Supreme Court New South Wales Medium Neutral Citation: Mary Alice Hughes by her Tutor NSW Trustee & Guardian v Hughes [2011] NSWSC 702 Hearing dates: 1 July 2011 Decision date: 01 July 2011 Jurisdiction: Equity Division Before: Gzell J Decision: Declaration that defendant holds $293,510.14 on trust for plaintiff. Order that defendant pay plaintiff $293,510.14. Order that defendant pay plaintiff's costs. Catchwords: CONTRACTS - Particular Parties - Principal and Agent - power of attorney - attorney sells mother's house and fails to account to her for proceeds of sale - power in form of Sch 7 to Conveyancing Act 1919 - unnecessary to decide whether s 163B authorised benefit to attorney - attorney in breach of fiduciary duty under the power PROCEDURE - Failure to appear - Uniform Civil Procedure Rules 2005, Pt 29 r 29.7 - when trial called defendant absent - history of non-action when contacted by solicitors and process servers - informed of hearing - exercise of discretion to proceed with trial Legislation Cited: Uniform Civil Procedure Rules 2005 Conveyancing Act 1919 Powers of Attorney Act 2003 Cases Cited: Re R [2000] NSWSC 886 In re W (Enduring Power of Attorney) [2000] Ch 343 Sweeney v Howard [2007] NSWSC 852 Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326 Tobin v Broadbent [1947] HCA 46; (1947) 75 CLR 378 Angelina Spina v Permanent Custodians Limited [2008] NSWSC 561 Rayner & Ors v N J Sheaffe Pty Limited & Ors [2010] NSWSC 810 Category: Principal judgment Parties: Mary Alice Hughes (Plaintiff) Anthony Thomas Hughes (Defendant) Representation: Solicitor Zucker Legal (Plaintiff) File Number(s): 2010/364594 EX TEMPORE Judgment 1When this matter was called, there was no appearance of the defendant, Dr Hughes. 2I indicated that I proposed to act under the Uniform Civil Procedure Rules 2005, Pt 29 r 29.7 and I received evidence on behalf of the plaintiff, Mary Hughes by her tutor NSW Trustee & Guardian. 3Part 29 r 29.7 in part provides as follows: "(1) This rule applies when a trial is called on. (2) If any party is absent, the Court: (a) may proceed with the trial generally or so far as concerns any claim for relief in the proceedings, or (b) may adjourn the trial." 4There is a long history of Dr Hughes ignoring contact made with him by the solicitors for Mrs Hughes and process servers. 5When this matter was called on 24 June 2011, Dr Hughes appeared in person. That was the first response he made to any material served upon him. He was ordered to enter an appearance by 29 June 2011 and the matter was stood over to today. 6Dr Hughes telephoned my Associate on Monday and said he was in a clinic and would not be attending today. He has not filed a Notice of Appearance. 7In light of the non-response by Dr Hughes, a lecturer in law at the University of New South Wales, and his knowledge that the matter would proceed today, enforced by an e-mail of 30 June 2011 reminding him of today's hearing, I decided that it was appropriate to proceed with the trial in his absence. 8The case concerns Dr Hughes' failure to account to Mrs Hughes, his mother, for the proceeds of sale of her house at Katoomba sold by Dr Hughes under a power of attorney granted to him by his mother. 9The statement of claim seeks a declaration that Dr Hughes holds $293,510.14 in trust for his mother and an order that he pay that amount to her together with interest. 10I am told that the claim for interest is no longer pressed. 11Mrs Hughes appointed Dr Hughes her attorney pursuant to a power that was made on an unknown date in 1996, but which was certified by the witness on 6 February 1996. The power was registered in May 2007. 12The applicable legislation is the repealed Part 16 of the Conveyancing Act 1919 which has been reproduced in Sch 1 to the Powers of Attorney Act 2003. That Act commenced on 16 February 2004. However, s 6(2) provides that it does not apply to any power of attorney created by an instrument executed before the commencement date. 13Thus it is irrelevant that the power of attorney was not registered until after the Powers of Attorney Act came into force. 14The evidence establishes that Dr Hughes had the conduct of the sale of the property that was owned by his mother at Katoomba. Dr Hughes received the proceeds of sale. Dr Hughes has neither accounted to nor paid to his mother or her tutor the proceeds of sale other than to pay $30,000 towards the bond at the aged care facility where Mrs Hughes resides. 15The lack of funds has caused some difficulty for Mrs Hughes. As at 16 November 2010 the balance of her accommodation bond stood at $96,192. 16The power of attorney contained a condition and limitation in these terms: "My attorney is only authorised to act as my attorney pursuant to this power in the event that I am either physically or mentally unable or incapable of attending to the activity in which my attorney is proposing to act and I direct that a letter from a medical practitioner stating that one or more of these preconditions exist shall be considered as sufficient evidence of my physical or mental inability or incapacity or as the case may be". 17There is no evidence that Dr Hughes obtained such a letter, but the provision is merely facilitative. It was not a precondition to acting under the power. 18From the report of Dr Peter Lipski who saw Mrs Hughes on 7 September 2007, it should be inferred that when Dr Hughes signed the contract for sale of his mother's home on 3 May 2007 she was mentally unable or incapable of executing a contract for sale of her house. 19I find that Dr Hughes satisfied the condition and limitation in the Power of Attorney. 20The amount claimed in the Statement of Claim is made up as follows: Balance of settlement moneys $316,709.64 Deposit $16,750.00 Less agent's commission 9,949.50 6,800.50 $323,510.14 Less paid by Dr Hughes 30,000.00 $293,510.14 21Dr Hughes has not accounted to his mother or her tutor for this or any part of this amount. 22There is a good argument that at common law a person who is given a power of attorney cannot give money away and, in particular, cannot give money to himself or herself as Young J observed in Re R [2000] NSWSC 886 at [39]. His Honour said: "Indeed cases like Re W show that there is a good argument that a person who is given a power of attorney cannot give money away, and in particular cannot give money to themselves." 23In In re W (Enduring Power of Attorney) [2000] Ch 343 it was held that the power of an attorney to make gifts of the donor's property is extremely limited and without the authorisation of the court does not extend to the making of gifts as part of inheritance tax planning. 24The power of attorney provides at par 3: "In the exercise of the authority conferred on my Attorney by Section 163B of the Conveyancing Act, 1919, my Attorney is authorised to execute an assurance or other document, or do any other act whereby a benefit is conferred on my Attorney." 25The power of attorney granted to Dr Hughes is in the form in Sch 7 to the Conveyancing Act 1919 save that it has one additional paragraph. It is, therefore, to the effect of the form in Sch 7. 26Section 163B(1) is in the following terms: "Subject to this section, an instrument (whether or not under seal) in or to the effect of the form in Schedule 7 confers on the attorney thereby appointed authority to do on behalf of the person executing the instrument anything the person executing the instrument may lawfully authorise an attorney to do". 27Significantly, s 163B(2)(b) provides: "The authority conferred by an instrument referred to in subsection (1) does not include: ... (b) unless it is expressly conferred by the instrument-authority to execute an assurance or other document, or do any other act, as a result of which a benefit would be conferred on the attorney appointed by the instrument." 28In Sweeney v Howard [2007] NSWSC 852 at [56], Windeyer J took the view that a power of attorney executed under s 163B did not confer authority on the attorney to pay his or her own debt with the principal's cheque. 29That proposition was followed by Austin J in Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326. His Honour dealt with a claim on behalf of Ms Spina to set aside mortgages secured on property owned by her. The mortgages had been signed by her son pursuant to a power of attorney which included wording identical to par 3 of the power of attorney in this matter. The money borrowed under the mortgages was used in a business conducted by the son. His company was in liquidation and he had died. 30Austin J cited what Dixon J had said in Tobin v Broadbent [1947] HCA 46; (1947) 75 CLR 378 at 401: "But the cardinal fact of the transaction which it is sought to bring within the power is that the loan was made to Hodgetts, the donee of the power, and not to either of the Tobins, the principals. Hodgetts was the borrower, the loan was for himself, he did not contract it as an agent but he gave the lender his principals' property as security. The question is, therefore, whether the power of attorney extended to authorising Hodgetts to give a security over his constituents' shares for his own debt, not simply whether it authorized him to give a security. You cannot sever the giving of the security from the indebtedness secured. A transaction of security is unintelligible without an identification of the obligation secured. This is not the case of an agent misapplying moneys borrowed in his principal's name on the security of his assets pursuant to an authority covering the borrowing of money on the principal's behalf. If a transaction is ostensibly on the principal's behalf and is of a description that falls within the authority, it is nothing to the point that the agent's purpose was to act for his own benefit and to defraud the principal, that is, unless the opposite party to the transaction had notice. But here the transaction was the attorney's own, both in form and substance, and the only incident of it concerning the constituents was when the latter's property was drawn in as a support for the loan. Prima facie, a power, however widely its general words may be expressed, should not be construed as authorizing the attorney to deal with the property of his principal for the attorney's own benefit. Something more specific and quite unambiguous is needed to justify such an interpretation. "The primary object of a power of attorney is to enable the attorney to act in the management of his principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property." Per Russell J. , Reckitt v. Barnett Pembroke and Slater Ltd. (1) a judgment approved in the House of Lords (2). In my opinion, the words of the powers of attorney do not in themselves suffice to confer authority upon Hodgetts to secure a borrowing of his own by a deposit of the plaintiffs' scrip. Such a transaction is in itself beyond the limits of the power." 31Austin J concluded that the power of attorney did not confer authority on Ms Spina's son to execute the mortgage. Having quoted what Dixon J said in Tobin , his Honour said: "82 It seems to me unlikely that the legislature would have intended to overturn this strongly expressed and persuasive approach to the interpretation of powers of attorney that are alleged to permit benefits to be conferred on the attorney. On its proper construction, s 163B does not purport to do so. Subsection (1) says that the attorney has the authority to do "on behalf of the person executing the instrument" anything that the person may lawfully authorise an attorney to do. That language echoes the observation of Russell J that the primary object of the power of attorney is to enable the attorney to act in the management of his principal's affairs. It also reflects the observation of Dixon J, distinguishing the case before him from a case where security is granted pursuant to an authority covering the borrowing of money on the principal's behalf . In my view the language of subsection (1) preserves the reasoning in the cases rather than overriding it. Therefore subsection (1) authorises the use of the power within the scope of the attorney's fiduciary agency, but it does not authorise the power to be used inconsistently with fiduciary duty. 83 Then subsection (2) makes it expressly clear that the general authority conferred by subsection (1) does not extend to action that results in a benefit for the attorney, unless the authority to do so is expressly conferred by the instrument. That is, again, consistent with Dixon J's reasoning. Subsection (2) permits the power of attorney, by express language, to authorise acts that result in a benefit to the attorney, but it does not permit the power of attorney to abrogate the fiduciary limitation implied by subsection (1). 84 My conclusion is that the plaintiff's power of attorney did not confer express actual authority on Michael to execute the mortgage and other supporting documents for the Conran Associates loan and the M & V Endurance loan." 32The same power of attorney came before Hammerschlag J in Angelina Spina v Permanent Custodians Limited [2008] NSWSC 561 concerning another mortgage that was executed by Ms Spina's son pursuant to which he or his business received funds in the order of $400,000. 33The contention for Ms Spina, as in Conran , was that Ms Spina was not bound by the mortgage contracts because her son acted beyond the authority conferred on him under the power of attorney. His Honour said at [149]: "As a matter of language a person may lawfully authorise another to do something on his or her behalf which is entirely inimical to the first person's interests or entirely in the second's." 34His Honour went on to say about Austin J's resolution in Conran : "154 The only limitation which s 163B(1) imposes on the agent's authority is that the principal cannot authorise the agent to do what the principal could not lawfully do or what the law would restrict the principal from authorising the agent to do on the principal's behalf. 155 The limitation which his Honour placed on the words blurs the distinction between the extent (or lack) of authority and the abuse of it." 35Significantly, Hammerschlag J later said: "181 My conclusion says nothing of the fiduciary obligations which would have bound Michael to act in a particular way with respect to his mother when exercising the power she conferred upon him, nor derogates from what might have been a breach by Michael of those obligations. 182 But the plaintiff's case is not that Michael breached his fiduciary duty to her in doing what he did. Her case is that he had no power vis- -vis the defendant to bind her to the contracts". 36In this case the plaintiff does not seek to set aside the contract or transfer by which her property at Katoomba was sold. Her claim is against her attorney. She pleads in par 23 and par 24 of the statement of claim that her son was in breach of the fiduciary duties that he otherwise owed to her pursuant to the power of attorney. 37Lindgren AJ in Rayner & Ors v N J Sheaffe Pty Limited & Ors [2010] NSWSC 810 at [154] found it unnecessary to consider the difference of opinion between Austin J and Hammerschlag J. I am in the same position although I must say that I prefer the approach taken by Austin J. My reasoning to that conclusion must await another day. 38In Re R at [41] Young J highlighted the difference between a donor of a power of attorney claiming against a third party that the donee of the power was not authorised to conclude the transaction with the third party and the donor claiming against the donee that the donee was in breach of fiduciary duty: "The fallacy of that argument is 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 would 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?" 39Mrs Hughes is in the latter category. Dr Hughes is in breach of his fiduciary duty under the power of attorney and his mother has made out her entitlement to the declaration and order for payment. 40The court declares that the Defendant holds the sum of $293,510.14 on trust for the Plaintiff. Judgment is entered for the plaintiff for $293,510.14. The defendant is ordered to pay the plaintiff's costs. ********** 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. Decision last updated: 07 July 2011