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Power of Attorney loses its power

25-Aug-2011   Guardianship   By

A Power of Attorney is a legal document enabling someone to act on another person’s behalf. It can be very useful but it is essential that the person who grants this ‘power’ have the ‘capacity’ to do so.

In July 2010, a case in the Supreme Court of NSW highlighted that a Power of Attorney can be considered void - even if they have been used over several years. The case of Szozda v Szozda [2010] NSWSC 804 was decided by Justice Barrett. It has widely been reported as a significant “clarification” to the test of whether or not an individual has the capacity to create a Deed of Power of Attorney.

The case is a story of Polish immigrants, untimely family deaths, real estate properties, discretionary trusts, family businesses and the complications that can arise between siblings.

The widow, Mrs Aneila Szozda, executed six separate Power of Attorney Instruments between March 2004 and December 2007 for her children and grandchildren.  One of these Power of Attorneys was used to exercise the proxy votes of shares owned by the Attorney to Mrs Szozda. The Application to the Court sought declaratory orders as to whether or not Mrs Szozda had the capacity to grant the General and Enduring Power of Attorney in September 2006.

At law, people over 18 are presumed to have legal capacity. However, having raised prima facie evidence of an individual’s incapacity (usually medical evidence) the onus then shifts back to the party seeking to assert the validity of the document and the capacity of the individual to execute it at that time.

The test of the validity of the capacity of a person to execute a Power of Attorney was generally considered to be:  ‘an enquiry as to whether or not the principal had an understanding of the nature and effect of the Power at the time of execution of the instrument.’ It was presented to the Court that Mrs Szozda often forgot non-regular appointments (such as hairdresser appointments) although was able to remember things such as her regular Sunday outings with a friend.

His Honour Justice Barrett found that the decision to grant a General and Enduring Power of Attorney differs from that involved in making of a Will but should be regarded as a similar or even greater level of complexity.

If capacity, in the relevant sense, is absent when the Power of Attorney is granted, the general law position is that the Power of Attorney instrument is void.
• The Courts look at each case on its own facts and weigh up the evidence.
• In this case the Court found that Mrs Szozda did NOT have the capacity at the time of executing the document to understand the nature and effect of her actions.

HELPFUL TIP: 
Ensure that your estate planning documentation is up to date before there are any risks or concerns over “capacity”.



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