Attorneys’ duties under enduring powers of attorney
Kevin Callinicos • 14 December 2016

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A recent judgment issued by the Court of Appeal has clarified the duties of an attorney under an Enduring Power of Attorney (“EPOA”) in relation to Property, particularly in circumstances when the donor (i.e. the person giving the power to the attorney), is mentally capable.
The case is ­Vernon v Public Trust [2016] NZCA 388. The essential facts are these:

  1. Kenneth Vernon appointed his son Ashley Vernon his attorney under an EPOA in relation to Property.
  2. Kenneth was aged 86 in March 2006, when his wife Naomi died.Following his wife’s death, Kenneth lived with Ashley and his wife, Beverley (“the Vernons”) until 2008, when he went into a rest home.
  3. When Kenneth went to live with the Vernons, his assets amounted to about $329,000.00.When Kenneth moved into the rest home, his assets had been reduced to $11,000.00.During that time, Ashley had controlled Kenneth’s bank accounts using the EPOA.
  4. Kenneth’s Will divided the balance of his Estate equally between Ashley and Kenneth’s grandson, Dante (being the only child of Kenneth’s other son, Chris, who had already died).
  5. Following Kenneth’s death in 2011, the Public Trust was appointed as replacement administrator of his Will.In 2014, the Public Trust issued proceedings in the High Court against the Vernons to recover the funds withdrawn from Kenneth’s account, alleging that Ashley had misapplied them for the joint benefit of him and Beverley.The Vernons denied liability and the claim went to trial.
  6. In the High Court, Justice Kós found that Ashley had exercised undue influence over Kenneth in obtaining Kenneth’s consent to the majority of the bank transactions, and found in the alternative that the transactions constituted a breach of Ashley’s fiduciary duty owed to Kenneth and on the grounds on unconscionability.
  7. The Vernons appealed to the Court of Appeal.
  8. The Court of Appeal decided that:
  9. The High Court decision could not be sustained on the grounds of “undue influence” because, once the Judge found that the transactions did not occur with Kenneth’s consent, it could not be said that the consent was obtained by “undue influence”.
  10. However, the Court of Appeal sustained Justice Kós’ alternative finding that Ashley’s actions constituted a breach of fiduciary duty and were unconscionable.The Court rejected the Vernon’s argument that the Protection of Personal and Property Rights Act 1988 was a code and that the fiduciary duties could not be implied.
  11. However, the Court of Appeal rejected that submission where the donor is not mentally incapable.Under an EPOA the donor appoints the donee to be the donor’s agent or attorney.Although, an EPOA is created by the Act which prescribes certain powers, that does not exclude the imposition of equitable obligations.Equity imposes enforceable duties on an agent.Fiduciary obligations are a necessary incident of the relationship of principal and agent.
  12. As a result, the Court of Appeal found that Ashley owed Kenneth fiduciary duties whenever he exercising his powers under the EPOA, and that in these circumstances, Kenneth had used his powers for improper purposes (to financially benefit himself and his wife), and this was directly contrary to Kenneth’s property interests.
  13. As a result of this decision, it is clear that the duties owed by attorneys to donors under an EPOA are more than those expressly stated in the Act and/or the power itself, but are, much like trustees, fiduciary duties which include the duty to act openly and fairly, to exercise reasonable care in managing the financial affairs, to keep personal and fiduciary property separate and to avoid conflicts of interest.

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