Introduction

Legal capacity

Legal capacity is the ability of a person to make binding decisions about their own affairs. This includes capacity to execute a will, appoint a power of attorney or enduring guardian, to enter contracts, settle trust property, give gifts, conduct civil litigation, appear or plead to criminal charges, marry, consent to medical treatment or make lifestyle decisions.

Legal capacity requires the mental capacity to understand the specific transaction involved when explained, as well as its consequences, and to make decisions which are not influenced by mental health issues.

Capacity is domain and transaction specific

A person may also have legal capacity to enter one type of transaction but not have capacity to enter a different type of transaction. They may also have general capacity within one domain but not have capacity for a very complex transaction within that domain. (see eg d’Apice v Gutkovich).

Capacity is time specific

A person with reduced capacity may have fluctuating capacity. While they may not have capacity at some times they may have capacity at other times. In that case the important issue is ensuring that they have capacity at the time of the transaction to make it valid (see eg Zorbas v Sidiropoulous (No. 2)).

Test of capacity - common law

There is no single common law test of capacity. The classic statement is:

“...the mental capacity required by law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument, and may be described as the capacity to understand the nature of the transaction when it is explained.” Gibbons v Wright at [7].

The core requirements of legal capacity are a demonstrated capacity to understand as well as to show an actual understanding of: the nature of the transaction being entered; the specifics of the particular transaction and of the choices being made; the potential risks, costs and benefits of the particular choice being made; of the weighing processes required to make a decision about the particular transaction; the consequences of the transaction including any broader consequences beyond the particular transaction; and to show that this process of reasoning is being undertaken without being subjected to influence by a mental impairment.

A person may have capacity to make a bad decision

The decisions made do not need to be ones that everyone would agree with. Few decisions are. Decisions may reflect personal biases and prejudices. The issue is that they must not be influenced by impaired mental capacity.

Statutory tests

Statutory tests may apply where the transaction in governed by an Act. In most cases where there is an Act specifying the issue required for legal capacity the underlying principles are very similar to the common law principles.

Why this issue is gaining prominence: An ageing population

“The demographic reality of an ageing population means that the likelihood of challenges to wills on the ground of testamentary capacity is increasing.” (Justice Kunc Ryan v Dalton at [101])

The same demographic reality means that other transactions for which legal capacity is required are also now being more regularly challenged.

Many, if not most, people will eventually develop dementia or suffer some loss of cognitive capacity as they age. Estimates suggest that more than 10% of people over 70 have some level of cognitive slowing, and that up to 45% of people over 85 suffer some degree of cognitive slowing. That will lead to transactions in the decade or more before being examined to determine when the cognitive slowing commenced.

The same considerations apply to younger people who are of legal age but in respect of whom there is a concern about their legal capacity.

Evidentiary onus - reversed onus to establish capacity

Although there is a presumption of legal capacity the High Court has stated that:

“...where the evidence as a whole is sufficient to throw a doubt upon the testator’s competency, then the court must decide against the validity of the will unless it is satisfied affirmatively that he was of sound mind, memory and understanding when he executed it.” Bull v Fulton.

A person who appeared well at age 72 when executing a will or power of attorney or selling their house may be diagnosed with dementia by age 77. Witnesses may have different recollections of when cognitive slowing began. Experts can give evidence that dementia can be a slow developing disease which may have been present, although not diagnosed, at age 72 when the transaction was entered. If dementia was present the inference arises that it may have been having some impact on decision making at that time.

On that basis the evidentiary onus may shift. The solicitor may then be obliged to provide evidence from their file establishing that legal capacity was considered and that the person had the relevant legal capacity at the date of the transaction.

The best evidence of capacity is an independent contemporaneous assessment of mental capacity in relation to the specific transaction.

Risks to solicitors, trustees and their clients

“The demographic reality of an aging population means that the likelihood of challenges to wills on the ground of testamentary capacity is increasing.” Ryan v Dalton at [101]

These demographic factors apply equally to all other transactions.

The absence of contemporaneous evidence of capacity may mean that the person’s intentions as set out in their will are not given effect.

As there is a duty of care to intended beneficiaries there is a risk of civil action for failing to collect the evidence necessary to sustain the will if challenged.

Failure to take care in this respect may also give rise to professional sanction for unsatisfactory professional conduct.

At the bottom of this profile are brief details of a number of the experts that Expert Experts represents. Call our office to discuss your requirements and to obtain a recommendation that suits your needs and budget.

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When should an independent assessment be conducted?

The principles set out in Ryan v Dalton regarding testamentary capacity apply equally to all cases involving common law legal capacity.

Actual and constructive notice

Three main scenarios arise:

1. Constructive notice: When there are circumstances giving rise to constructive notice. In Ryan v Dalton these were identified at [107] as: “anyone: (a) over 70; (b) being cared for by someone; (c) who resides in a nursing home or similar facility; or (d) about whom for any other reason the solicitor might have concern about capacity.”

It is anticipated that this will become an accepted minimum standard of constructive notice generally.

2. Actual notice: When a person presents with a diagnosis of dementia or similar, when a family member or other person raises capacity as an issue, or when it appears clear to the person taking instructions that there is or may be reduced capacity.

3. Notice of a likely challenge: When familial or other circumstances including the nature of the transaction make it more likely that a transaction will eventually be challenged. This may include complex family structures, multiple partners and children, strained family relations, or the preferencing of some family members through gifts, non arms length sales of businesses or properties, or as beneficiaries when it is anticipated this will upset other family members. Other circumstances may include large estates and complex trust structures where there is a high perceived potential reward for successfully challenging the transaction.

Qualifying an appropriate expert

The main difficulty in finding a suitable expert to assess legal capacity is in finding an expert who has both the expertise required to assess mental capacity and an understanding of the above principles.

Expert Experts has addressed this by developing products, processes and training programs to enable appropriately qualified experts to understand the legal issues involved so that they may address all of the issues required to conduct assessments.

We also work with clients to ensure the briefing process adequately instructs the expert about the particular transaction, so that an assessment can be conducted and an admissible expert report produced in accordance with the expert witness code of conduct which addresses all relevant issues.

Why not just ask the treating doctor?

In many cases where solicitors have asked for a contemporaneous opinion from the treating doctor the opinion provided has later been found to be inadequate.

Most treating doctors do not have the specific knowledge of the legal issues required to provide a sufficiently detailed opinion addressing all of the issues in an admissible form. In practice most treaters do not do medico-legal work, are not interested in learning what is required to provide an admissible report in response to a letter of instructions, and do not want to be called to give evidence on this specific legal question.

Different assessment types

The expert selected and assessment conducted will depend upon the condition of the examinee, the complexity and nature of the transactions being entered into, and where the examination takes place.

For some more information about specific transactions, please see the specific field of expertise pages:

Estate Planning

Testamentary capacity

Power of attorney

Enduring guardian

Guarantees - commercial

Guarantees

Sample Reports

For some fields of expertise we have some sample sections of de-identified reports. Please contact our office if you are interested in a sample.

Cost

The overall cost of expert opinion depends on the services required. Some of the key factors that affect the cost of advice include:

  • The need for a view or inspection of a location
  • The quantity of documentary material to be reviewed
  • Whether there are reports of other experts to be reviewed and commented on in detail
  • Whether there is a need for conferences with the expert either in person or by telephone/Skype
Relevant Articles When a client's mental capacity is in doubt.

A practical guide for solicitors published by the Law Society of NSW and updated in 2016.

To remember, to reflect, to reason - capacity - (2015)

A summary of key issues in this area of law by Therese Catanzariti of counsel of 13 Wentworth Chambers Sydney. Ms Catanzariti is a leading junior in the field of capacity.

Relevant Cases Ryan v Dalton; Estate of Ryan [2017] NSWSC 1007

"Rules of thumb" include testing those over 70, being cared for, in a nursing home, about whom for any other reason the solicitor might have concern about capacity.

Gibbons v Wright [1954] HCA 17; (1954) 91 CLR 423

Lead decision: Tests of mental capacity for the validity of transactions.

Guthrie v Spence [2009] NSWCA 369

No single common law test of capacity. Different thresholds for powers of attorney, litigation and wills. The issue is the capacity to understand the nature of the transaction when it is explained. (Citing Gibbons v Wright (1954) 91 CLR 423 at 437)

Szozda v Szozda [2010] NSWSC 804

Power of attorney, including enduring, issues to address.

UCPR 7.14 (NSW)

Proceedings to be commenced or carried on by tutor .

NSW Trustee and Guardian Act 2009 s41

Orders by Supreme Court for management of affairs.

d’Apice v Gutkovich - Estate of Abraham (No. 2) [2010] NSWSC 1333

May have capacity to enter some transactions but not others.

Zorbas v Sidiropoulous (No 2) [2009] NSWCA 197

Capacity may fluctuate, giving capacity at some times but not others.

Bull v Fulton [1942] HCA 13; (1942) 66 CLR 295

Reversed evidentiary onus to establish capacity when some evidence of incapacity.

Related Blog Articles

Profiles of Experts in Legal capacity - Introduction and overview

Below are short profiles of a few experts with expertise in this field. Please contact our office to discuss your specific requirements and to obtain a recommendation that suits your needs and budget. Expert Experts are experts in finding the right expert for your needs and you pay no more to use Expert Experts than if you searched and found the expert yourself.

Contact us at answers@expertexperts.com.au or give us a call 1300 72 66 55

Expert Experts sources experts in all disciplines for lawyers, insurers, government, industry and individuals across Australia and internationally.

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