The Powers of Attorney
59The terms of the powers of attorney have been set out at para [22] above. They were in the form of Schedule 7 to the Conveyancing Act. Section 163B of the Conveyancing Act provided:
"163B Power conferred by prescribed form of instrument
(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 or 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."
60The scope of the authority conferred on an attorney pursuant to the form of the power of attorney in Schedule 7 to the Conveyancing Act where clause 2 is included and there are no conditions and limitations expressed in Part 2 of the form is the subject of conflicting decisions in this Court. In Spina v Conran Associates Pty Ltd [2008] NSWSC 326 Austin J held that although s 163B(2) permits a power of attorney, by express language, to authorise acts that result in a benefit to the attorney, that authority is subject to a limitation in subs (1) that the attorney's authority is to act on behalf of the person giving the power, which requires that the attorney act as a fiduciary in the interests of, that is for the benefit of, the principal (at [76]-[83]). Austin J held that the power of attorney in the form of Schedule 7 did not authorise the attorney in that case to execute a mortgage on behalf of his principal of the principal's property to secure the attorney's debt where that was to the principal's detriment.
61In Spina v Permanent Custodians Ltd [2008] NSWSC 561 Hammerschlag J declined to follow the earlier decision of Austin J in Spina v Conran Associates Pty Ltd. In essence Hammerschlag J held that a person will act as an "attorney" and "on behalf of" the principal where the attorney acts so as to bind the principal in a dealing with a third party. His Honour said that a person may lawfully authorise another to do something "on his or her behalf" which is entirely inimical to first person's interests or entirely in the second person's interests (at [149]). The fact that the person on whom the authority was conferred was called an "attorney" did not imply any limitation on the attorney's authority and the expression "on behalf of" did not necessarily import any notion of benefit, but merely connoted the relationship where one person's actions bound another (at [151]).
62Hammerschlag J concluded that Austin J's reasoning blurred a distinction between the extent or lack of authority and the abuse of authority (at [120], [155] and [181]).
63Other cases have drawn the same distinction as drawn by Hammerschlag J in Spina v Permanent Custodians Ltd between the width of the power of a fiduciary to bind his or her principal to contracts with third parties and the abuse of that power (Hambro v Burnand [1904] 2 KB 10 at 23, 25; Reckitt v Barnett, Pembroke & Slater Limited [1928] 2 KB 244 per Scrutton LJ at 257-258; Re R [2000] NSWSC 886 at [41]; Hughes v Hughes [2011] NSWSC 729 at [36]-[39]; Ward v Ward (No. 2) [2011] NSWSC 1292 at [3]). Counsel for Mr and Mrs Kirschner anticipated an argument that whatever might be the scope of Mrs Kirschner's authority under the power of attorney to bind her principals to a transaction which was for her benefit, and not for their benefit, it did not affect her duty as a fiduciary to act in the interests of her principal. In rebuttal of that argument, counsel submitted that the existence and scope of a fiduciary obligation between principal and agent depends upon the terms of the contract of agency. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Mason J said (at 97) (in a passage quoted by Hammerschlag J in Spina v Permanent Custodians Ltd at [116]):
"The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
Hammerschlag J went on to say (at [117]):
"Accordingly where fiduciary obligations arise because of a contractual relationship the terms of the contract will affect the scope and extent of the fiduciary obligations between the parties, not the other way round."
(Jacobsen J made the same point in Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No. 4) [2007] FCA 963; (2007) 160 FCR 35 at [276]-[281], [323]).
64Counsel for Mr and Mrs Kirschner submitted that "It is difficult to formulate logically how a breach of fiduciary obligation can arise when the act said to constitute the breach is expressly authorised by the instrument." Counsel submitted that those authorities that found a breach of fiduciary obligation by reason of an agent's having acted in his or her own interests where the power of attorney granted an express power for the agent to do so failed to address the question of how there could be a breach of fiduciary duty in those circumstances. Counsel accepted that an agent who was expressly authorised to deal with the principal's property for the agent's own benefit might be held to account, or a transaction for the agent's own benefit might be set aside, if the agent took unconscientious advantage of the principal's position of special disadvantage. But such a case depends upon different principles. There was no such pleading in this case.
65The first question is the extent of the authority conferred on Mrs Kirschner by the powers of attorney. That partly depends upon the construction of s 163B(1) and partly on the terms of the power of attorney itself. In my view the critical consideration is not the description of Mrs Kirschner as the Perochinskys' "attorney" (compare Spina v Conran Associates Pty Ltd per Austin J at [77]). The critical matter is that the authority conferred by subs 163B(1) is authority "to do on behalf of the person executing the instrument anything the person executing the instrument may lawfully authorise an attorney to do". Likewise the power of attorney itself describes the authority conferred on the attorney as one "to do on my behalf anything I may lawfully authorise an attorney to do".
66In Spina v Permanent Custodians Ltd Hammerschlag J said (at [145]-[151]):
"[145] The Oxford English Dictionary, 2nd ed, defines 'on behalf of' (cf 'in behalf of') in the following terms, as relevant:
I. 1. on behalf of ...
c. On the part of (another), in the name of, as the agent or representative of, on account of, for, instead of. (With the notion of official agency.) ...
[146] It defines "attorney" as follows:
2. (attorney in fact, private attorney.) One duly appointed or constituted (by letter or power of attorney) to act for another in business and legal matters, either generally, as in payment, receipt, and investment of money, in suing and being sued, etc, or in some specific act, which the principal, by reason of absence, is unable to perform in person. Hence the contrast between 'in person' and 'by attorney,' frequent also in fig. senses ...
[147] The term 'attorney' signifies anyone who acts in the turn or place of another; Halsbury's Laws of England, 4th ed, vol 44(1) (reissue) at [1]. It has no necessary connotation that the actor acts for the benefit of another.
[148] 'Attorney' and 'on behalf of' in the present context connote no more than a relationship which results in the actions of one person binding another. They are 'concerned with the standing of one person as auxiliary to or representative of another person or thing'; R v Toohey; Ex parte A-G for Northern Territory (1979) 145 CLR 374 at 386, per Stephen, Mason, Murphy and Aickin JJ.
[149] As a matter of language a person may lawfully authorise another to do something on his or her behalf which is entirely inimical to the first person's interests or entirely in the second's.
[150] Likewise an attorney may, if authorised, act entirely inimically to his or her appointer's interest.
[151] In my view as a matter of language neither the term 'attorney' nor the term 'on behalf of' necessarily imports any notion of benefit. The words merely connote the relationship where one person's actions bind another."
67This construction gives the words "on behalf of the person executing the instrument" no work to do. On his Honour's construction, the section provides that the instrument in the form in Schedule 7 "confers on the attorney thereby appointed authority to do ... anything the person executing the instrument may lawfully authorise an attorney to do". Likewise clause 1 of the power on his Honour's construction confers on the attorney "the authority conferred on her by s 163B of the Conveyancing Act 1919 to do ... anything I may lawfully authorise an attorney to do."
68In my view, the words "on behalf of the person executing the instrument" and "on my behalf" in s 163B(1) and in para 1 of the power should not be treated as mere surplusage if there is another meaning to those words that is reasonably open and is consistent with the context and purpose of the section and the instrument.
69Hammerschlag J noted (at [145]) a distinction between the phrase "on behalf of" and "in behalf of" in the Oxford English Dictionary. The Oxford English Dictionary notes that "in recent use we often find 'on behalf' in the sense of 'in behalf', to the loss of an important distinction." The meaning of "in behalf" is given as:
"In the interest of, as a friend or defender of, for the benefit of."
70The important point is not a lexicographer's lament about the changing use of language, but the fact that the words "on behalf of" are often used in the sense of acting in the interest of or for the benefit of another. It is in that sense that Austin J construed those words in Spina v Conran Associates Pty Ltd. As Austin J observed there is good authority for so understanding that phrase in the context of powers of attorney.
71In Tobin v Broadbent (1947) 75 CLR 378 Dr Tobin had given a power of attorney to a stockbroker, Mr Hodgetts, in comprehensive terms. The power was for the attorney to act as he might think fit in relation to Dr Tobin's affairs generally, including the exercise of "the fullest powers in relation to real and personal property and my affairs and the conduct and management thereof". There was no express provision permitting the attorney to exercise the power for his own benefit. Of this power of attorney Starke J observed (at 397-398):
"Comprehensive as are these terms the only actual authority given to Hodgetts is to act for and on behalf of his principals; nowhere is any authority given to him to use the appellant's shares and investments for his own private purposes".
Starke J here distinguished between the exercise of the power on behalf of the principal and its exercise for the agent's own purposes.
72Dixon J said (at 401):
"But the cardinal fact of the transaction which it is sought to bring within the power is that the loan was made to Hodgetts, the donee of the power, and not to either of the Tobins, the principals. Hodgetts was the borrower, the loan was for himself, he did not contract it as an agent but he gave the lender his principals' property as security. The question is, therefore, whether the power of attorney extended to authorizing Hodgetts to give a security over his constituents' shares for his own debt, not simply whether it authorized him to give a security. You cannot sever the giving of the security from the indebtedness secured. A transaction of security is unintelligible without an identification of the obligation secured. This is not the case of an agent misapplying moneys borrowed in his principal's name on the security of his assets pursuant to an authority covering the borrowing of money on the principal's behalf. If a transaction is ostensibly on the principal's behalf and is of a description that falls within the authority, it is nothing to the point 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 authorizing 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, Rickitt v Barnett Pembroke and Slater Ltd (1928) 2 KB 244, at p 268 a judgment approved in the House of Lords (1929) AC 176, at p 183 and p 195. In my opinion, the words of the powers of attorney do not in themselves suffice to confer authority upon Hodgetts to secure a borrowing of his own by a deposit of the plaintiffs' scrip. Such a transaction is in itself beyond the limits of the power."
73The most important part of this passage for present purposes is the concluding sentence of the first quoted paragraph. There, Dixon J referred to a transaction "ostensibly on the principal's behalf" as falling within the power. This referred to the transaction as being ostensibly for the principal's benefit.
74Russell J's dissenting judgment in Reckitt v Barnett, Pembroke & Slater Ltd at 268 was approved in the House of Lords and endorsed by Dixon J in Tobin v Broadbent. Russell J said (at 268) in reference to a submission that "the power given to an attorney to draw cheques without restriction authorised the attorney to do what he liked with the principal's moneys, even to the extent of applying them in payment of his own personal debts"
"It would need words unambiguous and irresistible to enable me to attribute such a meaning and intention to a power of attorney. 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."
75The present question is whether clause 2 of the power is a clear power for an attorney to make presents to herself of her principal's property. I see no reason not to apply his Lordship's words to the construction of the power of attorney conferred by clause 1. Section 163B, which describes the extent of the authority conferred by a power of attorney executed in accordance with schedule 7, should be construed in accordance with that principle, given its endorsement by the High Court in Tobin v Broadbent.
76It is not every benefit conferred on an attorney that amounts to the giving of a present. It is possible for an attorney to act to benefit his or her principal, although at the same time the attorney obtains a benefit for himself or herself. An example would be taking up an investment opportunity where neither the attorney's own funds, nor those of the principal would be sufficient to take up the opportunity, but their combined funds would be sufficient. In the absence of clause 2 of the power of attorney, the attorney would be required to account to his or her principal for a gain derived by the attorney from use of his fiduciary position (Chan v Zacharia (1984) 154 CLR 178 at 199; Breen v Williams (1996) 186 CLR 71 at 135). If the investment showed a loss, in the absence of clause 2 of the power of attorney, the attorney would be required to account to his principal for the loss (Breen v Williams at 136). In Spina v Conran Associates Pty Ltd, Austin J (at [73]) cited other examples where clause 2 would have sensible work to do even though it did not extend to the attorney's power making presents to himself or herself.
77In Spina v Permanent Custodians Ltd, Hammerschlag J supported his construction of s 163B by the Law Commission Report of 7 August 1970 (UK) which led to the enactment of s 10 of the Powers of Attorney Act 1971 (UK). Section 10 of that Act provided that a general power of attorney in the form set out in a schedule to the Act conferred on the donee authority to do on behalf of the donor anything which the donor could lawfully do by an attorney. The Law Commission Report said that the legislation it proposed was intended to avoid any argument as to the extent of the authority conferred.
78The Law Commission Report did not address the issue of an attorney acting for his or her own benefit. The legislation enacted in New South Wales by s 163B of the Conveyancing Act did not follow s 10 of the UK Powers of Attorney Act 1971. The provision that the attorney act on behalf of the principal was included in the New South Wales Act, but not in the UK Act.
79The reports of the New South Wales Law Reform Commission (LRC 18 and LRC 20) that preceded the introduction of s 163B of the Conveyancing Act did not address the present issue. Hammerschlag J referred (at [165]) to the second reading speech where the Minister said:
"'[It] will provide for the operation of a statutory short form power of attorney conferring on the attorney authority to do on behalf of the principal anything the principal may lawfully authorise an attorney to do. The principal would, of course, be able to impose whatever conditions or limitations on the authority he desires. However, the bill specifically provides that the power does not authorise an attorney to execute any dealing in favour of himself unless this is expressly allowed by the principal.' (emphasis added)"
80The Minister's speech was not a substitute for the section. In any event, it did not take the matter further, because the Minister said that the statutory short form power would confer authority on the attorney to do "on behalf of the principal" anything the principal could lawfully authorise the attorney to do. Hammerschlag J said (at [167]) that the plain meaning of s 163B(1) was that "the agent is vested with power to do anything which the principal himself could do." But that construction leaves out the words "on my behalf".
81If a person holds out his or her agent as having authority to act in a particular class of transactions, the principal will be bound if the agent acts in accordance with his or her ostensible authority, whether or not the agent acts in accordance with his or her actual authority. But the relevant authorities, in particular Hambro v Burnand [1904] 2 KB 10, are not cases of ostensible authority.
82In Hambro v Burnand the principals gave to the agent, who was a member of Lloyd's, an authority to write policies of insurance in the ordinary business of an underwriter at Lloyd's on their behalf. The agent purportedly bound the principals to policies of insurance by which the principals agreed to indemnify the acceptors of bills of exchange if the drawer of the bills failed to meet its obligation to indemnify the acceptors. The drawer of the bills was a company, Henry Gaze & Sons Limited. The agent was a director of the company and had personal financial dealings with it. The drawer did not pay the premiums under the policy and the agent did not enter the policies in his books. The agent intercepted letters to his principals for the purpose of preventing them from becoming aware of the existence of the policies (at 12). The Court of Appeal held unanimously that the underwriting of the policies was within the terms of the authority given by the principals and the insureds (the acceptors of the bills). This was not affected by the fact that the agent may have "abused [his] authority or betrayed his trust" (per Romer LJ at 23). The case was decided on the basis that the writing of the policies was within the actual authority of the agent (at 19, 21, 23, 25 and 26 citing Bryant, Powis & Bryant Limited v Quebec Bank [1893] AC 170). Contrary to what was said by Austin J in Spina v Conran Associates Pty Ltd at [86] the case was not decided on the basis that the attorney had been clothed with ostensible authority to enter into the underwriting transactions, even though he had no actual authority to do so for his own benefit. Counsel for the principals had argued that the only question was whether the agent was acting in the course of his actual authority because there had been no holding out by his principals of him as an agent (at 16). Nothing was decided to the contrary of that.
83Consistently with Hambro v Burnand the Court of Appeal decided in Reckitt v Barnett, Pembroke & Slater Limited that a principal was bound to honour a cheque drawn by his agent in payment of a Rolls Royce motor vehicle of which the agent took possession. Again, the case was decided as one of the agent's actual authority, not his ostensible authority. Sir Harold Reckitt had given a power of attorney to his solicitor to do various things on his behalf. The list did not expressly include drawing cheques on the principal's account, but he wrote to his bank advising that the power of attorney was to include the power to cover the drawing of cheques by his attorney without restriction.
84The solicitor bought a Rolls Royce car in his own name from the defendants and in payment provided a cheque that he signed in the name of Sir Harold by himself as his attorney. The defendants, who sold the vehicle to the solicitor were sued for conversion of the cheque. They had not noticed the form of signature. They did not rely on Sir Harold Reckitts' having held out the solicitor as his attorney. In the Court of Appeal Scrutton and Sankey LJJ held that the principal had conferred authority on his solicitor to draw the cheque on his behalf and it was no answer to say that the solicitor had abused that authority, it not being suggested that the defendants had notice of such an abuse. This was consistent with Hambro v Burnand. It was also said to be consistent with Lloyd v Grace, Smith & Co [1912] AC 716. Russell J dissented. It was his dissenting judgment that was approved in the House of Lords. Russell J held (at 269):
"Powers of attorney are to be construed strictly; and where authority to do an act purporting to be done under a power of attorney is challenged, it is necessary to show that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument either in express terms or by necessary implication: Bryant's case ([1893] A. C. 170, 177)."
85The House of Lords held that the solicitor did not have authority to use his principal's money to pay his private debts (Reckitt v Barnett, Pembroke & Slater Limited [1929] AC 176 per Lord Hailsham LC at 182; per Viscount Dunedin at 184; per Viscount Sumner at 189; per Lord Warrington at 193).
86Similarly, the High Court held in Tobin v Broadbent that notwithstanding the wide terms of the power of attorney given in that case to the stockbroker Hodgetts, the power did not confer actual authority on the attorney to pledge his principal's property to secure his own debts. In neither Reckitt's case in the House of Lords, nor in Tobin v Broadbent was the case decided on the ground that the third party was affected by notice that the agent was acting in abuse of an authority conferred on him. Both cases decided that the agent's authority did not extend to acting solely in the attorney's interest.
87The authorities were reviewed by Windeyer J in Sweeney v Howard [2007] NSWSC 852. His Honour noted that earlier editions of Bowstead on Agency had included an article 74 that read as follows: "An act of an agent within the scope of his actual or apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests", but that the 17th and 18th editions of Bowstead omitted the words "actual or" so that the article reads "An act of an agent within the scope of his apparent authority does not cease to bind the principal merely because the agent was acting fraudulently and in furtherance of his own interests." Windeyer J observed that in the 17th and 18th editions of Bowstead a new article 23 has been included that provides "Unless otherwise agreed, authority to act as agent includes only authority to act for the benefit of the principal". His Honour referred to Halsbury's Laws of Australia in Title 15 on Agency, Chapter 2 para 15.75 where it is said:
"The language of a power of attorney, however widely expressed, will not prima facie be construed as authorising the agent to deal with his principal's property for his or her own purposes, or otherwise to act in his or her own interests to the exclusion of those of the donor."
88Windeyer J considered that those passages are supported by the authorities he reviewed, in particular, Tobin v Broadbent and the House of Lords' decision in Reckitt's case (at [55]-[58]).
89As counsel for Mr and Mrs Kirschner submitted, if the power of attorney is construed so as to confer actual authority on the agent to act for his or her own benefit, even though that is contrary to the interests of the donor of the power, it is not easy to see how the attorney would abuse the authority he or she was given by acting for his or her own benefit and contrary to the interests of the principal. In Spina v Permanent Custodians Ltd Hammerschlag J assumed that the attorney could abuse his fiduciary position by so acting, but did not, with respect, explain why that would be so.
90For these reasons I prefer the views of Austin J in Spina v Conran Associates Pty Ltd as to the proper construction of s 163B of the Conveyancing Act to those of Hammerschlag J in Spina v Permanent Custodians Ltd. In Hughes v Hughes, Gzell J expressed a preference for the views of Austin J without expounding his reasons.
91Counsel for Mr and Mrs Kirschner submitted that a construction of the section that permitted an attorney to act for his or her own benefit only if that was also for the benefit of the principal would defeat the purpose of the provision which was to confer wide powers on the attorney, unless they were expressly limited by conditions or limitations included in part 2 of the form. Otherwise, it was said, if a husband gave his wife an enduring power of attorney and she exercised it to spend his money to buy clothes or groceries for herself, she would be acting beyond the power conferred.
92I do not think this necessarily follows. The question in each case would be whether the attorney, although deriving a benefit for himself or herself was acting on behalf of the principal. In my view, in the hypothetical case posed by counsel, it could well be said that the wife was acting on her husband's behalf if she exercised the power of attorney to spend money on herself if she was thereby only doing what the husband would do himself if he were present and capable. In such a case, the wife would be discharging what would be at least a moral obligation of the husband to provide support.
93In the same way, in the present case, I accept that if Mr and Mrs Perochinsky did express their intention to make gifts of their property to Mr and Mrs Kirschner, Mrs Kirschner would be acting on their behalf if she exercised the powers of attorney to complete the gifts. In such a case Mrs Kirschner would be acting in the interests of Mr and Mrs Perochinsky and acting on their behalf, by effectuating their intention. With the express authority in the power to act for her own benefit, Mrs Kirschner could complete the gifts. But the position would be otherwise if Mr and Mrs Perochinsky did not say that they wanted to give their property to Mr and Mrs Kirschner. If that were the position, Mrs Kirschner would not be acting on their behalf when she used the powers of attorney to confer benefits on herself and her husband. Accordingly, the critical question is whether or not I accept Mr and Mrs Kirschner's evidence of Mr and Mrs Perochinsky's statements of their intention to make gifts. (I deal below with the issues arising from the alleged incapacity of Mr Perochinsky to make such gifts.)
94This conclusion as to the proper construction of the powers of attorney answers the pleading issue. The defendants pleaded that Mr and Mrs Perochinsky gave their shareholding to them. They are entitled to rely on the terms of the powers of attorney, if necessary, in order to make good that contention. Had I accepted the submissions of counsel for Mr and Mrs Kirschner that the powers of attorney were effective to enable Mrs Kirschner to transfer the shares, or the proceeds of sale of the shares, or the refund of the accommodation bond, for her benefit and that of her husband, irrespective of whether or not the Perochinsky's had expressed their intention to make gifts, then I would have accepted the plaintiff's submission that that was a matter that needed to be pleaded. Had Mr and Mrs Kirschner sought leave to amend I would have refused leave because Mrs Perochinsky might have sought to address that contention by pleading an alternative cause of action, as she unsuccessfully sought to do at the commencement of the hearing.