In this edition of our Legal Indemnities newsletter, we look at a recent case which acts as a reminder than the powers of attorney are not absolute powers and subject to some limitations.
Overstepping the powers of an attorney

A recently reported High Court case resulted in the rectification of the register at the Land Registry following the setting aside of a transfer of land that was ruled by the court to be void on the basis that the donee of a power of attorney had overstepped her powers. The case is a reminder that the powers of an attorney are not absolute powers and are subject to some limitations.

In Chandler v Lombardi [2022] EWHC 22 (Ch), the claimant was the executor of the will of his late mother. He was challenged the registration of a transfer of land. His mother, Concetta, had owned a residential property in Solihull in her sole name since 2005. Her last will, made in 1993, left her estate, including the dwelling, to her four children in equal shares. The claimant was therefore a one quarter beneficiary of the estate. However, before her death, Concetta had made two lasting powers of attorney in favour of the defendant (her daughter).

In October 2016, the defendant was appointed as attorney under a health and welfare lasting power and a property and affairs lasting power, both powers being registered at the Office of the Public Guardian. Relying on the latter, the defendant transferred the dwelling in June 2018 into the joint names of herself and Concetta to hold as tenants in common in equal shares. The transfer was duly registered at the Land Registry. Concetta died in January 2019. The effect of the transfer had been to reduce the claimant’s one quarter share in the property as a beneficiary to a one eighth share. Although Concetta had suffered from declining mental health in her later years, the two lasting powers of attorney had been signed by her GP as certificate provider (i.e. an independent person required to ensure that the donor understands what the lasting power purports to do, is not being put under pressure to make the power, that no fraud is involved in making the power and that there is no other reason for concern).

There was therefore no reason to doubt their validity. However, it was the use of the power that was called into question. An attorney who uses a lasting power of attorney to make a gift of property to him or herself steps outside the scope of the power. Under the Mental Capacity Act 2005 (which brought in the regime of lasting powers of attorney) section 12 provides that the lasting power does not authorise the donee of the power to dispose of the donor's property by making gifts except to the extent permitted by that section. Under subsection (2), the extent permitted is that the donee may make gifts “on customary occasions to persons (including himself) who are related to or connected with the donor” or to any charity to whom the donor made or might have been expected to make gifts, but provided in each case that the value of the gift was not unreasonable having regard to all the circumstances and, in particular, the size of the donor's estate.

To make a gift outside of the constraints imposed by section 12 would require an order of the Court of protection. The defendant’s gift to herself of 50% of the equitable ownership of Concetta’s dwelling was clearly outside the scope of section 12, being neither customary nor reasonable in value, and it was not supported by an order of the court.

The High Court ruled that the transfer was void. Although section 12 did not set out the consequences of a transfer of property being made in breach of the restrictions imposed by that section, a purposive construction which addressed the mischief the restriction was designed to address (i.e. avoiding the abuse of such a power) led to a conclusion that the transfer was void.

As a result, the register of title to the property contained a mistake. Should the court order the register to be corrected by rectification? The defendant had been living at the property since 2017. As regards rectification, under Schedule 4 of the Land Registration Act 2002, no order for rectification can be made without the consent of a proprietor who in possession of the land unless either the proprietor has, by fraud or lack of proper care caused or substantially contributed to the mistake, or it would for any other reason be unjust for the alteration not to be made.

The defendant was a proprietor of the land and was in possession. However, the court stated that the duties of an attorney, including the restrictions in section 12 MHA 2005 on making gifts, were very clear. The defendant had acted in breach of them and had therefore substantially contributed to the mistake by lack of proper care. In any event, it would have been unjust not to correct the mistake.

Lasting powers of attorney were introduced in 2007 by the Mental Capacity Act 2005. A lasting power allows a person to appoint an attorney to act on their behalf in the event of a future loss of mental capacity. Lasting powers replaced enduring powers of attorney but added an ability to empower an attorney make health and welfare decisions. In relation to enduring powers, the Enduring Powers of Attorney Act 1985 included similar restrictions on the ability of the donee of the power to make gifts (i.e. only permitting reasonable gifts of a seasonal nature or to charity).

Prior to the Enduring Powers of Attorney Act 1985, the mental capacity of the donor of a power of attorney would simply revoke the power. Many powers of attorney were made as general powers under section 10 of the Powers of Attorney Act 1971. Under a general power of attorney, either in the form set out in Schedule 1 of that Act, or in a form expressed to be made under it, the donee of the power is given authority to do on behalf of the donor “anything which the donor can lawfully do by an attorney”.

No restrictions on the making of gifts are included in that Act. However, it has always been the case that an attorney’s power is regarded at law as a form of agency giving rise to a fiduciary relationship between the donor and the donee. This relationship would require the donee to avoid circumstances giving rise to a conflict of interests, would restrict the authority of the donee so that the power could not be used otherwise than for the benefit of the donor, and would prevent the donee from profiting from the relationship. While a transfer by the donee to him or herself might not be rendered void by the legislation, a breach of the fiduciary obligations of the donee would most likely render it voidable.

There is a distinction to be drawn between void and voidable dispositions. As the judge in this case says, a question as to whether a transfer of land is void or voidable may be viewed as an academic exercise. However, it has significant implications for registration purposes and for the correction of mistakes. The Court of Appeal in NRAM plc v Evans [2017] EWCA Civ 1013 differentiated between the registration of a disposition that was void, and the registration of a disposition that was merely voidable. The act of registering a void disposition is a mistake; the registration of a voidable disposition is not. While a voidable disposition might subsequently be avoided by a court order, that would not retrospectively render as a mistake an entry in the register made in the interim. Although often academic, this can be of significant importance if, for example, a legal charge is registered subsequent to the registration of a transfer that is merely voidable.

This content was provided by Alan Riley, Property Law Consultant.

This information is not intended to constitute any form of opinion or specific guidance and recipients should not infer any opinion or specific guidance from its content. This note is not intended to given legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. Recipients should not rely exclusively on the information contained in the bulletin and should make decisions based on a full consideration of all available information. In preparing this note we have relied on information sourced from third parties and we make no warranties, express or implied, as to the accuracy, reliability or correctness of the information provided. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide and exclude liability for the statistical content to fullest extent permitted by law.

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