Estate Tornya, Deceased

[2020] NSWSC 1230

Supreme Court

New South Wales

Medium Neutral Citation:

Estate Tornya, Deceased [2020] NSWSC 1230

Hearing dates:

11 August 2020

Decision date:

10 September 2020

Jurisdiction:

Equity

Before:

Lindsay J

Decision:

Orders to be made for preliminary discovery.

Catchwords:

PROCEDURE – Parties – Commencement of proceedings by beneficiary of deceased estate without a grant of probate or administration – Proceedings a nullity – Availability of remedial orders in case management of proceedings.

PROCEDURE – Parties – Claim on behalf of a deceased estate – Proper plaintiff is legal personal representative with grant of probate or administration – Availability of representative proceedings brought by beneficiary, with joinder of legal personal representative as a defendant.

AGENCY – Enduring power of attorney – Donee possessed of actual authority to benefit self – Whether donee accountable, as a fiduciary, to donor for self dealing transactions – Conveyancing Act 1919 NSW, Part 16

Legislation Cited:

Civil Procedure Act 2005 NSW

Conveyancing (Powers of Attorney) Amendment Act 1983 NSW

Conveyancing Act 1919 NSW

Powers of Attorney Act 2003 NSW

Powers of Attorney Regulation 2016 NSW

Uniform Civil Procedure Rules 2005 NSW

Cases Cited:

Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109

Angelina Spina v Permanent Custodians Ltd [2008 NSWSC 561; 13 BPR 25,46, 463

Barlow Clowes International Ltd (In liq) v Eurotrust International Ltd [2006] 1 WLR 1476

Barnes v Addy (1874) LR 9 Ch App 244

Byers v Overton Investments Pty Ltd (2000) 106 FCR 268

Byers v Overton Investments Pty Ltd (2001) 109 FCR 554

C v W (No. 2) [2016] NSWSC 945

Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371

Carolyn Deigan as Executrix for the Estate of the Late James Boyd Lockrey v Barnard James Fussell [2019] NSWCA 299

Chahwan v Euphoric Pty Ltd [2009] NSWSC 805; 73 ACSR 252

Chan v Zacharia (1984) 154 CLR 178

Clay v Clay (2001) 202 CLR 410

Clegg v Edmondson (1857) 8 de GM & G

Cohen v Cohen [2016] NSWSC 336 at [69]);

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694

Crossingham v Crossingham [2012] NSWSC 95

Darrington v Caldbeck (1990) 20 NSWLR 212

Davison v Vickery’s Motors Ltd (in liq) (1925) 37 CLR 1

Dibbins v Dibbins [1896] 2 Ch 348

Downie v Langham [2017] NSWSC 113

Drew v Nunn (1879) 4 QBD 661

Estates Brooker-Pain and Soulos [2019] NSWSC 671

GEL Custodians Pty Ltd v The Estate of the Late Geoffrey Francis Wells [2013] NSWSC 973

Gertsch v Roberts (1993) 35 NSWLR 631

Ghosn v Principle Focus Pty Ltd (No. 2) [2008] VSC 574

Hewitt v Gardiner (2009) NSWSC 705; 3 ASTLR 407

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41

Hughes BHT NSW Trustee and Guardian v Hughes [2011] NSWSC 729

Johnson v Buttress (1936) 56 CLR 113

Kelly v CA & L Bell Commodities Corporation Pty Limited (1989) 18 NSWLR 248

Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432

Marshall v DG Sundin & Co. Pty Ltd (1989) 16 NSWLR 463

McFarland v Gertes (2018) 98 NSWLR 954

McFee v Riley [2018] NSWCA 322

Morton v Nylex Ltd [2007] NSWSC 562

O’Connor v O’Connor [2018] NSWCA 214

Perochinsky v Kirschner [2013] NSWSC 400; 16 BPR 31,481

Peso Silver Mines Ltd (NPL) v Cropper (1966) 58 DLR (2d) 1

Peter Vitek and Anor v Estate Holmes Pty Ltd and Ors [2013] NSWSC 1764

Peter Vitek v Estate Homes Pty Ltd [2013] NSWSC 1867

Phipps v Boardman [1967] 2 AC 46

Protective Commissioner v D (2004) 60 NSWLR 513

Ramage v Waclaw (1988) 12 NSWLR 84

Re R [2000] NSWSC 886

Reckitt v Barnett Pembroke and Slater Ltd [1928] 2 KB 244

Regal (Hastings) Ltd v Gulliver [1962] 2 AC 134 (N)

Scallan v Scallan [2001] NSWSC 1129

Smith v Cock (1911) 12 CLR 30

Smith v Smith [2017] NSWSC 408

Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25, 435

Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463

Sweeney v Howard [2007] NSWSC 852; 13 BPR 24,381

Taheri v Vitek (2014) 87 NSWLR 403

The Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417

Thorne v Kennedy (2017) 263 CLR 85

Tjen v Bilic [2017] NSWSC 364.

Tobin v Broadbent (1947) 75 CLR 378

Vatcher v Paull [1915] AC 372

W v H [2014] NSWSC 1696

Warman International Ltd v Dwyer (1995) 182 CLR 544

Woodward v Woodward [2015] NSWSC 1793

Texts Cited:

Jacobs Law of Trusts in Australia (8th ed, Lexis Nexis Butterworths, Australia, 2016

Category:

Principal judgment

Parties:

Plaintiff: Simon Tornya
First Defendant: Susan Tornya
Second Defendant: Tamara Jayne Goodwin in her capacity as administrator of the estate of the late Peter Thomas Tornya

Representation:

Counsel:
Plaintiff: S Chapple
First Defendant: L Ellison SC
Second Defendant: Submitting appearance

Solicitors:
Plaintiff: Marshalls + Dent + Wilmoth Lawyers
First Defendant: McPherson Kelly
Second Defendant: Glass Goodwin

File Number(s):

2019/00392013
2020/00233906

Judgment   

INTRODUCTION

1. These proceedings focus attention on the availability, or otherwise, of a preliminary discovery procedure invoked by a beneficiary to assist the deceased estate of the donor of an enduring power of attorney to decide whether the estate should commence proceedings, against the donee of the power, to recover property or compensation.

2. The donee used the power of attorney, at a time when the donor was mentally incapacitated, to transact business which the beneficiary (the applicant for discovery) suspects was otherwise than in the interests, and for the benefit, of the donor. The beneficiary apprehends that the donee may have acted in breach of fiduciary obligations owed by her to the donor, or otherwise in a manner warranting the intervention of the Court.

3. The plaintiff, as a beneficiary of his deceased father’s estate, applies to the Court, on behalf of the estate (formally represented by the second defendant as administrator of the estate), for an order that the first defendant (the widow of the deceased, a beneficiary of his estate and step mother of the plaintiff) give, pursuant to rule 5.3(1) of the Uniform Civil Procedure Rules 2005 NSW, preliminary discovery of documents bearing upon transactions effected by her, during the lifetime of the deceased, pursuant to an enduring power of attorney granted to her by the deceased pursuant to section 163B of the Conveyancing Act 1919 NSW, continued in operation by Schedule 1 and section 6(3) of the Powers of Attorney Act 2003 NSW notwithstanding repeal of section 163B.

4. The power of attorney (in the statutory form for which Schedule 7 of the Conveyancing Act 1919 provided) was expressed: (a) in clause 1, to confer authority on the first defendant to do on behalf of the deceased anything he was able lawfully to authorise an attorney to do; (b) in clause 2, to execute an assurance or other document, or do any other act, whereby a benefit was conferred on the first defendant; and (c) in clause 3, to continue to be effective notwithstanding that, after execution of the power of attorney, the deceased suffered loss of capacity through unsoundness of mind.

5. The power conferred by clause 1 was conditional upon the deceased being mentally incapacitated through unsoundness of mind or otherwise physically or mentally handicapped such that he was unable to receive communications or express his intentions in respect of his property or affairs. It was not exercisable “unless and until” the deceased was unable, by his own will, to manage his property and affairs.

6. In presentation of the current proceedings, no attention was given to: (a) the possibility that the deceased’s mental incapacity was intermittent rather than, on its onset, constant; or (b) whether the words “unless and until” contemplated a single event as a condition precedent to a power of indefinite duration or whether they limited the operation of the attorney’s power to the duration of a period of incapacity, effecting a suspension of the power during a period of lucidity, if any.

7. Although the plaintiff’s application for preliminary discovery arises in the context of administration of a deceased estate, it is not an application for preliminary discovery in aid of an application for probate or administration. It is an application for preliminary discovery in aid of a potential equity suit on behalf of a deceased estate. Questions of “discovery” (by whatever name known) in a probate suit need to be addressed in the context of practice and procedure governing an exercise of probate jurisdiction. See, generally, Re Estates Brooker-Pain and Soulos [2019] NSWSC 671.

ADMINISTRATION OF THE DECEASED’S ESTATE

8. Peter Thomas Tornya (“the deceased”) died on 25 April 2019, leaving a will dated 1 November 2007 which was admitted to probate on 16 December 2019.

9. The deceased was twice married.

10. He married his first wife, Gaye Rudder, in 1964. By that marriage, he had three children, respectively born in 1967, 1969 and 1970. The plaintiff (Simon Tornya) is the youngest of those children.

11. Following the death of his first wife in 1985, the deceased married the first defendant (Susan Tornya) in 1988. No children were born of that marriage.

12. The deceased was survived by his second wife (the first defendant) and his three children from his first marriage. Collectively, they are the beneficiaries named in his will.

13. A grant of probate was made to all four of them on 16 December 2019 as the executors named in the will.

14. With their consent, on 25 May 2020 orders were made to the effect, inter alia, that: (a) the grant of probate made to them be revoked; (b) letters of administration with the will of the deceased annexed be granted to the second defendant; and (c) the proceedings be remitted to the Probate Registrar to complete the grant of administration. Ancillary orders were made for the outgoing executors “forthwith” to deliver to the second defendant, as administrator, any and all estate property in their possession, custody or control and to provide, within a defined time, a verified statement of account of the estate of the deceased, commencing from the date of his death. Although the proceedings were referred to the Registrar to complete the grant of administration, the plain intent of the orders, read as a whole, was that the second defendant commence her administration of the estate pending the issue of a formal grant, which has yet to occur.

15. The will of the deceased was authenticated by the grant of probate made on 16 December 2019 and by the order of 25 May 2020 that letters of administration of the estate of the deceased be granted to the second defendant with the will annexed. The grant of probate was revoked not because of any doubt about validity of the will, but because all interested persons agreed that the appointment of an independent administrator was desirable to facilitate administration of the deceased’s estate.

PROCEDURAL CONTEXT OF APPLICATION FOR PRELIMINARY DISCOVERY

16. The plaintiff first made his application for preliminary discovery by a summons filed on 12 December 2019 in proceedings numbered 2019/00392013. That summons named the first defendant as the only defendant, sought no orders for separate representation of the estate of the deceased, and made a claim for preliminary discovery as to the only substantive relief claimed.

17. In written submissions filed in anticipation of the hearing of that summons, the first defendant objected to the constitution of the proceedings and the standing of the plaintiff.

18. She contended:

1. first, that the proceedings, as constituted, were a nullity (unable to be amended or validated retrospectively by orders made under sections 63 or 64 of the Civil Procedure Act 2005 NSW or otherwise) because at the time the summons was filed the plaintiff had no grant of probate or administration and sought no relief in the summons for which he had standing to apply (Marshall v DG Sundin & Co. Pty Ltd (1989) 16 NSWLR 463; Darrington v Caldbeck (1990) 20 NSWLR 212); and

2. secondly, that the mere fact that the plaintiff was an executor named in the will of the deceased, and is a beneficiary of the deceased, did not give him standing to sue on behalf of the estate of the deceased, more particularly without joinder of a duly appointed representative of the estate.

19. Save in exceptional circumstances, the proper person to enforce rights on behalf of a deceased estate is the legal personal representative of the deceased (Jacobs’ Law of Trusts in Australia (8^th ed, Lexis Nexis Butterworths, Australia, 2016), paragraph [23-03]; Alexander v Perpetual Trustees WA Ltd (2004) 216 CLR 109 at [55]-[57]; Ramage v Waclaw (1988) 12 NSWLR 84; Lamru Pty Ltd v Kation Pty Ltd (1998) 44 NSWLR 432; Chahwan v Euphoric Pty Ltd [2009] NSWSC 805; 73 ACSR 252) or some other duly appointed representative of the estate such as an interim administrator upon a grant of administration ad litem (Scallan v Scallan [2001] NSWSC 1129 at [10]).

20. The plaintiff’s summons is vulnerable to objection on the two bases advanced by the first defendant. The weight of authority presently dictates that proceedings on the summons be deemed a “nullity”. The core problem is that the plaintiff did not obtain a grant of administration of any description before filing his summons. As a beneficiary and executor named in the deceased’s will, and thus a person with an interest in the due administration of the deceased’s estate (Commissioner of Stamp Duties (Qld) v Livingston [1965] AC 694 at 707-708 and 713), he might have overcome that problem by including in his summons an application (which he had standing to make) for an interim grant: cf, Darrington v Caldbeck (1990) 20 NSWLR 212 at 219C; Hewitt v Gardiner [2009] NSWSC 705; 3 ASTLR 407 at [28]-[32], [55], [73]-[74] and [87]-[92]; McFarland v Gertes (2018) 98 NSWLR 954 at [81]. Had such a precaution been taken the summons could not have been characterised as a “nullity” on the reasoning ultimately attributable to Marshall v DG Sundin & Co. Pty Ltd and Darrington v Caldbeck, and the question of “proper plaintiff” could have been incidentally addressed.

21. The first defendant’s objections to the summons, if fully litigated, could require reconsideration of Marshall v DG Sundin & Co. Pty Ltd and Darrington v Caldbeck (followed by Emmett J in Byers v Overton Investments Pty Ltd (2000) 106 FCR 268 at [57], upheld on appeal in Byers v Overton Investments Pty Ltd (2001) 109 FCR 554), and sundry other cases (including Gertsch v Roberts (1993) 35 NSWLR 631 at 635 and GEL Custodians Pty Ltd v The Estate of the Late Geoffrey Francis Wells [2013] NSWSC 973) in light of the criticism of those decisions, and the detailed review of sections 41 and 61 of the Probate and Administration Act 1898 NSW, by White JA in Carolyn Deigan as Executrix for the Estate of the Late James Boyd Lockrey v Barnard James Fussell [2019] NSWCA 299 at [142]-[186].

22. White JA’s call for a review of Marshall v DG Sundin & Co Pty Ltd and Darrington v Caldbeck is timely, not only because of ongoing concern about the complex interplay between sections 41 and 61 of the Probate and Administration Act 1898, but because of the prominence given to case management in the Civil Procedure Act 2005 NSW and the Uniform Civil Procedure Rules 2005 NSW. Case management considerations under that legislation were a factor expressly taken into account by Ward J in Hewitt v Gardiner (2009) NSWSC 705; 3 ASTLR 407 (to which reference has been made) and in the judgment of Hallen J in Tjen v Bilic [2017] NSWSC 364.

23. In the absence of any other interested person, and with the consent of the defendant, Hallen J made a representative order in favour of the plaintiff (the sole beneficiary of a deceased estate) to address a deficiency in the plaintiff’s originating process arising from the plaintiff’s failure to obtain a grant of probate, or an interim grant of administration, prior to the commencement of proceedings. Characterisation of the proceedings as a nullity was overcome by a combination of a representative order, the consent of the parties to the proceedings and the absence of any other affected interest.

24. As recognised by Young J in Darrington v Caldbeck (at 20 NSWLR 220C), dismissal of proceedings as “a nullity” does not preclude the commencement of fresh proceedings to the same effect. The problem for the plaintiff in Marshall v DG Sundin & Co. Pty Ltd was that, between the time of “commencement” of the proceedings characterised by Yeldham J as “a nullity” and his Honour’s judgment, a limitation period expired. There is no comparable problem here.

25. Nevertheless, it should be noted that, although inclusion of an application (by a person interested in due administration of an estate) for an interim grant of administration of the estate in originating process may prevent the proceedings being characterised as “a nullity”, commencement of proceedings with the prior authority of a grant of administration may be necessary to satisfy a statutory requirement that proceedings be commenced within a limitation period.

26. To the extent that the reasoning in Marshall v DG Sundin & Co Pty Ltd may have been driven by a concern about the operation of a limitation period, that concern could perhaps be addressed by accepting that: (a) the commencement of proceedings without authority constitutes a “procedural irregularity” amenable to a corrective direction of the Court under section 63 of the Civil Procedure Act 2005 (contrary to the reasoning in Marshall v DG Sundin & Co Pty Ltd at 16 NSWLR 475); (b) ratification of an unauthorised commencement of proceedings cannot have operative effect against a defendant following the expiry of a limitation period upon which the defendant is entitled to rely (Dibbins v Dibbins [1896] 2 Ch 348 and Davison v Vickery’s Motors Ltd(in liq) (1925) 37 CLR 1 at 19-20); and (c) upon a proper exercise of any discretion for which section 63 provides, the Court must take into account the expiry of the limitation period.

27. It is not necessary in these proceedings to explore such questions in detail because, in the absence of a limitation period problem, the parties’ respective rights and obligations can be dealt with by case management orders, and orders for costs, which address the substance of their dispute.

28. The plaintiff endeavoured to meet the first defendant’s objections by seeking leave: (a) to join the second defendant as a party to the proceedings in her capacity as administrator of the estate of the deceased; and (b) to file an amended summons reflecting the fact of her joinder but not otherwise adding, or materially altering, any claim for relief made in the summons.

29. At the invitation of the Court, the plaintiff supplemented his application for these procedural orders by seeking leave to commence fresh proceedings (numbered 2020/00233906) by the filing of a summons, made returnable instanter, in substantially the same terms as the proposed form of amended summons sought to be filed in the original proceedings.

30. Reserving any entitlement his client might have to an order for costs, senior counsel for the first defendant accepted that her objections to the constitution of the plaintiff’s substantive application, and to the standing of the plaintiff to make that application, could be overcome by a suite of orders of the type proposed and, so, no objection was taken to those orders being made.

31. Accordingly, in the original proceedings, orders to the following effect were made:

1. ORDER that Tamara Jane Goodwin, in her capacity as administrator of the estate of the deceased, be joined in the proceedings as a defendant.

2. ORDER that the defendants be designated as follows:

1. Susan Tornya [earlier the sole defendant in the proceedings] is designated as the first defendant.

2. Tamara Jane Goodwin (in her representative capacity) is designated as the second defendant.

3. ORDER that the plaintiff be granted leave to amend the summons filed on 12 December 2019 in the form of the document styled “amended summons”, with the second defendant named as a party in her representative capacity.

3. ORDER that the plaintiff be granted leave to file the amended summons in court.

4. ORDER that any requirement for further service of the amended summons be dispensed with.

5. ORDER that the “submitting appearance” of the second defendant be taken to have been filed in court.

6. NOTE that the plaintiff by his counsel gives to the Court, and to the second defendant in her representative capacity, an undertaking that, in the event that an order for costs is not made in his favour, or that an adverse costs order is made against him, he will not seek to recover those costs from the second defendant as the legal personal representative of the estate of the deceased or the estate generally.

32. In the new proceedings, notations and orders to the following effect were made:

1. Upon the solicitor for the plaintiff giving to the Court an undertaking to pay any filing fees referable to the summons, ORDER that the plaintiff be granted leave to file in court a summons (in substantially the same form as the amended summons filed in the original proceedings).

2. ORDER that the summons be made returnable instanter.

3. ORDER that any requirement for further service of the summons be dispensed with.

4. ORDER that the summons be heard together with the original proceedings with evidence in the one set of proceedings to be evidence in the other set of proceedings so far as may be relevant.

5. NOTE that, in the original proceedings, the second defendant submits to the orders of the Court.

6. NOTE that the plaintiff by his counsel gives to the Court, and to the second defendant, the same undertaking as to costs recorded in the original proceedings.

33. By these procedural orders, the merits of the plaintiff’s application for preliminary discovery came to be addressed. Senior counsel for the first defendant accepted, correctly, that the joinder of the second defendant in the proceedings, coupled with her submitting appearance, overcame the first defendant’s objection to the plaintiff’s standing. A beneficiary under a will may institute proceedings in his own name, to protect his interest in a deceased estate, in circumstances in which the executor or trustee of the estate (normally the proper plaintiff) refuses or fails to institute proceedings: Ramage v Waclaw (1988) 12 NSWLR 84; Lamru Pty Ltd v KationPty Ltd (1998) 44 NSWLR 432; Chahwan v Euphoric Pty Ltd [2009] NSWSC 805; 73 ACSR 252.

THE LEGISLATIVE FRAMEWORK

34. UCPR rule 5.3 is in the following terms (with emphasis added):

“5.3 Discovery of documents from prospective defendant

(1) If it appears to the court that:

(a) the applicant may be entitled to make a claim for relief from the court against a person ("the prospective defendant" ) but, having made reasonable inquiries, is unable to obtain sufficient information to decide whether or not to commence proceedings against the prospective defendant, and

(b) the prospective defendant may have or have had possession of a document or thing that can assist in determining whether or not the applicant is entitled to make such a claim for relief, and

(c) inspection of such a document would assist the applicant to make the decision concerned,

the court may order that the prospective defendant must give discovery to the applicant of all documents that are or have been in the person's possession and that relate to the question of whether or not the applicant is entitled to make a claim for relief.

(2) An order under this rule with respect to any document held by a corporation may be addressed to any officer or former officer of the corporation.

(3) Unless the court orders otherwise, an application for an order under this rule:

(a) must be supported by an affidavit stating the facts on which the applicant relies and specifying the kinds of documents in respect of which the order is sought, and

(b) must, together with a copy of the supporting affidavit, be served personally on the person to whom it is addressed.

(4) This rule applies, with any necessary modification, where the applicant, being a party to proceedings, wishes to decide whether or not to claim or cross-claim against a person who is not a party to the proceedings.”

35. UCPR rule 5.3 appears in Part 5 of the UCPR, entitled “Preliminary Discovery and Inspection”. That Part makes provision for three different types of “preliminary discovery”, sufficiently described in their respective titles. UCPR rule 5.2 is entitled “Discovery to Ascertain Prospective Defendant’s identity or whereabouts”. UCPR rule 5.3, as extracted, is entitled “Discovery of Documents from Prospective Defendant”. UCPR rule 5.3 is entitled “Discovery of Documents from Other Persons”.

36. Ancillary provisions of UCPR Part 5 relate to the formalities of the discovery and inspection process (UCPR rule 5.5, incorporating by reference provisions of UCPR Part 21); provision for security for the costs of the person against whom a preliminary discovery order is made (UCPR rule 5.6); claims of privilege (UCPR rule 5.7); and orders for the payment of costs and expenses associated with an application for preliminary discovery and the process of preliminary discovery (UCPR rule 5.8).

37. UCPR rule 5.6 provides that an order for preliminary discovery may be made subject to a condition requiring an applicant to give security for the costs of the person against whom the order is made. More generally, section 86 of the Civil Procedure Act 2005 NSW empowers the Court to make orders on such terms and conditions as the Court thinks fit. Accordingly, an order for preliminary discovery can be made conditionally.

THE PRINCIPLES TO BE APPLIED    ON AN APPLICATION FOR PRELIMINARY DISCOVERY

38. The parties agree that the outcome of the plaintiff’s application(s) for preliminary discovery is governed by the judgment of the Court of Appeal in O’Connor v O’Connor [2018] NSWCA 214, noting that the plaintiff applies for preliminary discovery on behalf of the estate of the deceased.

39. Relevantly, the law governing the proper operation of UCPR rule 5.3 can be found in paragraphs [21]-[30], [70], [76], [79] and [86]-[90] of the Court of Appeal’s judgment.

40. From that judgment I draw, for the purpose of the current proceedings, the following particular points:

1. Close attention must be paid to the terms of UCPR rule 5.3 in its application to the case at hand.

2. An order for preliminary discovery may be made against a prospective defendant where the factors enumerated in UCPR rule 5.3(1) appear to the Court.

3. The threshold set by UCPR rule 5.3(1) is low: it must appear to the Court that an applicant may be entitled to make a claim for relief, that a prospective defendant may have or have had possession of relevant documents or things, and that inspection would assist the applicant to decide whether to commence proceedings.

4. Although mere assertion of a case against a prospective defendant is insufficient to warrant an order for preliminary discovery, there is no requirement that an applicant for preliminary discovery establish a prima facie case for relief. Nor is it necessary that such an applicant specify with precision the cause of action proposed, beyond particularisation of the nature of the relief in contemplation.

5. Given the interlocutory character of an application for preliminary discovery, the Court should not lightly conclude that an application should be dismissed as not supporting a conclusion that the applicant “may have been entitled to make a claim for relief”.

6. Determination of an application under UCPR rule 5.3 does not involve a determination of the merits of any claim for relief the applicant might propound.

7. Information bearing upon an applicant’s decision “whether or not to commence proceedings against [a] prospective defendant” may include questions such as: (i) whether there exist defences that might defeat a claim; and (ii) whether a claim would potentially be worthwhile in the sense of yielding an award of damages or other order sufficient to justify the commencement of proceedings.

8. Accordingly, an order for preliminary discovery may extend to an order for discovery for documents going only to the quantum of relief that might be claimed.

9. whether an applicant has “sufficient information to decide whether or not to commence proceedings“ against a prospective defendant requires an objective assessment of the information already held by the applicant.

10. if the preconditions for the making of an order for preliminary discovery are made out, the making of such an order remains in the discretion of the Court.

41. An applicant for a preliminary discovery order ordinarily must disclose what information he, she or it already has relevant to making a decision whether or not to commence proceedings against a prospective defendant. Preliminary discovery cannot be used to build up a case which an applicant has already decided, or could decide, to bring: Morton v Nylex Ltd [2007] NSWSC 562 at [33].

42. An exercise of the discretion for which UCPR rule 5.3 provides is governed by the case management provisions for which Part 6 Division 1 (sections 56-60) of the Civil Procedure Act 2005 NSW provides.

43. In that context, without detracting from any entitlement for which UCPR rule 5.3 provides, the Court may take into account the availability of “discovery“ procedures (including subpoenas for the production of documents, notices to produce, discovery and interrogatories) available against a defendant after the commencement of substantive proceedings, and restrictions (such as apply in the Equity Division of the court by reference to Practice Note SC Eq 11) on the availability of interlocutory “discovery“ procedures.

THE PLAINTIFF’S PRELIMINARY DISCOVERY APPLICATION

Introduction

44. The plaintiff seeks discovery pursuant to UCPR rule 5.3 of various documents from the first defendant to allow the estate (or, should the second defendant decline to make a decision, him) to determine whether or not to bring a claim against her on the basis of either an allegation of breach of fiduciary duty or an allegation of unconscionable conduct.

The Plaintiff’s Case in Outline

45. The plaintiff identifies two prospective claims for relief against the first defendant.

46. The first prospective claim involves an allegation that the first defendant, in exercising her power under the power of attorney granted by the deceased, acted in breach of fiduciary obligations she owed to the deceased in that:

1. she conferred benefits upon herself;

2. she conferred benefits upon third parties; and

3. she otherwise entered into transactions that were to the detriment of the deceased.

47. The second prospective claim involves an allegation that, by virtue of a position of special disadvantage that the deceased occupied vis a vis the first defendant, and in circumstances in which the first defendant was aware of the terms of the deceased’s will and his desire to preserve the assets of his estate for his beneficiaries, it was unconscionable in all the circumstances for the first defendant:

1. to engage in transactions that conferred upon her significant benefits that were to the clear detriment of the deceased; and

2. to engage in transactions that were contrary to the deceased’s testamentary intentions (of which she had knowledge) and had the effect of materially altering the practical effect of the deceased’s estate planning by conferring upon herself significant benefits.

The First Defendant’s Case in Outline

48. For the purposes of the plaintiff’s preliminary discovery application, the first defendant accepts that the transactions which the plaintiff seeks to investigate did take place.

49. If an order for discovery is made, and if proceedings are brought against the first defendant on behalf of the estate of the deceased, the first defendant reserves a right to defend those proceedings on grounds that include allegations that: (a) the deceased, himself, carried out or participated in the transactions; (b) the transactions, and any application of moneys in connection with the transactions, were for the benefit of the deceased; and (c) the deceased authorised the particular transactions or transactions of that type.

50. The first defendant defends the plaintiff’s application for discovery by relying on clause 2 of the power of attorney granted by the deceased (a “benefits clause”), which allowed the first defendant, as his attorney, to use the power to confer a benefit on herself.

51. The essential proposition advanced by the first defendant Is that clause 2 of the power of attorney, as construed by the NSW Court of Appeal in Taheri v Vitek (2014) 87 NSWLR 403, operates as a full defence in respect of any supposedly suspect or challenged transactions so that any order for preliminary discovery would be futile as it would be in aid of a claim that cannot be brought.

52. Taheri v Vitek is said to stand for a general proposition (applicable to the deceased’s power of attorney in favour of the first defendant) that, as a matter of construction of the Conveyancing Act 1919 and a power of attorney executed in the form of Schedule 7 to that Act with a “benefits clause”, the principal must be taken to have empowered the attorney to do anything that the principal might lawfully have authorised an attorney to do, even if there was benefit to the attorney and no benefit to the principal: 87 NSWLR 403 at [1], [36] and [130].

53. In short, the first defendant contends that the power of attorney granted to her by the deceased “meant what it said”: as attorney, she could (without accountability to the deceased) do on his behalf anything he could lawfully have authorised an attorney to do, including effecting a transaction conferring a benefit on herself, without benefit to him.

The Enduring Power of Attorney Granted by the Deceased to the First Defendant

54. Omitting the execution clause and the accompanying certificate given by a solicitor under section 163F(2) of the Conveyancing Act, the power of attorney granted by the deceased in favour of the first defendant was in terms to the following effect (with emphasis added):

“General Power of Attorney

Part 1

THIS POWER OF ATTORNEY is made on the 19 day of March 1998, by PETER THOMAS TORNYA of …. Bellevue Hill in the State of New South Wales, Medical Practitioner

1.   I appoint my wife SUSAN IRENE MARY TORNYA of …. Bellevue Hill, NSW to be my attorney to exercise, subject to any conditions and limitations specified in Part 2 of this Instrument, the authority conferred on her by Section 163B of the Conveyancing Act, 1919, to do on my behalf anything I may lawfully authorise an attorney to do.

2. In the exercise of the authority conferred on her 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 her.

3.   This general power of attorney is given with the intention that it will continue to be effective notwithstanding that after its execution I suffer loss of capacity through unsoundness of mind.

Part 2

CONDITIONS AND LIMITATIONS

The powers and authorities herein contained and conferred shall not be exercisable by my said attorney unless and until I am either:

(i)   Mentally incapacitated through unsoundness of mind; or

(ii)   Under such a handicap of body or mind, by way of coma or paralysis or otherwise (whether or not induced by any drug or by medical or other treatment) such that I am unable to receive communications or express my intentions in respect of my property or affairs.”

55. The power of attorney was registered as Book 4587 No. 988 on 12 April 2010.

56. In October 2009 the deceased was diagnosed with “advanced fronto temporal dementia”, a diagnosis which was confirmed in April 2010.

57. The significance of registration of the power of attorney (at about the time of the confirmatory diagnosis of dementia) is that a dealing affecting land executed under the power of attorney would have no effect unless, or until, the power of attorney was registered: Powers of Attorney Act 2003, sections 6(3), 6(5) and 52.

58. In these proceedings it is common ground that the transactions in respect of which the plaintiff seeks an order for preliminary discovery occurred after the time when the deceased became “mentally incapacitated through unsoundness of mind”, so that the “conditions and limitations” identified in clause 1 and Part 2 of the power of attorney did not constrain the general grant of power for which clause 1 provided.

59. The power of attorney was in the form of the instrument prescribed by section 163B and Schedule 7 of the Conveyancing Act.

60. Section 163B was in the following terms (with emphasis added):

“Power conferred by prescribed form of instrument

163B. (1) 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.

(2)   The authority conferred by an instrument referred to in subsection (1) does not include –

(a)   authority to exercise or perform any power, authority, duty or function as a trustee conferred to imposed on the person executing the instrument; or

(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.

(3)   Where an instrument referred to in subsection (1) specifies any conditions or limitations to which the authority conferred by the instrument is to be subject, the authority is so conferred subject to compliance with those conditions or limitations.”

61. The deceased’s power of attorney was an “enduring power of attorney” in the sense that it attracted the operation of section 163F(2). The power of attorney was effective so far as concerned any act within its scope, notwithstanding that the act was of a nature which was, at the time of the act, beyond the understanding of the deceased through unsoundness of mind.

62. Section 163F was in the following terms (with emphasis added):

“Supervening unsoundness of mind

163F.   (1)   A power of attorney is effective so far as concerns any act      within its scope, being an act of a nature which is not, at the    time of the act, beyond the understanding of the principal    through unsoundness of mind.

(2)   Where –

(a)   a power of attorney is, in the instrument creating the power, expressed to be given with the intention that it will continue to be effective notwithstanding that, after the execution of the instrument, the principal suffers loss of capacity through unsoundness of mind.

(b)   the execution of the instrument is attested by a prescribed person (not being an attorney under the power); and

(c)   there is endorsed on, or annexed to, the instrument a certificate by that prescribed person stating that the prescribed person explained the effect of the instrument to the principal before it was executed.

the power of attorney is effective so far as concerns any act within its scope, notwithstanding that the act is of a nature which is, a t the time of the act, beyond the understanding of the principal through unsoundness of mind.

(3)   This section does not save a power of attorney from being or becoming ineffective by reason of any matter other than an unsoundness of mind of the principal arising after the execution of the instrument creating the power.

(4)   This section applies only if and so far as a contrary intention is not expressed in the instrument creating the power, and shall have effect subject to the terms of the instrument creating the power.”

The Deceased’s Contract of make a Will

63. On 1 November 2007 the deceased and the first defendant executed a deed which (omitting the execution clause and the form of will set out in schedule to the deed) was in terms to the following effect, with emphasis added:

“THIS DEED is made this 1 day of NOVEMBER 2007.

BETWEEN   PETER THOMAS TORNYA of …. Bellevue Hill, in the State of New South Wales (“Peter”)

AND   SUSAN MARY IRENE TORNYA of …. Bellevue Hill in the said state (“Susan”)

WHEREAS

A.   Susan, as my wife, has agreed that she will continue to provide home duty services and shall care for Peter for the remainder of his life or so long as she is capable of doing so.

B.   Peter has agreed that in consideration of the services provided by Susan to Peter to date and the services agreed to be provided by Susan for the remainder of Peter’s life and by virtue of the marriage of the parties (“consideration”), Peter will execute a Will in the form set out in Schedule 1 of this Deed (hereinafter referred to as “the Will”).

C.   Pursuant to the Tornya Pension Fund – Complying Lifetime Pension established on 1 June 2005, a pension has been provided for Susan for her life (hereinafter referred to as “the Fund”).

D.   It is the intention and agreement of the parties that Peter shall not alter, nor shall he cause the trustee of the Pension Fund to alter, the Will or the provision of the pension to Susan under the Fund or do any intentional act during his lifetime which will have the effect of depriving Susan from receiving the pension, assets or the benefit of the trusts provided for in the Will or by the Fund.

NOW THIS DEED WITNESSES

1.   Susan agrees to provide home duty services and care for Peter for the remainder of his life or so long as she is capable of doing so.

2.   For the consideration, Peter agrees to forthwith make a Will in the form of the Will.

3.   Peter agrees and undertakes to act in such a way as to ensure that his property and assets which are affected by the Will pass and devolve in the manner set out in this Deed and the Will unless Susan consents in writing to Peter acting otherwise.

4.   Peter agrees and undertakes to maintain, or cause the trustee of the Fund to maintain, the Fund and its assets substantially in the form as it exists at the date hereof and to enable Susan to obtain the benefit of the pension under the Fund upon his death for her life. However, nothing herein shall prevent Peter from varying the composition of the property or assets of the Fund provided the aggregate value of the property and assets is not reduced.”

The Deceased’s Will

64. In conformity with the Deed he and the first defendant made on 1 November 2007, on the same day the deceased executed a Will (since admitted to probate) in the same form as schedule 1 to the Deed.

65. In the Will, the deceased appointed his three children and the first defendant as his executors and trustees, and he made provision for each of them.

66. By the Will, he gave to the first defendant:

1. a life interest in a property (the matrimonial home) located at Bellevue Hill (or any subsequent replacement property), which was to be held on trust for the first defendant during her lifetime on the basis that:

1. the first defendant was to be responsible for paying all rates and taxes assessed in respect of the property, maintaining insurance, and maintaining the property in a state similar to that in which it was at his death; and

2. any repairs reasonably required by the first defendant were to be paid out of the estate.

2. a property located at Double Bay; and

3. paintings and personal items located in his home at the date of his death.

67. To each of his three children the deceased, by his will, gave:

1. one third of his interest in a named company;

2. one third of any remaining real estate; and

3. one third of the residue of his estate.

Transactions effected by the First Defendant after the Deceased’s Diagnosis with Dementia

68. In support of his application for preliminary discovery, the plaintiff draws to attention a series of transactions which (between November 2009 and the death of the deceased on 25 April 2019) the first defendant effected pursuant to the power of attorney granted to her by the deceased.

69. For the purpose of the current proceedings the first defendant accepts that those transactions occurred as described. They are here recorded as summarised by counsel for the plaintiff in written submissions.

70. Between March 2010 and April 2019, the first defendant sold assets of the deceased and converted them to cash:

1. land of the deceased at Campsie was sold in March 2010 for $840,000.

2. land of the deceased at Bondi Junction was sold in June 2014 for $460,000.

3. various shares of the deceased were sold, between March 2010 and April 2019, with a total value of $1,052,882.86.

71. Various financial transactions also occurred, for which the plaintiff has been unable as yet to obtain an explanation:

1. Payments of the deceased’s pension of $38,500 per quarter into his cash management account ceased in November 2009. There are 33 pension payments which remain unaccounted for, totalling $1,278,750.00.

2. Commencing on 31 December 2009, a sum of $4,000 per month was transferred from the deceased’s cash management account to the first defendant, totalling $448,000.00.

3. On 6 August 2014 the sum of $412,731.96, being the proceeds of sale of the deceased’s Bondi Junction land, was transferred to the deceased’s cash management account. On 13 August 2014 an amount of $500,000.00 was withdrawn from that account. It was returned to the account on 19 January 2015; but on 30 January 2015 a cheque was drawn on the account in the sum of $500,000.00. The plaintiff does not know to whom that money was paid.

4. The plaintiff does not yet know where the proceeds of sale of the deceased’s land at Campsie (sold in March 2010) were deposited.

5. On 1 September 2017 the rental income from the deceased’s land at Double Bay ceased to be paid into his cash management account, and it was instead paid into a joint account in the name of the deceased and the first defendant.

6. Between 4 December 2009 and 23 April 2019, in addition to her monthly “allowance” payments, a sum of $184,581.00 was transferred to the first defendant from the deceased’s cash management account.

7. A total of 118 payments were made towards a credit card, totalling $583,393.29.

8. A total of 116 payments were made towards another credit card, totally $201,872.80.

72. Implicit in the plaintiff’s identification of these transactions is an allegation that they are of such a nature, size and frequency that, in the absence of an explanation by the first defendant, they cannot (to paraphrase Quek v Beggs (1990) 5 BPR 11761 at 11764 in a discussion of the principles governing “undue influence” in equity) be reasonably accounted for on the grounds of friendship, relationship, charity or other ordinary motives on which ordinary persons act.

The Nature of the Order for Preliminary Discovery sought by the Plaintiff

73. By his originating process, the plaintiff seeks an order, pursuant to UCPR rule 5.3(1), to the effect that the first defendant give discovery of several categories of documents, here summarised as:

1. bank statements for an identified cash management bank account in the name of the deceased and the first defendant, for the period from 1 October 2009 to 19 May 2019.

2. bank statements for the account into which the deceased’s quarterly pension payments of $38,750.00 were redirected, for the period between 5 February 2010 and 5 February 2019 inclusive.

3. any correspondence addressed to the Bank requesting a redirection of the deceased’s pension payments.

4. any documents referring to or recording any arrangement reached with the deceased that the first defendant was to receive an allowance of $4,000.00 per month during his lifetime.

5. statements for all other bank accounts in the name of, or controlled by, the first defendant for the period from 1 October 2009 to 25 April 2019 into which funds from the deceased’s accounts and the sale of his assets were directed.

6. all correspondence between the first defendant and her financial advisers which support her position that she sold the deceased’s Bondi Junction property, his medical practice and shares following receipt of advice to do so.

7. all correspondence between the first defendant and her financial advisers which set out advice given to the first defendant in respect of the capital gains tax liability which would be incurred by the deceased following the selling of identified shares.

8. tax returns for the deceased for the period that the first defendant acted as his attorney (namely, between 1 October 2009 and 25 April 2019).

9. statements for an identified bank account to which the deceased was a signatory, for the period from 1 October 2009 to 25 April 2019.

10. the contract for sale of the deceased’s Campsie land.

74. In written submissions, counsel for the plaintiff provided an explanation as to why each particular category of documents sought by way of preliminary discovery was said to be necessary to allow the plaintiff to determine whether the deceased’s estate should claim relief against the plaintiff for a breach of fiduciary duty and/or unconscionable conduct. Those submissions connected the transactions the subject of inquiry with the categories of documents sought on discovery.

Elaboration of the Plaintiff’s Case for Preliminary Discovery

75. The plaintiff contends, and I accept, that, on the evidence presently before the Court, there is a reasonable, objective basis for propositions that:

1. from the time that the deceased was diagnosed with dementia (in late 2009 and early 2010), the first defendant liquidated substantial assets of the deceased in circumstances in which, three years or so earlier she had (by the Deed dated 1 November 2007) procured an undertaking from him to execute his Will in agreed terms and not to diminish his estate; and

2. bank statements presently available to the plaintiff demonstrate that, over the course of nine years (between 2009-2019), the deceased was divested of a sum of money exceeding $4 million, by direct transfer from his accounts, diversion of payments, or sale of assets for which he did not receive the proceeds of sale.

76. By an order for preliminary discovery, the plaintiff seeks to learn:

1. why the first defendant embarked on such a significant liquidation of the deceased’s estate.

2. whether some or all of the money that was withdrawn or diverted from the deceased’s control was used for his direct or indirect benefit.

3. whether some or all of the money that was withdrawn or diverted from the deceased’s control was transferred directly to the first defendant.

4. whether some or all of the money that was withdrawn or diverted from the deceased’s control was transferred to a third party.

5. whether some or all of the money that was withdrawn or diverted from the deceased’s control was used to support the reasonable living expenses of the first defendant.

77. In elaboration of a prospective claim against the first defendant for a breach of fiduciary obligations, the plaintiff starts with the proposition that the first defendant assumed the obligations of a fiduciary when she assumed her role as the deceased’s attorney: Taheri v Vitek (2014) 87 NSWLR 403 at [115]. He acknowledges that the content of her fiduciary obligations is complicated by clause 2 of the power of attorney, which authorised the first defendant to confer a benefit upon herself. He acknowledges the divergence of authority culminating in the Court of Appeal’s judgment in Taheri v Vitek (2014) 87 NSWLR 403, which he seeks to distinguish by reference to Ward v Ward (No. 2) [2011] NSWSC 1292 at [3]; Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463 at [153]; and Cohen v Cohen [2016] NSWSC 336.

78. He seeks to distinguish Taheri v Vitek on the basis that a conferral of power upon an attorney to do a particular act (such as executing an assurance or other document, or doing another act, whereby a benefit is conferred on the attorney) is a different question to whether or not the attorney, in doing that act, has acted in breach of a fiduciary obligation owed by the attorney to the principal. The deceased’s power of attorney contained, in clause 2, a “benefits clause” conferring authority on the first defendant, but it did not exonerate her from the fiduciary obligations by which an attorney under power is bound.

79. The plaintiff contends that the fiduciary obligations of the first defendant as the deceased’s attorney were informed, in part, by the terms of the deceased’s Will and the contemporaneous Deed that she and the deceased executed. He contends that, read together, those documents evince an intention on the part of the deceased (of which the first defendant had notice) to preserve, as far as possible, his estate for the benefit of his beneficiaries.

80. The plaintiff contends that, to the extent that the first defendant applied funds of the deceased to herself or to third parties that cannot be justified as being in any way for the benefit of the deceased, whether directly or indirectly, and the purpose of that application of funds was to remove assets from the deceased’s estate, then the first defendant acted in breach of her fiduciary obligations to the deceased.

81. In elaboration of a prospective claim that the first defendant acted unconscionably, the plaintiff: (a) notes that principles governing unconscionability may also apply to transactions for an attorney’s own benefit if the attorney took unconscientious advantage of the principal’s position of special disadvantage (eg, Perochinsky v Kirschner [2013] NSWSC 400; 16 BPR 31, 481 at [64]; Cohen v Cohen [2016] NSWSC 336 at [69]); and (b) refers to statements of principle in Thorne v Kennedy (2017) 263 CLR 85 [38], [109]-]110] and [113].

82. He contends that, the deceased having been diagnosed with dementia in 2010 and his condition having worsened to the extent that he was moved to a nursing home in 2014, he was clearly not in a position to look after his own interests; he was in a position of special disadvantage vis a vis the first defendant; and, as his enduring attorney, she was in a position to take advantage of that special disability.

83. The plaintiff contends that preliminary discovery of the type sought by him will materially affect any assessment by him of, first, the prospects of success the estate of the deceased may have in any claim against the first defendant and, secondly, the quantum of any claim that the estate may have against her, thereby providing assistance: (a) in determining whether a claim for relief can reasonably be made against her; and (b) assessing the availability of any defence she may have that the transactions to which she gave effect as the deceased’s attorney were fair, just and reasonable.

Elaboration of the first defendant’s case against an order for preliminary discovery

84. The first defendant’s opposition to the plaintiff’s application for preliminary discovery is based upon the proposition that the construction given by the Court of Appeal (in Taheri v Vitek (2014) 87 NSWLR 403 at [1], [36], and [130]) to section 163B and a power of attorney in or to the effect of the form in Schedule 7, of the Conveyancing Act, governs:

1. not only the relationship between the principal and a third party who transacts business with the attorney on behalf of the principal; but also

2. the relationship between the principal and the attorney.

85. The first defendant contends that, just as a fiduciary relationship cannot be superimposed upon a contract in such a way as to alter the operation which the contract was intended to have according to its true construction (Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97), so any fiduciary obligation owed by her to the deceased as his attorney cannot alter the operation which his grant of a power of attorney was intended to have according to its true construction: Taheri v Vitek (2014) 87 NSWLR 403 at [115]. She contends that she is not accountable for any benefit conferred on her by an exercise of her power as an attorney because the deceased’s grant of authority to her extended to conferral of a benefit on herself.

86. She contends, further, that transactions effected by her as the deceased’s attorney in power cannot, on the application of the deceased’s estate, be set aside as unconscientious bargains because they were effected pursuant to a voluntary grant of authority by the deceased in a power of attorney which (as evidenced by the accompanying certificate under section 163F(2) of the Conveyancing Act) was explained to the deceased, at a time when he was fully capable of managing his own affairs, by a solicitor.

87. Implicitly, she contends that the relevant time for a consideration whether there was an unconscientious dealing (Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474) is the date upon which the deceased granted authority to the first defendant, not the date upon which she exercised, or purported to exercise, that authority.

88. Taken to its logical limit, the first defendant’s case is pithily expressed in her written submissions, as follows:

“[27]   Even if (which is not admitted) the plaintiff, having access to the books and records sought, was able to demonstrate the defendant used the deceased’s money wholly for her own purpose with no benefit to the deceased and with no authority (however arising) appellate authority [in] New South Wales [Taheri v Vitek (2014) 87 NSWLR 403] makes it clear the transaction cannot be challenged with the conduct of the donee unimpeachable…

[30]   In all the circumstances, providing to the plaintiff the documents he seeks would be an exercise in futility. The plaintiff should be denied preliminary discovery. [His] Summons should be dismissed.”

CONSIDERATION

89. Consideration of the parties’ competing contentions about the nature and effect of the (enduring) power of attorney granted by the deceased to the first defendant requires an examination of: (a) principles governing an enduring power of attorney which includes a benefit clause; (b) the operation of such a power of attorney in the different contexts of a contest between a principal and a third party dealing with an attorney and a contest between the principal and the attorney; (c) the nature and purpose of a benefits clause in an enduring power of attorney; and (d) the interplay of principles governing an exercise of the equitable and protective jurisdictions of the Court in the operation of an “enduring” power after a principal loses mental capacity.

90. In examining these topics, the focus is upon governing principles in the context of uncontroversial (or assumed) factual parameters. I am not to be taken to be expressing a view as to the merits of any factual contest between the estate of the deceased and the first defendant that may emerge in subsequent proceedings.

91. The following observations of Dixon J in Tobin v Broadbent (1947) 75 CLR 378 at 401 are commonly taken as a starting point for analysis of the nature and effect of a power of attorney even where (as in this case) the power of attorney is a creature of statute:

“If a transaction is ostensibly on the principal’s behalf and is of a description that falls within the authority [conferred by a power of attorney], it is nothing to the point [as between the principal and a third party] 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 authorising 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 (1928) 2 KB 244 at 268, a judgment approved in the House of Lords, [1929] AC 176 at 183 and 195….”

92. From such a starting point, one must move quickly to recognise that an “enduring power of attorney” depends upon legislation for its efficacy. The three clauses of the power of attorney granted by the deceased to the first defendant in these proceedings reflect three innovations effected by amendment of Part 16 of the Conveyancing Act 1919 NSW by the Conveyancing (Powers of Attorney) Amendment Act 1983 NSW. Those amendments followed recommendations of the NSW Law Reform Commission in Report 20 (1975), entitled “Powers of Attorney and unsoundness of body or mind”, read with the Commission’s Report 18 (1974) entitled “Powers of Attorney” and its Working Paper 10 (1973) entitled “Powers of Attorney”.

93. Clause 1 reflects section 163B(1) of the Conveyancing Act, which introduced the concept of a plenary grant of power in a power of attorney, as Austin J observed in Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25,435 at [79]:

“Prior to the enactment of [section 163B], courts construed powers of attorney much in the way that they construed the memorandum of association of an incorporated company. General language was read down ejusdem jeneris, leaving drafters with little option but to equip the company with a great many specific powers in order to avoid any such construction (see B Collier and S Lindsay, Powers of Attorney in Australia and New Zealand (1992), pages 7-8). Similarly powers of attorney included substantial lists of specific powers. The purpose of the 1983 amendments (like approximately contemporaneous amendments to the Companies Code) appears to have been to eliminate the necessity for long lists of powers by giving statutory reinforcement to a general form of words.”

94. Clause 2 reflects section 163B(2)(b) of the Conveyancing Act, which made provision for inclusion in a statutory form of power of attorney of a “benefits clause”, inviting a donor to include in a power of attorney an express conferral on the donee of authority to effect transactions “as a result of which a benefit would be conferred” on the donee of the power.

95. Clause 3 reflects section 163F of the Conveyancing Act, which permitted a power of attorney to include provision for an attorney’s power to continue (endure) notwithstanding supervening mental incapacity on the part of the principal.

96. Apart from statute, under the common law a power of attorney lapses upon the donor’s loss of mental capacity: NSW LRC, Working Paper 10 (1973), Part 3, paragraphs [132]-[139] and [148]-[149]; Drew v Nunn (1879) 4 QBD 661 at 665-666; Ghosn v Principle Focus Pty Ltd(No. 2) [2008] VSC 574 at [36].

97. In summary, NSW legislation (formerly, Part 16 of the Conveyancing Act 1919 as amended in 1983, since replaced by the Powers of Attorney Act 2003 NSW) permits a plenary grant of power to an attorney to continue in operation after a principal’s loss of mental capacity and permits a power of attorney to incorporate a “benefits clause”.

The Accountability of an Attorney acting on an Enduring Power of Attorney with a Benefits clause

98. In my opinion, the first defendant’s opposition to an order for preliminary discovery is misplaced. That is because it is based upon:

1. a misreading of the Court of Appeal’s judgment in Taheri v Vitek (2014) 87 NSWLR 403 as speaking to a contest between a principal and an attorney as well as, simply, a contest between a principal and a third party who dealt with the principal through an attorney.

2. a failure to recognise that a relationship between principal and attorney evidenced by an instrument in the form of Schedule 7 of the Conveyancing Act is not necessarily governed by the text of the instrument without reference to extrinsic facts.

3. an erroneous insistence that the time for determination of the nature and scope of any fiduciary obligations owed by an attorney is limited to the time of grant of the attorney’s power so as to preclude a finding that, in a later exercise of his or her powers, the attorney acted in breach of his or her fiduciary obligations.

99. In Taheri v Vitek the Court of Appeal held that a third party was entitled to rely upon a power of attorney (in the form of Schedule 7 to the Conveyancing Act), containing a benefits clause, without inquiry as to whether a transaction effected by the attorney was beneficial to the principal: 87 NSWLR 403 at [1], [36], [127] and [129]-[131]. That determination is not inconsistent with a principal having an entitlement to call upon an attorney to account for an abuse of power by the attorney in dealing with a third party.

100. The following observations made by Brereton J in Ward v Ward(No. 2) [2011] NSWSC 1292 at [3] provide a convenient foundation for analysis:

“[3]   The relationship of principal and attorney under power is a recognised class of fiduciary relationship [Hospital Products Ltd v United States Surgical Corporation and Ors (1985) 156 CLR 41, 68 (Gibbs CJ)]. Although the power of attorney under which the first defendant [an attorney] entered into the loan agreement was expressed to authorise the attorney ‘to execute an assurance or other document, or do any other act whereby a benefit is conferred on him’, that is a matter of power or authority, and does not exonerate the attorney from the fiduciary obligations by which an attorney under power is bound.”

101. To the same effect, in Re R [2000] NSWSC 886 at [41]-[42] Young J observed 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 will 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? They are two completely separate questions…”

102. In Re R Young J, at [44] paraphrased Reckitt v Barnett Pembroke and Slater Ltd [1928] 2 KB 244 with a statement that “a power of attorney may give a person authority to rob the donor, but that does not make robbing the donor something that he should not be accountable for.”

103. The nature and scope of an attorney’s obligations, vis a vis the attorney’s principal, depend on the arrangement between principal and attorney in the particular case. Prima facie, an attorney owes the obligations of a fiduciary to a principal and, as between principal and attorney, the primary object of a power of attorney is to enable the attorney to act in the management of the principal’s affairs: Tobin v Broadbent (1947) 75 CLR 378 at 401, A power of attorney in the form of Schedule 7 to the Conveyancing Act, with a benefits clause, is not, of itself, as between principal and attorney, a licence for the attorney to act otherwise than in the interests of the principal without accountability.

104. A primary purpose of a grant of plenary power to an attorney, coupled with a benefits clause, is to protect a third party who deals with the attorney by making express a provision entitling the third party to deal with the attorney without inquiry as to whether a transaction effected by the attorney is beneficial to the principal. A benefits clause is expressed in terms that confer a power on the attorney but its legal effect (in light of Taheri v Vitek) is largely to facilitate commercial dealings by providing a layer of protection for a third party who deals with a principal, via an attorney, relying on the text of a power of attorney. A benefits clause does not, of itself, exonerate an attorney from his or her fiduciary obligations to the principal.

105. A benefits clause offers protection for an attorney via the protection it offers a third party dealing with a principal through the attorney. The third party is protected by being able to rely upon the text of a power of attorney without further inquiry as to the attorney’s authority. The attorney is incidentally protected against a claim for damages that might otherwise have been brought against the attorney by the third party for breach of a warranty of authority if the business transacted by the attorney were to be disclaimed by the principal. The attorney’s protection against the third party does not render the attorney unaccountable as a fiduciary to the principal.

106. A determination of the nature and scope of any fiduciary obligations owed by an attorney to the attorney’s principal is to be made, in light of all the circumstances of the case (including the terms upon which the attorney was empowered), at the time of the attorney’s exercise, or purported exercise, of the attorney’s power of attorney. See, for example, Cohen v Cohen [2016] NSWSC 336 at [62] and [69]-[70].

107. In Cohen v Cohen at [62]-[71], Hallen J determined that the authority given to an attorney under an enduring power of attorney (with a benefits clause) did not exonerate the attorney from fiduciary obligations he owed to the principal in exercise of his power as attorney, with the consequence that a transfer of property of the principal to the attorney, pursuant to the power of attorney, was set aside in circumstances in which the attorney knew that the principal was incapacitated and vulnerable to exploitation.

Taheri v Vitek was directed to a Contest between Principal and Third Party

108. Upon a consideration of the incidents of agency relationships, each case must ultimately depend on its own facts. Broad statements of principle must accommodate the facts to which they are to be applied.

109. That said, the judgment of the Court of Appeal in Taheri v Vitek (2014) 87 NSWLR 403 is authoritative in its construction of section 163B and Schedule 7 of the Conveyancing Act, the common source for the power of attorney considered by the Court of Appeal and the power of attorney under consideration in these proceedings.

110. Four features of Taheri v Vitek distinguish it from the current proceedings.

111. First, Taheri v Vitek was primarily concerned with an examination of the relationship between a principal and a third party upon an exercise of a power by an attorney. The Court drew an analogy with the general law concept of “apparent or ostensible authority”, with its primary focus upon the “external relationship” when a third party deals with an agent. It contrasted that with questions of “actual authority and fiduciary obligations” which focus upon the “internal relations” between principal and agent: 87 NSWLR 403 at [111]-[117], [127] and [129]-[130].

112. This point is perhaps more explicit in the concurring judgment of Emmett JA than it is in the leading judgment of Leeming JA. Emmett JA made the following observations (which are consistent with those of Brereton J in Ward v Ward (No. 2) [2011] NSWSC 1292 at [3]):

“[34]   An important consideration in relation to the operation of the relevant provisions of the Conveyancing Act is that they are designed to avoid the necessity for a third party dealing with an attorney under power to inquire into the circumstances surrounding the exercise of the power by the attorney. The provisions are designed to ensure that a third party can deal with an attorney under a power with confidence, irrespective of whether the transaction is for the benefit of the principal …

[35]   In considering the scope of the authority granted by a power of attorney, it is important to distinguish between the authority as between the attorney and the principal and the authority as between the attorney and third parties. That is to say, while the purported exercise of the power may be beyond the authority granted, as between attorney and principal, the exercise may nevertheless be binding on the principal. Where a purported exercise of the power is beyond authority, the attorney will have a liability to the principal to indemnify the principal for any obligation incurred in the name of the principal by the attorney that is outside the scope of the authority. Nevertheless, the third party will be entitled to enforce the obligation as against the principal.”

113. In the present proceedings, the focus for attention is not on the “external” relationship between a principal and a third party, but on the “internal” relationship between principal and an attorney – in particular, the accountability of an attorney to the attorney’s principal for conduct engaged in upon an exercise, or purported exercise, of the attorney’s power.

114. Secondly, Taheri v Vitek concerned an unconditional grant of authority by a principal to an attorney whereas, in the present proceedings, the principal’s grant of authority was expressly conditional upon the principal being incapacitated. This may be taken as reinforcement of the deceased’s intention that the enduring power of attorney granted by him to the first defendant be governed by a purpose protective of him at a time when, by reason of incapacity, he might be in need of protection.

115. The conditional nature of the power of attorney in the present case distinguishes it not only from Taheri v Vitek, but also from the several precedents the subject of close consideration in Taheri v Vitek. Classic expositions of the law of agency under the general law, such as Tobin v Broadbent (1947) 75 CLR 378 and the dissent of Russell J in Reckitt v Barnett Pembroke and Slater Ltd [1928] 2 KB 244 endorsed by Dixon J in Tobin v Broadbent, pre-date the statutory form of power of attorney for which the Conveyancing Act provided. Of the cases concerned with that statutory form, all bar one involved an unconditional enduring power of attorney with a benefits clause: Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25,435 (Austin J); Angelina Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463 (Hammerschlag J); Perochinsky v Kirschner [2013] NSWSC 400; 16 BPR 31,481 (White J); and Peter Vitek v Estate Homes Pty Ltd [2013] NSWSC 1867 (Rein J). Hughes v Hughes [2011] NSWSC 729 (Gzell J) concerned an enduring power of attorney, with a benefits clause, conditioned on incapacity of the principal; but it was the subject of only passing reference in Taheri v Vitek because of Gzell J’s expression of support for the approach of Austin J was not the subject of elaboration.

116. Thirdly, although the power of attorney considered by the Court of Appeal would, as a matter of form, ordinarily be characterised as an “enduring power of attorney” (because of clause 3 of the instrument, read with the Conveyancing Act, section 16F(2)) the facts of the particular case before the Court did not concern a transaction effected at a time when the principal had lost capacity, whereas the facts of the current case are directed to the relationship between an incapable principal and his attorney upon exercise of an “enduring power”. It was not necessary for the Court of Appeal to consider the implications of an “enduring” power in the operation of the power of attorney, either as between principal and attorney or at all.

117. Fourthly, in Taheri v Vitek, a competent principal supported the impugned act of her attorney. In the current proceedings an incompetent principal ostensibly lacked capacity to understand the business purportedly transacted on his behalf. If (as the first defendant’s reservation of a broader case suggests) “the deceased, himself, carried out or participated in the transactions” under scrutiny, it may be that, by virtue of the “conditions and limitations” referred to in clause 1 and Part 2 of the power of attorney, the first defendant acted without power.

118. It is not necessary in the current proceedings to consider the effect (if any) of a third party dealing with an attorney acting upon an enduring power of attorney expressly conditioned on, and limited by, the existence of a state of incapacity in the principal. In the current proceedings, the focus is on the relationship between an incapable principal and his attorney.

Antecedents to Taheri v Vitek

119. Confirmation that the Court of Appeal did not, in Taheri v Vitek, intend to address the rights and obligations of a principal vis a vis an attorney might be found in the terms in which Leeming JA expressed his conclusion (with which Bathurst CJ and Emmett JA agreed). Having canvassed specific “reasons for a broad construction of section 163B”, his Honour said, at [130]:

“Accordingly, I respectfully agree with the views expressed by Hammerschlag J [in Angelina Spina v Permanent Custodians Ltd [2008] NSWSC 561; 13 BPR 25,463] and Rein J [in Peter Vitek and Anor v Estate Holmes Pty Ltd and Ors [2013] NSWSC 1764] on the construction of section 163B. The words ‘on behalf of’ are not words of restriction which cut down the ordinary meaning of ‘anything’. An instrument complying with section 163B may as a matter of law (and very often will) empower an attorney to do ‘anything’ the principal may lawfully authorise an attorney to do, even if there is a benefit to the attorney and no benefit to the principal”.

120. The respective judgments of Hammerschlag and Rein JJ admit the possibility that: (a) a principal may be bound to a third party who acts upon a power of attorney notwithstanding that there may have been an abuse of power on the part of the attorney; and (b) the principal may nevertheless have a remedy against the attorney.

121. In expressing agreement with the views expressed by Hammerschlag and Rein JJ about the proper construction of section 163B of the Conveyancing Act, Leeming JA declined to follow contrary views expressed by Austin J in Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25, 435, Gzell J in Hughes BHT NSW Trustee and Guardian v Hughes [2011] NSWSC 729 and White J in Perochinsky v Kirschner [2013] NSWSC 400; 16 BPR 31,481.

122. In Hughes v Hughes Gzell J expressed a preference for the approach taken by Austin J without elaborating his reasoning in that regard. He considered that it was unnecessary for him to do so because the case before him (unlike the judgment of Hammerschlag J) was a contest between principal and agent, not between a principal and a third party.

123. In elaborating his reasons for not following the approach of Austin J, Hammerschlag J noticed the distinction between a lack of power on the part of an attorney and an abuse of power by an attorney: [113], [120] and [155]. He held that the only limitation which section 163B(1) imposed on an attorney’s authority was that the principal could not authorise the attorney to do what the principal could not lawfully do or what the law would restrict the principal from authorising the attorney to do on the principal’s behalf: [154]. That is the view subsequently adopted by the Court of Appeal. Nevertheless, his Honour held that, whether a particular action by an attorney on the principal’s behalf involved a breach of fiduciary duty was a different matter; the principal may have redress against the attorney and a third party who participated in a breach with requisite knowledge: [153].

124. His Honour’s observations about the distinction between “a lack of power” and “an abuse of power”, and his reference to a breach of fiduciary duty, are consistent with the observations of Brereton J in Ward v Ward (No. 2) [2011] NSWSC 1292 at [3].

125. His Honour (Hammerschlag J) made the following observations about fiduciary obligations in the context of the law of agency:

“Fiduciary obligations

[113] An agent may be in a special position to exercise a power or discretion given to him by his principal to the detriment of the principal, who is accordingly vulnerable to abuse by his agent. For this reason equity imposes on such an agent obligations or duties called fiduciary obligations or duties which regulate the manner in which the agent may exercise powers or discretions given by the principal. Principal and agent is one of the accepted fiduciary relationships. They are also sometimes called relationships of trust and confidence: see Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41 at 96-7.

[114] The scope and extent of fiduciary obligations imposed will depend on the nature of the relationship: Kelly v CA & L Bell Commodities Corporation Pty Limited (1989) 18 NSWLR 248 at 256-8.

144. Successive amendments of the Conveyancing Act, and the Powers of Attorney Act 2003 NSW which replaced it, have been accompanied by a second reading speech, in parliament, in support of the legislation, which highlights the fiduciary nature and purpose of an enduring power of attorney.

145. In the second reading speech in support of the Conveyancing (Powers of Attorney) Amendment Bill 1983, the Attorney General said:

“At present, a power of attorney is void if executed by a principal who is of unsound mind. If a principal later becomes mentally unsound, the power will terminate. Apart from the possible liability to third parties by the attorney, it is illogical that at the time when a person most needs another trusted person to act on his behalf the attorney is precluded from doing so.”

146. The second reading speech given on behalf of the Attorney General in support of the Powers of Attorney Bill 2003 included the following observations:

“Prior to 1983, all powers of attorney automatically terminated at law when the principal suffered a loss of mental capacity through unsoundness of mind. In 1983 the law was changed to allow a principal to make a power of attorney that continued to be effective after he or she lost mental capacity. Such a document is called a ‘Protected Power of Attorney’ under the present legislation, but this bill will change the name to ‘Enduring Power of Attorney’ to bring it into line with the name used in other States. An Enduring Power of Attorney can be a particularly useful tool in planning for later life. It enables people to choose who they want to make financial decisions for them when they are no longer able to do so themselves, thereby giving people greater control over their future welfare.”

147. Substantially the same statement was made in a second reading speech in support of the Powers of Attorney Amendment Bill 2013, together with the following observations:

“A power of attorney is an important legal document that enables a person to give someone else the ability to make financial decisions on their behalf. Powers of attorney are used by corporations to allow employees or designated officers to enter into transactions on behalf of the company. They are also widely used by individuals to allow trusted associates or family members to assist them with their financial affairs when they are unavailable or otherwise unable to do so themselves. It is with regard to this second category of powers of attorney that this bill is primarily concerned….

The Powers of Attorney Act gives people the ability to take control of their financial and legal affairs and allows people to plan ahead for their future. The proposals in this amending bill will encourage more people to use a power of attorney by making the [prescribed form of enduring power of attorney] more flexible and easier to use as well as understand….”

148. The current form of prescribed form for an enduring power of attorney (found in Schedule 2 of the Powers of Attorney Regulation 2016 NSW, prescribed for the purposes of section 8 of the Powers of Attorney Act 2003) incorporates statements to the effect that an attorney must always act in the best interest of the principal; keep a principal’s money and property separate from that of the attorney; keep reasonable accounts of the principal’s money and property; not benefit from being an attorney, unless expressly authorised by the principal; and always act honestly in all matters concerning the principal’s legal and financial affairs. It warns an attorney that a failure to comply with the attorney’s responsibilities may incur civil and/or criminal penalties.

149. Legislative development of the concept, or form, of an enduring power of attorney cannot be used to read something back into an earlier form of statutory instrument, even though an instrument created pursuant to Part 16 of the Conveyancing Act (now repealed) has ongoing force by reference to the Powers of Attorney Act 2003. Nevertheless, notice might be taken of the consistent encouragement given to members of the public in NSW to execute an enduring power of attorney as a means of ongoing control of their affairs notwithstanding incapacity for self management. The role of equity in the supervision of an enduring attorney, as a fiduciary, has been ever present, expressly or by implication.

150. In practice, an enduring power of attorney is commonly granted, in combination with the appointment of an “enduring guardian” (authorised by the Guardianship Act 1987 NSW), at or about the same time as the donor executes a will.

151. In a domestic setting, execution of an enduring power of attorney and an enduring guardianship appointment is commonly understood by all parties to those instruments to be preparation for the possibility that the donor will experience incapacity for self management before death.

152. In a domestic setting, a person who accepts appointment as an enduring attorney or an enduring guardian is, in practice, generally on notice that any exercise of his or her power (as an attorney or as a guardian) may occur in the context of the donor’s vulnerability to exploitation, and a need for protection, arising from mental incapacity or some other form of disability.

153. This is an environment in which there is ample opportunity for the operation of principles governing an exercise of equitable or protective jurisdiction. Possession of an instrument in the form of an enduring power of attorney (with or without a benefits clause), potentially makes the principal dependent upon the attorney acting conscientiously in the performance of his or her functions as an attorney, and puts the principal at a special disadvantage, vis a vis the attorney, if the attorney does not act conscientiously.

Prospective Claims for Relief which the plaintiff suspects the deceased’s estate may have against the first defendant

154. Accepting that a “benefits clause” conferred upon the first defendant power to effect a transaction of benefit to herself upon exercise of the power of attorney granted to her by the deceased, the plaintiff contends that the power of attorney did not exonerate her from a fiduciary obligation of loyalty to the deceased in the exercise of her powers.

155. In elaboration of principles governing undue influence (which, in Thorne v Kennedy (2017) 263 CLR 85 at [39]-[40], the High Court recognised overlap with principles governing unconscionable conduct), Dixon J in Johnson v Buttress (1936) 56 CLR 113 at 134-135 made the following observations:

“One occupying [a position of ascendency or influence over another] falls under a duty in which fiduciary characteristics may be seen. It is his duty to use his position of influence in the interest of no-one but the man who is governed by his judgment, gives him his dependence and entrusts him with his welfare”.

156. In ordinary experience, a person who manages the estate of an incapacitated person as an enduring attorney, in the context of a domestic relationship, is commonly subject to a fiduciary obligation to apply property of the incapacitated person in the maintenance and support of the incapacitated person; but, by analogy with the case of a guardian entrusted with funds for the maintenance and support of an incapable person, the law generally recognises that the attorney (as an incident of his or her domestic relationship with the incapacitated person) can incidentally benefit from an application of the incapacitated person’s property without being required, in equity, to account for any such benefit. Any dispensation from a strict liability to account is subject to a proviso that the attorney must have faithfully discharged his or her duty of supporting and maintaining the incapacitated person: Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 420-423; Clay v Clay (2001) 202 CLR 410 at [37]-[57]; Crossingham v Crossingham [2012] NSWSC 95 at [16] et seq; Woodward v Woodward [2015] NSWSC 1793 at [9], [11] and [52]-[56]; Smith v Smith [2017] NSWSC 408.

157. This approach is consistent with a recognition that, as between principal and attorney, the primary object of an enduring power of attorney is generally to enable the attorney to act in the management of the principal’s affairs (evidenced by clause 1 of the statutory form of power of attorney), accepting that the attorney may personally obtain some incidental benefit from management of the principal’s affairs (clause 2) in circumstances in which the principal is incapacitated (clause 3).

158. The law of agency (an amalgam of common law rules and equitable principles) needs to accommodate the protective jurisdiction when, a principal having lost the mental capacity requisite to managing his or her own affairs, an enduring power of attorney comes into operation as such. Until that time, an enduring power of attorney may operate in a manner indistinguishable from other forms of agency; Taheri v Vitek (2014) 87 NSWLR 403 is an illustration of that. After that time, allowance generally has to be made for the physical presence, but mental absence, of a principal who, unable to make independent decisions, needs empathetic protection: Smith v Smith [2017] NSWSC 408 at [19].

159. Where an enduring attorney exercises a power to confer upon himself or herself a benefit from a disposition of property of an incapacitated principal in circumstances in which the benefit:

1. is “so substantial, or so improvident, as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary persons act” (Quek v Beggs (1990) 5 BPR 11,761 at 11,764); or

2. flows from an unconscientious taking of advantage of the special disadvantage to which the incapacitated person is subject vis a vis the attorney (Thorne v Kennedy (2017) 263 CLR 85 at [38]; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447),

equity may call upon the attorney to account for the benefit as one acquired in breach of the attorney’s duty of loyalty to the principal (in the absence of the principal’s fully informed consent to a contrary course, to act, bona fide, only in the interests, and for the benefit, of the principal).

160. Equity intervenes in cases of this character on the ground of public policy, to maintain ethical standards of conduct and to prevent relations between an attorney and his or her incapacitated principal from being abused: Paul Finn, Fiduciary Obligations (Law Book Co, 1977; Federation Press, 2016), paragraph [698]; Johnson v Buttress (1936) 56 CLR 113 at 135.

161. In my opinion, whether or not armed with a benefits clause in his or her favour, an enduring attorney who deals with the property of an incapacitated principal in total disregard of the interests of the principal commits a fraud on the power conferred upon him or her and is, accordingly, in breach of his or her fiduciary obligations to the principal: Vatcher v Paull [1915] AC 372 at 378; McFee v Riley [2018] NSWCA 322 at [26]-[27] and [56]-[65]. Cf,Spina v Conran Associates Pty Ltd [2008] NSWSC 326; 13 BPR 25,435 at [89].

162. As White J recognised in Downie v Langham [2017] NSWSC 113 at [8], the question whether an enduring attorney should be required to provide an account for management of the property of an incapacitated principal in his or her care is not a straightforward issue. Complexity of the law is compounded by the fact-sensitivity of particular cases.

163. In a contest between a principal and attorney, the existence of a benefits clause is not necessarily as significant as it may be in a contest between the principal and a third party.

164. Even in the absence of a benefits clause, where an attorney exercises a power which results in his or her obtaining some incidental benefit, there may be nothing improper with his or her having that benefit if the benefit itself is, in the circumstances, an inevitable consequence of his or her properly exercising the power which produces it. A principal may be able to upset such an exercise of power only if he or she can show that the attorney exercised it with the dominant purpose of obtaining that benefit irrespective of the interests of the principal: Finn, Fiduciary Obligations (2016 reprint), paragraphs [103]-[104], citing, inter alia, Smith v Cock (1911) 12 CLR 30 at 36.

165. In their general operation, equitable principles governing the liability of a fiduciary to account are capable of a flexible application in the context of an enduring attorney acting in the name of an incapacitated principal. This appears from the following observations of Deane J in Chan v Zacharia (1984) 154 CLR 178 at 204-205 (quoted with approval in Warman International Ltd v Dwyer (1995) 182 CLR 544 at 559-560, with emphasis added):

“The liability to account as a constructive trustee will not arise where the person under the fiduciary duty has been duly authorised, either by the instrument or agreement creating the fiduciary duty or by the circumstances of his appointment or by the informed and affective assent of the person to whom the obligation is owed, to act in the manner in which he has acted. The right to require an account from the fiduciary may be lost by reason of the operation of other doctrines of equity such as laches and equitable estoppel: see, eg, Clegg v Edmondson (1857) 8 de GM & G at pp 807-801; 44 ER at p 602. It may be still be arguable in this Court that, notwithstanding general statements and perhaps even decisions to the contrary in cases such as Regal (Hastings) Ltd v Gulliver [1962] 2 AC 134 (N) and Phipps v Boardman [1967] 2 AC 46, the liability to account for a personal benefit or gain obtained or received by the use or by reason of fiduciary position, opportunity or knowledge will not arise in circumstances where it would be unconscientious to assert it or in which, for example, there is no possible conflict between personal interest and fiduciary duty and it is plainly in the interests of the person to whom the fiduciary duty is owed that the fiduciary obtain for himself rights or benefits which he is absolutely precluded from seeking or obtaining for the person or to whom the fiduciary duty is owed: cf, Peso Silver Mines Ltd (NPL) v Cropper (1966) 58 DLR (2d) 1 at p 8. In that regard, one cannot but be conscious of the danger that the over-enthusiastic and unnecessary statement of broad general principles of equity in terms of inflexibility may destroy the vigour which it is intended to promote in that it will exclude the ordinary interplay of the doctrines of equity and the adjustment of general principles to particular facts and changing circumstances and convert equity into an instrument of hardship and injustice in individual cases: see Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3d) 371 at p 383; S Cretney, ‘The Rationale of Keech v Sandford’, The Conveyancer and Property Lawyer, Vol. 33 (NS) (1969), pp 168ff; Oakley, Constructive Trusts (1978), pp 57ff. There is ‘no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them’: per Lord Selborne LC, Barnes v Addy (1874) LR 9 Ch App 244 at p 251.”

166. The inherent flexibility of equitable principles and remedies is augmented, by principles applied upon an exercise of protective jurisdiction, in the case of an enduring attorney managing the affairs of an incapacitated principal, at least where the attorney is a member of the family of the incapacitated person or otherwise engaged in his or her care.

167. In deciding whether to make an order for such an attorney to account for his or her dealings with property of the principal the Court may take into account the possibility that, had the attorney applied to the Court for an exercise of protective jurisdiction affecting management of the incapacitated person’s affairs, the Court might have made orders to the effect that:

1. the attorney having acted honestly and reasonably, he or she should be relieved of liability for any breach of a fiduciary obligation: C v W (No. 2) [2016] NSWSC 945 at [22]-[47]; Re LSC and GC [2016] NSWSC 1896 at [60]; Downie v Langham [2017] NSWSC 113; Smith v Smith [2017] NSWSC 408.

2. the attorney be granted a voluntary allowance from the estate of the incapacitated person for the maintenance or benefit of the attorney as a member of family: Protective Commissioner v D (2004) 60 NSWLR 513 at 540-542, 543 and 544-545; W v H [2014] NSWSC 1696 at [28]-[51]; C v W (No. 2) [2016] NSWSC 945.

168. An enduring attorney may be held liable as a fiduciary to account for his or her dealings with property of an incapacitated principal if a benefit obtained by the attorney from self-dealing:

1. is so substantial, or so improvident, as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motives on which ordinary persons act; or

2. flows from an unconscientious taking of advantage of the special disadvantage to which the incapacitated person is subject vis a vis the attorney.

169. However, the existence, nature and extent of any liability to account an attorney may have (which is to say, any remedy available to the attorney’s incapacitated principal or the principal’s deceased estate) may depend upon whether the attorney is able to persuade the Court that the standard of accounting required of him or her should take into account factors such as those considered upon an exercise of protective jurisdiction so as to avoid an unreasonable and inequitable application of the law.

170. In the context, particularly, of an attorney who is a member of the family of an incapacitated principal, or engaged in the principal’s care, this focus exists whether or not the attorney’s enduring power includes a benefits clause. That is because, when the “enduring” character of an enduring power of attorney is engaged (because the principal lacks mental capacity to manage his or her own affairs), the relationship between the parties is likely to be governed by principles that recognise that the attorney’s fiduciary obligations are analogous to those of a guardian entrusted with funds for the maintenance and support of an incapable person.

UCPR rule 5.3(1) Criteria Addressed

171. Upon a consideration of the requirements of UCPR rule 5.3(1), on the evidence before the Court:

1. It appears that the estate of the deceased may be entitled to make a claim against the first defendant requiring her to account for property of the deceased which, without apparent need or other justification, she caused to be liquidated and diverted away from his estate, contrary to reasonable expectations arising from his estate planning decisions and the provision made by him for the first defendant’s maintenance: UCPR rule 5.3(1)(a).

2. Having made reasonable inquiries, the estate of the deceased (represented by the plaintiff) is unable to obtain sufficient information to decide whether or not to commence proceedings against the first defendant: UCPR rule 5.3(1)(a). The plaintiff, as the estate’s representative, has identified specific information sought in aid of decision making and related it to the decisions to be made.

3. The first defendant may have or may have had possession of a document or thing that can assist in determining whether or not the estate of the deceased is entitled to call upon her to account for her dealings with the deceased’s property as his attorney: UCPR rule 5.3(1)(b). The material sought on preliminary discovery evidences, or relates to, transactions effected by the first defendant as the deceased’s attorney.

4. Inspection of such materials by the plaintiff, on behalf of the estate of the deceased, would assist the estate to make a decision about whether or not to commence proceedings against the first defendant for an account of her dealings with property of the deceased as his attorney: UCPR rule 5.3(1)(c).

5. Due administration of the estate of the deceased would be assisted by an order for preliminary discovery designed to expose to view transactions effected in the deceased’s name in circumstances in which, because of his mental incapacity, he was, or may have been, unable to manage his own affairs: UCPR rule 5.3(1).

1. The first defendant ought to give discovery to the estate of the deceased (represented by the plaintiff) of all documents within the class of documents sought by the plaintiff (by way of preliminary discovery) that are or have been in the first defendant’s possession, such documents relating to the question of whether or not the estate is entitled to make (and, if so, should make) a claim for relief: UCPR rule 5.3(1).

172. There is no ground upon which the plaintiff’s substantive application for preliminary discovery can be characterised as an abuse of process. Apart from her contention that Taheri v Vitek relieves her of any liability to account for her dealings with property of the deceased, the first defendant has suggested none.

173. Nor is there any reason to leave the estate of the deceased to whatever entitlements to discovery it may have if and when substantive proceedings are commenced against the first defendant on its behalf. The plaintiff has presented an application for preliminary discovery within the scope of UCPR rule 5.3 and cogent reasons for a grant of such discovery.

PROPOSED ORDERS

174. Subject to allowing the parties an opportunity to be heard as to the form of any orders to be made, and costs, I propose to make orders and notations to the following effect:

1. Upon condition that the plaintiff give to the Court an undertaking that he will, in a timely manner, provide to the second defendant as administrator of the estate of the deceased a copy of all documents discovered to him by the first defendant pursuant to these orders, ORDERS are made in terms of orders 2 and 3 of these orders.

2. ORDER, pursuant to UCPR rule 5.3, that, within 21 days of these orders, the first defendant serve on the plaintiff and the second defendant, in accordance with rule 21.3 of the Uniform Civil Procedure Rules, a verified list of all documents in the categories identified in prayer 1 of the summons filed on 11 August 2020 which are or have been in her possession, custody or control.

3. ORDER that the first defendant make available for inspection by the plaintiff and the second defendant, no later than 14 days following service of her list of documents on the plaintiff and the second defendant, all discovered documents other than those in respect of which a claim of privilege is made.

4. RESERVE to the parties liberty to apply for an order, or orders, as to:

1. the existence or otherwise of any entitlement to privilege claimed by the first defendant in respect of a discovered document.

2. the necessity or otherwise for the plaintiff to provide security for the costs of the first defendant in giving preliminary discovery pursuant to these orders.

3. an amount, or amounts, payable by the plaintiff to the first defendant for costs incurred by her in making and serving any list of documents, producing any documents for inspection, or otherwise complying with these orders.

5. NOTE that no orders are made as to the costs of the summons filed on 12 December 2019.

6. ORDER that the plaintiff pay the costs of the first defendant of the summons filed on 11 August 2020 on the ordinary basis, such costs to comprise:

1. the costs of due consideration of the affidavit of the plaintiff read in support of the summons.

2. the costs of due consideration of the plaintiff’s written submissions, and the costs of preparation of written submissions on behalf of the first defendant, relied upon at the hearing of the summons on 11 August 2020.

3. the costs of and incidental to the hearing of the summons on 11 August 2020.

7. In the event that proceedings are commenced by or on behalf of the estate of the deceased against the first defendant for an accounting for her dealings with property of the deceased as his attorney, RESERVE to the plaintiff and the second defendant, to the extent that any application may be necessary, liberty to apply for an order that costs payable in these preliminary discovery proceedings be dealt with as an expense incurred by or on behalf of the estate of the deceased in pursuit of the estate’s claim against the first defendant for an accounting.

8. RESERVE to the plaintiff liberty to apply for an order, or orders, that he be released from the undertakings he gave to the Court on 11 August 20202 and that he be indemnified from the estate of the deceased for costs incurred by him in, or in respect of, the proceedings respectively numbered 2019/00392013 and 2020/00233906.

175. By the undertaking in proposed order (1) and inclusion of the second defendant in the preliminary discovery process, this scheme of proposed orders is intended to give practical recognition to the representative capacity in which the plaintiff applied for preliminary discovery.

176. As the first defendant’s opposition to the plaintiff’s claims for preliminary discovery was not unreasonable in circumstances in which the plaintiff pursued his claims prematurely (that is, without a grant of administration), and he seeks an indulgence in the form of a grant of discovery on his application as a beneficiary, the plaintiff should bear the costs of the proceedings in the first instance, reserving potential for any costs paid by him to be borne ultimately by the first defendant, or the estate of the deceased, depending upon the course of future events.

177. As the first set of proceedings (2019/00392013) are, on the existing state of the law, a “nullity”, no costs orders should be made in those proceedings; but the preparatory work undertaken in those “proceedings” should be the subject of allowances made in the order for costs made in the second proceedings (2020/00233906).

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