New South Wales Court of Appeal CITATION: Siahos & Anor v J P Morgan Trust Australia Limited [2009] NSWCA 20 HEARING DATE(S): 9 February 2009 JUDGMENT DATE: 5 March 2009 JUDGMENT OF: Giles JA at 1; McColl JA at 2; Macfarlan JA at 3 (a) Appeal allowed. (b) Declare that the respondent is not entitled to recover from the appellants or retain from the proceeds of sale of the subject property the amount of $181,682.82 (or any interest thereon). DECISION: (c) Confirm the order for possession made by the primary judge on 13 March 2008. (d) The respondent to pay the appellants' costs of this appeal. (e) Remit the proceedings to Harrison J to hear and determine any applications as to costs at first instance that may be made to him. CATCHWORDS: POWERS OF ATTORNEY - attorney authorised respondent to direct portion of loan moneys to a bank to enable completion of a purchase by him - ambit of Attorney's authority - Powers of Attorney Act 2003 s.12 - whether benefit conferred on Attorney - whether Attorney possessed ostensible authority to act on appellants' behalf Contracts Review Act 1980 LEGISLATION CITED: Powers of Attorney Act 2003 Suitors' Fund Act 1951 CATEGORY: Principal judgment Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 CASES CITED: Spina v Conran Associates Pty Ltd [2008] NSWSC 326 Sweeney v Howard [2007] NSWSC 852 The Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 PARTIES: Prokopios Siahos and Chrisoula Siahos (Appellants) J P Morgan Trust Australia Limited (Respondent) FILE NUMBER(S): CA 40072/08 COUNSEL: J Jobson (Appellants) C Adamson SC/P Newton (Respondent) SOLICITORS: Adresakis & Associates (Appellants) Kemp Strang (Respondent) LOWER COURT JURISDICTION: Supreme Court - Common Law Division LOWER COURT FILE NUMBER(S): SC 12244/06 LOWER COURT JUDICIAL OFFICER: Harrison J LOWER COURT DATE OF DECISION: 13 March 2008 LOWER COURT MEDIUM NEUTRAL CITATION: J P Morgan Trust Australia Limited v Siahos [2008] NSWSC 207 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40072/08 SC 12244/06 GILES JA MCCOLL JA MACFARLAN JA THURSDAY 5 MARCH 2009 SIAHOS & ANOR v J P MORGAN TRUST AUSTRALIA LIMITED Judgment 1 GILES JA: I agree with Macfarlan JA. 2 McCOLL JA: I agree with Macfarlan JA. 3 MACFARLAN JA: The appellants, Mr Prokopios Siahos and Mrs Chrisoula Siahos, were born in Greece on 8 July 1926 and 2 June 1936 respectively. Prior to February 2005, they were the registered proprietors as tenants in common of the home at 138 Charles Street, Putney in which they lived with their son, Peter. Peter was 32 years of age in February 2005 and was self-employed in a towing business. His parents were pensioners. This appeal involves an issue as to the ambit of authority given to Peter by Powers of Attorney signed by his parents. 4 On 4 February 2005 the appellants transferred a one-third share of the property to Peter. No issue arises on the appeal as to the efficacy of this transfer. 5 On 24 March 2005 the appellants travelled to Greece and remained there until 2 November 2005. 6 Whilst they were overseas, an application was made to the respondent for a loan for $800,000 to be secured over the Putney home. The loan application dated 24 June 2005 was signed by the appellants, apparently whilst in Greece, and by Peter. The appellants originally contended that they had not signed documents, including this application, which bore signatures purporting to be theirs but they did not persist with that contention before the primary judge. The purpose of the loan was described, as to $498,000, as the refinancing of an existing loan secured by a mortgage over the property and, as to $302,000, "to provide funds for future investment use". Approval in principle to a loan of $700,000 was given on 27 June 2005. The approval said that about $498,000 of this was to be applied to refinance the existing loan. The intended use of the remainder was not stated in the approval. One condition of the approval was: "On confirmation of full approval and receipt of loan documents, [the respondent] will require Prokopios & Chrisoula Siahos to obtain independent legal & financial advice as to the implications of entering into this transaction". 7 A "Preliminary Loan Approval" of 20 July 2005 contained the same condition. 8 By General Powers of Attorney dated 18 August 2005, the appellants each appointed their son Peter "to do on my behalf anything I may lawfully authorise an attorney to do". Where each standard form of Power of Attorney stated that "this Power of Attorney is subject to the following conditions and limitations", the word "nil" appeared. The Powers of Attorney were registered on 24 August 2005. The circumstances in which the Powers of Attorney were signed in Greece by the appellants and the extent of the advice, if any, they received prior to signing them need not be explored because there is no issue on this appeal as to their validity. 9 Subsequently, the three registered proprietors granted the contemplated mortgage over their home in favour of the respondent. The mortgage was dated 16 September 2005 and was signed by Peter Siahos on his own behalf and by him on behalf of his parents pursuant to the registered Powers of Attorney. Settlement of the loan transaction occurred shortly thereafter, on 21 September 2005. 10 Prior to that time, on 23 August 2005, Mr Nicholas Karefylakis, who described himself on his letterhead as "Solicitor & Barrister" wrote to the solicitors for the respondent in the following terms: "I confirm that I am instructed to request that the special condition be waived in respect of independent legal and financial advice for Mr Prokopios and Mrs Chrisoula Siahos for the following reasons:- 1. My client's parents are currently in Greece and are not due to return in the near future. 2. Mr Peter Siahos will be executing the documentation on behalf of his parents pursuant to powers of attorneys. 3. The extra funds to be provided by the refinance of the property are to enable the completion of the purchase by Mr Siahos of the property at 6/300 Como Parade West, Parkdale VIC. 4. The settlement of the Melbourne property was due to take place on 24 June 2005. 5. Mr Siahos has been given an ultimatum to complete by 30 August 2005 or the vendor will rescind the contract and commence proceedings against him. I look forward to your urgent reply." (Blue Appeal Book 348M-T). 11 It should be noted that what Mr Karefylakis said to the respondent's solicitors indicated that he was acting only for Peter Siahos, and not for his parents. It is significant also that by the letter the respondent was told, through its solicitors, that the funds beyond those required for refinancing of the existing loan were to be used to enable the completion of a property purchase by Peter Siahos. The respondent in fact appears to have been aware of the latter at least by 6 July 2005 as there is a facsimile of that date to the respondent's lending agent referring to that purchase by Peter Siahos. 12 By a facsimile dated 24 August 2005 the respondent's solicitors advised Mr Karefylakis that "the Lender has NOT agreed to waive" the condition as to the independent legal and financial advice. Shortly thereafter there was submitted to the respondent a certificate dated 29 August 2005 signed by a Ms Alison Johnston of Hornsby as to the giving to the appellants of "independent financial advice". Ms Johnston gave evidence that she gave that advice to the appellants over the telephone whilst the appellants were in Greece. The giving of the advice was in issue at first instance but that issue does not arise for consideration on this appeal. 13 There was also provided to the respondent at about this time an "Acknowledgment of Legal Advice by Proposed Borrower" dated 31 August 2005 and signed by the appellants. The document was a standard form document referring to a request for advice and to advice that had been given. The name of a lawyer, apparently one in Greece, was inserted in handwriting as the name of the solicitor from whom advice had been requested. 14 The "Certificate of Independent Financial Advice" was sent by Mr Karefylakis to the respondent's solicitors on 30 August 2005. It is not clear how or when the "Acknowledgement of Legal Advice by Proposed Borrower" was conveyed to the respondent. There are references in documents, brought into existence by the respondent's solicitors and dated as late as 14 September to settlement not being able to occur until the condition as to the appellants obtaining "independent legal and financial advice as to the implications of entering into" the transaction was satisfied. In any event, the respondent apparently became satisfied as to the position because settlement occurred on 21 September 2005. 15 The funds available on settlement were disbursed in accordance with a direction given by Mr Karefylakis to the respondent's solicitors. The main payments comprised $510,892.43 to discharge the existing mortgage and $181,682.82 to the "ANZ Bank". The latter was the amount paid in respect of the purchase by Peter Siahos. The Issues on Appeal 16 The appellants' case as originally formulated at first instance challenged the giving of the mortgage on their behalf and the validity of the Powers of Attorney. Reliance was placed inter alia on the Contracts Review Act 1980 and on the principles as to unconscionable transactions discussed in The Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447. These issues were either not pursued or determined unfavourably to the appellants at first instance. 17 Whilst the appellants' notice of appeal was somewhat broader, the sole matter put in issue in the appellants' written submissions on appeal was the following question which appeared as the heading to the substantive part of the written submissions: "Did the Power of Attorney allow the respondent to direct $181,682.82 to Peter Siahos". 18 During the hearing of the appeal, counsel for the appellants sought leave to put a broader case but this application was rejected, essentially upon the basis that it departed from the way in which the proceedings had been conducted at first instance. The reasons for this decision are to be found in a separate judgment delivered by this Court on 9 February 2009. The appellants were nevertheless given leave, without objection by the respondent, to amend their notice of appeal to seek the following declaration to give effect to the argument contained in their written submissions: "declaration that the respondent is not entitled to (a) recover from the appellants or (b) retain from the proceeds of sale of the subject property the amount of $181,682.82 plus interest". Did the Powers of Attorney authorise the respondent to direct $181,682.82 to Peter Siahos? 19 The issue to be determined upon this appeal is thus a narrow one. The validity of the Powers of Attorney and mortgage are to be assumed. The issue is whether the loan moneys agreed to be provided by the respondent to the three borrowers were, as to the amount of $181,682.82, in fact advanced to them by being paid with their authority to the ANZ Bank on behalf of one of them, namely, Peter Siahos. If that portion of the loan moneys was not in fact advanced to them, it could not form part of the "Secured Money" referred to in the mortgage. The appellants' argument thus involves no challenge to the mortgage as such. It focuses upon the amount of the loan moneys secured by it. Similarly, it does not challenge the Powers of Attorney but focuses upon the ambit of the authority conferred by them. 20 The contentions of the appellants are, first, that the Powers of Attorney did not authorise the Attorney, Peter Siahos, to do an act which was for his own benefit rather than that of his parents, secondly, that it should be concluded that Mr Karefylakis' only possible authority from the appellants to direct payment of part of the loan funds to the ANZ Bank was from a purported exercise by Peter Siahos of authority granted by the Powers of Attorney and, thirdly, that Peter's instruction to Mr Karefylakis to direct payment of $181,682.82 to the ANZ Bank was an act for Peter's benefit and not that of his parents. 21 The appellants rely upon s 12 of the Powers of Attorney Act 2003 which is in the following terms: " 12 Prescribed power of attorney does not generally confer authority to confer benefits on attorneys (cf 1919 No 6, s 163B (2) (b)) (1) A prescribed power of attorney does not authorise an attorney to execute an assurance or other document, or to do any other act, as a result of which a benefit would be conferred on the attorney unless the instrument creating the power expressly authorises the conferral of the benefit. Note. This subsection restates a rule of the general law. Accordingly, whether the conferral of a benefit on an attorney is expressly authorised by a prescribed power of attorney is to be determined by reference to the general principles and rules of the common law and equity concerning the interpretation of powers of attorney. (2) Without limiting subsection (1), a prescribed power of attorney that includes the prescribed expression for the purposes of this subsection set out in Schedule 3 authorises an attorney to confer on the attorney the kinds of benefits that are specified by that Schedule for that expression." 22 The Powers of Attorney executed by the appellants were "prescribed" powers of attorney and did not "expressly authorise[ ]" the conferral of the benefit alleged here to have been conferred upon Peter Siahos. Nor did the Powers of Attorney include the "prescribed expression" referred to in subsection (2). As a result, the Powers of Attorney did not in my view authorise Peter Siahos to do an act which conferred a benefit on himself. It is not necessary to consider on this appeal whether the same conclusion would be reached by construing the Powers of Attorney without the aid of s 12 (see as to this the decisions of Windeyer J in Sweeney v Howard [2007] NSWSC 852 at [51-58] and Austin J in Spina v Conran Associates Pty Ltd [2008] NSWSC 326 at 73-82 which considered the predecessor of s 12, namely, s 163B Conveyancing Act 1919). 23 It is then necessary to consider whether any instructions which Mr Karefylakis had from the appellants to direct the respondent to pay $181,682.82 to the ANZ Bank in relation to Peter's purchase came from Peter in purported exercise of powers conferred to him under the Powers of Attorney or whether those instructions came otherwise from the appellants. In my view, the evidence gives rise to a clear inference that the former was the case but the issue is put beyond doubt by a concession by the respondent at first instance. After referring to the respondent having paid this amount at the direction of Mr Karefylakis, the respondent's written submissions said: "Mr Karefylakis was taking instructions from Peter Siahos for Peter Siahos and as the attorney for Mr and Mrs Siahos." (Submissions dated 28 February 2008 at [31]). 24 The next question is whether Peter Siahos' act in authorising Mr Karefylakis to give the relevant direction on behalf of the appellants was one for his benefit. The evidence referred to earlier indicates that the payment was made to enable him to complete a purchase by him of a property. That this was a payment for his benefit was accepted by the respondent at first instance. In referring to the subject payment, the respondent said in its written submissions dated 28 February 2008: "Whilst the defendant did not adduce any evidence about this payment, the plaintiff accepts that this payment (whilst not made into an account held by Peter Siahos) was for the benefit of Peter Siahos". (Black Appeal Book 107M-N). 25 This material in my view requires a conclusion that Peter Siahos' act in authorising the respondent to pay the subject amount to the ANZ Bank was an act done as a result of which a benefit was to be, and was, conferred upon him. The effect of s 12 Powers of Attorney Act is that the subject Powers of Attorney did not authorise him to do that act on behalf of the appellants. It is unnecessary in this case to decide what the position would have been if the act had been one designed to benefit both himself and his parents because the concession of the respondent referred to earlier, when read in the context in which it was made, is one which in my view should properly be understood as a concession that the payment in question was for the benefit of Peter Siahos, and not, whether wholly or in part, for the benefit of his parents. 26 For these reasons, I conclude that there was no actual authority given to the respondent to pay the subject amount as it did. The question of ostensible authority should then be addressed as it was relied upon by the respondent in oral argument on the appeal (although the extent of reliance placed upon it at first instance was unclear and no Notice of Contention was filed). Ostensible Authority 27 Windeyer J in Sweeney v Howard at [56] put the principle to be applied here succinctly and in my view correctly, as follows: "It is to be remembered that a third party who reasonably relies on the wording of the power of attorney or the representations of the principal is still protected by the doctrine of ostensible authority. However, a third party who enters into a transaction which is, apparently in the interest of the agent exclusively, without reference to the principal or the authorising document to ascertain the transaction's legitimacy, cannot appeal to the law of agency for protection ". 28 I would add a caveat as to whether it is necessary that the third party be on notice that the transaction is apparently in the interests of the agent "exclusively". Consideration of the position that would obtain if the act was seen to be partly for the benefit of the attorney and partly for that of the donor is not necessary in the present case. 29 The respondent's knowledge in this case that the subject payment was to be applied to enable the attorney, Peter to complete a purchase by him of a property was sufficient to put the respondent on notice that the direction to pay was not authorised by the Powers of Attorney given by the appellants and to render inapplicable any ostensible authority conferred by the execution and registration of the Powers of Attorney. The execution and delivery of the Powers of Attorney by or on behalf of the appellants constituted representations to those who relied upon the Powers of Attorney, including the respondent, that Peter Siahos was authorised to act in accordance with them. The respondent was entitled to rely upon the Powers of Attorney as clothing Peter Siahos with at least ostensible, if not actual, authority to do acts which he was apparently authorised by the Powers of Attorney to do, even if he was not in fact so authorised because an act apparently for the benefit for the donors was in truth for the attorney's own benefit. The act in question here was not however of that character as the payment was known by the respondent to be for Peter Siahos' benefit. It therefore fell outside the ambit of the ostensible authority Peter Siahos was given. 30 Reliance was placed by the respondent upon the fact that the direction to pay the subject amount came from Mr Karefylakis. It was said that at least he, if not Peter Siahos, had ostensible authority to act on behalf of the appellants. However, there was no evidence suggesting that the appellants had held out Mr Karefylakis to the respondent as someone authorised to act on their behalf. Indeed, in his letter of 23 August 2005 to the respondent's solicitors Mr Karefylakis indicated that he was only acting for Peter Siahos, and not Peter Siahos' parents. In any event, a representation or other conduct of an agent is insufficient to give rise to ostensible authority, without some representation or other conduct of the principal signalling to the third party that the third party is entitled to treat the agent as having relevant authority (Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [36]). There was no such conduct in this case, apart from such representations as arose out of the Powers of Attorney. As I have said, those representations did not include one that Peter Siahos was authorised to direct payment of the loan funds for his own benefit. It follows that they did not include one that a solicitor, such as Mr Karefylakis, who was instructed by Peter Siahos had authority to do the relevant act. 31 The contention that there was relevant ostensible authority accordingly fails, as did that in relation to actual authority. 32 It was contended on appeal that the question of Mr Karefylakis' authority was not at issue at first instance and should not be allowed to be contested on appeal. In my view, the written submissions of the respondent at first instance make it clear that the question of whether the appellants directly or indirectly authorised the respondent to pay the subject amount for the benefit of Peter Siahos was in issue. In the respondent's written submissions referred to earlier, the respondent said that "the real challenge in this case is to the direction to pay and payment by the plaintiff of $181,000 into the account of ANZ". It went on to rely upon the direction to pay from Mr Karefylakis and the fact that he was taking instructions from Peter Siahos on his own behalf and as attorney for his parents. Because of this reliance by the respondent on the Powers of Attorney to justify Mr Karefylakis' direction the appellants' challenge to the ambit of the authority conferred by the Powers of Attorney involved a challenge both to Peter Siahos' and to Mr Karefylakis' authority. In my view, the appellants may maintain both these challenges on appeal. The Primary Judge's Decision 33 The primary judge found that the respondent was authorised to make the subject payment. His reasoning was as follows: "27 A document described as a Loan Disbursement Schedule directed payment of $181,682.82 to "ANZ Bank". Mr and Mrs Siahos have contended that that was a payment made solely to Peter or for his benefit or in the discharge of a liability for which only he was at risk. The plaintiff did not deny this in the proceedings before me. Assuming for the sake of argument that the money all went to Peter, Mr and Mrs Siahos submitted that s 12 operated to prevent the plaintiff from recovering any of it from them. 28 The payment was a payment made at the direction of Nicholas Karefylakis, the solicitor for the borrowers, including Mr and Mrs Siahos, given in a letter to Galilee Solicitors dated 14 September 2005, some two days before settlement. Mr Karefylakis had earlier advised Galilee Solicitors that "[t]he extra funds to be provided by the refinance of the property are to enable the completion of the purchase by Mr Siahos of the property at 6/300 Como Parade West, Parkdale VIC". Even if hindsight casts that information into a curious light now, it did not do so in the context of an otherwise apparently unexceptionable transaction at the time. It was also consistent with a "Loan purpose checklist" dated 20 June 2005 signed by Mr and Mrs Siahos and Peter and presumably provided to the plaintiff or its agent, that sought $302,000 "[t]o provide funds for future investment use. 29 I am not satisfied that these circumstances or any of them establish that the funds directed to be drawn in favour of "ANZ Bank" were in fact funds advanced solely for Peter's benefit. The plaintiff did not make such a concession. However, in the events that occurred, it is unnecessary to decide the point. This is because the following contentions of the plaintiff are in my view sufficient to dispose of Mr and Mrs Siahos' arguments completely. 30 The plaintiff submitted that it was entitled to rely upon its registered mortgage securing the joint and several liabilities of the mortgagors. There was no dispute that Peter Siahos was liable to the plaintiff in accordance with the terms of the Loan Contract. Clause 2.2 of the Memorandum, which it was agreed contained the terms of the mortgage, was as follows: "2.2 Pay Secured Money The Mortgage is security for payment to you of the Secured Money and for the performance of all my obligations under the Mortgage. I agree to pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of each Secured Agreement or the Mortgage." 31 Clause 12.3 of the Loan Terms and Conditions provided as follows: "12.3 Joint and Several Liability If the Loan is being made to more than one person, then each person will be liable individually, and every 2 or more persons are liable jointly, for all amounts due under the Loan. All of your obligations attach to your successors and permitted assigns." 32 There was also no dispute that the "Secured Money" was the money advanced pursuant to the terms and conditions of the loan agreement. It goes without saying that this includes the money drawn in favour of "ANZ Bank" and that it was an amount "due under the Loan". There is no material before me upon the basis of which I could conclude that there was in these circumstances any limitation upon the extent to which the plaintiff could enforce its real security to recover any monies advanced pursuant to the loan agreement, even if it could otherwise be established that the monies were advanced in some way to or for the benefit of only one or some of the mortgagors." (Red Appeal Book 36H-38D). 34 It is apparent from my analysis above that I disagree with this conclusion and reasoning. His Honour refers to Mr Karefylakis as the solicitor for "the borrowers, including Mr and Mrs Siahos". However, as I pointed out above, there was no basis in the evidence for concluding that the appellants had conferred on Mr Karefylakis any actual or ostensible authority to act for them beyond such as might be derived from the exercise by Peter Siahos of powers conferred by the Powers of Attorney. That being the case, it was in my view (contrary to the primary judge's view) necessary to decide whether the direction of funds by Peter Siahos (through Mr Karefylakis) to the ANZ Bank was for his benefit, such that his act was taken outside the authority conferred by the Powers of Attorney (see s 12 Powers of Attorney Act). Whilst the primary judge said that it was unnecessary to decide the point, he said that he was not satisfied that the funds were "advanced solely for Peter's benefit" and that the respondent did not make a concession as to that. However, as I have said above, my view is that the statement as to this topic in the respondent's written submissions at first instance did amount to a relevant concession, that is, that the payment was for Peter's benefit and not for that of his parents. This resulted in Mr Karefylakis' direction to the respondent not being one supported by any actual or ostensible authority of the appellants. 35 His Honour's view was that the subject amount was part of the loan funds advanced to the registered proprietors and that the liability to repay it thus formed part of the "Secured Money" under the mortgage. This view was presumably based upon a conclusion that Mr Karefylakis was authorised to give the direction on behalf of the appellants. For the reasons I have given, I have taken a different view on this question. Conclusion 36 My conclusion therefore is that the sum of $181,682.82 was not advanced to the group of borrowers comprising Peter Siahos and the appellants. It was advanced at the request of Peter Siahos and would therefore be recoverable by the respondent from him but it was not in my view an advance to the three registered proprietors of the property at Putney. It accordingly did not come to be secured by the mortgage of 16 September 2005 granted by them. As a result, the appellants are entitled to declarations that they are not liable to repay the subject sum and that there is no liability in respect of the subject sum or any interest thereon which is secured by the mortgage over the property at 138 Charles Street, Putney. The order for possession made by the primary judge stands as there has been default in respect of money in fact secured by the mortgage (representing primarily the amounts advanced by the respondent to repay the existing mortgagee, together with interest). That order was not in any event challenged on appeal. 37 The appellants are entitled to their costs of the appeal as they succeeded upon the only point which was at issue. It does not appear that the primary judge made an order for costs of the proceedings at first instance. As the issues before his Honour were much broader than they came to be on appeal, there is room for different views about what, if any, orders should be made in respect of costs at first instance following determination of this appeal. His Honour is best placed to form a view about that and the proceedings should be remitted to him to consider and determine any applications for costs that are made to him in respect of the proceedings at first instance. 38 I propose that the following orders be made: (a) Appeal allowed. (b) Declare that the respondent is not entitled to recover from the appellants or retain from the proceeds of sale of the subject property the amount of $181,682.82 (or any interest thereon). (c) Confirm the order for possession made by the primary judge on 13 March 2008. (d) The respondent to pay the appellants' costs of this appeal. (e) The respondent to have a certificate under the Suitors' Fund Act 1951, if qualified. (f) Remit the proceedings to Harrison J to hear and determine any applications as to costs at first instance that may be made to him. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.