In the recent case of Dowdy v Clemson [2021] NSWSC 1273, the NSW Supreme Court considered whether a financial manager was liable for acting without authority and contrary to fiduciary duty.
The plaintiff was a 64-year-old, illiterate man who suffered from severe dementia and was a resident in an aged care facility. Given he was incapable of managing his own affairs, the Guardianship Tribunal made orders under the Guardianship Act 1987 (NSW) subjecting his estate to management under the NSW Trustee and Guardian Act 2009 (NSW)and appointed his sister Jenny Dowdy, the defendant, as his financial manager. During her appointment as financial adviser over a 12-month period between 2015 and 2016, Dowdy withdrew funds from her brother’s bank account totalling $277,085. There were 19 cheques drawn in her favour and they were all for substantial sums ranging from $1,000 to $44,000.
Although Dowdy claims she acted on the plaintiff’s directions, the plaintiff had no power to give directions to Dowdy as his financial manager and Dowdy had no entitlement to act at his direction. The Court held Dowdy’s failure to exercise any independent judgement about management of his funds was a failure to act in his interests and for his benefit, in circumstances in which he lacked capacity to manage his own affairs. The Court also held that a financial manager owes obligations of a fiduciary to the managed person, and that those obligations may be strictly enforced if a need to do so arises. A financial manager who deals with property of managed person without authority does so at his or her own risk. As illustrated by Woodward v Woodward [2015] NSWSC 1793, a financial manager can be held strictly to account for a misapplication of a managed person’s estate where the manager fails to protect the managed person’s interests or obtains personal benefits.
The Court held Dowdy acted without authority and in breach of her fiduciary obligations as the plaintiff’s financial manager. Dowdy was ordered to pay $277,085 together with interest. This case demonstrates the importance of understanding fiduciary obligations when acting on behalf of others.