Dowdy v Clemson

The plaintiff is a 64 year old, illiterate man (born in July 1957) who is a “protected person” within the meaning of section 38 of the NSW Trustee and Guardian Act 2009 NSW consequent upon financial management orders made under the Guardianship Act 1987 NSW affecting his estate. He presently suffers severe dementia and is resident in an aged care facility in rural NSW. He lacks the competence necessary to give evidence in these proceedings.

The first defendant is the plaintiff’s sister.

The second defendant is the first defendant’s husband.

The plaintiff suffered a stroke on 27 March 2012, as a consequence of which he was hospitalised before becoming a resident in an aged care facility, first at Harden and, now, at Cootamundra. He is presently impecunious, dependent upon a pension.

Although the plaintiff has been resident in an aged care facility since shortly after his stroke, he has every so often been taken out of his facility by the defendants for “family time”, during which excursions he has spent time with them at their property at Narraburra, near Temora, or on the road with them in the course of shared lives as drovers. They have allowed him, thus, to enjoy a taste of what was once a familiar life.

On 30 May 2012, in recognition that he is incapable of managing his own affairs, the Guardianship Tribunal made orders under the Guardianship Act 1987 subjecting the estate of the plaintiff to management under the NSW Trustee and Guardian Act 2009 and appointing the first defendant as his financial manager. She also served as his guardian between May 2012-June 2016 or thereabouts.

On 3 November 2016 the Guardianship Tribunal’s successor, the NSW Civil and Administrative Tribunal (“NCAT”), in its Guardianship Division, made orders under the Guardianship Act to the following effect:

The first defendant’s appointment as the plaintiff’s financial manager was revoked, essentially, because she was unable, or unwilling, to account for the funds which the NSW Trustee, as the plaintiff’s current financial manager, seeks to recover from her in these proceedings.

In these proceedings, commenced by a summons filed on 4 July 2019 and continued on pleadings, the NSW Trustee, as the plaintiff’s financial manager, seeks to hold the first defendant accountable for mismanagement of the plaintiff’s estate. Essentially, it is said that between 14 May 2015 and 4 May 2016 or thereabouts she applied estate funds (by 38 transactions, in sums totalling $277,085.41 drawn on the plaintiff’s bank account) without authority and in breach of fiduciary obligations owed by her to the plaintiff.

The second defendant is sued, for a comparatively small part of the allegedly misapplied funds ($20,000), as an accessory to an alleged breach of fiduciary obligations by the first defendant.

The first defendant’s appointment as the plaintiff’s financial manager was made pursuant to section 25M of the Guardianship Act 1987 and it was subject to a grant of authority, and directions, on the part of the NSW Trustee.

Section 25M was in the following terms (with emphasis added):

In June 2012, shortly after the first defendant’s appointment as financial manager on 30 May 2012, the NSW Trustee, in accordance with its customary practice, issued written “Directions and Authorities” to the first defendant.

Those “Directions and Authorities” included, in paragraphs 10 and 13, the following constraints on the first defendant’s exercise of her functions as a financial manager (with emphasis added):

In her verified Defence, the first defendant admitted that the NSW Trustee in June 2012 provided her with these Directions and Authorities under Part 4.5 Division 2 of the NSW Trustee and Guardian Act.

In her oral evidence she sought to distance herself from that admission. However, two other pieces of evidence offer proof that she is likely to have had contemporaneous knowledge of a need to obtain the NSW Trustee’s authorisation and directions before exercising her functions as the plaintiff’s financial manager.

First, the Guardianship Tribunal’s formal Financial Management Order appointing her to office recorded, just under the order appointing her, the following: “NOTE: The financial manager is not authorised to deal with the estate (other than to protect the assets) until he/she has obtained all necessary authorities from the NSW Trustee and Guardian.”

Secondly, on 17 September 2012 the first defendant personally signed a “Private Manager’s Plan” on a prescribed form of the NSW Trustee. On its face, that was a simple document because, at that time, the plaintiff had virtually no assets; it was only in May 2015 that his estate came into funds upon his receipt of an inheritance. Nevertheless, the document signed by the first defendant referred to “the Manager’s Directions and Authorities document” and included acknowledgements: (a) that she was aware that she was not authorised to make a gift or loan from the plaintiff’s estate without the prior written authority of the NSW Trustee; and (b) that she was aware she was required to lodge annual accounts.

It is not open to her now to deny that she was aware that she could not deal with the plaintiff’s estate without the prior approval of the NSW Trustee and that she was required to keep proper accounts.

The office of a financial manager is a fiduciary one: Ability One Financial Management Pty Ltd and Anor v JB by his Tutor AB [2014] NSWSC 245 at [113] and [166]-[175]. A financial manager has a foundational duty to act within the scope of his, her or its authority as a financial manager, in the interests and for the benefit of the managed person, and in good faith. From that duty flow: (a) precepts about avoidance of conflicts of interest and duty; and (b) the duty not to make an unauthorised profit from the office of a fiduciary. A financial manager who deals with property of the managed person without authority does so at his, her or its own risk. A financial manager has a liability to account for his, her or its dealings with a managed person’s estate.

The liability to account borne by a financial manager to the person under management is not that of a trustee vis-à-vis a beneficiary, but of a “guardian” vis-à-vis a “ward” (by whatever names known): Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-423; Clay v Clay (2001) 202 CLR 410 at 430 [40] and 433 [48]; Woodward v Woodward [2015] NSWSC 1793.

What is required by way of an accounting by a financial manager must take into account the nature of the particular relationship between the financial manager and the person whose estate is under management, and the purposive character of an appointment of a financial manager. Different considerations may apply in the context of a family, one member of which is incapable of self-management, compared with those that may apply in the context of services provided by a commercial manager. Equitable principles governing the obligation of a financial manager to account operate in sympathy with those governing an exercise of protective jurisdiction.

The Court’s insistence that a financial manager owe the obligations of a fiduciary to the managed person, and that those obligations may be strictly enforced if a need to do so arises, is coupled with an appreciation that the law in operation is governed by the purpose it serves. In essence, that purpose is protection of a person in need of protection because of an incapacity for self-management: Secretary, Department of Health and Community Services v JWB and SMB (Marion’s Case) (1992) 175 CLR 218 at 258-259. The law endeavours to give due recognition to the particular circumstances of an incapable person as an individual, recognising the community in which he or she lives, and respecting his or her autonomy as a member of that community.

A financial manager is bound to act in the interests, and for the benefit, of the person under management: Holt v Protective Commissioner (1993) 31 NSWLR 227 at 238D-F and 241G-242A.

Where a manager lives in close quarters with the managed person the “no conflict” and “no profit” principles that generally apply to fiduciaries (as explained in Chan v Zacharia (1984) 154 CLR 178 at 198-199 and 204-205 and Warman International Ltd v Dwyer (1995) 182 CLR 544 at 556-559) may be relaxed to the extent of waiving a requirement that formal accounts be provided and permitting the manager to enjoy incidental benefits from expenditure of the managed person’s estate, provided that the primary purpose of the expenditure is beneficial to the managed person and serves the purpose of taking care of the managed person.

As illustrated by Woodward v Woodward [2015] NSWSC 1793, a financial manager can be held strictly to account for a misapplication of a managed person’s estate where the manager fails to protect the managed person’s interests or obtains personal benefits beyond the incidental.

Upon an exercise of the Court’s protective jurisdiction, invoked in the supervision of a financial manager and in calibrating the manager’s liability to account, allowance may need to be made for the power of the Court to excuse a manager’s breach of duty.

In that regard, I repeat what I wrote in C v W (No 2) [2016] NSWSC 945 at [39]-[47]:

In Downie v Langham [2017] NSWSC 113 at [8]-[12], White J recognised an interplay between the qualified liability of a “guardian” to account (according to the Countess of Bective Case) and the inherent jurisdiction of the Court (identified in C v W (No 2)) to excuse a “guardian” from a breach of a fiduciary duty if the guardian has acted honestly and reasonably and ought fairly to be excused.

Prima facie, the first defendant is liable to account to the plaintiff (in whose name and on whose behalf the NSW Trustee acts as tutor in these proceedings) for the sum of $277,085.41 expended by her from the bank account of the plaintiff, between 14 May 2015 and 4 May 2016 or thereabouts, without authorisation by the NSW Trustee. On 38 occasions, she withdrew funds from the plaintiff’s bank account. On 19 of those occasions a cheque was drawn in her favour. Those cheques were all for substantial “round sums” ranging between $1,000 and $44,000, including several for $5,000 or $10,000.

In paragraph 5 of an Amended Statement of Claim filed on 18 February 2020 the plaintiff, by the NSW Trustee as his tutor, pleaded that “[the] first defendant dealt with the plaintiff’s estate without the prior approval of the [NSW] Trustee by withdrawing and debiting [particularised sums totalling $277,085.41] from the plaintiff’s Westpac bank Choice Account”.

At a time when the defendants were legally represented (as they were until shortly before the final hearing of these proceedings), they filed a Defence which responded to that paragraph by pleading that they:

This form of pleading is repeated, in formulaic terms, in response to the various formulations of the plaintiff’s case against the first defendant.

Although the defendants were not legally represented at the final hearing, the contentions advanced by them at the hearing, upon which they elaborated in oral evidence, fell within the parameters of their formulaic response to the amended statement of claim.

The defendants’ admission that the first defendant applied the plaintiff’s funds (totalling $277,085.41) without the authority of the NSW Trustee is sufficient, of itself, to ground a liability in the first defendant to account for her unauthorised expenditure.

Her “defence” that the plaintiff’s unauthorised expenditure was “incurred at the request” of the plaintiff or “ratified” by him is misconceived.

She says that, in everything she did, she acted at the direction of the plaintiff notwithstanding the Guardianship Tribunal’s finding (with which she at the time agreed) that he was, as he is, incapable of managing his own affairs. By virtue of section 71(1) of the NSW Trustee and Guardian Act 2009, “[the] power of a managed person [such as the plaintiff] to deal with his or her estate is suspended in respect of so much of that estate as is subject to management under” the Act. The plaintiff had no power to give directions to the first defendant as his financial manager. She had no entitlement, in that office, to act at his direction.

This is not to say that the first defendant could not, or should not, have consulted with the plaintiff in the performance of her functions as his financial manager and respected his views. On the contrary, she was bound to take his preferences into account as mandated by section 4 of the Guardianship Act (in terms similar to section 39 of the NSW Trustee and Guardian Act):

The office of a financial manager is unique, taking colour from the terms of the manager’s appointment, governed by the protective jurisdiction exercised by the Court and NCAT, and informed by the nature, purpose and historical origins of that jurisdiction. The relationship between a manager of a protected estate and the protected person is “a fiduciary relationship with particular characteristics”: Ability One Financial Management Pty Ltd and Anor v JB by his Tutor AB [2014] NSWSC 245 at [166]-[175].

In JJK v APK (1986) Aust Torts Reports 80-042 at 63,881, Powell J (possibly following Theobald, Law Relating to Lunacy (1924) at pages 47 and 50) likened the office of a financial manager to that of a bailiff and, in GDR v EKR [2012] NSWSC 1543 at [36], White J described the relationship between a protected person and the manager of his or her estate as that of principal and agent rather than trustee and beneficiary.

Each of these characterisations of the office of a financial manager offers insight into the nature of the office. One of the points made by Powell J by reference to the concept of a bailiff was that the manager of a protected estate has duties defined by reference to public interest considerations as well as those that inform an exercise of equity jurisdiction affecting a fiduciary. The point made by White J is that the scheme of the NSW Trustee and Guardian Act is that a protected person ordinarily retains title to property managed on his or her behalf by his or her financial manager. With each of these points I respectfully agree.

Nevertheless, the concept of a bailiff is not entirely apposite to current usage because it is, historically, associated with the idea of an officer of the Court, perhaps appointed by the Sherriff, in service of the Crown. Nor is the concept of principal and agent entirely apposite, because a manager is appointed by the Court or NCAT (perhaps without the knowledge or consent of the protected person) and a protected person may lack the capacity to engage in an agency relationship.

The decision-making function of a financial manager is sometimes diminished by characterisation of the process of decision-making as one of “substitute” decision making as distinct from “assisted” or “supported” decision making.

In my opinion, upon a proper understanding of the nature of the office of a financial manager (with due recognition of the provisions of section 4 of the Guardianship Act and section 39 of the NSW Trustee and Guardian Act), there is no warrant for definition of a manager’s powers, and duties, by reference simply to a binary distinction between “substituted” and “assisted” or “supported” decision making.

In performance of his, her or its fiduciary office a financial manager might, in fact, have to make a decision in substitution for a decision beyond the capacity of managed person to make; but, even then, the manager is bound to respect the managed person’s preferences. Equally, in performance of his, her or its fiduciary office, a financial manager might, in fact, assist a managed person to make an informed decision; but any such decision must ultimately be made on the responsibility of the manager. A manager cannot be absolved from liability by deflecting responsibility unto a person in need of protection. In cases of doubt about how to proceed, a manager can apply for directions, in the first instance to the NSW Trustee and, if need be, to the Court.

The decision making function of a financial manager is more nuanced than is recognised by a binary distinction between “substitute” and “assisted” or “supported” decision making. This case illustrates that reality. The first defendant was entitled, and obliged, to consult the plaintiff’s preferences in the application of his funds. She was not entitled, however, merely to act at his direction. Her failure to exercise any independent judgement about management of his funds was a failure to act in his interests, and for his benefit, in circumstances in which he lacked capacity to manage his own affairs.

The result of her failure to perform her protective function is that the plaintiff’s financial resources were denuded. The Court is bound to find, as I do find, that the first defendant acted without authority and in breach of her fiduciary obligations to the plaintiff as his financial manager.

On the “defence” she has pleaded, a major focus of attention is upon what, if any, consequences flow from the first defendant’s failure to adhere to the standards required of a financial manager. Is she required to account for all the funds under her management? Can she (should she) be excused from liability for her breaches of duty?

The plaintiff’s case is essentially against the first defendant. His case against the second defendant can be put to one side.

On 9 June 2015 the second defendant was the recipient of $20,000 drawn by the first defendant on the plaintiff’s bank account. In oral evidence given by the defendants, they explained that the second defendant was not involved at all in management of the plaintiff’s affairs, and the $20,000 paid to him represented the price of a truck (used by the plaintiff to tow a caravan) sold at an undervalue, by him to the plaintiff, at the plaintiff’s request. My acceptance of that evidence disposes of the plaintiff’s claim against the second defendant. The second defendant gave value for money when he received the $20,000 from the account of the plaintiff. He did not diminish the value of the plaintiff’s estate. He was not privy to the terms upon which the plaintiff’s estate was managed.

That does not exonerate the first defendant from liability. The fact remains that she acted without authority in buying the truck for the plaintiff. She did so at her own risk. Incidentally, she failed to insure the truck (assuming insurance could be had) and it was a total loss when (with the caravan) destroyed by fire as the plaintiff accompanied the defendants on the road in the course of the family’s itinerant life droving cattle. The plaintiff’s mismanagement of equipment is said by the defendants to have been the cause of the fire.

In breach of a direction given by the NSW Trustee immediately following her appointment as a financial manager, the first defendant failed to keep proper accounts and vouchers relating to her management of the plaintiff’s protected estate. She says that what records she did have were delivered to the plaintiff at his aged care facility, left there in an envelope. Whatever records may have been left there (if any were left there), they are nowhere to be found.

The first defendant has made various attempts to reconstruct accounts (or, more particularly, to explain particular items of expenditure): in opposing revocation of her appointment as financial manager; in correspondence written by the solicitor who appeared for the defendants at the time they filed their Defence; in affidavits filed in opposition to the plaintiff’s claim; and in oral evidence at the final hearing.

There is little precision, and much guess work, about attempts to provide any form of accounting. It was not the practice of the first defendant to obtain invoices or receipts, or to keep a record of the purpose of expenditure. Withdrawals from the plaintiff’s bank account were often made in large, round sums, consistent with a course of dealing in cash.

Expressed in technical terms, the first defendant’s “defence” appears to be a contention that (upon an application of the principles enunciated in Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-423) she should be relieved of any obligation to account for the plaintiff’s funds because she always acted with the plaintiff’s best interests at heart and for his benefit alone. This is coupled with a contention (albeit without a cross claim) that she should, in fairness, be relieved of any liability for a breach of duty because she acted honestly and reasonably in discharge of her functions.

Neither of these contentions has much traction because of the first defendant’s abrogation of her responsibilities as a financial manager. She acted without authority in disposition of the plaintiff’s funds. She did so determined to allow the plaintiff to operate unsupervised, without constraint. In her disbursement of his funds to purchase things of use to her, as well as to the plaintiff, in the family’s droving life (including equipment, horses and horse feed) and in her enjoyment of holidays funded by him, she acted in her own interests, and for her own benefit, rather than, as she maintains, simply in the interests and for the benefit of the plaintiff. She did not meet the standard of propriety required of the fiduciary which, as the plaintiff’s financial manager, she was. Even if, according to her own lights, she acted honestly, she did not meet the standard of reasonableness necessary for a finding that, in fairness, she should be excused, in whole or part, from liability for her breaches of duty.

A third contention advanced by the first defendant is that some of the property purchased with funds of the plaintiff, allegedly for his benefit, remains located at the defendants’ property and is available for his use when he visits them. The first defendant has attributed a value of about $18,700 to that property.

An assessment of all of the first defendant’s contentions requires a diversion in the narrative. She maintains that she was morally justified in allowing the plaintiff to spend his money however he liked, and to join with him in enjoying the fruits of his expenditure, because he and the defendants had been badly treated by the NSW Trustee, at an earlier time, in relation to its management of an unrelated protected estate.

Dissipation of the plaintiff’s funds occurred following his receipt of $249,191.98 as a beneficiary of the deceased estate of Lawrence John (“Jack”) Swaysland. That sum was paid into the plaintiff’s bank account (managed by the first defendant) on 18 May 2015.

Jack Swaysland was a mentor of the plaintiff. On 31 October 2011 he was permanently placed in an aged care facility. On 6 December 2012 the Guardianship Tribunal committed management of his estate to the NSW Trustee.

At that time, Jack was the registered proprietor of land at North Wagga Wagga, where the plaintiff and the defendants left equipment during their travels as drovers. Jack himself had been a drover and had often been accompanied on droving assignments by the plaintiff in younger days.

On or about 19 December 2013 the NSW Trustee, as Jack’s financial manager, sold Jack’s land “as is” to members of Jack’s family in a “private auction” between family members. The sale, for a price of $251,150, was completed on 3 April 2014.

The sale was effected on an “as is” basis because the dwelling on Jack’s land was in need of substantial repair and, to an uninformed bystander, it was encumbered by a lot of rubbish; debris, as the NSW Trustee’s contemporaneous notes described it.

At the time Jack’s land was sold, the NSW Trustee was unaware that amongst the debris were chattels which, according to the defendants, were claimed by the plaintiff and the defendants as theirs.

The precise course of events is unclear; but it seems that the NSW Trustee acted, with the benefit of advice from nieces of Jack, on the basis that Jack’s land was unoccupied; that it had a valuation that valued the land at $200,000 as at 31 October 2013; and that the estimated cost of clearing the debris scattered throughout the land was $20,000-$30,000.

The first defendant complains that no notice was given to the plaintiff or herself of the intended sale, and they were not given an opportunity to retrieve their property from Jack’s land before completion of the sale.

Jack died on 11 April 2014, leaving a will dated 3 September 2010, probate of which was granted on 7 August 2014.

The will is not in evidence but there is no dispute that, according to its terms, the plaintiff was to receive Jack’s land. Because the land was sold under protective management, section 83 of the NSW Trustee and Guardian Act provided for the proceeds of sale of the land to pass to the plaintiff instead.

According to the first defendant, she and the plaintiff were sorely aggrieved that their chattels were lost to them because, she insists, of negligence on the part of the NSW Trustee. She contends that it should have conducted a more complete investigation of the family circumstances of Jack before selling his land “as is” and, with it, their chattels. According to her (and Jack’s will is evidently consistent with this) the plaintiff was as a son to Jack.

When the proceeds of sale of Jack’s land were, in effect, paid into the plaintiff’s account on Jack’s death, the first defendant determined that the plaintiff should be allowed to “buy everything he had lost” at the time Jack’s land was sold, and to enjoy himself (in company with the defendants) as he saw fit. She contends that, although he was unable to manage his own affairs, he was able to make decisions about what he wanted, and he preferred to have large amounts of money in his physical possession to spend, as and when he wanted, without supervision. In this, she says, she obliged him.

The first defendant’s failure to manage the plaintiff’s estate in a proper manner, with the approval of the NSW Trustee and records duly kept, was driven by a sense of entitlement which led to a virtually complete dissipation of the plaintiff’s funds. Whatever, if any, merit there may have been in criticism of the NSW Trustee’s management of the protected estate of Jack, that criticism provided no justification for the first defendant’s abrogation of her responsibilities as the plaintiff’s financial manager.

By her dissipation of the plaintiff’s funds, the first defendant failed to fulfil the purpose of her appointment as the plaintiff’s financial manager, and she participated in enjoyment of expenditure of his funds in a way that was beyond incidental to benefits conferred on him. For that reason she is obliged to account for her dealings with the plaintiff’s funds without the indulgence allowed to a guardian who performs his or her protective function without more than incidental benefits.

Her determination to allow the plaintiff’s funds to be disbursed without regard to the constraints of her office militates against a grant of any relief designed to excuse her from liability for breaches of duty.

The question remains whether her evidence that some equipment purchased with the plaintiff’s funds remains on her property should be accepted in reduction of the liability she has on an accounting for the plaintiff’s funds. The NSW Trustee submits not.

I agree. First, any and all such equipment as may have been purchased with the plaintiff’s funds was purchased without the authority of the NSW Trustee required to bind the plaintiff; and the NSW Trustee, as the plaintiff’s financial manager, has declined to ratify any such purchase. Secondly, the quality of the first defendant’s evidence is such that I am not satisfied that it can be accepted as to the source of funds used to purchase particular property, as to identification of particular property, or as to the value attributed by the defendants to particular property. Thirdly, the NSW Trustee, as the plaintiff’s financial manager, seeks to recover funds that might be used in the plaintiff’s care, not chattels of doubtful provenance.

The NSW Trustee invites the Court to proceed on the basis that judgment be granted in favour of the plaintiff conditioned upon an undertaking from it (as his financial manager) that it will not to seek possession of any personal property said by the first defendant to belong to the plaintiff.

In my opinion, it is neither necessary nor appropriate for the Court to enter a conditional judgment. The first defendant is bound to account for the sum of $277,085.41 which she spent, or wilfully allowed to be spent, without the NSW Trustee’s authority. The NSW Trustee has not, in any capacity, ratified that expenditure. It is not obliged, in its capacity as the plaintiff’s financial manager, to ratify the expenditure now, or to accept in reduction of the first defendant’s indebtedness property alleged by the first defendant to have been purchased with money of the plaintiff.

Any equipment purchased by the first defendant “for” the plaintiff, or which she allowed him to purchase, was purchased without due authority and at her risk as an accounting party. In light of the NSW Trustee’s election not to ratify any such purchase of equipment, the first defendant is entitled to deal with the equipment as she chooses.

As against the first defendant, the plaintiff is entitled to a judgment for $277,085.41, together with interest calculated at the rates prescribed for the purpose of section 100 of the Civil Procedure Act 2005 NSW, running from 3 November 2016 (the date upon which NCAT ordered the first defendant “to pay over or hand over the estate” of the plaintiff to the NSW Trustee). Interest, so calculated, amounts to $69,087.07.

Accordingly, judgment is entered for the plaintiff against the first defendant in the sum of $346,172.48.

On the findings I have made, the plaintiff’s claim against the second defendant is dismissed.

Costs are in the discretion of the Court, but the ordinary rule is that costs follow the event: Civil Procedure Act 2005, section 98; Uniform Civil Procedure Rules 2005 NSW, rule 42.1.

Bearing in mind that the plaintiff has succeeded against the first defendant, but not against the second defendant, in circumstances in which the defendants were jointly represented (when represented) and conducted their cases jointly, the appropriate order is that the first defendant pay 95% of the costs of the plaintiff assessed on the ordinary basis.

For the record, I note that, during the course of argument, some attention was given to whether the plaintiff currently has a will (apparently he does not), and to whether an application might be made under the Succession Act 2006 NSW by the first defendant for authorisation by the Court of a “statutory will” to be made for the plaintiff. This is not a matter presently before the Court in any formal sense. I offer no view about it.