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June 2014

Being a Responsible Attorney

A consideration of an Attorney’s fiduciary duty.

In the recent case of Lines v Pikia, the High Court considered the fiduciary duties of an Attorney in respect of an Enduring Power of Attorney as to Property.

Background

The deceased (R) granted (during her lifetime) the defendant grandson (P) an enduring power of attorney with general authority to act on her behalf in relation to the whole of her property, which included farm land at Reporoa. Subsequently, whilst R was living in Australia, P (using the power of attorney) transferred the farm land to himself. He then mortgaged the farm land to assist him in financing the purchase of a pig farm. Some time later the farm land was transferred to P’s family trust.

The main issue for the Court was “whether the defendant transferred the property to himself with the knowledge and consent of the deceased or whether, in effecting the transfer, the defendant acted in breach of the fiduciary relationship?”

Fiduciary Duties

The Court considered P’s fiduciary duties. “As the donee of the power of attorney granted by the deceased, the defendant was her agent and owed her fiduciary duties.” “A fiduciary, such as the defendant was in this case, may not enter arrangements that give rise to a conflict between his personal interest and his duty to his principal, in this case the deceased.” “The defendant’s use of the power of attorney to transfer the properties to himself would be a clear breach of those fiduciary duties, unless the transfer was made with the deceased’s informed and effective consent. If the transfer was made without the deceased’s informed and effective consent the defendant, and his assigns who took the property with knowledge…hold the property as constructive trustee for the deceased.”

So the issue for the Court was whether R gave her informed and effective consent to the transfer of the properties to P. The Court looked to P (as the fiduciary) to provide strong evidence that R understood the nature of the transaction and authorised P to transfer the farm land to himself. The Court considered P’s evidence was “vague and general”. It considered that “independent advice can be an important factor when determining whether a person in the deceased’s position fully understood and consented to the transaction”. The Court determined that “there is no evidence the deceased received any advice at all, let alone any independent legal advice at the relevant time.”

The Decision

The Court found in favour of R’s estate and against P on the basis that “the actions of the defendant could be described as a fraudulent breach of trust…because the defendant, as a fiduciary of the deceased, deliberately dealt with the deceased’s property in such a way as to personally benefit from that property in breach of the acknowledged fiduciary duty”. It concluded that “given the serious nature of the breach by the defendant and the vulnerability of the deceased during her lifetime it cannot be said that it would be unjust for the defendant and through him his family trust…to have to account to the deceased’s estate for his breach of fiduciary duty at this time”. The Court ordered for the farm land to be returned to the estate without a mortgage encumbrance.

Conclusions

The lesson to be learnt is that in accepting appointment as an attorney a high degree of trust is placed with you and consequently a high degree of responsibility follows. You must not do anything that could be seen as benefiting yourself without the consent of the donor of the power of attorney. The onus will always be on you to prove that consent. The Court’s view is that the above consent preferably needs to be after independent legal advice has been given to the donor. Proving that consent can be a high hurdle to get over. If you are an attorney do not even consider self-benefit.