Pub­li­ca­tions

Abuse of Power

In Brief

In an impor­tant deci­sion for peo­ple con­sid­er­ing their estate plan, the Supreme Court of New South Wales has recent­ly reit­er­at­ed the lim­its on an attorney’s abil­i­ty to use a pow­er to ben­e­fit them­self. But even with this pro­tec­tion, the case high­lights the need for peo­ple to care­ful­ly con­sid­er who they appoint as their attor­ney and to under­stand what pow­ers they will be grant­i­ng to that per­son and when those pow­ers can be exercised.

Facts

Avi­va Cohen by her tutor the New South Wales Trustee and Guardian v Shalom Cohen [2016] NSWSC 336

In late 2000, Mrs Cohen, the plain­tiff, grant­ed to her son, Mr Cohen, the defen­dant, an Endur­ing Pow­er of Attor­ney (POA). To recap, an endur­ing pow­er of attor­ney is a doc­u­ment where­by a per­son (the prin­ci­pal) grants to anoth­er per­son (the attor­ney), the pow­er to man­age the principal’s legal and finan­cial affairs when the prin­ci­pal los­es capac­i­ty to do so for themself. 

The POA grant­ed to Mr Cohen con­tained the usu­al pow­er to do any­thing that Mrs Cohen may law­ful­ly autho­rise an attor­ney to do. How­ev­er, the POA also per­mit­ted the attor­ney to exe­cute any assur­ance or oth­er doc­u­ment, or do any oth­er act, where­by a ben­e­fit is con­ferred on him”. As a result, the POA gave Mr Cohen wide pow­ers to do any act on behalf of his moth­er which would con­fer a ben­e­fit on him­self. There was no evi­dence to sug­gest that Mrs Cohen did not have capac­i­ty when the POA was exe­cut­ed and, because the POA was an endur­ing pow­er of attor­ney, it would con­tin­ue in effect if she sub­se­quent­ly lost capacity. 

In late 2001, Mrs Cohen pur­chased a prop­er­ty at Lane Cove in her sole name. The Lane Cove prop­er­ty was her main asset and she lived there until about mid 2012 when she moved into a nurs­ing home. Mrs Cohen received a gov­ern­ment pen­sion and did not have any oth­er assets. 

A year after Mrs Cohen had moved into the nurs­ing home, Mr Cohen, using the POA, trans­ferred the Lane Cove prop­er­ty to him­self for $1.00, leav­ing Mrs Cohen with­out any assets. A cou­ple of months lat­er, Mr Cohen resigned as attor­ney for his moth­er, leav­ing her with­out any­one to man­age her legal and finan­cial affairs. 

As nurs­ing home costs mount­ed and remained unpaid, the man­ag­er of the nurs­ing home applied to the NSW Civ­il and Admin­is­tra­tive Tri­bunal to have a finan­cial man­ag­er appoint­ed to man­age Mrs Cohen’s affairs. The appli­ca­tion was suc­cess­ful and the NSW Trustee and Guardian was appoint­ed as the finan­cial man­ag­er of Mrs Cohen’s estate. 

In the course of review­ing Mrs Cohen’s affairs, the NSW Trustee and Guardian looked into the trans­fer of the Lane Cove prop­er­ty. Mr Cohen assert­ed that the prop­er­ty was pur­chased with his funds and put into his mother’s name to be held in Trust for him.” Mr Cohen made an offer to resolve the mat­ter but this was not accept­ed by the NSW Trustee and Guardian on behalf of Mrs Cohen. As a result, the NSW Trustee and Guardian start­ed pro­ceed­ings to set aside the trans­fer of the Lane Cove property. 

The Deci­sion

At the hear­ing (at which Mr Cohen did not appear), the NSW Trustee and Guardian sub­mit­ted that although the Mr Cohen had the pow­er to trans­fer title of the Lane Cove prop­er­ty to him­self, he should not have done so because the trans­fer was not for Mrs Cohen’s ben­e­fit and in fact it seri­ous­ly dis­ad­van­taged her by depriv­ing her of her only sub­stan­tial asset.

The judge agreed that Mr Cohen’s act of trans­fer­ring the prop­er­ty to him­self was an abuse of the pow­er giv­en to him under the POA and ordered him to trans­fer the prop­er­ty back to his mother. 

In the course of his judg­ment, the judge reit­er­at­ed that the rela­tion­ship between a prin­ci­pal and the attor­ney is a fidu­cia­ry one and as a result:

  1. the attor­ney must act in good faith towards and for the ben­e­fit of the prin­ci­pal; and
  2. the attor­ney must refrain from putting him­self in a posi­tion where his own per­son­al inter­ests con­flict with the inter­ests of his principal. 

The judge also con­firmed that, whilst the terms of a pow­er of attor­ney set out the extent of the pow­ers, the fidu­cia­ry duty that the attor­ney owes to the prin­ci­pal reg­u­lates how the pow­ers can be prop­er­ly exer­cised. In short, there is an impor­tant dif­fer­ence between lack­ing pow­er, hav­ing pow­er and abus­ing power. 

What does this mean for you?

Draft­ed prop­er­ly, a pow­er of attor­ney is a very help­ful legal doc­u­ment which should form part of everyone’s estate plan. If you have appoint­ed some­one as your attor­ney under a pow­er of attor­ney, you should care­ful­ly review its terms to see whether they can use the pow­er to ben­e­fit them­selves or any oth­er peo­ple and, if so, whether this is desir­able. You should also review the doc­u­ment to find out whether the attor­ney can use the pow­er while you have capac­i­ty or only after you lose capacity.