscionable conduct of the transferees towards her.

The property had been her home for more than 30 years. She had executed a power of attorney appointing the nephew to be her attorney. She also made a will naming the nephew and his two sons as the only beneficiaries.

There was evidence that the nephew had spoken to his aunt with words to the following effect:

“This is no use to me the way it is. I think I should have the place in my own name. I want you to give me the house. Why don’t you give the house to me now rather than have me wait until you die?”

The aunt accepted that she agreed with the nephew’s suggestion, telling him, “Yes, you can have the house”. She said that she cannot remember why she said this and that she did not really have time to think about it; also that she “didn’t really know what to do when Max had asked and did not think I should say ‘No’”.

There was also evidence about the nephew influencing his aunt about her will, which had previously been in favour of a sister.

Ms Irvine was referred to a solicitor employed independently of the nephew. That solicitor gave evidence that Ms Irvine was happy to transfer the house, knowing that she would be able to stay there until she died. Evidence was given that she felt that she wasn’t pressured by the nephew, even though he could be “forceful”.

What the Court found to be very important was what the independent Solicitor did not raise when asked to independently advise the client:

➢ the question whether she had received assurances from the nephew’s sons about the aunt’s continued occupation;

➢ the implications of the transfer from the point of view of the aunt’s pension entitlement;

➢ what might happen if one or more of the transferees died, became bankrupt or took action to borrow on the security of his interest and then defaulted; or

➢ the fact that the property was very substantially the only asset of the aunt.

The Court observed at paragraph 42 that the involvement of this Solicitor:

“cannot, on any view, be seen as having put the aunt into a position where she had received adequate legal advice about the protection of her own interests. The aunt was not given the documents in advance to study at her leisure. Nor did she have an opportunity to consult a solicitor of her choosing at a time of her choosing. She was put by the nephew into a position where a person she apparently did not know was a solicitor spent ten minutes talking with her about the documents which she was then asked to sign on the spot.”

The Court’s observations at paragraph 50 about the dynamics of the relationship between the aunt and her nephew show illustrate the importance the Court places on how elderly people can be more vulnerable:

“ In the whole of the circumstances, the aunt stood, in relation to the nephew, in a position of disadvantage. She thought, at the time of the transfer, that he was the only one of nephews and niece who would look after her. There was therefore a dependence on her part – a dependence that she could not afford to risk by refusal or questioning that might bring out the “forceful” or “overpowering” side of his nature or cause him to “make trouble” .”

The Court at paragraph 58 also found that the transfer “was oppressive because its effect was to take away from the aunt virtually her only asset, with nothing but the unenforceable oral assurance given in return, so that she was deprived of security of tenure and of the ability to resort to the asset to meet future financial needs”.

The full and unencumbered title to the house was ordered to be restored to the aunt.

The Court found further that based on principles of unconscionability or unconscientiously conduct on the part of the nephew and his sons the following principles would apply: as described by Gaudron J, Gummow J and Kirby J in Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457 at [123]:

“[T]hey were meeting on unequal terms. [He] took advantage of this position to obtain a benefit through a grossly improvident transaction on the part of his [aunt].”

It was held unconscionable for the nephew and his sons to retain the benefit of the improvident transaction by being left as the owners of the property.

Winefield v Clarke [2008] NSWSC 882 (Barrett J)

This is another case where the Court made it very clear that vulnerability to influence is a key factor when dealing with a claim of undue influence. Equally the role of an independent legal advisor is discussed in great detail so much so that an appropriate check list can be created from the evidence provided by the expert witness.

A mother (87 years old) sued her daughter with a view to recovering an interest in her home transferred by herself to her daughter and herself as joint tenants: meaning that on the mother’s death the property would pass automatically to the daughter and not by her will. The action was brought by her tutor the Protective Commissioner of New South Wales, by whom her estate is managed pursuant to an order made by the Guardianship Tribunal on 29 July 2004 pursuant to the Protected Estates Act 1993.

Barrett J in paragraph 27 stated:

“Presumed undue influence may arise from the existence of a relationship where one person has assumed a position of ascendancy or influence over the other person or the other person has reposed trust and confidence in the former, and the former has used that relationship to achieve a transaction in which the first person benefits. In the alternative, actual undue influence may be affirmatively proved based on the circumstances and evidence available. In the case of presumed undue influence the onus will rest on the ascendant or trusted party to rebut the presumption and prove that the transaction was voluntary and a result of a free exercise of will or a well understood decision-making process: Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113

The Judge was very mindful of the diligent care given by the daughter to her mother but put it in a proper context when he said in paragraph 43:

“The defendant is to be commended for the way in which she looked after her mother. But the fact that the defendant acted towards her mother as she did out of respect and affection does not change the legal conclusion that the defendant stood in a position of undue influence towards the plaintiff.”

The benchmark for proper legal advice

In respect of the legal advice provided to the mother, the Court heard evidence from an expert witness, a solicitor experienced in matters of property and conveyancing. The steps that would be taken by a prudent solicitor retained to advise an intending donor of land to a family member were outlined as follows:

a. obtain clear instructions as to transferee’s wishes and intentions;

b. question whether or not transferee had the capacity herself to give instructions or to fully understand the nature of the transaction and what would be likely to consider as an appropriate follow up the obtaining of an opinion a suitable health professional;

c. discuss the arrangements to accompany the transfer of the property;

d. discussed and confirm with the transferee:

    • understanding of the transaction including the purposes, its providence and the viable alternative options;

    • the consideration to be paid and how it would be determined;

    • whether or not consideration was to be paid at the time of the Transfer or otherwise;

    • if the consideration was not to be paid at the time of the Transfer whether it was to be secured or otherwise;

    • documentation of the arrangements for payment of the consideration if it was not be paid at settlement, including payment of interest (if any), and the terms as to payment of the consideration, including the date or dates for repayment of principal and (if applicable) interest;

    • the details and documentation thereof of the co-ownership.

e. the difference between a joint tenancy and understanding the consequences: in a joint tenancy the property would pass on the death of a joint owner to the other;

f. considerable understanding of the wishes of the transferee in relation to the payment and of the consideration recorded in the Transfer and then advise in respect of the impact in respect of her estate plan.

The Court could not find that the lawyer received clear and unambiguous instructions on many of these issues and therefore could not conclude that:

“the transfer was the independent and well-understood act of a woman in a position to exercise a free judgment based on information as full as that of the donee. The freedom of the plaintiff’s will, her understanding and her decision-making were affected by the dependence on her daughter that was, in part at least, the product of her mental deterioration. And the evidence provides no basis for concluding that the defendant has positively justified the retention of the benefit conferred on her.”(at paragraph 50)

Passing on liability for loss to legal advisor

The previous cases focused on the Court’s response to abuse by family members or others who still had ownership of the property. The following 2 cases provide for a remedy against the legal advisor and/or Justice of the Peace.

Yaktine v Perpetual Trustees Victoria Ltd [2004] NSWSC 1078 (Young CJ in Eq)

This is an extremely important case as it outlines NSW Supreme Court’s view on the exposure to liability for lawyers acting for an attorney when circumstances of use may appear to be suspicious.

The Court makes it very clear that lawyers need to be very diligent in protecting the interest of their client: the donor of the power.

The case involved a claim by the plaintiffs, Mr and Mrs Yaktine, that their son Mohammed Aly Yatne had forged their signatures to a power of attorney and then used that forged power of attorney to raise a mortgage from the defendant and obtain a loan of $238,000, which the son misappropriated.

The evidence was abundantly clear that the son did forge his parents’ signature to the relevant power of attorney, and that he consistently represented that the power of attorney was genuine.

Mr Yatne had tried to obtain the Certificate of Title from the St George Bank, who were holding it for safe custody. Although he produced his power of attorney, the bank was reluctant to release the document and suggested that Mr Yatne needed a solicitor’s letter. The solicitor acting for the son proposed a request for the release of the title deed on the firm’s letterhead.

It was argued for the solicitor that the whole point of a power of attorney is that people deal with the donee and do not consult the donor. People must expect to be able to treat donees of powers of attorney as prima facie having authority to do what they have to do.

The following comments by Young CJ give a sound warning about the obligations of a solicitor:

“However, especially for solicitors, red lights should flash when certain factors exhibit themselves, one red light flashes when one can see that the donor of the power of attorney is to receive no benefit at all from a transaction yet the donee is to receive a considerable benefit. One can rationalise that this is because it is a family dealing, but a prudent solicitor, when he or she sees the red light, makes enquiries. Furthermore, a prudent solicitor is extremely careful about documents to which he or she puts his or her signature and professional reputation and takes precautions against misleading anyone else. Unfortunately, Mr Murphy, whilst probably not dishonest in the criminal sense, fell short of the standard here and is liable to indemnify the mortgagee for its loss without recourse to his insurer.”

This decision illustrates that the protection of the abused was the highest priority of the Court – clearly Mr and Mrs Yaktine were severely affected by their son’s dealings and the prospect of recovery from him was slim. The liability of the lawyer without recourse to his insurer sends a clear message that this is not just a mistake, but an omission of utmost seriousness.

Graham v Hall & 1 Or [2006] NSWCA 208 (Giles JA; Ipp JA; McColl JA)

Damages were awarded against both a solicitor and a Justice of the Peace for their role in acting for and witnessing a forged signature on loan documents.

This case relates to a husband forging his wife’s signature: it is very important in illustrating the exposure to liability if lawyers do not react to the alarm bells indicating financial abuse. Additionally as the liability extended to the Justice of the Peace, it makes many people sit up and take note that their “role” in transactional matters can be treated much more seriously than they may have imagined.

The solicitor was acting in respect of a mortgage over the family home jointly owned by a husband and wife. The husband indicated that the wife was dying of cancer (not true) and that the solicitor could not visit her. The mortgage was to pay off the existing mortgage and business debts, with the balance going solely to the husband.

The solicitor did not investigate why a dying woman would want to enter into a new mortgage.

This case takes a further step from the principles in Yaktine’s case:

Damages were apportioned 60% solicitor:40% Justice of the Peace.

The principles applied were:

➢ that the risk was foreseeable and self-evident;

➢ there were similarities to Hill v Van Erp (1997) 188 CLR 159 (duty owed by solicitor to disappointed beneficiary);

➢ the vulnerability of the plaintiff;

➢ the vulnerability of property dealings to fraud; and

➢ the solicitor conceded he heard “alarm bells” arising out of previous knowledge of business debts: risk to property … should have made more enquiry … basic, inexpensive investigations.

Intervening in matters where abuse has occurred: removing the abuser from a financial management role

Re R [2000] NSWSC 886 (Young J)

This case illustrates that the Court and the Guardianship Tribunal correctly focus on what is in the best interests of a person being abused and reacts positively to conflicts of interests, noting that conflicts of interest may be able to be managed.

Mr R had appointed his only living son as his attorney under an enduring power of attorney. The power expressly provided the attorney could take a benefit as a result of transactions undertaken pursuant to the power. Mr R was no longer capable of managing his affairs.

The application to the Guardianship Tribunal was made by Mr R’s daughter-in-law, who was the widow of his eldest son.

Mr R had a considerable estate, including several investment properties. His attorney was selling the properties and then lending himself the funds realised on sale. A total of some $4 million dollars was lent to the attorney. He signed the loan agreement under the power of attorney, on behalf of his father as lender, and on his own behalf as borrower. He then proceeded to purchase a $4 million property in his own name.

Mr R had allegedly signed a document stating that he had appointed his son to manage his affairs and his son was to “act as he sees fit, to protect, consolidate and expand my estate, so that it will be as fully sheltered as possible from taxation both here and abroad …”.

The Tribunal considered there was a substantial conflict of interest for the appointed attorney, and determined to make a financial management order, committing the affairs of Mr R to the management of the Protective Commissioner. Mr R’s son (attorney) appealed the decision to the Supreme Court.

In his judgment, Young J cites the case of Re W [2001] 1 All ER 175 in support of the argument that “a person who is given a power of attorney cannot give money away, and in particular cannot give money to themselves” (at para 39).

His Honour found that it was not sufficient for the attorney to plead that he had authority to take a benefit under the power of attorney and that, therefore, he could continue to do so. The key question was “whether it was in the best interests of the incapable person that that situation be permitted to continue” (at para 43).

His Honour considered the Tribunal directed itself to the key questions.

➢ Was there going to be a danger of exploitation in the existing arrangement?

➢ Would there be a danger that, even though he might be authorised to do so, the plaintiff (attorney) might breach his fiduciary duties if he managed the estate in such a way that he would eventually inherit more than he had at the moment? (at para 52)

The appeal was dismissed.

Comment on conflict and private managers.

As well, there was a good discussion of the principle to be applied to the selection of a private manager under the Protected Estates Act 1983.

“As I pointed out in Re L, when private managers are to be appointed, especially when there is a large amount of money concerned, the Court or the Tribunal has to be satisfied that:

(a) any so called financial expert has, in fact, expertise to allow him or her to assist the incapable person in the circumstances of the particular case; and

(b) any relative has either no conflicts of interest or, alternatively, the conflicts of interest are able to be handled by appropriate guidelines from the Deputy Registrar in the Protective Division.

There will always be some conflict. Re W shows some of the benign conflicts that can happen. There will be problems for people working out whether small donations should be made to charities, whether gifts should be made to relatives for Christmas and things of that nature. Most of those can be dealt with sensibly by an informal arrangement under a power of attorney or under the direction of the Protective Division. However, in the instant case, the real question was whether it was in the best interests of the first defendant to continue with the existing arrangement or to have an independent manager.”

One of the key points that was made by Powell J in PY v RJS [1982] 2 NSWLR 700, when laying down the classic test regarding when a manager is to be appointed, was that people who are incapable of managing their affairs are in danger of exploitation, and they must be protected against the danger of exploitation.

The Court applying criminal sanctions

Regina v Van Tongeren [2000] NSWCCA 522 (Court of Criminal Appeal)

Many cases about financial abuse focus on restoring property or removing attorneys. So when criminal sanctions are sought it is interesting to observe the Court’s approach. An elderly woman had allowed her daughter-in-law to operate on her accounts by the usual bank authority and other handwritten directions and had also appointed her as her attorney for a period as well

The elderly woman lived in a granny flat in the house of her son and the appellant, her daughter-in-law. Assistance was needed in managing finances. Large withdrawals were made in addition to amounts reasonably expected for care and expenses. The money was gambled in poker machines.

The daughter-in-law charged with dishonestly obtaining an advantage or money by deception. She had been convicted and because of tragic circumstances and mitigating circumstances, had been sentenced to 50 hours of community service. She had been previously acquitted on a number of charges of dishonesty obtaining an elderly woman’s money for herself: it could not be provided beyond reasonable doubt.

The Court’s approach was clear

“Those withdrawals in large, round figures were stark and spoke volumes for themselves … they were obviously made for the appellant’s own purposes. The appellant’s claim that she was authorised to make them was decidedly thin” (Ireland A J at para 38)

It was interesting to note that the Court commented that there were “tragic background” circumstances in this case. Yet in many ways they are typical of an expected trust within families. The vulnerability of the old woman, in many ways helpless in managing her own affairs because of illness and hospitalisation, required placing her daughter-in-law in a position of high trust. These factors are not unusual in an ageing society and do not make the daughter-in-law’s behaviour excusable.

The case highlights the need to select an attorney you can trust, and highlights the need to be equally careful about the access rights to bank accounts.

The Court’s response to abuse not detected until after death?

Suspicions of financial abuse often only come to light after death, when an executor commences managing a deceased estate. Beneficiaries query the asset position, which of course affects their inheritance. The executor often will need to request an attorney to provide a statement of account and explanation of their stewardship while attorney.

Although proceedings can be brought by an executor against the attorney to rightfully recover wrongly used/spent/transferred assets, these actions can be costly and the evidence needs to be conclusive. Often explanations of “gift” or “consent” are given by the attorney.

Family members may also seek provision under Family Provision Legislation, sometimes motivated by the need to get a greater share, particularly if one of the family is suspected of obtaining “accelerated inheritance” through alleged abuse.

Watson & 2 Ors v Watson [2002] NSWSC 919 (Acting Master Berecry)

The disclosure of the attorney’s transfer to himself of significant monies, as well as the deceased’s former home, came to light in the course of Family Provision Act proceedings. A finding was made that the sum of money and the house were held on trust for the estate. The Court further held that “any exercise by the defendant (attorney) of his authority under the power of attorney was to be done in a manner which was not inconsistent with the known intentions of the deceased as expressed in the will or contrary to the interests of the deceased”. The deceased had made his will five days after granting the enduring power of attorney to the defendant. The will contained provision for occupation of the home by one of the children with the proceeds of the sale of the home and the residue to be divided equally between the four children.

The Court made its position clear. Acting Master Berecry at paras 49 and 50 stated:

“The use of the power of attorney by the donee contrary of the known wishes and directions of a donor is a breach of trust – see The Margaret Mitchell 166 ER 1174 at 1199. In Powell V Thompson [1991] 1 NZLR 597 at 605 per Thomas J his Honour said:

“The powers of attorney are specifically directed at the management of the principal’s affairs: it is not open to attorneys to either obtain an advantage for themselves or to act in a way which is contrary to the interests of their principles.”

It is clear that by taking the action that he did the defendant ignored the fact that there was a conflict of interest between the deceased and himself and that those actions amounted to an abuse of his position as attorney. It is clear that by those very actions, that the defendant had made a profit from the transactions. By those actions he has defeated the testamentary intention of his father”

How the Court responds where the attorney does not follow the expressed intentions of the donor

Dynayski v Grant [2004] NSWSC 1187 (Master Macready)

This case is a good example of specific instructions from the principal about the use of his assets for his own and his children’s benefit. The case involved a dispute between family members about events that took place prior to the death of the parties’ father. The father had made a will leaving the two children equal shares, and had also made an enduring power of attorney appointing one child his attorney.

Some time prior to the father’s death, it was agreed that his house would be sold and the proceeds, less whatever was necessary to maintain the father, would be divided between the two children in accordance with their entitlements under the will.

The dispute concerned the application of the proceeds from that sale.

Following the sale, an unequal amount was distributed to each party, on the basis of the proposed expenses required to look after the father. There were also acknowledged borrowings by one of the children from the father. In all, the circumstances seem reasonably typical of issues which can arise out of power of attorney management.

Master Macready reviewed the cases relating to an attorney’s duty and obligation to obey the instructions of the donor:

➢ In The Margaret Mitchell (1858) Swab 382; 166 ER 1174 at p 1199, it was held that the use of a power of attorney by the donee, contrary to the known wishes and directions of the donor is a breach of trust.

➢ This principle was approved in R v Holt (1983) 12 Aust Crim Rep 1 where the Victorian Supreme Court at p 14 said:

It is not the law that an attorney given power by instrument under seal may, so long as the instrument remains unrevoked, exercise the power it confers in disregard of any subsequent orders of his principal conveyed to him … Subject to any contrary sense of the instrument there always resides in the donor the right later to instruct the donee not to act on the power, or to act only in a stated way.

➢ These principles have recently been applied by Austin J in Vickery v JPP Custodians [2002] NSWSC 782.

The Court found that there did not seem to be any doubt that the instructions of the deceased were that, apart from looking after him, the proceeds were to be distributed equally between his children in accordance with their prospective entitlements under his will.

Orders were made that amounts were to be paid to the estate of the father.

The case highlights the need for attorneys to maintain proper accounting records, especially when the family are receiving benefits in the lifetime of the donor, and one party is more responsible for the welfare of the donor.

The NSW form of power of attorney clearly deals with the prospects of a donor providing power to the attorney to provide specific gifts and benefits. If arrangements such as in this case are raised in discussion with donor clients, there is a catalyst for solicitors to provide advice on the framework for the attorney meeting their responsibility: records and account keeping may prevent these actions from being commenced.

Role of Guardianship Tribunal

The NSW Powers of Attorney Act 2003 gives wide powers to the Guardianship Tribunal, and these can be used effectively when there is concern that abuse may be occurring.

Applications to the Tribunal can be made in less time and at less cost than similar applications to the Supreme Court.

Under s 36(3), the Tribunal has powers to make orders as to the mental capacity of the principal to make a valid power of attorney, and to declare a power of attorney to be invalid for reasons of incapacity, non-compliance with other legislative requirements, or because of dishonesty, or undue influence, or other reasons.

Section 36(4) gives the Tribunal wide-ranging powers to make orders if satisfied such orders would be in the best interests of the principal or would better reflect the wishes of the principal. These orders could include:

➢ varying the terms of a power;

➢ removal of an attorney;

➢ appointing a substitute attorney for one who has been removed or has vacated office;

➢ reinstating a lapsed power of attorney;

➢ requiring furnishing of accounts and information;

➢ requiring auditing of accounts;

➢ requiring submission of a plan of financial management for approval; and

➢ revoking a power of attorney.

A significant power given to the Tribunal is the ability to make an order declaring that a principal lacks or lacked capacity because of mental incapacity at a specified time, or during a specified period, or for the time being. Attorneys acting under enduring powers of attorney will be able to apply in cases where the question of incapacity is unclear from the medical or other evidence, or where the attorneys would only be authorised to act if the principal had lost capacity.

Such a declaration would also go toward preventing financial exploitation of a principal by giving exclusive management of the principal’s financial affairs to the attorney. Thus, for example, banks or other financial institutions could be advised of such declarations, and thereby would have a legal basis for declining to release funds to persons other than the attorney (including the principal).

How the Guardianship Tribunal has used the power to review

Since the Power of Attorney Act 2003 commenced, the Guardianship Tribunal has made a variety of orders:

➢ removed attorneys and replaced them with substitute attorneys;

➢ appointed an attorney or one of them as private financial manager;

➢ appointed a previous attorney whose appointment had been revoked as private financial manager;

➢ revoked EPA and appointed Protective Commissioner;

➢ ordering attorneys to furnish accounts to family members;

➢ reinstated EPAs which have lapsed due to death/incapacity of attorney;

➢ revoked EPAs and made declaration of invalidity on basis of lack of capacity to make it; and

Particular examples

Grandson v Advisor

The Guardianship Tribunal dealt with competing applications from a family member and a family advisor (retired solicitor) in relation to guardianship and financial management. An enduring guardianship and power of attorney had been made in 2002 (in favour of the family advisor) and revoked in 2004, and another appointing a family member was made in 2004. There was evidence of moderately severe Alzheimer’s disease and that it would have affected the ability to make an EPA in 2004.

The Guardianship Tribunal applied a “best interests” test and revoked the 2004 power of attorney. The reasons were based on:

➢ family members’ failure to understand the concept of conflict of interest; and the consequences,

➢ would be difficult in divorcing self-interest (attorney resides in home, runs his business from there) and need for best interest of donor for appropriate dealing with the home; and

➢ the Protective Commissioner was appointed financial manager owing to conflict between advisor and family member.

Reviewing a power of attorney on the basis of incapacity to make it

The donor had made a power of attorney following the sustaining of traumatic brain injury as a result of a suicide attempt. It was in favour of his partner, who was an undischarged bankrupt.

There was evidence before the Guardianship Tribunal from a neuropsychologist that the donor did not have the capacity to execute the power of attorney. There was further evidence from a consulting psychiatrist and doctor indicating that the donor had testamentary capacity but that they were not confident about capacity at the time the power was made. The Tribunal could not speak with the solicitor who made the power, as he had left the firm. File notes indicated that only questions soliciting a “yes/no” answer were asked. No contact had been made by the solicitor with a health professional.

The Guardianship Tribunal declared the power of attorney invalid because of the lack of capacity to make it. The Protective Commissioner was appointed as financial manager because the Guardianship Tribunal was not satisfied that the partner, as an undischarged bankrupt, was a suitable financial manager. The Tribunal, however, recommended the Protective Commissioner consider authorising the partner to assist in the handling of day-to-day financial affairs.

In a similar matter, the Guardianship Tribunal has used the Law Society guidelines as a way of reviewing how solicitors question the donor or make further enquiries. It is clear that if the guidelines are not followed, or if proper notes relating to how the solicitor has determined capacity are not on the file, the Tribunal will err on the side of declaring a person does not have capacity when the medical evidence is clear and when the donor shows lack of recollection or understanding during interviewing.

Ordering filing of accounts

The Guardianship Tribunal, in making orders for an attorney to file accounts, has done so to alleviate concern and lack of transparency within the family about financial decisions and transactions. In some cases, orders are made to overcome the fact that good communication is not possible between family members. Orders have been made for both initial and ongoing accounting to be made (three months, and six-monthly, respectively).

Conclusion

What can we learn from the attitude of the Court and Tribunal in NSW?

The cases reviewed in this paper illustrate very clearly that where abuse has occurred the Court and Tribunal will do whatever it can to protect the best interest of the abused.

Where contractual arrangements have been entered into, the Court will explore in great detail issues of capacity, undue influence, fraud and seek to restore justice. Access to appropriate and independent advice is a common thread as are observations about inadequate legal representation and particularly lawyers not standing back and asking the key questions: “should I be wary of what is proposed” and “what more do I need to know.”

The Court has developed a very sympathetic approach to the elderly and what age can mean to their vulnerability to abuse: where the balance of power shifts from the ability to confidently self manage to the fear of isolation, exacerbated by weakening connections to avenues where they can achieve justice without fear of recriminations.

What continues to amaze me is that the Courts are having to include in their judgments consistent reference to obvious factors which would usually send loud alarm bells. Are not legal advisors using as a yardstick – “Would I let this happened to my grandma?”.

The application of criminal sanctions has been used – sometimes money is irrecoverable, so a message has to be given that positions of trust cannot be abused.

Both the Court and Guardianship Tribunal have had to grapple with people not properly understanding the concept of conflict of interest. This is possibly the most worrying trend: how do people’s conscience not shout out: “this is not my money, not my home …” – or is it that the concept of conscience has been overtaken by a new order of financial reality: “I can use this asset to get me where I need to get now – Mum is old and therefore her rights are not as important as my expectations of early inheritance.”

The cases certainly show that education, proper legal advice, and accessible elder law services are all needed as a right. In particular in relation to powers of attorney we can learn that the cases before the Court send warning signals about the choice of a trustworthy attorney.

There is a clear need to look at what further needs to be done with the following three factors:

➢ the statutory framework for review including mandatory review at the direction of the principal,

➢ the possible need for notification to people connected with the principal when the attorney commences to act, and

➢ community and legal education.

We cannot withdraw from our need for assisted, substitute, and protected decision making for people who need assistance and/or have lost their capacity or confidence to deal with their financial assets. We also have to be wary that we resolve the questions of public policy, privacy, individual preferences and choices (even with risk) – how best is it to interfere with the affairs of individuals? However the cases referred to in this paper show that activism on behalf of the vulnerable must be a priority in a society with segments who are ruthless in their abuse.