31 Following his attempted suicide in 1998 I observed Deanne Lake to attend to all of the financial matters regarding the training and racing of the horses on [the property] as well as the expenses of maintaining the home and that property."
The defendant's submissions
11 The defendant provided detailed written submissions under various headings. It is important that his position be recorded. The submissions are to the following effect.
Declaration that Power of Attorney is void and of no effect
12 The Powers of Attorney Act came into operation on 16 February 2004. It applied to all powers of attorney executed after that date. As the power of attorney was executed by Mr Lake on 26 October 2006 it is subject to the Act. It contained a certificate by a "prescribed person", being Kelly Stanford. It therefore was a "prescribed power of attorney" as it complied with the requirements of s 19(1)(b) and s 19(1)(c) of the Act.
13 The law presumes that Mr Lake was capable and that the power of attorney was valid. That presumption continues until rebutted. The onus of establishing incapacity lies on the party who seeks to rebut the presumption: In re W (Enduring Power of Attorney) [2000] Ch 343 at 347-348 and [2001] Ch 609 at 615-616. Leaving aside the issue of fact as to whether the experts retained by the plaintiff apply the correct test and thereby establish the relevant lack of capacity, matters inappropriate to be determined at this stage, the relief sought, that the power of attorney be declared void, raises a number of issues in respect of which the proposed amended pleading is said to be deficient.
14 First, the power of attorney is described as "joint and several". The law generally presumes the authority to be joint: Ford Motor Co Ltd v Amalgamated Union of Engineering and Foundry Workers [1969] 2 QB 303. As regards the term "joint", the death of one attorney terminates the power: Adams v Buckland (1705) 2 Vern 514 [23 ER 929]; Berna Collier and Shannon Lindsay, Powers of Attorney in Australia and New Zealand (1992) The Federation Press at 213. By adopting the term "and", the power was granted to "all or any of them": Guthrie v Armstrong (1822) 5 B & Ald 628 [106 ER 1320]. In regard to the term "and several" it is arguable that the power of attorney continues beyond the death of one of them: Collier and Lindsay at 214. If the power of attorney is held to be joint and/or dependent upon the survival of each attorney, it has already terminated so that the relief sought concerning the precise point at which it became invalid has no utility.
15 Secondly, for the power of attorney to be void for incapacity it must be established that Mr Lake's incapacity was known by each of the persons who procured its execution: McLaughlin v Daily Telegraph Newspaper Co Ltd (No 2) [1904] HCA 51; (1904) 1 CLR 243 at 274; Gibbons v Wright [1954] HCA 17; (1954) 91 CLR 423 at 439. The proposed amended pleading fails to plead the requisite knowledge and the basis of such knowledge on the part of Mrs Lake, Mr Shand and Ms Keilar. This creates certain difficulties for both Mr Shand and Ms Keilar as a consequence of their past reliance upon both the power of attorney and the Appointment of Enduring Guardians, the prior pleadings and their conduct exercising the powers based upon the validity of both powers.
16 Thirdly, if it is held that the power of attorney was not terminated by the death of Mrs Lake in November 2008, the proper course is to seek a review pursuant to s 28 and s 32 of the Act. No such application is presently made pursuant to those provisions or otherwise.
17 Fourthly, if the power of attorney was declared void ab initio it would have the consequence that each and every exercise of that power by each of the donees of the power would be set aside, unless, for example, protected by indefeasibility: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 at [192]; City of Canada Bay Council v F & D Bonaccorso Pty Ltd [2007] NSWCA 351 at [83]; (2007) 156 LGERA 294 at 318. Persons or parties having an interest in such transactions and affected thereby are required to be joined: UCPR 6.24. The plaintiff is not entitled to pick those transactions he seeks to set aside leaving the balance unaffected. If the power of attorney is void ab initio all transactions entered into and agreements made by each and every attorney are thereby set aside. As each attorney owes fiduciary obligations to Mr Lake, each is a trustee of his property. By disposing of that property in the absence of a valid power of attorney, each has acted in breach of trust and is liable to make good that loss: The Margaret Mitchell (Stiles, Master) (1858) Sw 382 [166 ER 1174]; Holt (1983) 12 A Crim R 1 at 14. The problems of declaring the power of attorney void ab initio are therefore considerable.
18 Fifthly, the proposed amended pleading does not plead with any clarity whether the payments by Mrs Lake to Mr Crawford were unauthorised by reason of the power of attorney being void. It also fails to make clear the effect, if any, that the declaration sought would have upon those payments. If it is assumed, however, that the payments were made without authority, the pleadings fail to make clear whether the payments were a breach of s 11 of the Act (unreasonable benefit - see Schedule 3) or whether the payments were made without power by reason of the alleged invalidity.
19 Sixthly, the proposed amended pleading fails to plead with any sufficient particularity that the subject payments sought to be impugned were made by Mrs Lake pursuant to the power. Clearly Mrs Lake had authority to operate Mr Lake's accounts with the National Australia Bank. No reference to the source of that authority is to be found in the pleading. One is left to assume that the authority to operate that account has as its source the power of attorney. As Mrs Lake had managed Mr Lake's affairs for many years, the source of the authority needs to be carefully and precisely pleaded.
Alleged incapacity of Mrs Lake
20 The plaintiff alleges that Mrs Lake lacked the requisite capacity to manage Mr Lake's affairs between December 2006 and her death on 21 November 2008. Apart from this pleading being extremely general and unspecific, it involves issues far broader than the relief sought. It also fails to address the powers of review available for the termination of the power of attorney provided by the Act.
21 The proposed amended pleading also fails to make clear, in the absence of any application to remove Mrs Lake or terminate the power of attorney, the basis upon which her requisite incapacity was known by Mr Crawford so as to put him on notice that she did not herself have sufficient capacity to direct the bank to make the payments as she did. This is said to leave the defendants in the position of guessing what, if any, incapacity Mrs Lake was under in relation to each payment.
Claim of undue influence
22 The plaintiff also pleads a claim based on restitution arising from Mr Crawford's alleged undue influence. The pleading fails to take account of or to recognise that the money paid to him was trust property in the hands of Mrs Lake. The recovery of property paid to third parties in breach of trust is to be determined by the principles set down in Barnes v Addy (1873-74) LR 9 Ch App 244. At 251-252 Lord Selborne LC said:
"But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers … unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees."
23 This passage is the source of the familiar "knowing receipt" and/or "knowing assistance" limbs of Barnes v Addy: see Say-Dee at [111] and [112]. For a person to be chargeable under the first limb, it must be established that he or she received trust property with notice of the breach of trust. The proposed amended pleading contains no specific pleading or adequate particulars to support a claim based upon either the first or second limb. It proceeds on the basis that, if established, a claim based on undue influence entitles the plaintiff to restitution. The first and second limbs of Barnes v Addy were developed to prevent third parties being held to be constructive trustees where there has been a breach of trust in respect of trust property. The High Court unanimously rejected restitution as an alternative to knowledge under the first limb (Say-Dee at [130] to [158]). As stated at [151], a claim of restitution based upon unjust enrichment does not include "recipient liability for breach of trust". If permitted it would make it "unnecessary" for the plaintiff to prove knowledge of the breach of the fiduciary duties (see [139]) among other things. The Court confirmed the need to establish notice if a third party was to be held liable as a constructive trustee under the first limb of Barnes v Addy.
24 The claim of undue influence applies to dispositions of property by holders of the legal and beneficial interest (see Quek v Beggs (1990) 5 BPR 11,761), not a trustee acting in breach of trust. If capable of establishment, certain aspects of the claim of undue influence would, if pleaded, fall within the second limb of Barnes v Addy.
25 In addition to the above, the proposed amended pleading fails to particularise any conduct on the part of either defendant said to constitute undue influence at the time of the relevant transactions. This is said to be of particular significance in circumstances where the evidence demonstrates that the transfer of funds was undertaken by Mrs Lake providing instructions directly to the bank. It therefore fails to plead a reasonable cause of action.
Claims against second defendant Delcort Investments Pty Ltd
26 No claim of undue influence is pleaded against Delcort. Paragraphs 24(b) and 26 of the proposed amended pleading appear to be based on a claim in restitution for "money had and received". In essence the claim appears to be one based upon the first limb of Barnes v Addy. If not, for the reasons discussed earlier, that would appear to be the only basis for such a claim. A claim based on the first limb of Barnes v Addy is not sustainable in the absence of actual or moral turpitude (Bonaccorso at [83]. The pleading contains no allegation of either "fraud or moral turpitude" or any conduct on the part of Delcort to maintain a claim under the first limb of Barnes v Addy. No claim is made under the second limb.
Consideration
27 It can be anticipated with some confidence that there will be a lively dispute about the propriety or otherwise of Mrs Lake's monetary dispositions and about the precise circumstances in which they were made. This will necessarily include a significant issue as to Mrs Lake's capacity at the time of the transfers. The relationships between and among Mr and Mrs Lake and the defendant will also no doubt require examination at some length. It will also be apparent from the thrust of the defendant's arguments, which I have attempted to encapsulate above, that there will be considerable controversy about the appropriate legal principles and debate about how they should be applied in this case.
28 In McGuirk v The University of New South Wales [2009] NSWSC 1424 at [37] - [39], Johnson J set out the relevant principles as follows:
"[37] A very clear case is required before a litigant is prevented from pleading a case upon the basis that no reasonable cause of action is disclosed, and this power should be sparingly employed: Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; [1965] ALR 636; Webster v Lampard (1993) 177 CLR 598 at 602-3; [1993] HCA 57. The test is not whether the Plaintiff would probably fail in his action against the Defendant, it is whether the material before the Court demonstrates that the action should not be permitted to go to trial in the ordinary way because it is apparent that it must fail: Webster v Lampard at 602. The fundamental principle is that prima facie a plaintiff is entitled to have his case come to trial, and that an application to deprive him of that right will succeed only in the clearest of cases: Brimson v Rocla Concrete Pipes Limited (1982) 2 NSWLR 937 at 944. Usually, a party is not to be denied the opportunity to place his case before the Court in the ordinary way, and after taking advantage of the usual interlocutory processes. For a plaintiff to be shut out upon the basis that no reasonable cause of action is demonstrated, a high degree of certainty is required about the ultimate outcome of the proceeding, if it were allowed to go to trial in the ordinary way: Agar v Hyde (2000) 201 CLR 552 at 575-6.