Estate Tornya, Deceased

These proceedings focus attention on the availability, or otherwise, of a preliminary discovery procedure invoked by a beneficiary to assist the deceased estate of the donor of an enduring power of attorney to decide whether the estate should commence proceedings, against the donee of the power, to recover property or compensation.

The donee used the power of attorney, at a time when the donor was mentally incapacitated, to transact business which the beneficiary (the applicant for discovery) suspects was otherwise than in the interests, and for the benefit, of the donor. The beneficiary apprehends that the donee may have acted in breach of fiduciary obligations owed by her to the donor, or otherwise in a manner warranting the intervention of the Court.

The plaintiff, as a beneficiary of his deceased father’s estate, applies to the Court, on behalf of the estate (formally represented by the second defendant as administrator of the estate), for an order that the first defendant (the widow of the deceased, a beneficiary of his estate and step mother of the plaintiff) give, pursuant to rule 5.3(1) of the Uniform Civil Procedure Rules 2005 NSW, preliminary discovery of documents bearing upon transactions effected by her, during the lifetime of the deceased, pursuant to an enduring power of attorney granted to her by the deceased pursuant to section 163B of the Conveyancing Act 1919 NSW, continued in operation by Schedule 1 and section 6(3) of the Powers of Attorney Act 2003 NSW notwithstanding repeal of section 163B.

The power of attorney (in the statutory form for which Schedule 7 of the Conveyancing Act 1919 provided) was expressed: (a) in clause 1, to confer authority on the first defendant to do on behalf of the deceased anything he was able lawfully to authorise an attorney to do; (b) in clause 2, to execute an assurance or other document, or do any other act, whereby a benefit was conferred on the first defendant; and (c) in clause 3, to continue to be effective notwithstanding that, after execution of the power of attorney, the deceased suffered loss of capacity through unsoundness of mind.

The power conferred by clause 1 was conditional upon the deceased being mentally incapacitated through unsoundness of mind or otherwise physically or mentally handicapped such that he was unable to receive communications or express his intentions in respect of his property or affairs. It was not exercisable “unless and until” the deceased was unable, by his own will, to manage his property and affairs.

In presentation of the current proceedings, no attention was given to: (a) the possibility that the deceased’s mental incapacity was intermittent rather than, on its onset, constant; or (b) whether the words “unless and until” contemplated a single event as a condition precedent to a power of indefinite duration or whether they limited the operation of the attorney’s power to the duration of a period of incapacity, effecting a suspension of the power during a period of lucidity, if any.

Although the plaintiff’s application for preliminary discovery arises in the context of administration of a deceased estate, it is not an application for preliminary discovery in aid of an application for probate or administration. It is an application for preliminary discovery in aid of a potential equity suit on behalf of a deceased estate. Questions of “discovery” (by whatever name known) in a probate suit need to be addressed in the context of practice and procedure governing an exercise of probate jurisdiction. See, generally, Re Estates Brooker-Pain and Soulos [2019] NSWSC 671.

Peter Thomas Tornya (“the deceased”) died on 25 April 2019, leaving a will dated 1 November 2007 which was admitted to probate on 16 December 2019.

The deceased was twice married.

He married his first wife, Gaye Rudder, in 1964. By that marriage, he had three children, respectively born in 1967, 1969 and 1970. The plaintiff (Simon Tornya) is the youngest of those children.

Following the death of his first wife in 1985, the deceased married the first defendant (Susan Tornya) in 1988. No children were born of that marriage.

The deceased was survived by his second wife (the first defendant) and his three children from his first marriage. Collectively, they are the beneficiaries named in his will.

A grant of probate was made to all four of them on 16 December 2019 as the executors named in the will.

With their consent, on 25 May 2020 orders were made to the effect, inter alia, that: (a) the grant of probate made to them be revoked; (b) letters of administration with the will of the deceased annexed be granted to the second defendant; and (c) the proceedings be remitted to the Probate Registrar to complete the grant of administration. Ancillary orders were made for the outgoing executors “forthwith” to deliver to the second defendant, as administrator, any and all estate property in their possession, custody or control and to provide, within a defined time, a verified statement of account of the estate of the deceased, commencing from the date of his death. Although the proceedings were referred to the Registrar to complete the grant of administration, the plain intent of the orders, read as a whole, was that the second defendant commence her administration of the estate pending the issue of a formal grant, which has yet to occur.

The will of the deceased was authenticated by the grant of probate made on 16 December 2019 and by the order of 25 May 2020 that letters of administration of the estate of the deceased be granted to the second defendant with the will annexed. The grant of probate was revoked not because of any doubt about validity of the will, but because all interested persons agreed that the appointment of an independent administrator was desirable to facilitate administration of the deceased’s estate.

The plaintiff first made his application for preliminary discovery by a summons filed on 12 December 2019 in proceedings numbered 2019/00392013. That summons named the first defendant as the only defendant, sought no orders for separate representation of the estate of the deceased, and made a claim for preliminary discovery as to the only substantive relief claimed.

In written submissions filed in anticipation of the hearing of that summons, the first defendant objected to the constitution of the proceedings and the standing of the plaintiff.

She contended:

Save in exceptional circumstances, the proper person to enforce rights on behalf of a deceased estate is the legal personal representative of the deceased (Jacobs’ Law of Trusts in Australia (8th ed, Lexis Nexis Butterworths, Australia, 2016), paragraph [23-03]; Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109 at [55]-[57]; Ramage v Waclaw (1988) 12 NSWLR 84; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432; Chahwan v Euphoric Pty Ltd [2009] NSWSC 805; 73 ACSR 252) or some other duly appointed representative of the estate such as an interim administrator upon a grant of administration ad litem (Scallan v Scallan [2001] NSWSC 1129 at [10]).

The plaintiff’s summons is vulnerable to objection on the two bases advanced by the first defendant. The weight of authority presently dictates that proceedings on the summons be deemed a “nullity”. The core problem is that the plaintiff did not obtain a grant of administration of any description before filing his summons. As a beneficiary and executor named in the deceased’s will, and thus a person with an interest in the due administration of the deceased’s estate (Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 at 707-708 and 713), he might have overcome that problem by including in his summons an application (which he had standing to make) for an interim grant: cf, Darrington v Caldbeck (1990) 20 NSWLR 212 at 219C; Hewitt v Gardiner [2009] NSWSC 705; 3 ASTLR 407 at [28]-[32], [55], [73]-[74] and [87]-[92]; McFarland v Gertes (2018) 98 NSWLR 954 at [81]. Had such a precaution been taken the summons could not have been characterised as a “nullity” on the reasoning ultimately attributable to Marshall v DG Sundin & Co. Pty Ltd and Darrington v Caldbeck, and the question of “proper plaintiff” could have been incidentally addressed.

The first defendant’s objections to the summons, if fully litigated, could require reconsideration of Marshall v DG Sundin & Co. Pty Ltd and Darrington v Caldbeck (followed by Emmett J in Byers v Overton Investments Pty Ltd (2000) 106 FCR 268 at [57], upheld on appeal in Byers v Overton Investments Pty Ltd (2001) 109 FCR 554), and sundry other cases (including Gertsch v Roberts (1993) 35 NSWLR 631 at 635 and GEL Custodians Pty Ltd v The Estate of the Late Geoffrey Francis Wells [2013] NSWSC 973) in light of the criticism of those decisions, and the detailed review of sections 44 and 61 of the Probate and Administration Act 1898 NSW, by White JA in Carolyn Deigan as Executrix for the Estate of the Late James Boyd Lockrey v Barnard James Fussell [2019] NSWCA 299 at [142]-[186].

White JA’s call for a review of Marshall v DG Sundin & Co Pty Ltd and Darrington v Caldbeck is timely, not only because of ongoing concern about the complex interplay between sections 44 and 61 of the Probate and Administration Act 1898, but because of the prominence given to case management in the Civil Procedure Act 2005 NSW and the Uniform Civil Procedure Rules 2005 NSW. Case management considerations under that legislation were a factor expressly taken into account by Ward J in Hewitt v Gardiner (2009) NSWSC 705; 3 ASTLR 407 (to which reference has been made) and in the judgment of Hallen J in Tjen v Bilic [2017] NSWSC 364.

In the absence of any other interested person, and with the consent of the defendant, Hallen J made a representative order in favour of the plaintiff (the sole beneficiary of a deceased estate) to address a deficiency in the plaintiff’s originating process arising from the plaintiff’s failure to obtain a grant of probate, or an interim grant of administration, prior to the commencement of proceedings. Characterisation of the proceedings as a nullity was overcome by a combination of a representative order, the consent of the parties to the proceedings and the absence of any other affected interest.

As recognised by Young J in Darrington v Caldbeck (at 20 NSWLR 220C), dismissal of proceedings as “a nullity” does not preclude the commencement of fresh proceedings to the same effect. The problem for the plaintiff in Marshall v DG Sundin & Co. Pty Ltd was that, between the time of “commencement” of the proceedings characterised by Yeldham J as “a nullity” and his Honour’s judgment, a limitation period expired. There is no comparable problem here.

Nevertheless, it should be noted that, although inclusion of an application (by a person interested in due administration of an estate) for an interim grant of administration of the estate in originating process may prevent the proceedings being characterised as “a nullity”, commencement of proceedings with the prior authority of a grant of administration may be necessary to satisfy a statutory requirement that proceedings be commenced within a limitation period.

To the extent that the reasoning in Marshall v DG Sundin & Co Pty Ltd may have been driven by a concern about the operation of a limitation period, that concern could perhaps be addressed by accepting that: (a) the commencement of proceedings without authority constitutes a “procedural irregularity” amenable to a corrective direction of the Court under section 63 of the Civil Procedure Act 2005 (contrary to the reasoning in Marshall v DG Sundin & Co Pty Ltd at 16 NSWLR 475); (b) ratification of an unauthorised commencement of proceedings cannot have operative effect against a defendant following the expiry of a limitation period upon which the defendant is entitled to rely (Dibbins v Dibbins [1896] 2 Ch 348 and Davison v Vickery’s Motors Ltd (in liq) (1925) 37 CLR 1 at 19-20); and (c) upon a proper exercise of any discretion for which section 63 provides, the Court must take into account the expiry of the limitation period.

It is not necessary in these proceedings to explore such questions in detail because, in the absence of a limitation period problem, the parties’ respective rights and obligations can be dealt with by case management orders, and orders for costs, which address the substance of their dispute.

The plaintiff endeavoured to meet the first defendant’s objections by seeking leave: (a) to join the second defendant as a party to the proceedings in her capacity as administrator of the estate of the deceased; and (b) to file an amended summons reflecting the fact of her joinder but not otherwise adding, or materially altering, any claim for relief made in the summons.

At the invitation of the Court, the plaintiff supplemented his application for these procedural orders by seeking leave to commence fresh proceedings (numbered 2020/00233906) by the filing of a summons, made returnable instanter, in substantially the same terms as the proposed form of amended summons sought to be filed in the original proceedings.

Reserving any entitlement his client might have to an order for costs, senior counsel for the first defendant accepted that her objections to the constitution of the plaintiff’s substantive application, and to the standing of the plaintiff to make that application, could be overcome by a suite of orders of the type proposed and, so, no objection was taken to those orders being made.

Accordingly, in the original proceedings, orders to the following effect were made:

In the new proceedings, notations and orders to the following effect were made:

By these procedural orders, the merits of the plaintiff’s application for preliminary discovery came to be addressed. Senior counsel for the first defendant accepted, correctly, that the joinder of the second defendant in the proceedings, coupled with her submitting appearance, overcame the first defendant’s objection to the plaintiff’s standing. A beneficiary under a will may institute proceedings in his own name, to protect his interest in a deceased estate, in circumstances in which the executor or trustee of the estate (normally the proper plaintiff) refuses or fails to institute proceedings: Ramage v Waclaw (1988) 12 NSWLR 84; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432; Chahwan v Euphoric Pty Ltd [2009] NSWSC 805; 73 ACSR 252.

UCPR rule 5.3 is in the following terms (with emphasis added):

UCPR rule 5.3 appears in Part 5 of the UCPR, entitled “Preliminary Discovery and Inspection”. That Part makes provision for three different types of “preliminary discovery”, sufficiently described in their respective titles. UCPR rule 5.2 is entitled “Discovery to Ascertain Prospective Defendant’s identity or whereabouts”. UCPR rule 5.3, as extracted, is entitled “Discovery of Documents from Prospective Defendant”. UCPR rule 5.3 is entitled “Discovery of Documents from Other Persons”.

Ancillary provisions of UCPR Part 5 relate to the formalities of the discovery and inspection process (UCPR rule 5.5, incorporating by reference provisions of UCPR Part 21); provision for security for the costs of the person against whom a preliminary discovery order is made (UCPR rule 5.6); claims of privilege (UCPR rule 5.7); and orders for the payment of costs and expenses associated with an application for preliminary discovery and the process of preliminary discovery (UCPR rule 5.8).

UCPR rule 5.6 provides that an order for preliminary discovery may be made subject to a condition requiring an applicant to give security for the costs of the person against whom the order is made. More generally, section 86 of the Civil Procedure Act 2005 NSW empowers the Court to make orders on such terms and conditions as the Court thinks fit. Accordingly, an order for preliminary discovery can be made conditionally.

The parties agree that the outcome of the plaintiff’s application(s) for preliminary discovery is governed by the judgment of the Court of Appeal in O’Connor v O’Connor [2018] NSWCA 214, noting that the plaintiff applies for preliminary discovery on behalf of the estate of the deceased.

Relevantly, the law governing the proper operation of UCPR rule 5.3 can be found in paragraphs [21]-[30], [70], [76], [79] and [86]-[90] of the Court of Appeal’s judgment.

From that judgment I draw, for the purpose of the current proceedings, the following particular points:

An applicant for a preliminary discovery order ordinarily must disclose what information he, she or it already has relevant to making a decision whether or not to commence proceedings against a prospective defendant. Preliminary discovery cannot be used to build up a case which an applicant has already decided, or could decide, to bring: Morton v Nylex Ltd [2007] NSWSC 562 at [33].

An exercise of the discretion for which UCPR rule 5.3 provides is governed by the case management provisions for which Part 6 Division 1 (sections 56-60) of the Civil Procedure Act 2005 NSW provides.

In that context, without detracting from any entitlement for which UCPR rule 5.3 provides, the Court may take into account the availability of “discovery“ procedures (including subpoenas for the production of documents, notices to produce, discovery and interrogatories) available against a defendant after the commencement of substantive proceedings, and restrictions (such as apply in the Equity Division of the court by reference to Practice Note SC Eq 11) on the availability of interlocutory “discovery“ procedures.

The plaintiff seeks discovery pursuant to UCPR rule 5.3 of various documents from the first defendant to allow the estate (or, should the second defendant decline to make a decision, him) to determine whether or not to bring a claim against her on the basis of either an allegation of breach of fiduciary duty or an allegation of unconscionable conduct.

The plaintiff identifies two prospective claims for relief against the first defendant.

The first prospective claim involves an allegation that the first defendant, in exercising her power under the power of attorney granted by the deceased, acted in breach of fiduciary obligations she owed to the deceased in that:

The second prospective claim involves an allegation that, by virtue of a position of special disadvantage that the deceased occupied vis a vis the first defendant, and in circumstances in which the first defendant was aware of the terms of the deceased’s will and his desire to preserve the assets of his estate for his beneficiaries, it was unconscionable in all the circumstances for the first defendant:

For the purposes of the plaintiff’s preliminary discovery application, the first defendant accepts that the transactions which the plaintiff seeks to investigate did take place.

If an order for discovery is made, and if proceedings are brought against the first defendant on behalf of the estate of the deceased, the first defendant reserves a right to defend those proceedings on grounds that include allegations that: (a) the deceased, himself, carried out or participated in the transactions; (b) the transactions, and any application of moneys in connection with the transactions, were for the benefit of the deceased; and (c) the deceased authorised the particular transactions or transactions of that type.

The first defendant defends the plaintiff’s application for discovery by relying on clause 2 of the power of attorney granted by the deceased (a “benefits clause”), which allowed the first defendant, as his attorney, to use the power to confer a benefit on herself.

The essential proposition advanced by the first defendant Is that clause 2 of the power of attorney, as construed by the NSW Court of Appeal in Taheri v Vitek (2014) 87 NSWLR 403, operates as a full defence in respect of any supposedly suspect or challenged transactions so that any order for preliminary discovery would be futile as it would be in aid of a claim that cannot be brought.

Taheri v Vitek is said to stand for a general proposition (applicable to the deceased’s power of attorney in favour of the first defendant) that, as a matter of construction of the Conveyancing Act 1919 and a power of attorney executed in the form of Schedule 7 to that Act with a “benefits clause”, the principal must be taken to have empowered the attorney to do anything that the principal might lawfully have authorised an attorney to do, even if there was benefit to the attorney and no benefit to the principal: 87 NSWLR 403 at [1], [36] and [130].

In short, the first defendant contends that the power of attorney granted to her by the deceased “meant what it said”: as attorney, she could (without accountability to the deceased) do on his behalf anything he could lawfully have authorised an attorney to do, including effecting a transaction conferring a benefit on herself, without benefit to him.

Omitting the execution clause and the accompanying certificate given by a solicitor under section 163F(2) of the Conveyancing Act, the power of attorney granted by the deceased in favour of the first defendant was in terms to the following effect (with emphasis added):

The power of attorney was registered as Book 4587 No. 988 on 12 April 2010.

In October 2009 the deceased was diagnosed with “advanced fronto temporal dementia”, a diagnosis which was confirmed in April 2010.

The significance of registration of the power of attorney (at about the time of the confirmatory diagnosis of dementia) is that a dealing affecting land executed under the power of attorney would have no effect unless, or until, the power of attorney was registered: Powers of Attorney Act 2003, sections 6(3), 6(5) and 52.

In these proceedings it is common ground that the transactions in respect of which the plaintiff seeks an order for preliminary discovery occurred after the time when the deceased became “mentally incapacitated through unsoundness of mind”, so that the “conditions and limitations” identified in clause 1 and Part 2 of the power of attorney did not constrain the general grant of power for which clause 1 provided.

The power of attorney was in the form of the instrument prescribed by section 163B and Schedule 7 of the Conveyancing Act.

Section 163B was in the following terms (with emphasis added):

The deceased’s power of attorney was an “enduring power of attorney” in the sense that it attracted the operation of section 163F(2). The power of attorney was effective so far as concerned any act within its scope, notwithstanding that the act was of a nature which was, at the time of the act, beyond the understanding of the deceased through unsoundness of mind.

Section 163F was in the following terms (with emphasis added):

On 1 November 2007 the deceased and the first defendant executed a deed which (omitting the execution clause and the form of will set out in schedule to the deed) was in terms to the following effect, with emphasis added:

In conformity with the Deed he and the first defendant made on 1 November 2007, on the same day the deceased executed a Will (since admitted to probate) in the same form as schedule 1 to the Deed.

In the Will, the deceased appointed his three children and the first defendant as his executors and trustees, and he made provision for each of them.

By the Will, he gave to the first defendant:

To each of his three children the deceased, by his will, gave:

In support of his application for preliminary discovery, the plaintiff draws to attention a series of transactions which (between November 2009 and the death of the deceased on 25 April 2019) the first defendant effected pursuant to the power of attorney granted to her by the deceased.

For the purpose of the current proceedings the first defendant accepts that those transactions occurred as described. They are here recorded as summarised by counsel for the plaintiff in written submissions.

Between March 2010 and April 2019, the first defendant sold assets of the deceased and converted them to cash:

Various financial transactions also occurred, for which the plaintiff has been unable as yet to obtain an explanation:

Implicit in the plaintiff’s identification of these transactions is an allegation that they are of such a nature, size and frequency that, in the absence of an explanation by the first defendant, they cannot (to paraphrase Quek v Beggs (1990) 5 BPR 11761 at 11764 in a discussion of the principles governing “undue influence” in equity) be reasonably accounted for on the grounds of friendship, relationship, charity or other ordinary motives on which ordinary persons act.

By his originating process, the plaintiff seeks an order, pursuant to UCPR rule 5.3(1), to the effect that the first defendant give discovery of several categories of documents, here summarised as:

In written submissions, counsel for the plaintiff provided an explanation as to why each particular category of documents sought by way of preliminary discovery was said to be necessary to allow the plaintiff to determine whether the deceased’s estate should claim relief against the plaintiff for a breach of fiduciary duty and/or unconscionable conduct. Those submissions connected the transactions the subject of inquiry with the categories of documents sought on discovery.

The plaintiff contends, and I accept, that, on the evidence presently before the Court, there is a reasonable, objective basis for propositions that:

By an order for preliminary discovery, the plaintiff seeks to learn:

In elaboration of a prospective claim against the first defendant for a breach of fiduciary obligations, the plaintiff starts with the proposition that the first defendant assumed the obligations of a fiduciary when she assumed her role as the deceased’s attorney: Taheri v Vitek (2014) 87 NSWLR 403 at [115]. He acknowledges that the content of her fiduciary obligations is complicated by clause 2 of the power of attorney, which authorised the first defendant to confer a benefit upon herself. He acknowledges the divergence of authority culminating in the Court of Appeal’s judgment in Taheri v Vitek (2014) 87 NSWLR 403, which he seeks to distinguish by reference to Ward v Ward (No. 2) [2011] NSWSC 1292 at [3]; Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463 at [153]; and Cohen v Cohen [2016] NSWSC 336.

He seeks to distinguish Taheri v Vitek on the basis that a conferral of power upon an attorney to do a particular act (such as executing an assurance or other document, or doing another act, whereby a benefit is conferred on the attorney) is a different question to whether or not the attorney, in doing that act, has acted in breach of a fiduciary obligation owed by the attorney to the principal. The deceased’s power of attorney contained, in clause 2, a “benefits clause” conferring authority on the first defendant, but it did not exonerate her from the fiduciary obligations by which an attorney under power is bound.

The plaintiff contends that the fiduciary obligations of the first defendant as the deceased’s attorney were informed, in part, by the terms of the deceased’s Will and the contemporaneous Deed that she and the deceased executed. He contends that, read together, those documents evince an intention on the part of the deceased (of which the first defendant had notice) to preserve, as far as possible, his estate for the benefit of his beneficiaries.

The plaintiff contends that, to the extent that the first defendant applied funds of the deceased to herself or to third parties that cannot be justified as being in any way for the benefit of the deceased, whether directly or indirectly, and the purpose of that application of funds was to remove assets from the deceased’s estate, then the first defendant acted in breach of her fiduciary obligations to the deceased.

In elaboration of a prospective claim that the first defendant acted unconscionably, the plaintiff: (a) notes that principles governing unconscionability may also apply to transactions for an attorney’s own benefit if the attorney took unconscientious advantage of the principal’s position of special disadvantage (eg, Perochinsky v Kirschner [2013] NSWSC 400; 16 BPR 31, 481 at [64]; Cohen v Cohen [2016] NSWSC 336 at [69]); and (b) refers to statements of principle in Thorne v Kennedy (2017) 263 CLR 85 [38], [109]-]110] and [113].

He contends that, the deceased having been diagnosed with dementia in 2010 and his condition having worsened to the extent that he was moved to a nursing home in 2014, he was clearly not in a position to look after his own interests; he was in a position of special disadvantage vis a vis the first defendant; and, as his enduring attorney, she was in a position to take advantage of that special disability.

The plaintiff contends that preliminary discovery of the type sought by him will materially affect any assessment by him of, first, the prospects of success the estate of the deceased may have in any claim against the first defendant and, secondly, the quantum of any claim that the estate may have against her, thereby providing assistance: (a) in determining whether a claim for relief can reasonably be made against her; and (b) assessing the availability of any defence she may have that the transactions to which she gave effect as the deceased’s attorney were fair, just and reasonable.

The first defendant’s opposition to the plaintiff’s application for preliminary discovery is based upon the proposition that the construction given by the Court of Appeal (in Taheri v Vitek (2014) 87 NSWLR 403 at [1], [36], and [130]) to section 163B and a power of attorney in or to the effect of the form in Schedule 7, of the Conveyancing Act, governs:

The first defendant contends that, just as a fiduciary relationship cannot be superimposed upon a contract in such a way as to alter the operation which the contract was intended to have according to its true construction (Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97), so any fiduciary obligation owed by her to the deceased as his attorney cannot alter the operation which his grant of a power of attorney was intended to have according to its true construction: Taheri v Vitek (2014) 87 NSWLR 403 at [115]. She contends that she is not accountable for any benefit conferred on her by an exercise of her power as an attorney because the deceased’s grant of authority to her extended to conferral of a benefit on herself.

She contends, further, that transactions effected by her as the deceased’s attorney in power cannot, on the application of the deceased’s estate, be set aside as unconscientious bargains because they were effected pursuant to a voluntary grant of authority by the deceased in a power of attorney which (as evidenced by the accompanying certificate under section 163F(2) of the Conveyancing Act) was explained to the deceased, at a time when he was fully capable of managing his own affairs, by a solicitor.

Implicitly, she contends that the relevant time for a consideration whether there was an unconscientious dealing (Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474) is the date upon which the deceased granted authority to the first defendant, not the date upon which she exercised, or purported to exercise, that authority.

Taken to its logical limit, the first defendant’s case is pithily expressed in her written submissions, as follows:

Consideration of the parties’ competing contentions about the nature and effect of the (enduring) power of attorney granted by the deceased to the first defendant requires an examination of: (a) principles governing an enduring power of attorney which includes a benefit clause; (b) the operation of such a power of attorney in the different contexts of a contest between a principal and a third party dealing with an attorney and a contest between the principal and the attorney; (c) the nature and purpose of a benefits clause in an enduring power of attorney; and (d) the interplay of principles governing an exercise of the equitable and protective jurisdictions of the Court in the operation of an “enduring” power after a principal loses mental capacity.

In examining these topics, the focus is upon governing principles in the context of uncontroversial (or assumed) factual parameters. I am not to be taken to be expressing a view as to the merits of any factual contest between the estate of the deceased and the first defendant that may emerge in subsequent proceedings.

The following observations of Dixon J in Tobin v Broadbent (1947) 75 CLR 378 at 401 are commonly taken as a starting point for analysis of the nature and effect of a power of attorney even where (as in this case) the power of attorney is a creature of statute:

From such a starting point, one must move quickly to recognise that an “enduring power of attorney” depends upon legislation for its efficacy. The three clauses of the power of attorney granted by the deceased to the first defendant in these proceedings reflect three innovations effected by amendment of Part 16 of the Conveyancing Act 1919 NSW by the Conveyancing (Powers of Attorney) Amendment Act 1983 NSW. Those amendments followed recommendations of the NSW Law Reform Commission in Report 20 (1975), entitled “Powers of Attorney and unsoundness of body or mind”, read with the Commission’s Report 18 (1974) entitled “Powers of Attorney” and its Working Paper 10 (1973) entitled “Powers of Attorney”.

Clause 1 reflects section 163B(1) of the Conveyancing Act, which introduced the concept of a plenary grant of power in a power of attorney, as Austin J observed in Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25,435 at [79]:

Clause 2 reflects section 163B(2)(b) of the Conveyancing Act, which made provision for inclusion in a statutory form of power of attorney of a “benefits clause”, inviting a donor to include in a power of attorney an express conferral on the donee of authority to effect transactions “as a result of which a benefit would be conferred” on the donee of the power.

Clause 3 reflects section 163F of the Conveyancing Act, which permitted a power of attorney to include provision for an attorney’s power to continue (endure) notwithstanding supervening mental incapacity on the part of the principal.

Apart from statute, under the common law a power of attorney lapses upon the donor’s loss of mental capacity: NSW LRC, Working Paper 10 (1973), Part 3, paragraphs [132]-[139] and [148]-[149]; Drew v Nunn (1879) 4 QBD 661 at 665-666; Ghosn v Principle Focus Pty Ltd (No. 2) [2008] VSC 574 at [36].

In summary, NSW legislation (formerly, Part 16 of the Conveyancing Act 1919 as amended in 1983, since replaced by the Powers of Attorney Act 2003 NSW) permits a plenary grant of power to an attorney to continue in operation after a principal’s loss of mental capacity and permits a power of attorney to incorporate a “benefits clause”.

In my opinion, the first defendant’s opposition to an order for preliminary discovery is misplaced. That is because it is based upon:

In Taheri v Vitek the Court of Appeal held that a third party was entitled to rely upon a power of attorney (in the form of Schedule 7 to the Conveyancing Act), containing a benefits clause, without inquiry as to whether a transaction effected by the attorney was beneficial to the principal: 87 NSWLR 403 at [1], [36], [127] and [129]-[131]. That determination is not inconsistent with a principal having an entitlement to call upon an attorney to account for an abuse of power by the attorney in dealing with a third party.

The following observations made by Brereton J in Ward v Ward (No. 2) [2011] NSWSC 1292 at [3] provide a convenient foundation for analysis:

To the same effect, in Re R [2000] NSWSC 886 at [41]-[42] Young J observed that “one has to distinguish carefully between two questions: (a) is the donee of the power of attorney authorised so that as between the donee and a third party the donor will be bound by a transaction? and (b) as between the donor and the donee, is the donee accountable for what he or she has done? They are two completely separate questions…”

In Re R Young J, at [44] paraphrased Reckitt v Barnett Pembroke and Slater Ltd [1928] 2 KB 244 with a statement that “a power of attorney may give a person authority to rob the donor, but that does not make robbing the donor something that he should not be accountable for.”

The nature and scope of an attorney’s obligations, vis a vis the attorney’s principal, depend on the arrangement between principal and attorney in the particular case. Prima facie, an attorney owes the obligations of a fiduciary to a principal and, as between principal and attorney, the primary object of a power of attorney is to enable the attorney to act in the management of the principal’s affairs: Tobin v Broadbent (1947) 75 CLR 378 at 401, A power of attorney in the form of Schedule 7 to the Conveyancing Act, with a benefits clause, is not, of itself, as between principal and attorney, a licence for the attorney to act otherwise than in the interests of the principal without accountability.

A primary purpose of a grant of plenary power to an attorney, coupled with a benefits clause, is to protect a third party who deals with the attorney by making express a provision entitling the third party to deal with the attorney without inquiry as to whether a transaction effected by the attorney is beneficial to the principal. A benefits clause is expressed in terms that confer a power on the attorney but its legal effect (in light of Taheri v Vitek) is largely to facilitate commercial dealings by providing a layer of protection for a third party who deals with a principal, via an attorney, relying on the text of a power of attorney. A benefits clause does not, of itself, exonerate an attorney from his or her fiduciary obligations to the principal.

A benefits clause offers protection for an attorney via the protection it offers a third party dealing with a principal through the attorney. The third party is protected by being able to rely upon the text of a power of attorney without further inquiry as to the attorney’s authority. The attorney is incidentally protected against a claim for damages that might otherwise have been brought against the attorney by the third party for breach of a warranty of authority if the business transacted by the attorney were to be disclaimed by the principal. The attorney’s protection against the third party does not render the attorney unaccountable as a fiduciary to the principal.

A determination of the nature and scope of any fiduciary obligations owed by an attorney to the attorney’s principal is to be made, in light of all the circumstances of the case (including the terms upon which the attorney was empowered), at the time of the attorney’s exercise, or purported exercise, of the attorney’s power of attorney. See, for example, Cohen v Cohen [2016] NSWSC 336 at [62] and [69]-[70].

In Cohen v Cohen at [62]-[71], Hallen J determined that the authority given to an attorney under an enduring power of attorney (with a benefits clause) did not exonerate the attorney from fiduciary obligations he owed to the principal in exercise of his power as attorney, with the consequence that a transfer of property of the principal to the attorney, pursuant to the power of attorney, was set aside in circumstances in which the attorney knew that the principal was incapacitated and vulnerable to exploitation.

Upon a consideration of the incidents of agency relationships, each case must ultimately depend on its own facts. Broad statements of principle must accommodate the facts to which they are to be applied.

That said, the judgment of the Court of Appeal in Taheri v Vitek (2014) 87 NSWLR 403 is authoritative in its construction of section 163B and Schedule 7 of the Conveyancing Act, the common source for the power of attorney considered by the Court of Appeal and the power of attorney under consideration in these proceedings.

Four features of Taheri v Vitek distinguish it from the current proceedings.

First, Taheri v Vitek was primarily concerned with an examination of the relationship between a principal and a third party upon an exercise of a power by an attorney. The Court drew an analogy with the general law concept of “apparent or ostensible authority”, with its primary focus upon the “external relationship” when a third party deals with an agent. It contrasted that with questions of “actual authority and fiduciary obligations” which focus upon the “internal relations” between principal and agent: 87 NSWLR 403 at [111]-[117], [127] and [129]-[130].

This point is perhaps more explicit in the concurring judgment of Emmett JA than it is in the leading judgment of Leeming JA. Emmett JA made the following observations (which are consistent with those of Brereton J in Ward v Ward (No. 2) [2011] NSWSC 1292 at [3]):

In the present proceedings, the focus for attention is not on the “external” relationship between a principal and a third party, but on the “internal” relationship between principal and an attorney – in particular, the accountability of an attorney to the attorney’s principal for conduct engaged in upon an exercise, or purported exercise, of the attorney’s power.

Secondly, Taheri v Vitek concerned an unconditional grant of authority by a principal to an attorney whereas, in the present proceedings, the principal’s grant of authority was expressly conditional upon the principal being incapacitated. This may be taken as reinforcement of the deceased’s intention that the enduring power of attorney granted by him to the first defendant be governed by a purpose protective of him at a time when, by reason of incapacity, he might be in need of protection.

The conditional nature of the power of attorney in the present case distinguishes it not only from Taheri v Vitek, but also from the several precedents the subject of close consideration in Taheri v Vitek. Classic expositions of the law of agency under the general law, such as Tobin v Broadbent (1947) 75 CLR 378 and the dissent of Russell J in Reckitt v Barnett Pembroke and Slater Ltd [1928] 2 KB 244 endorsed by Dixon J in Tobin v Broadbent, pre-date the statutory form of power of attorney for which the Conveyancing Act provided. Of the cases concerned with that statutory form, all bar one involved an unconditional enduring power of attorney with a benefits clause: Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25,435 (Austin J); Angelina Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463 (Hammerschlag J); Perochinsky v Kirschner [2013] NSWSC 400; 16 BPR 31,481 (White J); and Peter Vitek v Estate Homes Pty Ltd [2013] NSWSC 1867 (Rein J). Hughes v Hughes [2011] NSWSC 729 (Gzell J) concerned an enduring power of attorney, with a benefits clause, conditioned on incapacity of the principal; but it was the subject of only passing reference in Taheri v Vitek because of Gzell J’s expression of support for the approach of Austin J was not the subject of elaboration.

Thirdly, although the power of attorney considered by the Court of Appeal would, as a matter of form, ordinarily be characterised as an “enduring power of attorney” (because of clause 3 of the instrument, read with the Conveyancing Act, section 16F(2)) the facts of the particular case before the Court did not concern a transaction effected at a time when the principal had lost capacity, whereas the facts of the current case are directed to the relationship between an incapable principal and his attorney upon exercise of an “enduring power”. It was not necessary for the Court of Appeal to consider the implications of an “enduring” power in the operation of the power of attorney, either as between principal and attorney or at all.

Fourthly, in Taheri v Vitek, a competent principal supported the impugned act of her attorney. In the current proceedings an incompetent principal ostensibly lacked capacity to understand the business purportedly transacted on his behalf. If (as the first defendant’s reservation of a broader case suggests) “the deceased, himself, carried out or participated in the transactions” under scrutiny, it may be that, by virtue of the “conditions and limitations” referred to in clause 1 and Part 2 of the power of attorney, the first defendant acted without power.

It is not necessary in the current proceedings to consider the effect (if any) of a third party dealing with an attorney acting upon an enduring power of attorney expressly conditioned on, and limited by, the existence of a state of incapacity in the principal. In the current proceedings, the focus is on the relationship between an incapable principal and his attorney.

Confirmation that the Court of Appeal did not, in Taheri v Vitek, intend to address the rights and obligations of a principal vis a vis an attorney might be found in the terms in which Leeming JA expressed his conclusion (with which Bathurst CJ and Emmett JA agreed). Having canvassed specific “reasons for a broad construction of section 163B”, his Honour said, at [130]:

The respective judgments of Hammerschlag and Rein JJ admit the possibility that: (a) a principal may be bound to a third party who acts upon a power of attorney notwithstanding that there may have been an abuse of power on the part of the attorney; and (b) the principal may nevertheless have a remedy against the attorney.

In expressing agreement with the views expressed by Hammerschlag and Rein JJ about the proper construction of section 163B of the Conveyancing Act, Leeming JA declined to follow contrary views expressed by Austin J in Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25, 435, Gzell J in Hughes BHT NSW Trustee and Guardian v Hughes [2011] NSWSC 729 and White J in Perochinsky v Kirschner [2013] NSWSC 400; 16 BPR 31,481.

In Hughes v Hughes Gzell J expressed a preference for the approach taken by Austin J without elaborating his reasoning in that regard. He considered that it was unnecessary for him to do so because the case before him (unlike the judgment of Hammerschlag J) was a contest between principal and agent, not between a principal and a third party.

In elaborating his reasons for not following the approach of Austin J, Hammerschlag J noticed the distinction between a lack of power on the part of an attorney and an abuse of power by an attorney: [113], [120] and [155]. He held that the only limitation which section 163B(1) imposed on an attorney’s authority was that the principal could not authorise the attorney to do what the principal could not lawfully do or what the law would restrict the principal from authorising the attorney to do on the principal’s behalf: [154]. That is the view subsequently adopted by the Court of Appeal. Nevertheless, his Honour held that, whether a particular action by an attorney on the principal’s behalf involved a breach of fiduciary duty was a different matter; the principal may have redress against the attorney and a third party who participated in a breach with requisite knowledge: [153].

His Honour’s observations about the distinction between “a lack of power” and “an abuse of power”, and his reference to a breach of fiduciary duty, are consistent with the observations of Brereton J in Ward v Ward (No. 2) [2011] NSWSC 1292 at [3].

His Honour (Hammerschlag J) made the following observations about fiduciary obligations in the context of the law of agency:

In adopting Hammerschlag J’s construction of section 163B of the Conveyancing Act (and declining to follow Austin and White JJ), Rein J wrote the following in Peter Vitek v Estate Homes Pty Ltd [2013] NSWSC 1867 (with editorial amendment):

Sadly, cases in which an enduring power of attorney (with a benefits clause) is abused by an attorney are not as rare as they should be. Some attorneys appear to treat such a power, conferred upon them to enable them to act in management of their principal’s affairs, as a will-substitute. At their discretion, as soon as their principal becomes mentally incapable (without capacity to contest displacement of his or her preferred testamentary arrangements), they transfer property of the principal to themselves or apply it otherwise in pursuit of self-interest.

The tension of which Rein J spoke in paragraph [33](1) of his judgment in Peter Vitek v Estate Homes Pty Ltd (extracted above) can be accommodated by an interplay between the law of agency and principles governing an exercise of the Court’s equitable and protective jurisdictions, though a curial remedy not uncommonly comes too late to thwart an attorney’s abuse of power or result in a full recovery of estate property.

Rein J’s judgment in Peter Vitek v Estate Homes Pty Ltd [2013] NSWSC 1867 should be read with his Honour’s earlier judgment in Perpetual Trustee Company Ltd v Gavin Bruce Gibson [2013] NSWSC 276, another case of an unconditional enduring power of attorney, but one in which the contest was between principal and attorney, not between principal and third party. There his Honour wrote the following (with emphasis added):

Sweeney v Howard [2007] NSWSC 852; 13 BPR 24,381 was a judgment of Windeyer J followed by Austin J in Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25,435. Spina v M&V Endurance Pty Ltd is an alternative case name for Austin J’s judgment. Reference to Spina v Permanent Custodians Ltd is a reference to Hammerschlag J’s judgment.

In considering the nature and scope of the attorney’s fiduciary obligations to the principal in Perpetual Trustee Company Ltd v Gibson, Rein J had regard to a purpose of the power of attorney extrinsic to the text of the instrument.

At first glance (but not on deeper reflection) this may be seen as a point of departure from the analysis of Hammerschlag J in Angelina Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463 at [119] and [143] and the Court of Appeal in Taheri v Vitek (2014) 87 NSWLR 403 at 115) dealing with the relationship between a principal and a third party through the agency of an attorney. In that context, a third party is entitled to rely upon the text of a power of attorney without further inquiry. If a third party is to be held liable for participation in a breach of fiduciary duty by an attorney that has to be established by something more than reference to the text of the instrument.

Both those judgments refer to the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (at 97 and 99), where his Honour spoke of a need for a fiduciary relationship, if it is to exist at all, to accommodate itself to the terms of a contract between the same parties so that it is consistent with, and conforms to, those terms.

An enduring power of attorney in the form prescribed by the Conveyancing Act is not of itself, without more, to be characterised as “contractual” in nature. In its terms, it does no more than evidence a grant of authority by a principal to an attorney. In the context of a particular case, a benefits clause may do no more than facilitate an exercise of that authority by allowing a third party an additional layer of protection against notice of what might otherwise be an attorney’s breach of fiduciary obligations, particularly in the context of the exercise of an enduring power of attorney after the principal has lost mental capacity. In the absence of something more, an acceptance by an attorney of the office of attorney does not necessarily create a contract between principal and attorney.

In a contest between principal and attorney there is no universal necessity for all the terms of an arrangement between those parties to have been reduced to writing or set in stone. On the contrary, common experience teaches that, in a domestic setting at least, a power of attorney instrument may be delivered by a principal to an attorney (so that it might be produced to a third party as evidence of authority) with instructions, extrinsic to the instrument, as to the purpose or purposes for which it is to be used. And, in common experience, a principal’s instructions to an attorney may be revised from time to time without any necessity for a power of attorney to be amended.

An enduring power of attorney, as an instrument evidencing an enduring grant of power, depends upon legislation. It does not, of itself, embody a contract between principal and attorney.

In the absence of a contractual relationship between principal and attorney, the nature and scope of any fiduciary obligation owed by the attorney to the principal fall to be determined, at the time the attorney exercises (or purports to exercise) the power conferred by the power of attorney, in light of all the circumstances of the case as they appear to the Court at the time of its determination.

In construing section 163B of the Conveyancing Act, each of Hammerschlag J, Rein J and the Court of Appeal had regard to a policy consideration as informing the text of the section, and a power of attorney granted in the prescribed statutory form with a benefits clause. Their Honours attached importance to a third party being able to rely upon the text of such a power of attorney without a need to make inquiries extrinsic to the text before transacting business with the attorney intended to bind the principal.

That policy consideration does not apply with the same force (if at all) upon a consideration of whether, as between principal and attorney, there was an abuse of power by the attorney.

A relationship between principal and attorney is not necessarily a fiduciary relationship, although it is commonly so.

The nature of an “enduring power of attorney” in statutory form like that for which section 163B of the Conveyancing Act provided is such as to attract fiduciary principles, at least from the time that an attorney becomes aware that the principal has suffered “loss of capacity through an unsoundness of mind”. An attorney who acts under an enduring power of attorney after the principal has become incapable stands in a fiduciary relationship with the principal: Downie v Langham [2017] NSWSC 113 at [8].

As Hammerschlag J wrote in Angela Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463 at [120]:

In Report 20 (1975) at paragraph [6.4] the NSW Law Reform Commission wrote the following (with footnotes omitted):

Successive amendments of the Conveyancing Act, and the Powers of Attorney Act 2003 NSW which replaced it, have been accompanied by a second reading speech, in parliament, in support of the legislation, which highlights the fiduciary nature and purpose of an enduring power of attorney.

In the second reading speech in support of the Conveyancing (Powers of Attorney) Amendment Bill 1983, the Attorney General said:

The second reading speech given on behalf of the Attorney General in support of the Powers of Attorney Bill 2003 included the following observations:

Substantially the same statement was made in a second reading speech in support of the Powers of Attorney Amendment Bill 2013, together with the following observations:

The current form of prescribed form for an enduring power of attorney (found in Schedule 2 of the Powers of Attorney Regulation 2016 NSW, prescribed for the purposes of section 8 of the Powers of Attorney Act 2003) incorporates statements to the effect that an attorney must always act in the best interest of the principal; keep a principal’s money and property separate from that of the attorney; keep reasonable accounts of the principal’s money and property; not benefit from being an attorney, unless expressly authorised by the principal; and always act honestly in all matters concerning the principal’s legal and financial affairs. It warns an attorney that a failure to comply with the attorney’s responsibilities may incur civil and/or criminal penalties.

Legislative development of the concept, or form, of an enduring power of attorney cannot be used to read something back into an earlier form of statutory instrument, even though an instrument created pursuant to Part 16 of the Conveyancing Act (now repealed) has ongoing force by reference to the Powers of Attorney Act 2003. Nevertheless, notice might be taken of the consistent encouragement given to members of the public in NSW to execute an enduring power of attorney as a means of ongoing control of their affairs notwithstanding incapacity for self management. The role of equity in the supervision of an enduring attorney, as a fiduciary, has been ever present, expressly or by implication.

In practice, an enduring power of attorney is commonly granted, in combination with the appointment of an “enduring guardian” (authorised by the Guardianship Act 1987 NSW), at or about the same time as the donor executes a will.

In a domestic setting, execution of an enduring power of attorney and an enduring guardianship appointment is commonly understood by all parties to those instruments to be preparation for the possibility that the donor will experience incapacity for self management before death.

In a domestic setting, a person who accepts appointment as an enduring attorney or an enduring guardian is, in practice, generally on notice that any exercise of his or her power (as an attorney or as a guardian) may occur in the context of the donor’s vulnerability to exploitation, and a need for protection, arising from mental incapacity or some other form of disability.

This is an environment in which there is ample opportunity for the operation of principles governing an exercise of equitable or protective jurisdiction. Possession of an instrument in the form of an enduring power of attorney (with or without a benefits clause), potentially makes the principal dependent upon the attorney acting conscientiously in the performance of his or her functions as an attorney, and puts the principal at a special disadvantage, vis a vis the attorney, if the attorney does not act conscientiously.

Accepting that a “benefits clause” conferred upon the first defendant power to effect a transaction of benefit to herself upon exercise of the power of attorney granted to her by the deceased, the plaintiff contends that the power of attorney did not exonerate her from a fiduciary obligation of loyalty to the deceased in the exercise of her powers.

In elaboration of principles governing undue influence (which, in Thorne v Kennedy (2017) 263 CLR 85 at [39]-[40], the High Court recognised overlap with principles governing unconscionable conduct), Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 134-135 made the following observations:

In ordinary experience, a person who manages the estate of an incapacitated person as an enduring attorney, in the context of a domestic relationship, is commonly subject to a fiduciary obligation to apply property of the incapacitated person in the maintenance and support of the incapacitated person; but, by analogy with the case of a guardian entrusted with funds for the maintenance and support of an incapable person, the law generally recognises that the attorney (as an incident of his or her domestic relationship with the incapacitated person) can incidentally benefit from an application of the incapacitated person’s property without being required, in equity, to account for any such benefit. Any dispensation from a strict liability to account is subject to a proviso that the attorney must have faithfully discharged his or her duty of supporting and maintaining the incapacitated person: Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-423; Clay v Clay (2001) 202 CLR 410 at [37]-[57]; Crossingham v Crossingham [2012] NSWSC 95 at [16] et seq; Woodward v Woodward [2015] NSWSC 1793 at [9], [11] and [52]-[56]; Smith v Smith [2017] NSWSC 408.

This approach is consistent with a recognition that, as between principal and attorney, the primary object of an enduring power of attorney is generally to enable the attorney to act in the management of the principal’s affairs (evidenced by clause 1 of the statutory form of power of attorney), accepting that the attorney may personally obtain some incidental benefit from management of the principal’s affairs (clause 2) in circumstances in which the principal is incapacitated (clause 3).

The law of agency (an amalgam of common law rules and equitable principles) needs to accommodate the protective jurisdiction when, a principal having lost the mental capacity requisite to managing his or her own affairs, an enduring power of attorney comes into operation as such. Until that time, an enduring power of attorney may operate in a manner indistinguishable from other forms of agency; Taheri v Vitek (2014) 87 NSWLR 403 is an illustration of that. After that time, allowance generally has to be made for the physical presence, but mental absence, of a principal who, unable to make independent decisions, needs empathetic protection: Smith v Smith [2017] NSWSC 408 at [19].

Where an enduring attorney exercises a power to confer upon himself or herself a benefit from a disposition of property of an incapacitated principal in circumstances in which the benefit:

Equity intervenes in cases of this character on the ground of public policy, to maintain ethical standards of conduct and to prevent relations between an attorney and his or her incapacitated principal from being abused: Paul Finn, Fiduciary Obligations (Law Book Co, 1977; Federation Press, 2016), paragraph [698]; Johnson v Buttress (1936) 56 CLR 113 at 135.

In my opinion, whether or not armed with a benefits clause in his or her favour, an enduring attorney who deals with the property of an incapacitated principal in total disregard of the interests of the principal commits a fraud on the power conferred upon him or her and is, accordingly, in breach of his or her fiduciary obligations to the principal: Vatcher v Paull [1915] AC 372 at 378; McFee v Riley [2018] NSWCA 322 at [26]-[27] and [56]-[65]. Cf, Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25,435 at [89].

As White J recognised in Downie v Langham [2017] NSWSC 113 at [8], the question whether an enduring attorney should be required to provide an account for management of the property of an incapacitated principal in his or her care is not a straightforward issue. Complexity of the law is compounded by the fact-sensitivity of particular cases.

In a contest between a principal and attorney, the existence of a benefits clause is not necessarily as significant as it may be in a contest between the principal and a third party.

Even in the absence of a benefits clause, where an attorney exercises a power which results in his or her obtaining some incidental benefit, there may be nothing improper with his or her having that benefit if the benefit itself is, in the circumstances, an inevitable consequence of his or her properly exercising the power which produces it. A principal may be able to upset such an exercise of power only if he or she can show that the attorney exercised it with the dominant purpose of obtaining that benefit irrespective of the interests of the principal: Finn, Fiduciary Obligations (2016 reprint), paragraphs [103]-[104], citing, inter alia, Smith v Cock (1911) 12 CLR 30 at 36.

In their general operation, equitable principles governing the liability of a fiduciary to account are capable of a flexible application in the context of an enduring attorney acting in the name of an incapacitated principal. This appears from the following observations of Deane J in Chan v Zacharia (1984) 154 CLR 178 at 204-205 (quoted with approval in Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559-560, with emphasis added):

The inherent flexibility of equitable principles and remedies is augmented, by principles applied upon an exercise of protective jurisdiction, in the case of an enduring attorney managing the affairs of an incapacitated principal, at least where the attorney is a member of the family of the incapacitated person or otherwise engaged in his or her care.

In deciding whether to make an order for such an attorney to account for his or her dealings with property of the principal the Court may take into account the possibility that, had the attorney applied to the Court for an exercise of protective jurisdiction affecting management of the incapacitated person’s affairs, the Court might have made orders to the effect that:

An enduring attorney may be held liable as a fiduciary to account for his or her dealings with property of an incapacitated principal if a benefit obtained by the attorney from self-dealing:

However, the existence, nature and extent of any liability to account an attorney may have (which is to say, any remedy available to the attorney’s incapacitated principal or the principal’s deceased estate) may depend upon whether the attorney is able to persuade the Court that the standard of accounting required of him or her should take into account factors such as those considered upon an exercise of protective jurisdiction so as to avoid an unreasonable and inequitable application of the law.

In the context, particularly, of an attorney who is a member of the family of an incapacitated principal, or engaged in the principal’s care, this focus exists whether or not the attorney’s enduring power includes a benefits clause. That is because, when the “enduring” character of an enduring power of attorney is engaged (because the principal lacks mental capacity to manage his or her own affairs), the relationship between the parties is likely to be governed by principles that recognise that the attorney’s fiduciary obligations are analogous to those of a guardian entrusted with funds for the maintenance and support of an incapable person.

Upon a consideration of the requirements of UCPR rule 5.3(1), on the evidence before the Court:

There is no ground upon which the plaintiff’s substantive application for preliminary discovery can be characterised as an abuse of process. Apart from her contention that Taheri v Vitek relieves her of any liability to account for her dealings with property of the deceased, the first defendant has suggested none.

Nor is there any reason to leave the estate of the deceased to whatever entitlements to discovery it may have if and when substantive proceedings are commenced against the first defendant on its behalf. The plaintiff has presented an application for preliminary discovery within the scope of UCPR rule 5.3 and cogent reasons for a grant of such discovery.

Subject to allowing the parties an opportunity to be heard as to the form of any orders to be made, and costs, I propose to make orders and notations to the following effect:

By the undertaking in proposed order (1) and inclusion of the second defendant in the preliminary discovery process, this scheme of proposed orders is intended to give practical recognition to the representative capacity in which the plaintiff applied for preliminary discovery.

As the first defendant’s opposition to the plaintiff’s claims for preliminary discovery was not unreasonable in circumstances in which the plaintiff pursued his claims prematurely (that is, without a grant of administration), and he seeks an indulgence in the form of a grant of discovery on his application as a beneficiary, the plaintiff should bear the costs of the proceedings in the first instance, reserving potential for any costs paid by him to be borne ultimately by the first defendant, or the estate of the deceased, depending upon the course of future events.

As the first set of proceedings (2019/00392013) are, on the existing state of the law, a “nullity”, no costs orders should be made in those proceedings; but the preparatory work undertaken in those “proceedings” should be the subject of allowances made in the order for costs made in the second proceedings (2020/00233906).