Powers of Attorney, A Double-Edged Sword

An Enduring?Power of Attorney allows an individual to appoint a person?(or people)?(“Attorney”) to make certain decisions on behalf?of?another individual, known as the "Principal”.

This is a valuable but – at times - risky?document, as it enables the?Attorney to exercise immense power and influence in turn exposing the Principal to potential exploitation. ?

To prevent the risk of exploitation, it is critical to be well-informed of the responsibilities associated with Attorneys’ roles?and the remedies available in circumstances of financial exploitation.

A.?? What is a Power of Attorney?

An Enduring Power of Attorney is a legal document that establishes a relationship between the Principal?and Attorney.? At the heart of an Enduring Power of?Attorney is the fiduciary nature of the Attorney’s duties towards the?Principal – that is, the Principal’s interests must be paramount.?

B.?? How & When?Does?Financial?Exploitation?Transpire?

Implementing an Enduring Power of Attorney has practical advantages as it allows the Attorney to help the Principal with financial, personal, and medical decisions at a relatively low cost through the Principal’s informal and private appointment. Regrettably, the lack of scrutiny around Attorneys’ actions renders these arrangements susceptible to?financial exploitation?as demonstrated in the following two cases:-?

Case 1)?McFarlane v McFarlane?[2021] VSC 197?

In?McFarlane v McFarlane, - a case of elder abuse by an adult son over his elderly and vulnerable mother - ??led to the transfer of property from? mother to son being set aside due to unconscionability and undue influence (see principles summarised below).

Facts:-

In November 2015, Judith McFarlane (“the Mother”) signed a transfer of land, gifting her home to her son, Mark McFarlane (“the Son”).? The consideration for the transfer was recorded as ‘natural love and affection’.? At the time of transfer, the Son was living with his mother at the property.?

In January 2016, the Son became the registered proprietor of the property.

In November?of?that year, the Mother moved from?the?property to an aged care home. The transfer of the property to the Son impacted the Mother’s pension and her ability to pay the aged care facility’s refundable accommodation deposit.

In August 2017, the Victorian Civil and Administrative?Tribunal?(“VCAT”) appointed the?State Trustees?Limited as the mother’s administrator, following which the State Trustees made inquiries as to the circumstances surrounding the transfer of the property, ultimately finding that the transfer was procured by undue influence and was unconscionable.?The Mother suffered a loss of $128,853.13 as a result of the transfer.?

Decision:-

The court set aside the transfer of the property and restored?the Mother as registered proprietor of the property on the basis of undue influence and unconscionable conduct.

The court further ordered?the Son to?pay?equitable compensation of $128,853.13 (less any amount recoverable from Centrelink) to his Mother for the loss suffered.

In?determining that?the transfer was procured by undue influence and unconscionable conduct, Richards J noted her reliance on the following:-?

• The Mother was in a position of special disadvantage in relation to her Son;?
• The Mother was emotionally and physically vulnerable to her Son,?impairing her ability to make independent judgments about her best interests;?
• As her primary carer, who accompanied her to medical appointments, the Son was aware of her history of mental illness, and her emotional and physical dependence on him; and?
• The Son took unfair advantage of his Mother’s vulnerability by arranging for her to transfer the property to him.? He instructed a solicitor to prepare the transfer documents without also arranging for his mother to receive independent financial and legal advice.??

Case 2) Hayward (as Executor of Felton Estate) v Speedy and Felton?[2021] NSWSC 943

In this recent NSW case involving financial exploitation by an Attorney, a dispute arose between?Graeme Felton?(“the Son”)?and?Lesley Speedy (“the Daughter”)?as to the proper disposition of the proceeds of the sale of their deceased parents - Mr and Mrs Felton’s - property, which were used by?the Daughter?in her purchase of a home.

Facts:-

The parents had a long happy marriage characterised by gender roles typical of their generation.? However, the?“happy family” relationships within the Felton family quickly unravelled in the aftermath of Mrs Felton’s hospitalisation and Mr Felton’s stroke.?

The Son?considered his father no longer able to make sound business judgments and that he had a personal obligation to take control of his parents’ finances, in their interests.?The Daughter,?who had returned to live with her parents, believed that she had a special role in taking care of them. In combination, these factors produced a form of paranoia affecting Mr Felton,?the Daughter,?and?the Son?and they each suspected the other of seeking financial advantage in dealing with the parents’ wealth.?

In August 2013,?the Son?had an altercation with his father for reasons associated with the conduct of family business following which?the Son?was dramatically marginalised from decision making about?family affairs. ?

In October 2013,?Mr Felton formally instructed his solicitor to prepare a contract to permit their house to be listed for sale.

In February 2014, the sale of the property was settled, and the proceeds of the sale were deposited into Mr and Mrs Felton’s joint account with the Qantas Credit Union.?

The proceeds of the sale of the property?totalling $1,470,218.63,?were?transferred from a Qantas Credit Union account in the Felton seniors’ names to?the Daughter?(she says as a gift) as follows:-?

The Daughter?used the above funds in:

• the purchase in her name of an Engadine property; and
• establishment of an investment fund in a Qantas Credit Union account in her name.?

Decision:-

Lindsay J, in reaching?his?judgement, held that each of the gifts were taken to have been procured by an exercise of undue influence (see principles summarised further below) and that in setting aside?the transaction, noted?his reliance on the following matters:-?

• Throughout the time that the transactions were effected,?the Daughter?was the holder of appointments as an enduring attorney for both Mr and Mrs Felton;
• Mr and Mrs Felton were both elderly, frail, cognitively impaired and vulnerable to exploitation;
• Mr and Mrs Felton were dependent on?their daughter?emotionally and for all activities of their lives;?
• the?gifts were so substantial, as not to be reasonably accounted for on the ground of friendship?and relationship;?
• Mr and Mrs Felton received no independent legal advice about the gifts made to?the Daughter.?

C.?? Undue Influence & Unconscionable Conduct ?

In the above cases, actual undue influence and/or unconscionable conduct were pleaded on behalf of the Principals?who sought to have transactions set aside. ?

The principles for governing undue influence and unconscionable conduct can be?briefly?summarised as follows:-?

Undue Influence

• Looks to the quality of the consent or assent of the weaker party: Quek v Beggs (1990) 5 BPR
• Ascendency by the stronger party over the weaker party such that an impugned transaction is not the free and voluntary act of the weaker party: Johnson v Buttress (1936) 56 CLR
• Actual impairment of the judgement of the weaker party that is the critical element in the grant of relief on the ground of undue influence: Bridgewater v Leahy?(1998) 194 CLR
• Looks at the ‘intention’ on the part of the weaker party to make gifts, i.e., did the person ‘authorise’ the impugned gifts?: Hayward [2021] NSWSC 943
• Can be established by a presumption

Unconscionable conduct

• Looks to the attempted enforcement or retention by a stronger party of the benefit of a dealing with a vulnerable person: Amadio (1983) 151 CLR
• Focus more on the unconscientious conduct of the stronger party: McFarlane v McFarlane [2021] VSC 197
• When one party is placed at a special disadvantage and unconscientious advantage is taken of the opportunity created: Bridgewater v Leahy (1998) 194 CLR
• the Attorney ‘knew’ or ‘ought’ to have known of the existence and effect of the special advantage; Thorne v Kennedy [2017] HCA 49
• No presumption is available

D.?? What remedies are available?

The range of remedies available in circumstances of financial or elder abuse can be broadly?classified?into two categories?below:-

• Statutory remedies;
• Common law remedies.

Statutory remedies

In Victoria, the?Powers of Attorney Act 2014?(“the Act”) sets out legislative penalties or allows?for compensation of the Principal (or their estate) caused by the Attorney.?

For instance:-?

• Section 77 of the Act provides that the Supreme Court or VCAT may order an attorney to compensate the Principal for a loss caused by the Attorney;?
• Section 135(3) of the Act penalises the Attorney for dishonestly using?the power of attorney to obtain financial advantage or to cause loss to the Principal and another person (if found guilty, level 6 imprisonment or 600 penalty units or both).?

Common Law Remedies?

• Setting aside the relevant transaction(s);?
• Compensation for losses incurred as a result;?
• The Court also has the power to vary the remedy according to the nature of the abuse.

Thank you for reading! :)