Financial managers and attorneys – what can happen if they act without authority?
Choosing an attorney to manage your financial affairs when it is not possible to do so is a choice that requires great care. The person you choose will be able to access and use your assets as if they are their own.
While the attorney or manager can use your assets, they are still legally your assets. It does not entitle the attorney or manager to use them for their own benefit and they must only be used in your best interests.
This is one of the basic principles in fiduciary duties, a set of responsibilities undertaken by the attorney, mainly to ensure that the principal is looked after, and their best interests are accounted for. This includes being honest, keeping accounts separate and ensuring that there is a detailed record of accounts for the assets that are used, along with the reasons for them.
The case of Dowdy v Clemson (2021) stated that a managed person has no authority to allow a financial manager to self-benefit and if they are to act in their own interest and for their own benefit, then they are liable to litigation for the missing assets and any profit made from them. Even if the principal has given them authority, they must meet the standard of reasonableness.
If a third party has benefitted from the attorney or manager’s breach of fiduciary duty, it is possible to litigate against the third party so that the assets may be recovered. If the attorney sells assets to a third party and it is not in the best interest of the principal, then two factors must be shown.
Firstly, that the attorney or financial manager did not have authority to confer benefits onto third parties, and secondly, that the third party received the principals assets as part of a dishonest and fraudulent design.
The case of Overdean Developments Pty Ltd v Garslev Holdings Pty Ltd (No 3) (2021), is one such example and the second factor was proven by the third party’s failure to do a basic check to ensure that the attorney had the power to confer these assets to them. Failure to do so meant that the third party wilfully shit its eyes to the facts, being sufficient to establish knowledge that the assets were part of a dishonest and fraudulent design, and they were therefore liable to litigation.
More Information
If you wish to obtain further information, advice or assistance in updating your will, or a will dispute, please contact one of our Will Lawyers in our Estate Planning team at Matthews Folbigg on 9635 7966, email us at estates@matthewsfolbigg.com.au or through the website www.matthewsfolbigg.com.au
DISCLAIMER: This article is provided to readers for their general information and on a complimentary basis. It contains a brief summary only and should not be relied upon or used as a definitive or complete statement of the relevant law. Liability limited by a scheme approved under Professional Standards Legislation.
