The Equity Jurisdiction of the Supreme Court handed down a decision on 23 October 2020 in relation to legal issues in the areas of Estate Law and Property Law. Several properties which are of importance in the case are located in the Sutherland Shire.
The Plaintiff and his sister (the Defendant), who lived in Egypt, spoke over the telephone about creating a Power of Attorney. The details of the conversation are disputed in the case, but the essence was that the two agreed that the Plaintiff would act as the Defendant’s Attorney for the purposes of buying property. The Defendant executed a “general POA” in 1994 with herself as the Principal and the Plaintiff as her Attorney. The POA bore a certificate of a legal practitioner enabling it to operate as an enduring POA and was registered in the NSW Land Titles Office.
The Plaintiff then went on to buy the following six properties in his sister’s name:
- A unit numbered 3 on the Kingsway, Cronulla (“Cronulla Property 1”);
- A unit numbered 9 on the Kingsway, Cronulla (“Cronulla Property 2”);
- A unit at 120-122 Port Hacking Road, Sylvania (“Sylvania Property 1”);
- A unit at 112-118 Port Hacking Road, Sylvania (“Sylvania Property 2”);
- A unit numbered 8 on West Street, Hurstville (“Hurstville Property 1”); and
- A unit numbered 9 on West Street, Hurstville (“Hurstville Property 2”).
A dispute subsequently arose in relation to:
- The beneficial ownership of the some of the above properties; and
- A claim by the Defendant that the Plaintiff was obliged to provide a full accounting for his dealings with the property, and his receipt of income, as her attorney.
The Plaintiff’s Arguments
The Plaintiff (brother) contended that the property was acquired by him in the name of the Defendant (his sister), and was held on trust for him. He made no allegation of fraud against her. He acquired and disposed of property and received income in the name of his sister, but, he claimed, in equity, on his own behalf.
The rationale for this arrangement was said to be the Plaintiff’s desire to protect his assets from the claims of creditors; and partners, should his relationships deteriorate as his first marriage did. That desire was said to have brought about prior family law litigation and bankruptcy.
The Defendant’s Case
The Defendant’s case was that the Plaintiff agreed that he would acquire and manage property in Australia as her attorney for her benefit so as to enable her to establish a financial presence in Australia which might assist her and her family when (as she anticipated) they applied to the Australian Government for permission to migrate to Australia from Egypt.
The Defendant demanded that the Plaintiff account for all dealings undertaken by him in her name in relation to the six properties.
In addition, the Defendant sought to recover from the Plaintiff’s wife title to a home unit which was purchased in her name and subsequently transferred by the Plaintiff to his wife. The Defendant did not claim the Plaintiff’s wife was privy to a fraud.
Defendant’s claim against the Plaintiff’s Wife
A party seeking to displace the title of a registered proprietor (“RP”) generally has to prove that the RP acquired title through “fraud” (Real Property Act s 42), or that the moving party has a personal claim against the proprietor such as where the proprietor holds property on trust for the moving party.
In the absence of such exceptional circumstances, a volunteer who becomes registered as a proprietor attains indefeasibility (Bahr v Nicolay (No 2)  HCA 16).
In this case, the Defendant’s endeavour to recover from the Plaintiff’s wife title to the home unit was found to be weakened by the absence of an allegation that the wife was privy to a fraud. The Plaintiff’s wife acquired title as a volunteer, but that fact alone is insufficient to render her title as an RP defeasible. Therefore she could keep the property.
However, it was held that by the Plaintiff transferring Cronulla Property 2 to his wife he acted in breach of his fiduciary obligations to the defendant as her attorney. Justice Lindsay reserved making any judgement as to whether or not the Plaintiff had a liability to account for profits to the defendant which he earned from Cronulla Property 2.
Plaintiff’s claim against the Defendant
The Plaintiff’s affidavit evidence essentially claimed that the Plaintiff asked the Defendant whether he could buy property as her attorney but essentially on trust for himself, to which she agreed.
He also claimed that his sister said “Ok brother I will do this for you, what can happen to me, I am never coming to Australia anyway, they can’t get me from here”.
The Defendant’s affidavit evidence was that the conversation which generated the POA was one in which she asked the Plaintiff to buy property on her behalf for in anticipation of her and her family migrating to Australia. She also claimed that she provided large amounts of cash to the Plaintiff for the purposes of buying the properties.
The Plaintiff denied this, as this would go to show that the properties were indeed purchased for the Defendant instead of, beneficially, for himself, as he claimed.
The rights and obligations of the Plaintiff and the Defendant depended upon the nature and extent of the Plaintiff’s authority as the Defendant’s attorney. It was found that a determination of that question is informed, if not governed, by their agreement as to the purpose of the power of attorney granted by the Defendant to the Plaintiff and the course of their subsequent dealings.
Whether an agreement was made as alleged by the Plaintiff, as alleged by the Defendant or possibly in some varied form of the parties’ different versions, may be informed by a consideration of whether the Defendant’s evidence of payments to the Plaintiff is accepted.
Upon an analysis of the purposes of the POA and their subsequent dealings, it was found that the Defendant’s evidence should be accepted. The nature of the arrangement with regard to property was found to be an informal family arrangement wherein the Plaintiff would buy property on behalf of his sister, as opposed to the formal legal arrangement of a trustee (allegedly the Defendant) holding property on trust for a beneficiary (allegedly the Plaintiff).
The Court held …
Cronulla Property 1 – the Plaintiff has no right, title or interest in this property.
Cronulla Property 2 – the Defendant has no right, title or interest in this property. However, as noted above, the Plaintiff may be liable to the Defendant for an account of profits on this property due to his breach of fiduciary obligation to the Defendant.
Sylvania Property 1 – this property was sold by the Plaintiff’s trustee in bankruptcy. He claims, the money he received from this sale was applied to reduce the mortgage debt on the Hurstville properties.
Sylvania Property 2 – This property was also sold by the plaintiff.
Hurstville Property 1 – the Plaintiff has no right, title or interest in this property.
Hurstville Property 2 – The property was sold at auction in 2017 by the Plaintiff to discharge debts which related to the Properties.
Regarding the sale of Sylvania Property 1 and Hurstville Property 2, the Plaintiff did not breach his fiduciary duties to the Defendant because he did so to service the acquisition and management of the Properties and he had authorisation from the Defendant as the Principal. However, there is still the issue of an absence of an account by him that this was in fact what he did.
No determination was made by the Court on the question of whether or not an order should be made for the Plaintiff to account for his dealings with property as attorney for the Defendant. Instead, this was let for the parties to see whether they could come to an agreement on this themselves.
As we have seen, powers of attorney can give rise to problems where the nature of the arrangement is unclear. As this case has shown us, the relationship was structured in such an informal way which could give rise to uncertainty and dispute. Firstly, the parties need to be sure that a POA is necessary. If this is the case, both the principal and the attorney need to be absolutely clear on their rights and obligations under the arrangement so as to diminish the possibility of such disputes arising in the future.
Contact the team at Shire Legal on 9526 3444 if you have any questions about Powers of Attorney or property generally.