Powers of attorney – statutory v common (people)** law documents

Following the previous two posts a question has been raised about the need to comply with the state-based legislation in each jurisdiction when creating a general power of attorney, as opposed to an enduring power of attorney.

Broadly the position in relation to general powers of attorney is as follows:

1. Each state has legislation setting out a statutory regime for making a general power of attorney;
2. In addition to this statutory regime, there is at common law the right to make a power of attorney or otherwise delegate the rights of a principal to an attorney;
3. Assuming the document creating the attorney appointment is properly crafted, a common law appointment of attorney will generally have more flexibility than a statutory document (which will often be in a standard pro-forma).

Enduring powers of attorney are not able to be made at common law and it is therefore necessary to rely on the statutory regime.

The reason that the common law does not support enduring powers of attorney is because a power of attorney terminates automatically when a principal loses legal capacity.

The common law treats a principal-agent relationship as a personal one. This means an agent has no authority to act on behalf of a principal if the principal themselves can no longer act.

** for the trainspotters, the title here is riffed from Pulp, ‘Common People’. 

The time is now** - Start date for an attorney’s powers

One of the questions that arose following last week’s post, that is often raised in estate planning is the timing for powers of attorney to commence operation.

In particular, often a donor will suggest that an attorney’s powers should not commence until some future date, for example ‘on loss of capacity’.

On a number of levels, perhaps counterintuitively, we usually recommend immediate commencement of attorney powers where permitted by law (typically in relation to financial appointments).

In some instances, powers are prohibited at law from commencing until the donor has lost capacity.

The reasons we recommend this approach include:

1. The likelihood the documents may need to be used in other scenarios (such as during overseas travel, or during periods of short term, relatively minor incapacity such as routine surgery) – the effectiveness of the document is significantly compromised if only triggered by ‘complete, absolute and permanent mental incapacity’.
2. Avoiding a debate as to exactly when the document has come into force – particularly in an emergency situation it can significantly undermine the utility of the document if there needs to be an analysis of whether a pre-condition to commencement has in fact been satisfied.
3. As an easy rule of thumb test as to whether there should be (say) a co-attorney appointed – that is, if there are concerns about the powers starting immediately. This can often be at least partly due to concerns about the skills or trustworthiness of the persons nominated.
4. There are a number of practical steps that can be taken to guard against inappropriate attorney conduct – for example, placing the original enduring powers of attorney in secured storage so that the attorneys are required to request copies before they can exercise their powers.
5. Another practical protection is ensuring that the appointed attorneys do not sign to accept their appointment until they need to rely on it - the powers under an enduring power of attorney cannot be used unless the appointed attorney has signed their acceptance.
6. Practically a further easy work around is appointing one or more additional co-attorneys – typically another family member, friend or trusted adviser to act jointly with the clients’ attorneys. This prevents a single ‘rogue’ attorney from acting inappropriately as all decisions would require two or more attorneys to act together.
7. If there are still concerns about the attorneys acting inappropriately in light of the above points, the harsh reality is that this says more about the persons being considered than it does about the document commencing immediately – in other words the issue should be addressed by reconsidering who is being appointed to the role.
8. Indeed, if there remain concerns about the integrity of the nominated attorney acting inappropriately, there may be in fact be wider concerns that need to be addressed – such as the attorney acting inappropriately after the donor has lost capacity or even fraudulently creating documentation to allow themselves to act, regardless of the donor’s intention.

** for the trainspotters, the title here is riffed from Moloko, ‘The Time is Now’.

Enduring powers of attorney – a hopefully not (failed) reminder **

While each state has different legislation in relation to enduring powers of attorney, one issue that has come up over the last few days, which is common to the rules in virtually every state, is the ability to appoint different people for financial related matters as compared to personal (or ‘guardianship’) matters.

Previous posts have considered various aspects of an advanced health directive (which is effectively the 3rd main component of the areas where you can appoint someone else to make decisions on your behalf).

Often, it will be the case that the people a client is wanting to entrust with their financial affairs will be different to those they wish to have make decisions in relation to personal healthcare matters.

Providing the documentation is crafted appropriately, there is no legal reason that different people cannot be appointed.

One practical issue that needs to be kept in mind however is that many of the personal health related issues will have at least a partial financial aspect to them.

For example, the decision as to the standard of nursing home care to be provided is ultimately as much a financial decision as it is a personal health care decision.

Unless there are compelling reasons to have different people appointed, therefore our default recommendation is that the same people are nominated in all roles.

** for the trainspotters, the title here is riffed from the New Order song, ‘Senses’.

Appointor (and a life of) succession **

Previous posts (including last week), have considered various aspects of an appointor or principal power under a trust deed.

In almost every estate plan involving a trust, it is necessary to consider the best way to appoint a successor appointor.

Predictably, the starting point in this process was to review the trust deed.

Often, the deed will permit the incumbent appointor to have their successor nominated under the will.

Generally, if available, a nomination under the will is the easiest and most commercially sensitive approach to take.

In other instances, for example, where there may be a challenge to the will, it may in fact be more appropriate to structure the appointor succession in a standalone document that sits outside the will.

Any approach is always subject to the deed, which are consistently inconsistent with the approaches available, for example:

1. appointment via will;
2. appointment via enduring power of attorney;
3. automatic lapsing of the role;
4. mandated succession embedded into the trust deed;
5. no appointor or principal role in the first place;
6. succession nominated by some other party (eg a ‘guardian’ or ‘nominator’);
7. no provision in the deed at all as to what happens to the role and no rules as to how appointor might appoint a successor; and
8. some combination of one or more of the above

** for the trainspotters, the title here is riffed from the Morrissey song, ‘My life is an endless succession of people saying goodbye’.

Appointor disqualification**

Last week, we had a situation where under the terms of a trust deed, the principal or appointor (ie the person with the right to unilaterally remove the trustee) had become automatically disqualified.

This type of provision is not unusual in a trust deed, however the exact mechanisms by which the disqualification took place were somewhat unique.

In this particular situation, the appointor was disqualified from acting if they left the jurisdiction that the trust was set up in (which was New South Wales).

The issue had never come up before until it was an issue, with the appointor now wanting to exercise its powers to remove the existing trustee; and the trustee wanting to resist their removal.

The trustee challenged the proposed unilateral removal by the appointor on the basis that the trust deed no longer gave the appointor the relevant power because the appointor was living in Victoria.

On a plain reading of the deed, the advice to the trustee was; yes, they were correct, and the appointor had been automatically disqualified.

Therefore, not only could the (former) appointor not remove the trustee, there was likely the ability for the trustee to proceed with a variation to appoint a new (friendly) appointor. An approach assisted by the fact that variations under the deed did not require appointor consent.

The situation is (yet) another reminder that before taking any step in relation to a trust; read the deed.

** for the trainspotters, the title here is riffed from the only song I could find with the word disqualification in it, ‘The Winner’ by Coolio.

Here we go again** - Another reminder - details do matter

Last week's post looked at the way in which the Corporations Act applies to the signing of documents.

A previous post has also considered the decision in the primarily superannuation related case of Re Narumon [2018] QSC 185.

This case also offers a related lesson, relevant for deeds of any form of trust, not simply super funds.

As mentioned last week, a sole director and secretary can bind a company where they sign and specifically note this capacity.

In the case here, a deed of variation was signed by the sole director and secretary of the corporate trustee, however the relevant capacity was noted simply as 'authorised representative'; and thus not in accordance with the Corporations Act.

Some years later the invalid execution of the deed of variation was identified by an adviser and a 'Deed of Ratification and Variation' was, validly, signed.

In apparently accepting that the approach that a deed of ratification can remedy errors in an earlier, ineffective, document the court also confirmed that care must be taken. In particular:

1. Any variation of any invalid document will need to rely on a variation power in the last valid deed in existence;
2. If no specific variation power is mentioned in the document purporting to amend the invalid document it should be possible to assume that the correct variation power is being relied on;
3. In contrast, if the deed purporting to make a variation specifically seeks to rely on a power in the invalid document it will itself likely be invalid; and
4. Practically, there would seem to be merit in retaining all previous versions of a trust deed, even if it is assumed they have been superseded by later variations.

As usual, if you would like access to any of the posts or the case mentioned in this post please contact me.

** for the trainspotters, the title here is riffed from the Whitesnake song, ‘Here I Go Again’.

How many (times) ** and directors does it take to bind a company?

As is generally well understood, section 127 of the Corporations Act confirms a company with 2 or more directors may execute a document by either:

1. 2 directors signing; or
2. a director and a company secretary signing.

Where a company has a sole director and secretary, that director can sign.

Perhaps less well known is section 126 of the Corporations Act that allows for a company to be bound by an individual acting with the company's express or implied authority.

In situations where section 126 is being relied on a company's constitution is also often relevant. For example, a constitution may provide that the directors can resolve that a specified director is authorised to execute documents.

Third parties will of course not necessarily be aware of the internal resolutions of a company. The Corporations Act under sections 128 and 129 therefore provides some protection for third parties confirming that they may rely on certain statutory assumptions as to valid execution.

These assumptions have a number of limitations however, for example they cannot be relied on where:

1. The person seeking to rely on the assumption knew or suspected that the assumption was incorrect.
2. The document is being executed relying on section 126, as opposed to under section 127. In other words, if 2 directors (or one director and one secretary) sign then the assumption can be relied on. However, if one director only signs who is not the sole director and secretary then the protection of the valid execution assumption is unavailable.

Practically, therefore where a sole director signs a document third parties should ideally:

1. obtain confirmation (for example by performing an ASIC search) that the person is the sole director and secretary;
2. obtain an extract of the constitution for the company and a copy of the resolution appointing the director as an authorised sole signatory; or
3. require the company to instead grant power of attorney to the relevant director. A copy of the power of attorney should then be produced at the time of signing.

** for the trainspotters, the title here is riffed from the Bob Dylan song, ‘Blowin’ in the Wind’.