C v W (No 2)

On 27 November 2015, for reasons published as C v W [2015] NSWSC 1774, I ordered that an appeal from the Guardianship Division of the Civil and Administrative Tribunal of NSW (“NCAT”) be dismissed. Those reasons set out the factual matrix of family disharmony of ongoing significance for the current judgment.

At heart, the proceedings concern management of the person and property of the fourth defendant, an elderly widow, now incapable of self-management. The plaintiff is her daughter. The first, second and third defendants are her sons. All siblings are adults. The sons, acting cooperatively, have management of their mother’s affairs under instruments appointing an enduring guardian and bearing the character of an enduring power of attorney: C v W [2015] NSWSC 1774 at [10].

NCAT dismissed both the plaintiff’s application for a financial management order and her application for an order that she be appointed her mother’s guardian. She appealed to the Court from dismissal of those applications. During the course of the hearing of the appeal, she abandoned her challenge to dismissal of her application for a guardianship order. Her appeal against dismissal of her application for a financial management order was dismissed after a contested hearing.

On dismissal of the appeal, on 27 November 2015, I reserved all questions of costs and adjourned the proceedings until 22 February 2016 for consideration of the question of costs and any incidental business.

As mentioned in C v W [2015] NSWSC 1744 at [135]-[137], the “incidental business” I had in mind was preparation by the first, second and third defendants of a summary form of accounting by them of their stewardship of the affairs of the fourth defendant. Optimistically, I hoped that provision of such a summary would provide a firm, practical footing for ongoing management of the fourth defendant’s affairs unaccompanied by earlier rancour between her four children.

My optimism was misplaced. The first, second and third defendants did not, in a timely fashion, take up my invitation that they provide a summary form of accounting. Not until 19 February 2016 did they provide to the plaintiff, in an unverified form, detailed financial information about their stewardship of the fourth defendant’s estate and its current size and composition.

That led to an adjournment of the proceedings on 22 February 2016 with directions designed to have the parties engage in a dialogue. By orders made in chambers, by consent, on 18 March 2016, those directions were varied, bringing the proceedings back before the Court on 4 April 2016. On that date, with fresh directions providing for further written submissions, the parties agreed that what remained of the proceedings be referred to chambers for my consideration.

The result of this procedural history is that:

Section 85 of the Trustee Act 1925 provides that where a trustee is or may be personally liable for a breach of trust the Court may relieve the trustee, wholly or partly, from personal liability for the breach if satisfied that the trustee has acted honestly and reasonably, and ought fairly to be excused for the breach and for omitting to obtain the direction of the Court in the matter in which the trustee committed the breach. Via definitions of “trustee” and “trust” found in section 5 of the Trustee Act, section 85 operates in favour of a constructive trustee.

No submission has been made to the effect that section 85 has no application to the present case. The plaintiff contends that her siblings, and another family member acting under their direction, are constructive trustees of property of the fourth defendant. Her submissions have been confined to contentions that the statutory criteria for an order under the section have not been satisfied. There is no need, in these proceedings, to explore the implications for section 85 of authoritative judicial statements to the effect that, although “guardianship” involves fiduciary obligations of a distinctive character, it does not involve a relationship of trustee and beneficiary in the strict sense: Clay v Clay (2001) 202 CLR 410 at 428-433, especially 430[40] citing Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-421

The inherent protective jurisdiction of the Court having been invoked, a determination of the question whether there should be an order relieving any person of personal liability they might otherwise have, vis-à-vis the fourth defendant as a person in need of protection, requires consideration of principles broader in scope than those found in the Trustee Act, section 85; but ultimately, something analogous to the section.

On an exercise of protective jurisdiction, an application to be relieved of personal liability for a breach of fiduciary obligations vis-à-vis a person in need of protection may be dealt with by reference to criteria substantially similar to those encapsulated in section 85 provided that a reading of the words “acted honestly and reasonably, and ought fairly to be excused” found in the section is informed by principles governing an exercise of protective jurisdiction, particularly the foundational requirement that the welfare and interests of the person in need of protection be afforded paramount consideration.

A mass of material has been placed before the Court bearing on the questions identified for determination. The plaintiff, in particular, has taken an opportunity to re-agitate the case she unsuccessfully advanced in the NCAT proceedings.

Despite irregularities attending management of the affairs of the fourth defendant by or under the direction of her co-defendants as, and for some time after, they took over control of her affairs, I am not satisfied that their management of her affairs has been other than for her benefit, and in her interests. On the contrary, I am satisfied that the fourth defendant’s sons have, at all times, endeavoured and, in substance, have succeeded in their endeavours, to do right by her.

Any irregularities attending management of the fourth defendant’s affairs stem from two features of the case. First, her sons delegated day-to-day management of her affairs to another family member working voluntarily, as families do, under their general supervision. Secondly, they did not ensure that funds of the fourth defendant remained at all times separate; there was, for a time, an intermingling of personal funds and those of the fourth defendant that, innocent and well-meaning though it was, ought not to have occurred.

I am satisfied that, under imperatives arising from the pendency of these proceedings, all irregularities have been appropriately addressed, inter alia, in a detailed affidavit sworn on 18 March 2016 by the family member to whom the fourth defendant’s sons delegated day-to-day management of their mother’s affairs. That affidavit, adopted in contemporaneous affidavits sworn by the fourth defendant’s sons, provides (in paragraphs 9-14) a summary of those affairs that can be taken as a foundation for future assessments of the fourth defendant’s financial circumstances. I accept that management of her estate has been regularised.

If, in breach of fiduciary obligations, the sons of the fourth defendant (or their delegate) diminished the estate of the fourth defendant in circumstances (applying principles discussed in Re Dawson (deceased) [1966] 2 NSWLR 211; 84 WN (Pt 1) (NSW) 399; Maguire v Makeronis (1997) 188 CLR 449 at 469; and Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484) in which they might have been required to restore property to the fourth defendant, they have, in substance, made good the estate (by separating funds earlier mixed and by apportioning interest to allow the fourth defendant her due), bearing in mind principles that govern an exercise of protective jurisdiction and equitable principles governing the obligation of a guardian, or the like, to account for the property of a person under his or her care.

The fourth defendant’s estate is not, by any means, large. In substance, it comprises a nursing home bond of $350,000; cash deposits of the order of $112,000; and an entitlement to income, and occasional payments out of capital if needed, from a $400,000 trust fund established by her late husband. She is secure in her nursing home accommodation.

The costs of the current proceedings, including but not limited to the appeal from NCAT determined on 27 November 2015, can be dealt with in accordance with the principles identified in CCR v PS (No 2) (1986) 6 NSWLR 622 at 640E-G. In short, the question is: In all the circumstances, what are the proper orders for costs?

In approaching that question, account should be taken of the present, and prospective, financial circumstances of the fourth defendant as a person who, incapable of self-management, is entitled to the protection of the Court. There can have been no justification for these proceedings, or the NCAT proceedings preceding them, but for competing claims to be acting in the interests of the fourth defendant as a person in need of protection.

The business transacted by the Court, through the vehicle of the current proceedings, following dismissal of the appeal from NCAT, has engaged the general jurisdiction of the Court including, principally, the Court’s inherent, protective jurisdiction and the power of the Court under section 41(1) of the NSW Trustee and Guardian Act 2009 to appoint a protected estate manager.

That a person involved in management of the affairs of a person incapable of self-management (whether as guardian, attorney, financial manager or carer of the incapable person) generally owes a fiduciary duty to the incapable person is unremarkable and, in the circumstances of this case, can be taken as a given: GE Dal Pont, Powers of Attorney (LexisNexis Butterworths, Australia, 2nd ed, 2015), para 2.30.

So too can the proposition that such a fiduciary is, generally, in the abstract, liable to account for his or her dealings with property of the incapable person: Dal Pont, op. cit. paras 8.51-8.58. As Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-423 demonstrates, the nature of that liability may vary according to the nature of the particular fiduciary relationship.

Whether a fiduciary can be held liable to account referrable to a breach of duty depends upon the scope of his or her fiduciary duty, a question that may require close attention to the nature of the particular relationship between fiduciary and beneficiary, and is inherently fact-sensitive.

The question whether a person involved in management of the affairs of an incapable person should be granted an order of the Court relieving him or her of personal liability for a breach of a fiduciary duty owed to the incapable person requires, at the outset, consideration of the nature and purpose of the Court’s protective jurisdiction, and the nature of the liability to account to which a person involved in management of the affairs of an incapable person may be subject.

The nature of the Court’s inherent protective jurisdiction is authoritatively elaborated in Secretary, Department of Health and Community Services v JWB and SMB (Marion’s Case) (1992) 175 CLR 218 at 258-259 by reference to Re Eve [1986] 2 SCR 388 at 407-417; (1986) 31 DLR (4th) 1 at 14-21 and Wellesley v Duke of Beaufort (1827) 2 Russ 1 at 20; 38 ER 236 at 243. In short, the Court has an inherent, protective jurisdiction to do what is for the benefit of an incapable person, a person in need of protection because incapable of taking care of himself or herself. The jurisdiction is governed by its protective purpose.

Similar principles inform an exercise of the Court’s jurisdiction under the NSW Trustee and Guardian Act by reference, inter alia, to a statement of general principles found in section 39 of the Act. The first stated of those principles is that the welfare and interests of a protected person should be given paramount consideration.

What is done, or not done, upon an exercise of protective jurisdiction must be measured against what is in the interests, and for the benefit, of the person in need of protection: Holt v Protective Commissioner (1993) 31 NSWLR 227 at 238D-F and 241G-242A; GAU v GAV [2014] QCA 308 at [48].

The protective jurisdiction is sometimes described as “parental and protective”. It exists for the benefit of the person in need of protection, but it takes a large and liberal view of what that benefit is, and will do on behalf of a protected person not only what may directly benefit him or her, but what, if he or she were able to manage his or her own affairs, he or she would, as a right and honourable person, desire to do: HS Theobald, The Law Relating to Lunacy (London, 1924), pages 362-363, 380 and 462; Protective Commissioner v D (2004) 60 NSWLR 513 at 522 [55] and 540 [150].

The protective jurisdiction, so applied, recognises that voluntary allowances might reasonably be made from the estate of a person under the protection of the Court in favour of the incapable person’s family or carers: Ex parte Whitbread in the Matter of Hinde, a Lunatic (1816) 2 Mer 99 at 101-103; 35 ER 878 at 879; Protective Commissioner v D (2004) 60 NSWLR 513 at 540 [149] – 542 [156], 543 [165]-[166] and 544 [171] – 545 [173]; Griffin v Union Trustee Co of Australia Ltd (1947) 48 SR (NSW) 360 at 363; 65 WN (NSW) 5 at 7; Re DJR and the Mental Health Act 1958 [1983] 1 NSWLR 557 at 564E-G; Re ES and the Mental Health Act 1958 [1984] 3 NSWLR 341 at 343B-344D; W v H [2014] NSWSC 1696 at [28]-[51]; JPT v DST [2014] NSWSC 1735.

Although a person entrusted with management functions referrable to the affairs of an incapable person, or a person who takes upon himself or herself the role of a manager of such affairs, has the obligations of a fiduciary (towards the incapable person as his or her “beneficiary”), not necessarily those of a trustee, to account for dealings with the property of the incapable person, what is required by way of an accounting in such a case must take into account the nature of the particular relationship between “fiduciary” and “beneficiary” and the purposive character of an exercise of protective jurisdiction. Different considerations may apply in the context of a family, one member of which is incapable of self-management, than those that may apply in the context of management services provided by a commercial manager. The present case falls within the former category, not the latter.

Equitable principles governing the obligation of a fiduciary to account operate in sympathy with those governing an exercise of protective jurisdiction, as one would expect from their common historical foundations in decisions of the Lord Chancellor.

The Court’s insistence that those engaged in the care of the person or estate of an incapable person (loosely, a “guardian”) owe the obligations of a fiduciary to that person (loosely, a “beneficiary”), 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: protection of a person in need of protection because of an incapacity for self-management. 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 seminal statement of the principles to be applied in this context can be found in the judgement of Dixon J in Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-423:

These observations were endorsed in Clay v Clay (2001) 202 CLR 410 at 430[40] and 433[48].

In Clay v Clay, the High Court (at 202 CLR 428 [37]) also endorsed the following extract from Scott and Fratcher, The Law of Trusts (4th ed, 1987, vol 1, para 7):

The Court’s observations at 202 CLR 432[46] - 433[49] also bear repetition (omitting some footnote references and incorporating others in the text):

In Ability One Financial Management Pty Ltd & Anor v JB by his Tutor AB [2014] NSWSC 245 at [65] and [328] I found assistance in Brown v Smith (1878) 10 ChD 377, as did White J in Woodward v Woodward [2015] NSWSC 1893 at [52]-[57].

In Ability One, I made an order relieving a protected estate manager, and a related company, “of any liability for breach of trust that they might otherwise have had for taking, receiving or retaining remuneration from the estate of [a protected person] at any time before the commencement of” proceedings seeking that relief; the order was made conditional upon the manager having obtained, and acted in accordance with, an order, direction or authority of the NSW Trustee in the taking, receiving or retaining such remuneration. Assisted by Brown v Smith (1878) 10 Ch D 377 at 386, I took into account an assessment that, had the manager applied for an order for remuneration at the time of its appointment, the likelihood is that such an order would have been made. I also found that the manager had generally acted “honestly and reasonably”, to paraphrase the Trustee Act, section 85.

In Woodward v Woodward, White J held a financial manager liable to account to the executor of the deceased estate of the protected person in circumstances in which, in purported performance of his duties as manager of the protected estate, he had (to paraphrase Brown v Smith (1878) 10 ChD 377 at 386) applied property of the protected person “in making up a purse” for himself, and did so, moreover, when under an obligation (based upon the terms of his appointment as financial manager) to keep accounts in a form required by the NSW Trustee.

In Brown v Smith (1878) 10 ChD 377 at 381-382 recognition was given to the need (expressly noticed in Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-423) not to impose upon a guardian, operating in a close family relationship with an incapable person, a strict obligation to account for expenditure to the dollar: one must look at the whole circumstances of the case, making a fair allowance for performance of the protective function. In a family context, in which shared experience not uncommonly involves communal use of personal property, there is no invitation to licence or unconscionable conduct in acknowledgement that accounting for property does not in every case allow, or require, a precise mathematical exercise of the type expected in a commercial context.

Resonance, if not guidance, may be found in the seminal judgment of Lord Eldon in Ex Parte Whitbread in the matter of Hinde, a Lunatic (1816) 2 Mer 99; 35 ER 878 on the correct approach to authorisation of a voluntary allowance on the account of an incapable person. The Court’s focus is on the situation of the particular incapable person, looking at what it is likely that he or she would do, if he or she were in a capacity to act, doing nothing wantonly or unnecessarily to alter his or her property, but applying it in such a manner as the Court thinks it would have been wise and prudent in the incapable person to apply it if capable. Generally, the Court will not refuse to do, for the benefit of an incapable person, that which it is probable that he or she himself or herself would have done if capable of self-management.

The strictness with which a guardian may be held liable to account as a fiduciary involves, not only a need to appreciate the special nature of guardianship; the purposive character of the protective jurisdiction of the Court; and the importance of an examination of all the circumstances of the particular case bearing upon whether an accounting should be required. It also involves questions of degree not unlike those that arise when a court exercising general equitable jurisdiction is called upon to rule whether a fiduciary is liable to account for property acquired from his or her “beneficiary” as a gift. A modest gift that can reasonably be accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary people act will not generally attract the intervention of the Court, whereas something beyond that will: Spong v Spong (1914) 18 CLR 533 at 550; Nock v Austin (1918) 25 CLR 519 at 529-530.

Thus it is that the Court does not seek to impose upon a guardian, protected estate manager or the like (including, in the present case, an enduring guardian and an enduring attorney) an accounting obligation unmindful of that person’s particular relationship with the person under his or her care and of a need to assess whether the person in need of care has been, is and will be properly cared for by the fiduciary. This does not absolve a fiduciary from the foundational duty of a fiduciary to act, in the interests of the person under care, in good faith. Nor does it absolve a fiduciary from consequential duties, to avoid conflict between duty and interest and not to obtain an unsanctioned profit, or gain, from the office of the fiduciary. But it does require careful reflection by the Court, upon what is appropriate to the circumstances of the particular case, with an eye to the future as well as the past, in deciding whether there should be any (and, if so, what) curial intervention in the conduct of the affairs of an incapable person.

Drawing the threads of discussion together I venture to record (as a non-exhaustive statement of applicable principles) that, upon an exercise of protective jurisdiction involving an application by a guardian, or the like, to be relieved of personal liability for a breach of fiduciary obligations in management of the affairs of an incapable person:

These factors have a bearing on whether (to adapt the language of section 85 of the Trustee Act) a person “ought fairly” to be relieved, in whole or part, of personal liability for a breach of a fiduciary obligation, a question to which characterisation of the person’s conduct as “honest” and/or “reasonable” may have significance.

Whether or not the conduct sought to be excused is “honest and reasonable”, important though this may be, is not necessarily decisive upon an exercise of protective jurisdiction because, even if the conduct concerned was not both honest and reasonable, it may, exceptionally, be in the interests, and for the benefit, of the incapable person that it be excused and (as recognised in Marion’s case at 175 CLR 258) the limits and scope of the protective jurisdiction have not been, and cannot be, defined save by reference to the purpose for which it exists.

In the present case, the interests of the fourth defendant were best served by her co-defendants taking over management of her affairs, leading to recovery of property from the plaintiff, regularisation of her financial affairs and, in due course, her admission to residency in a nursing home. Although steps were taken, in the course of taking control of her property and in rationalisation of her affairs, that were irregular and should have been avoided, I am satisfied: first, that, in substance, what has been done has been done for her benefit and in her best interests; secondly, that the first, second and third defendants, and the family member to whom day to day tasks were delegated under their supervision, have acted honestly and reasonably, and ought fairly to be excused for any breach of trust involved in steps taken in assuming management of the fourth defendant’s affairs; and, thirdly, it is for the benefit, and it serves the interests, of the fourth defendant to bring to an end the litigation between her children that has engulfed her as its subject, its focal point.

Having formed this view, I decline to make protective estate management orders under section 41(1) of the NSW Trustee and Guardian Act. I am satisfied, as was NCAT, to leave management of the affairs of the fourth defendant (her person and her estate) in the hands of her sons, instruments chosen by her as an enduring guardian and enduring attorneys.

With a view to bringing some peace to management of the fourth defendant’s affairs I propose, also, to make an order relieving her sons (and their delegate) of any personal liability they might otherwise have for breaches of fiduciary obligations in management of her affairs in the period preceding the date (15 February 2016) to which accounts were prepared in support of the formal statement of her financial circumstances verified on 18 March 2016.

Given that this order is made upon an exercise of the Court’s protective jurisdiction, it is no impediment to the making of the order that the family member to whom the fourth defendant’s sons delegated tasks has not been joined as a party in the proceedings. The Court’s order operates as a direction in management of the fourth defendant’s estate. It binds her and her privies.

Had irregularities in management of the fourth defendant’s affairs by her sons, and their delegate, not occurred or had they been promptly and simply explained, an order that the plaintiff pay the whole of the defendants’ costs of the proceedings (on the ordinary basis) would have been a proper order. The plaintiff’s adversarial pursuit of her brothers, using her mother as a proxy, went beyond the reasonable, a fact illustrated by her abandonment of her “guardianship” appeal during the course of the proceedings and by her subsequent endeavour to re-agitate her NCAT case after dismissal of her appeal.

The plaintiff appears not to have appreciated a fundamental difference in the dynamics of an exercise of (managerial) protective jurisdiction, as distinct from those attending an exercise of (adversarial) equity jurisdiction. As Theobald put it (in The Law Relating to Lunacy at page 382), an important distinction must be borne in mind: “Chancery practice is directed to litigation … [practice in the protective jurisdiction] should be directed to administration without strife in the simplest and least expensive way”.

In all the circumstances of the case, the proper orders as to costs appear to me to be orders that provide, first, for the plaintiff to bear her own costs of the proceedings; secondly, for the costs of the first, second and third defendants up to and including 27 November 2015, assessed on the indemnity basis (which costs are said to be of the order of $37,500.00) to be paid by the plaintiff or charged against so much, if any, of the estate of the fourth defendant as may survive her, in equal proportions; thirdly, for the order for costs of the first, second and third defendants to be charged against the estate of the fourth defendant to be stayed during the lifetime of the fourth defendant; and fourthly, for the first, second and third defendants otherwise to pay or bear their own costs of the proceedings.

Having defended the appeal, in effect, as representatives of the fourth defendant, her sons should have their costs of the appeal borne by the plaintiff (as the unsuccessful moving party in the proceedings) or the fourth defendant, in whose interests they defended the appeal. Their delays in the provision of an accounting for their stewardship of the fourth defendant’s affairs were sufficient to warrant no orders for costs being made referrable to that phase of the proceedings, following dismissal of the appeal.

Although the plaintiff’s conduct of the appeal was largely adversarial in character – sufficiently so to warrant an order that she bear a proportion of her brothers’ costs of the appeal – and attended by a belated abandonment of a substantial part of her case, her conduct of the proceedings was not purely adversarial in character. I cannot say that her sole motivation for the appeal was pursuit of self-interest, or personal vindication, as opposed to protection of the fourth defendant. For that reason, I venture that an appropriate order is that the plaintiff bear one half of the burden of her brothers’ costs of the appeal. Some allowance should be made for the fact that, by conducting proceedings in the Court, she moved beyond a “no costs” forum: cf, Re Kerry (No 2) – Costs [2012] NSWCA 194 at [12].

The advanced age of the fourth defendant; the size, nature and composition of her assets; and her nursing home residence, provide grounds for confidence that a charge of part of her sons’ costs against her deceased estate is unlikely to have any practical effect upon management of her estate in the meantime or, in any way, to influence her family’s decision-making about what is to be done in management of her affairs generally. If the position were otherwise, a case for appointment of the NSW Trustee as her protected estate manager could emerge from the embers of these proceedings. An order, in effect, charging costs against her deceased estate is not to impede an application of her estate, for her benefit, in the meantime. The full amount of her estate remains available for her maintenance, if required.

Accordingly, I make orders to the following effect: