Renewable Power: Court permits Attorney to renew superannuation nomination (QLD)

For a while now, it’s been a hazy question asked by succession lawyers alike about whether an attorney can make or renew a binding death benefit nomination for their principal’s superannuation policy proceeds.

On 24 August 2018, Justice Bowskill of the Supreme Court of Queensland delivered a decision on this very topic.

The case of Re Narumon Pty Ltd [2018] QSC 185, the considered a case where the late John Giles had a self-managed superannuation fund, the John Giles Superannuation Fund (the SMSF).  Before Mr Giles passed away, he lost capacity to manage his own affairs. Thankfully, he had already executed an Enduring Power of Attorney (EPA) to deal with this situation.  The Enduring Power of Attorney appointed his wife, Mrs Narumon Giles, and his sister, Mrs Roslyn Keenan.

The late Mr Giles was survived by his wife of 19 years, Narumon, and his young son Nicholas (who was 16 years old at the time of this judgement), as well as four adult children from his previous marriage; Patricia, Gregory, Anthony and Kelly.

The trustee of the SMSF was Narumon Pty Ltd, of which Narumon was the director with Roslyn (until Roslyn resigned in June 2018).

The Court was called on by Narumon Pty Ltd for certain directions in respect of how they should administer the SMSF as a result of some uncertainties. Those uncertainties related, predominately, to the execution of an ‘extension’ of a Binding Death Benefit Nomination (BDBN) of the late Mr Giles’ earlier BDBN (that was originally signed by him on 5 June 2013 and expired on 5 June 2016) which was executed by Narumon and Roslyn on 16 March 2016 as attorneys for Mr Giles.  Additionally, the Court was to consider a further new BDBN that was subsequently made on the same day that was also signed by the attorneys, but purported to delete a 5% share which was previously to be given to Roslyn under the earlier BDBN signed by Mr Giles (this change was said to be made because Roslyn was not a ‘dependent‘ and therefore ineligible to receive the share by law – Roslyn subsequently and expressly disclaimed her interest in the benefits on 25 June 2018).

Mr Giles had made his Enduring Power of Attorney (EPA) expressly to come into effect for financial matters only “when I am assessed by a medical professional with at least 10 years’ experience that I am incapable of making my own decisions”. Mr Giles was so assessed as having lost capacity in November 2013.

Mr Giles had made five BDBNs between 2010 and 2013:

  • On 23 February 2010, where he nominated 100% of his benefits to go to his wife, Narumon;
  • On 18 December 2012, where he directed:
    • 40% to go to his wife, Narumon;
    • 40% to got to his son, Nicholas;
    • 20% divided equally between Roslyn, his former wife and two of his adult children, Patricia and Gregory.
  • On 31[sic] February 2013, where he directed:
    • 44% to go to his wife, Narumon;
    • 44% to go to his son, Nicholas;
    • 12% to go to his legal personal representative (i.e. his estate);
  • On 26 April 2013, where he directed:
    • 47.5% to go to his wife, Narumon;
    • 47.5% to go to his son, Nicholas;
    • 5% to go to Roslyn.
  • On 5 June 2013 (the final one), where he directed:
    • 47.5% to go to his wife, Narumon;
    • 47.5% to go to his son, Nicholas;
    • 5% to go to Roslyn.

In order to determine the issue of whether or not the extension BDBN or the new BDBN were valid, the Court needed to consider:

  • the terms of the Trust Deed that established the SMSF;
  • whether the attorneys had the power to confirm the 2013 nomination;
  • whether the attorneys had the power to make a new nomination;
  • the provision of the Powers of Attorney Act 1998 (Qld);
  • the provisions of the Commonwealth superannuation legislation.

During the course of it’s consideration, the Court also noted that this issue was considered by the Australian Law Reform Commission, in it’s report “Elder Abuse – A National Legal Response“, which had not yet been judicially considered.

The SMSF Deed

The terms of the SMSF Deed expressly contemplated the power of an attorney to renew/make a nomination on behalf of a member.

Relevantly, clause 5.4 of the SMSF Deed provided (extracted from paragraph [56] of the judgement):

” Any power or right given to a Member, a Pensioner or Beneficiary in this deed (including, without limiting this clause, powers and rights given to a Member under clauses 10 and 14) can be exercised by: …

(b) if the person is under a legal disability, the trustee of the estate of the person, or any person who holds an enduring power of attorney from the person (in accordance with the terms of the appointment); and

(c) any person who holds an enduring power of attorney from the person (in accordance with the terms of the appointment).”

Further, clauses 31.5-31.5 enabled a member to give the SMSF trustee a document which directed the trustee how to disperse death benefits, and expressly stated, at clause 31.2:

“Despite any provision in this deed to the contrary other than clause 29.3 (which refers to reversionary pensions), a Member, former Member or Beneficiary (the nominator) may given the Trustee a document (the nomination) in which the nominator requires the Trustee to pay a Benefit payable on the death of the nominator as specified in the nomination.”

The Court noted that the deed did not specifically give power to “extend” or “confirm” the nominated by Mr Giles, and therefore stated that in order for any BDBN to be effective, it must have to comply with the formal BDBN requirements as to form and execution that were set out in the SMSF Deed.

The Court also noted that there was nothing in the SMSF Deed that prohibited the attorney signing a nomination on behalf of a member and in fact, “expressly contemplates that any power or right given to a member may, if the person is under a legal disability, be exercised by a person who holds an enduring power of attorney from the person, in accordance with the terms of the appointment.” (paragraph [59].

The Court considered that given there was no express prohibition in the SMSF Deed, nor was there any restriction in the Superannuation Industry (Supervision) Act or Regulations, that the question then turned to the construction of the relevant provisions of the Powers of Attorney Act 1998 (Qld).

The Power of Attorney Act 1998 (Qld)

The Court considered the construction of sections 32 and 73 of the Power of Attorney Act in determining the matter. Section 32 refers to the power to appoint an Enduring Power of Attorney and the scope of the power.  Specifically, section 32 of the Power of Attorney Act provides:

32 Enduring powers of attorney

(1) By an enduring power of attorney, an adult (principal) may –

(a) authorise 1 or more other persons who are eligible attorneys (attorneys) to do anything in relation to 1 or more financial matters or personal matters for the principal that the principal could lawfully do by an attorney if the adult had capacity for the matter when the power is exercised; and

(b) provide terms or information about exercising the power.

(2) An enduring power of attorney giving power for a matter is not revoked by the principal becoming a person with impaired capacity for the matter.”

On the question of extent of the power given,  the Court noted the category of special personal matters that are excluded from being exercisable by an attorney (e.g. making a Will for the principal) and the Court noted that section 77 gives the attorney maximum power that could be given to an attorney. Mr Giles did not express any additional terms or restrictions in the EPA document.

The Court questioned whether a BDBN could be a “financial matter” within the meaning of the Power of Attorney Act. In finding that such a matter would be “financial matter” within the meaning of the Power of Attorney Act, the Court said:

“The effect of a binding death benefit nomination, if valid, is to bind the trustee of the superannuation fund to pay benefits, following the member’s death, to the nominated persons (and, if relevant, to do so in the nominated way).  That does not seem to fall within any of the examples in the definition of a financial matter, including as a legal matter relating to the principal’s financial matters.  But the examples given are not exhaustive and do not limit the meaning of the provision.  It is difficult to see why the exercise of the member’s right under a self-managed superannuation fund deed, to require the trustee of the fund to pay benefits, after their death, in a particular way would not be “a matter relating to the [member’s] financial… matters”.  Given the breadth of the meaning of the word “financial” (of, pertaining, or relating to finance or money matters) such an act does fall within the meaning of this term” [para [69].

Justine Bowskill considered a second question was whether the law concluded (via the Power of Attorney Act or some other act or general law) required such an act [of making a nomination] be performed personally.

Of that question, Her Honour said:

Although the making of a binding death benefit nomination under a superannuation fund has the effect of dealing with payment of benefits following death, it is not a testamentary act, and so is not captured, by analogy, by the restriction against delgating to an attorney the making of a will.

There is no contractual restriction, in this Fund’s deed, against delegating the exercise of such a power to an attorney. This is expressly contemplated by clause 5.4 and the 2014 deed.

Relevant public policy considerations are discussed in the Australian Law Reform Commission’s report in relation to “Elder abuse’, including the potential for pressure to nominate a dependant, or prefer a particular dependant over others; contriving a nomination to the estate, sot hat the superannuation benefits are governed by the will or intestacy; and the difficulty of proving or disproving such things, after the death of the principal.  The report identifies that the potential for elder abuse in the context of pressure to make a binding death benefit nomination may occur through two means: the exercise of influence to have the other person make, or alter, a death benefit nomination in the trusted person’s favour; or seeking to make a death benefit nomination under the supposed authority of a power of attorney. At [7.4] the report states that:

“The ALRC considers that BDBNs should be seen to be “will-like” in nature, and, from a policy perspective, treated similarly to wills.  There is much uncertainty and ambiguity concerning BDBNs of superannuation funds, particularly where an enduring attorney may sign a BDBN on behalf of a member.  The ALRC has therefore concluded that these uncertainties and ambiguities need to be resolved in a focused review of the provisions to establish the clear ambit of the legislative provisions and their relationship to superannuation trust deeds…”

The ALRC report articulates a policy position that an attorney under an enduring power, by virtue of that power alone, should not be able to make a binding death benefit nomination for a member of a superannuation fund.  The report acknowledges the distinction between making such a nomination, as opposed to renewing or confirming a nomination previously made by the member, thus continuing “the autonomous choice of the member”. (paras [71]-[74])

Her Honour then considered the protective features of the legislation, focusing on an attorneys duty to avoid transactions that involve a conflict of interest between the interests of the attorney and that of the principals.

Of that question, Her Honour said:

The requirement to avoid a conflict transaction, unless authorised by the principal, is an important protective feature in the present context.  In this regard, s 73 of the Act provides as follows:

“Avoid conflict transaction

(1) An attorney for a financial matter may enter into a conflict transaction only if the principal authorises the transaction, conflict transactions of that type or conflict transactions generally. 

(2) A conflict transaction is a transaction in which there may be conflict, or which results in conflict, between – 

(a) the duty of an attorney toward the principal; and

(b) either – 

(i) the interests of the attorney, or a relation, business associate or close friend of the attorney; or

(ii) another duty of the attorney. 

(3) However, a transaction is not a conflict transaction merely because by the transaction the attorney in the attorney’s own right and on behalf of the princpial – 

(a) deals with an interest in property jointly held; or

(b) acquires a joint interest in property; or

(c) obtains a loan or gives a guarantee or indemnity in relation to a transaction mentioned in paragraph (a) or (b). 

(4) In this section – 

joint interest includes an interest as a joint tenant or tenant in common.”

Noting that initially Her Honour was inclined to consider that the execution of the documents by the attorneys may be a ‘conflict transaction’ due to the fact that Narumon and her son are to receive benefits in their favour, Her Honour determined that there was no such conflict.

Citing the principles enunciated in Reilly v Reilly [2017] NSWSC 1419, where Lindsay J, in that case, said (at [114]-[117]):

“The primary object of a power of attorney is to enable the attorney to act in the management of his or her principal’s affairs; an attorney cannot, in the absence of a clear power so to do, make presents to himself or herself or to others of his or her principal’s property: Tobin v Broadbent (1947) 75 CLR 378 at 401 (quoting Reckitt v Barnett Pembroke and Slater Limited [1928] 2 KB 244 at 268, approved in the House of Lords [1929] AC 176 at 183 and 195), recently applied by the Full Court of the Federal Court of Australia in Great Investments Limited v Warner (2016) 243 FCR 516 at 538 [85].

Under the general law of agency it is a breach of duty for an agent to exercise his or her authority for a purpose of conferring a benefit on himself or herself or upon some other person to the detriment of his or her principal. But, at the same time, if his or her act is otherwise within the scope of his authority it binds the principal in favour of third parties who deal with him bona fide and without notice of his fraud: Richard Brady Franks Limited v Price (1937) 58 CLR 112 at 142.

Where a fiduciary (such as an agent) exercises a power which results in his or her obtaining some incidental benefit, there may be nothing per se improper with his or her having that benefit if the benefit itself is, in the circumstances, an inevitable consequence of his or her properly exercising the power which produces it. A beneficiary (principal) may be able to upset such an exercise of power only if he or she can show that the fiduciary (agent) exercised it with the dominant purpose in mind of obtaining that benefit irrespective of the interests of his beneficiary (principal)…”

(Her Honour, Justice Bowskill’s emphasis added)

Applying the principles, Her Honour said:

It is clear that Mr Giles had wished to avail himself of the right to bind the trustee to pay benefits payable on his death as he directed.  He had completed five binding nominations over the course of the previous three to four years, prior to being assessed as lacking capacity in November 2013, with the last being in June 2013.  Those notices consistently nominated payment of the majority of any available benefits to Mrs Giles and her son. (para [82])

Although Mrs Giles and her son benefit from the extension of the binding death benefit nomination executed by Mr Giles in 2013 that is not in circumstances where there is any conflict, between the interests of Mrs Giles in that regard, and the duty that she owed as attorney to Mr Giles.  It is consistent with that duty that the exercise of autonomy by Mr Giles, demonstrated by his own actions up to and including in June 2013, is enabled rather than defeated. I see no reason, on the material before me, not to accept what Mrs Giles says at [38] of her affidavit, that she and Mrs Keenan agreed that they should execute the 2016 documents “because, in our view, those were still John’s wishes”. (para [84]. My emphasis added).

In this case, by the 2016 extension, the attorneys did no more than confirm the nomination made by Mr Giles himself. Notwithstanding that involves a benefit conferred on one of the attorneys, Mrs Giles, and her son, in the circumstances of this case I am satisfied that is not a conflict transaction – as it is not a transaction in which there is, or may be, a conflict between the duty of the attorney towards the principal, and the interests of the attorney. (para [85])

Accordingly, the fact that in this case the enduring power of attorney executed by Mr Giles did not expressly authorise his attorneys to enter into conflict transactions, generally or of a specific type, does not matter. (para [86])

The Court made a very important distinction between the two separate documents; i.e. one that was a confirmation of an earlier BDBN and a that of a purported “new” BDBN. In that context, the Court said:

There is a distinction between that, and the making of the 2016 BDBN, because it does represent an, albeit small, change to what Mr Giles had proposed.  Where an attorney purports to make a binding death benefit nomination for a principal/member, who has lost capacity, for the first time (that is, where the principal/member had not previously done so personally); or purports to amend or vary a binding death benefit nomination previously made personally by the member, different considerations, in particular terms of actual or potential conflicts of interest, may arise.  In that context, questions as to the scope of the authority of the attorney would arise, in terms of whether the principal had authorised them to enter into a conflict transaction of that type, or generally, and in any event, whether the act was nevertheless one “on behalf of” and in the interests of the principal. (para [89]. My emphasis added).

The Court held that the extension BDBN as valid, and declined to consider the ‘new’ BDBN made any further, given her finding on the extension BDBN.

This is an important case for the succession world as it provides judicial consideration to the power of an attorney to deal with superannuation nominations. However, one must be cautious as every matter is to be determined on a case by case basis.  Justice Bowskill made careful distinctions between the two documents at the center of this matter and those distinctions should be carefully considered and weighted. For estate planners, it’s a great ‘call-to-action’ to have the comprehensive discussion relating to the way that superannuation proceeds are to be dealt with not just in the event of death, but also a lack of capacity.

You can read the case here.

 

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