What happens if my Power of Attorney breaches their duties and causes financial loss – can I seek compensation?

A Power of Attorney is a legal document which enables an adult person (the principal) to authorise one or more persons (the attorneys)'  to make decisions on the principal's behalf.'  Attorneys must always act in the best interest of the principal however, not all attorneys do this and may abuse their power and cause a financial loss to the principal.

What is an Enduring Power of Attorney (EPOA)

A common type of Power of Attorney is an Enduring Power of Attorney (EPOA). This power authorises the attorney(s) to act on the principal's behalf even if the principal has lost decision-making capacity.'  In other words, if you lose the capacity to make decisions for yourself, your attorney will step in and make those decisions for you.

Duties of an attorney

In Victoria, the Powers of Attorney Act 2014 (Vic) (the Act) operates to safeguard the interests of the principal. The Act imposes strict mandatory duties on attorneys '€“ an attorney must:

• act honestly, diligently and in good faith;
• exercise reasonable skill and care;
• not use the position for profit, unless permitted under;
• avoid acting where there is or may be a conflict of interest unless the power so authorises;
• not disclose confidential information gained as the attorney under the power unless authorised by the power or by law; and
• keep accurate records and accounts.

The overarching responsibility of an attorney is to act in the principal's best interest and make all lawful decisions on their behalf.

What happens if the attorney breaches their duties?

Section 77 of the Act provides for compensation for acts of an attorney in contravention of any provision of the Act relating to EPOA causing the principal loss. Therefore, if an attorney breaches their duties and causes financial loss to the principal or to the estate of the principal, eligible claimants can apply for compensation in the Victorian Civil and Administrative Tribunal (VCAT). However, claims for compensation can only be made for breaches that occurred after the Act came into operation on 1 September 2015. Further, if the principal has died, an application for compensation must be made within 6 months after the principal's death. Although, section 79(2) of the Act enables the Supreme Court to grant an extension of time. A recent VCAT decision in FJN (Guardianship) [2024] VCAT 310 looked at whether or not the attorney had breached his duties and if so, whether the principal's estate should be compensated.

FJN (Guardianship) [2024] VCAT 310

Summary of facts

On 5 January 2015, a husband and wife (the principals) each made an EPOA for financial matters appointing one of their sons as their sole attorney. In June 2015, several months after the principals had signed the EPOA they engaged a solicitor. The principals sought to understand what the EPOA document was as it had all been arranged by their son, who had now become their attorney. The solicitor requested to see the principals' medical reports and was provided with medical reports prepared by Dr Dzartov in 2013. The medical reports revealed that the principals both had dementia affecting their short-term memory. ' In light of this information, the solicitor arranged a meeting with the attorney. On 11 June 2015 and the solicitor advised the attorney that he considered the EPOA (signed by the principals on 5 January 2015) to be invalid, and provided the attorney copies of the reports of Dr Dzartov. Despite this, in January and February 2016, the attorney made three withdrawals totalling $181,511.52 from the principals' accounts. The attorney transferred $131,511.52 into his own account and transferred $50,000 into his brother's account. The amount the attorney transferred was nearly the entirety of the principals' cash assets. As a result, the principals had to rely on their pension payments as their only cash resource from February 2016 onwards. The principals both died in 2019. An application for compensation was brought by the principal's daughter on behalf of the principals' estate.'  The daughter submitted that the attorney had breached his duties by using the position of attorney for profit.'  She further submitted that in the light of those breaches, the Tribunal should order that the attorney compensate the estates of the principals in the amount of $181,511.52. The attorney claimed that he only made the transfers at the direction of his father. He alleged that his father did not have dementia and had a 'clear understanding of everything' until a week before his death. The attorney claimed that the money was transferred to ensure fairness between the children as the principals had gifted $50,000 to their daughter in 2008.

Tribunal's decision

In making their decision as to whether or not compensation should be made, the Tribunal considered the following. There are two elements to a claim for compensation. The applicant must show that:

• the attorney contravened a provision of the Act when acting under the power of attorney; and
• the contravention caused a loss to the principals' estate.

The Tribunal further stated that the standard of proof is on the balance of probabilities and where there are serious allegations made the principles of Briginshaw v Briginshaw [1938] HCA 34 apply as referred to by His Honour that '...strong evidence is required '€“ clear and cogent '€“ assessed with care and caution'. In this case, it was not in dispute that the attorney had transferred funds totalling $181,511.52 from the joint accounts of the principals. This was a breach of the attorney's duties as he had used his position for profit and he was acting in his own interest rather than the interest of the principals. While the decision-making capacity of the principals was not required to be proven in order to make an application for compensation, the Tribunal thought it was relevant in these proceedings because the attorney maintained that the transfer of funds was initiated by and authorised by his father. The Tribunal was satisfied that the 2013 medical report was sufficient to constitute evidence that the father lacked the decision making capacity to initiate and authorise the transactions. This was evident by the principals seeking independent legal advice in June 2015 regarding the EPOA their son had arranged for them to sign. As such, the attorney was unable to rely on his own view that his father had decision-making capacity. ' The attorney's action was a breach of the attorney's duties to act honestly, diligently and in good faith. The Tribunal was satisfied that the attorney had breached his duties when acting as an attorney and that the principals had suffered a loss from his breach. Therefore, the Tribunal made an order that the attorney compensate the joint estates of the principals for the full amount of $181,511.52.

Key takeaways

VCAT's decision highlights that to make a successful application for compensation you must have evidence that the attorney breached his or her duties and that the breach caused a loss to the principal. If you suspect someone is abusing their attorney role you should obtain advice immediately or if you are considering making an application for compensation contact Hunt & Hunt's experienced' Wills & Estates lawyers' today to discuss on 03 8602 9202 or at' [email protected].

Article written by Jack Watson (Graduate) & Linda Hart (Principal).