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Client capacity guidelines: civil and family law matters

Members of the Law Society's Client Capacity Sub-Committee are Tania Evers - Frederick Jordan Chambers; Lesley Finn, Chair - Abbott Tout; Elizabeth Knight - Office of the Legal Services Commissioner; Louise Nicholls - Refugee Review Tribunal; Nick O'Neill - Guardianship Tribunal; Marion Brown - Guardianship Tribunal; Jennifer Pakula - Law Society; Linda Rogers - Intellectual Disability Rights Service; Matt Turner - Legal Aid Commission of NSW; Tim Tunbridge - Office of the Protective Commissioner; Robert Wheeler - Mental Health Advocacy Service; and Peter Whitehead - Public Trustee. The Sub-Committee thanks Professor Susan Hayes and Justice Peter Young for considering and commenting on the guidelines.

The Law Society's Client Capacity Issues Sub-Committee has developed these guidelines to assist New South Wales solicitors who form the suspicion that a client may not be competent to give proper instructions.

The guidelines comprise a flow-chart with a series of questions and steps that will help in assessing a client's capacity, determining what decisions need to be made at each stage of the process, and in deciding what actions and options flow from them. The commentary is a discussion of general principles, rather than detailed procedures for specific situations. Above all, the guidelines are designed to assist solicitors in fulfilling their ethical duties to the court, the client and the administration of justice.

Accompanying resource boxes provide indicators of conditions that impair capacity, and information on key reference materials and support organisations.

"The basis of the solicitor-client relationship is that the former act on the instructions of the latter. It is in the nature of professional advice that the solicitor will explain the options and their likely outcomes and advise which is best. Nevertheless, the ultimate decision as to what to do rests with the client as an autonomous citizen. The concept of capacity gives legal expression to individual autonomy in the sense of the right to respect for, and recognition of, the legal effects of one's own decisions. The boundary between capacity and incapacity is used to differentiate between those whose decisions will be accorded respect and legal recognition and those for whom decisions must be made by others."

Phil Fennell
'Incapacitated Clients'
Gazette, Law Society of England and Wales, 21 April 1993, p.27.

Adults are presumed to be competent to give instructions. Is there any reason to doubt a client's competence?

A presumption of legal capacity or competency is the foundation of the solicitor/client relationship. Without capacity, a person is unable to enter into any contract, including a contract for the provision of legal services. An incompetent client cannot instruct a solicitor and a solicitor should not follow such purported instructions.

A client may be, or become, incapable for a number of reasons. The client may be intellectually disabled, brain damaged, demented to some degree, or suffer from a mental illness that impairs their capacity permanently or from time to time. Some common characteristics of the conditions that impair capacity are set out in the Common indicators of conditions that impair capacity box on the following pages, but the general legal test for capacity is found in the judgment of Justice Powell in PY v RJS & Ors [1982] NSWLR 700:

"A person is not shown to be incapable of managing his or her own affairs unless, at the least, it appears:

(a) that he or she appears incapable of dealing, in a reasonably competent fashion, with the ordinary routine affairs of man; and

(b) that, by reason of that lack of competence there is shown to be a real risk that either:

(i) he or she may be disadvantaged in the conduct of such affairs; or

(ii) that such moneys or property which he or she may possess may be dissipated or lost;

... it is not sufficient, in my view, merely to demonstrate that the person lacks the high level of ability needed to deal with complicated transactions or that he or she does not deal with even simple or routine transactions in the most efficient manner ..."

Justice Powell's statement reflects a number of important factors - firstly that there is an inability to understand and deal with ordinary, routine transactions, such as banking, paying bills, managing weekly income or pension, and so on. The second factor is that, because of this inability, the person is in danger of being disadvantaged. An important distinction is drawn between a person who carries out such transactions in what may seem an inefficient manner, but basically understands the nature of what they are doing, and a person who clearly does not understand the purport of the transactions in question. Within the test, there is recognition of the fact that a person may have some capacity, but have an inability to understand more complex transactions or handle large sums of money, for example from a successful damages claim.

Another perspective on capacity is provided in the following extract from The Laws of Australia (Lawbook Co., Sydney, 1992): "The law requires a person to possess a certain level of mental competence or capacity before he or she can enter a valid contract or execute a valid will, marry, commit a tort, consent to medical treatment, conduct legal proceedings or vote. A person is not presumed to be mentally incapable by reason only of mental illness or intellectual disability. In each case the person's particular circumstances must be examined to determine if that person possesses sufficient legal competence to enter these transactions or perform these acts. If the person with the mental illness or intellectual disability lacks competence an alternative decision-maker may be appointed to enter certain transactions on behalf of that person."

Solicitors should be aware that some conditions that impair capacity are quite difficult to identify. A common example is a client with bipolar affective disorder, also known as manic-depression, which is characterised by extreme shifts in mood. In the manic phase of the condition, a person may enter into transactions that they cannot possibly afford, for example entering into a contract to purchase an expensive house. If this is suspected, or a relative alerts the solicitor to the client being in this condition, it is very important to be satisfied that the client truly understands the nature of the transaction and that funds are available. Assessment of the client's current condition by a suitable health professional is strongly advised. If the condition is discovered in the middle of a transaction, consideration may be given to the appointment of a receiver/manager of the client's estate.

On the other hand, solicitors should be careful not to presume incapacity because of a client's disability, as this may constitute discrimination under the Anti-Discrimination Act. These issues will be discussed in further detail below. The main factor to bear in mind is to carefully assess whether all steps have been taken to ensure proper communication with the client and, if they have been, whether the client is able to understand the information given by the solicitor and to then give proper instructions.

In summary, capacity must be assessed in terms of an individual in a particular situation, faced with particular decisions that need to be made. The question of the client's capacity can arise at any of a number of points in a transaction, and a solicitor who has doubts about the client's capacity should consider the different decisions the client must make at each stage.

Consider whether you can obtain proper instructions after further explanation or education of your client. Are you satisfied you can get proper instructions?

A determination of incapacity is a very drastic step, and one that many people are reluctant to accept. Before taking any steps to have a substitute decision-maker appointed, it is therefore most important to be sure that a client is in fact unable to give proper instructions. A solicitor should frame questions to the client very carefully and seek feedback to find out whether the client can understand sufficient aspects of the particular transaction or proceedings to give competent instructions. In addition, in litigious proceedings, a solicitor should have careful regard to the particular jurisdiction's rules on incapable parties, for example Part 63 of the Supreme Court Rules and Part 45 of the District Court Rules.

If a solicitor does not thoroughly investigate different means of establishing communication, it is possible that they could unlawfully discriminate against the client under the Disability Discrimination Act (Cth) . In providing services to the client, the solicitor should make all reasonable attempts to allow for the client's disability before coming to the conclusion that the client lacks capacity. For example, a client with an acquired brain injury may have difficulties with short-term memory and concentration. The solicitor should try alternative interviewing techniques, such as writing down the main points to aid the client's recollection, and taking frequent breaks. Similarly, a client with a mental illness may become more lucid over a period of a few days and may be able to give proper instructions on a later occasion. It is important to take all reasonable steps to ensure communication can take place before assuming a client's incapacity. A medical or psychological assessment will assist in this regard.

Many people with intellectual disabilities are competent to instruct, provided care is taken to communicate in an appropriate way. Most solicitors need help in understanding how best to communicate with such people, and it is important to seek help, for example from a local disability support service. Many people with intellectual disabilities have support people, either family, friends or a professional health worker, who can be of considerable assistance. Solicitors, however, need to ensure that they are clear about who is giving the instructions, i.e. whether the support person is facilitating communication or acting as an informal substitute decision-maker.

This distinction is very important where, for example, a solicitor is asked to prepare a will for an elderly person and the support person is a major beneficiary of that will. Justice Santow gives some very useful comments as to the duties of solicitors in this situation in Anastasia Pates v Diane Craig and the Public Trustee: Estate of the Late Joyce Jean Cole (unreported, 19/10/95, 106306/94) . In that case, the testatrix was an elderly woman who suffered from dementia. She was taken by a neighbour to the neighbour's regular solicitor who was asked to make a will in which the neighbour was the sole beneficiary. His Honour said (at paras 144-145) : "It is clear that a conflict of interest may arise between the interests of an intended principal beneficiary seeking to procure a will in his or her favour and the interests of the testator ... a legal practitioner must avoid such a conflict of interest when preparing a will, either by not acting, or by procuring additional, truly independent advice, where this is in circumstances where an intended principal or major beneficiary is an established client and where the will is instigated by that client. This would be so in any event, but especially so where the circumstances are such as to raise doubts about the intending testator's testamentary capacity, or as to the validity of the will on other grounds."

If a client is elderly and in the early stages of a dementing condition, a solicitor should assist the client to plan for the future when capacity may be lost. A client may wish to set in place arrangements for the appointment of an attorney and/or guardian, for example by making an enduring power of attorney and/or enduring guardianship appointment. A useful resource on enduring powers of attorney and enduring guardianship appointments is the Planning Ahead Kit issued by the NSW Department of Ageing, Disability and Home Care. In addition, the Law Society will soon release guidelines for solicitors preparing enduring documents of this nature.

If a client has a mental illness, it is important to determine whether the illness temporarily impairs the client's capacity, or is a chronic illness permanently impairing capacity. In the former case, proper medication may enable the client to regain capacity.

Is the matter one where you can act without full formal instructions, for example can a relative or friend assist with instructions clearly in the client's best interest?

If a solicitor forms the opinion that a person is not competent to instruct, it does not necessarily follow that a formal substitute decision-maker must be appointed. It should be noted, for example, that the Guardianship Tribunal usually makes an order to appoint a financial manager and/or guardian only if there are no appropriate informal support arrangements in place.

If the client appears not to have capacity to instruct, a solicitor will require the assistance of a support person, usually a friend, relative or welfare worker, to explain the client's problem and help the client express their wishes. A solicitor then needs to be comfortably satisfied that the support person's interests are not in competition with those of the client. The nature of the matter on which a solicitor is asked to act may be such that the support person's interests are not really involved, or are sufficiently remote as to allay concern.

It is important to give careful consideration to the ramifications of acting without a formal appointment. There is a range of matters where this may be appropriate, generally of a minor and short-term nature, or involving a fairly small claim. While most litigious proceedings require the appointment of a substitute decision-maker, there are a number of legislative schemes that allow claims to be made on behalf of otherwise incapable people where a substitute decision-maker need not be appointed. Examples include the Anti-Discrimination Act 1977, the Victims Support and Rehabilitation Act 1996, and the Community Services (Complaints, Review and Monitoring) Act 1993.

However, if an award of monetary compensation is expected at the end of the proceedings, it is important to consider whether special arrangements need to be made to ensure the money is used for the exclusive benefit of the client. Another, more difficult example is an insurance claim where liability is not contested. In such circumstances settlement of a damages claim may require court approval under the Damages (Infants and Persons of Unsound Mind) Act 1929.

If the matter relates to a contract, a client may not obtain the benefit of a contract if they lacked capacity to enter into it.

Similarly, it may not be possible to enforce a costs agreement if the client is incapable, and the solicitor should consider what arrangements will need to be put in place if fees are to be charged.

Further, the opponent in any claim may seek to challenge the retainer, which may require seeking the formal appointment of a substitute decision-maker. A leading case on this point is Ranclaud v Cabban (1988) NSWConvR 55-385.

Unfortunately, many people who lack capacity are vulnerable to exploitation by family and friends. Family members, in particular, may be unable to see how their interests might be in conflict with those of the incapable person. If the client is likely to be awarded a large sum of money in compensation for injuries, the future investment of the money for the benefit of the client is most important. Solicitors need to take particular care in looking into appropriate trustees and structuring settlements in a way that is appropriate for the client. The Public Trustee may be able to assist in providing independent management of trust funds, providing the person has sufficient capacity to settle a trust in their own favour. If there is a reasonable apprehension that others may exploit the client's situation and do not agree with putting in place an independent trustee, it may be appropriate to involve the Protective Commissioner. Again, it should be noted that the appointment of a financial manager under the Protected Estates Act 1983 or the Guardianship Act 1987 is a drastic step, generally subjecting the entire estate of a person to the management of another.

In contemplating the release of moneys to an incapable client, a solicitor should consider the possibility of liability in negligence to that person. While there is little if any case law on this particular issue, a solicitor must consider the possible scope of their duty of care to an incapable or vulnerable client.

Will the client consent to a formal assessment of capacity by a relevant professional?

Notwithstanding the fact that the client's ability to consent to any procedure is at issue, it is most desirable to obtain the client's cooperation in the assessment of their capacity. Again, good communication and personal rapport is essential in assisting the client.

Arrange assessment. Is capacity found?

It is important to ensure that a proper assessment by a qualified professional takes place. For example, in relation to a person suspected to be suffering from some form of senile dementia, a geriatrician or old-age psychiatrist will usually be able to prepare a more accurate one-off report than a general practitioner.

Although many doctors are not appropriately qualified to report on the functional abilities of an intellectually disabled person, a general practitioner who has treated the client for a long period will give the most valuable picture of the client's condition over time, and the co-operation of a client's usual doctor and/or other health-care professionals will be useful in determining the most appropriate specialist to perform an assessment.

Given the importance of ascertaining whether a person has capacity in a particular transaction, the assessing professional should be informed in detail of the purpose of the assessment and the nature of the decisions the person will be asked to make. Where there is a particular test set out in legislation or case law (for example the test in Banks v Goodfellow (1870) LR 5 QB 549 in relation to a will) , the criteria should be made known to the assessor so that an appropriate report can be prepared.

Is there a process to compel the client to submit to an assessment, and do you consider you have reasonable grounds to take such a step?

There are a number of mechanisms to compel a person to submit to an assessment. For example, under Part 2 of the Mental Health Act and s.33 of the Mental Health (Criminal Procedure) Act the Court may order that an examination of a mentally ill or mentally disordered person take place against that person's wishes, in connection with an involuntary hospital admission.

An examination cannot be compelled under the Guardianship Act 1987 unless a guardianship order has already been made (s.25(1) , Guardianship Act) .

A compulsory examination can be ordered by the Supreme Court in connection with proceedings under the Protected Estates Act 1983.

Also, under Part 25, Rule 5 of the Supreme Court Rules a court can order the medical examination of a party. Proceedings must be on foot already before the latter provisions can be invoked.

A formal assessment of capacity will not always be required before proceedings are commenced. In the recent case of R v P [2001] NSWCA 473, a solicitor formed the view that his client was incompetent to give instructions in District Court proceedings. Against the client's strenuous opposition, he applied for the appointment of a receiver and manager of the client's affairs. There was already sufficient evidence of the client's incapacity through medical reports obtained for the District Court proceedings, and the solicitor's views through his experience of the client. This case is discussed in some detail below.

If a solicitor does take steps to have a substitute decision-maker appointed, a client may make a formal complaint under the Legal Profession Act 1987 which cannot be prevented, but can be answered provided the solicitor has good and reasonable grounds for taking the actions the subject of the complaint.

Should you cease to act? Consider other options and referrals

Acting for a client who may lack capacity raises very difficult issues. It can put a solicitor in the position of being forced to choose between leaving a client unrepresented and taking steps that could distress and anger the client, such as requiring an assessment, and having a substitute decision-maker appointed.

A solicitor must exercise careful professional judgment as ceasing to act is not a step that should be taken lightly. On the termination of retainer issue, Rule 5.1 of the Revised Professional Conduct and Practice Rules provides:

"5. Termination of retainer

5.1 A practitioner must complete the work or legal service required by the practitioner's retainer, unless -

5.1.1 the practitioner and the practitioner's client have otherwise agreed;

5.1.2 the practitioner is discharged from the retainer by the client; or

5.1.3 the practitioner terminates the retainer for just cause, and on reasonable notice to the client."

If a solicitor reaches the conclusion that a matter is not sufficiently important (for example it does not involve the client receiving significant damages or an ongoing violation of the client's rights) , termination of the retainer may be a better option than seeking the appointment of a substitute decision-maker against the client's wishes. The basis for termination of the retainer would be that the solicitor cannot obtain proper instructions, which would constitute "just cause" under rule 5.1.3.

Another point at which termination of the retainer should be considered is if the solicitor is effectively becoming an informal manager or substitute decision-maker for the client. For example, if a client becomes incapable over a period of time and the solicitor starts to manage more and more of the client's affairs, the possibilities increase of negligence claims or claims of conflict of interest, which are generally made by the client's family or beneficiaries of the client's will. While such claims may be groundless, it is important that the management of funds be transparent and accountable, which may be more likely if a formal management order is made. Given the possible perceptions of a conflict of interest, it is preferable that the solicitor does not become the client's financial manager.

A solicitor may also form the opinion that a client needs non-legal support, and may consider referring the client to an agency that can provide assistance. Local Area Health Services can supply contacts for suitable agencies and support groups to which the client can be referred.

Take action to have substitute instruction-giver appointed
Who is the appropriate person to make the application for appointment of a substitute instruction-giver, such as the Public Guardian, the Protective Commissioner or an appropriate private manager or guardian? (This discussion does not envisage a solicitor applying to be appointed as the substitute decision-maker due to the likelihood of a conflict of interest arising from such a situation.)

The issue of who makes the application can be particularly difficult where the family of an incapable client opposes the appointment of a financial manager or guardian. Disinterested family friends may be appropriate applicants, as may health professionals, aged-care workers, case workers, or social workers who are involved with the client.

A solicitor may make such an application in rare situations where there is no other person to do so, as Powell J found in McD v McD [1983] 3 NSWLR 81: "While it may be that, on occasion, situations may arise in which there is no person, other than the intended defendant's own solicitor, who is either able, or willing, to commence proceedings for the appointment of a committee or a manager of his client's property and affairs, I believe that, as there is no limitation upon the persons who may bring such proceedings, such cases ought to be very rare, indeed. Rather, so it seems to me, where a person's own solicitor believes that an application should be made for the appointment of a committee or manager of his client's property and affairs, and no member of the client's family is available or willing to make such an application, the preferable course for the solicitor to adopt is, as was done in Re An Alleged Incapable Person (1959) 77 WN (NSW) 156, to invoke the good offices of a friend of the client, or even of one of the trustee companies."

Disclosure of confidential information may be necessary
Issues of confidentiality and client professional privilege may arise in the course of providing evidence to the court on a client's lack of capacity. An important recent case in this area is R v P [2001] NSWCA 473, a decision of the New South Wales Court of Appeal involving a solicitor who sought orders that his own client's estate be subject to management under the Protected Estates Act and that the Protective Commissioner be appointed receiver and manager of the client's estate with authority limited to the conduct of certain District Court proceedings in which the solicitor was acting for the client.

The court in R v P approved the approach in Church v Price [2000] NSWSC 754, and made the following comments: " ... 66. There remains the question whether the respondent has misused confidential information in bringing the proceedings, upon the basis of general law principles about the obligations of persons having confidential information, quite apart from restrictions on disclosing or giving in evidence of matters the subject of legal professional privilege. In relation to these principles, in my opinion there is room for the adoption of the approach taken in cases such as Church v Price, to the effect that the solicitor's concern for the interest of the client, so long as it is reasonably based and so long as it results in no greater disclosure of confidential information than absolutely necessary, can justify the bringing of proceedings and such disclosure of confidential information as is absolutely necessary for the purpose of such proceedings."

R v P is an important qualification to the duty of confidentiality owed by solicitors to clients, which is also prescribed in Rule 2 of the Revised Professional Conduct and Practice Rules as follows:

"2. Confidentiality

2.1 A practitioner must not, during, or after termination of, a retainer, disclose to any person, who is not a partner or employee of the practitioner's firm, any information, which is confidential to a client of the practitioner, and acquired by the practitioner during the currency of the retainer, unless -

2.1.1 the client authorises disclosure;

2.1.2 the practitioner is permitted or compelled by law to disclose; or

2.1.3 the practitioner discloses information in circumstances in which the law would probably compel its disclosure, despite a client's claim of legal professional privilege, and for the sole purpose of avoiding the probable commission or concealment of a felony.

2.2 A practitioner's obligation to maintain the confidentiality of a client's affairs is not limited to information which might be protected by legal professional privilege, and is a duty inherent in the fiduciary relationship between the practitioner and client."

Substitute decision-maker
The next issue for consideration is the type of substitute decision-maker that should be appointed. The person who steps into the role may be a family member or friend, a professional person, or a government agency such as the Protective Commissioner and Public Guardian.

Guardian
A guardian is responsible for the lifestyle, housing and medical decisions of the incapable person. A guardian may be appointed under s.14 of the Guardianship Act, usually with limited powers, depending on the needs of the incapable person. A guardian does not manage the incapable person's financial affairs, nor can they give instructions in legal proceedings on the person's behalf. In Public Guardian v Guardianship Board [no. 11 of 1997] (1997) 42 NSWLR 201, it was held that the Guardianship Board does not have the power to require or authorise a guardian to make elections on behalf of another person under s.11A(1) of the Mental Health (Criminal Procedure) Act 1990.

Financial manager
A financial manager is responsible for the management of all or part of an incapable person's estate. An order appointing a financial manager may be made under s.25E of the Guardianship Act or s.22 of the Protected Estates Act. A financial manager can give instructions in legal proceedings on behalf of the incapable person. R v P (supra) is an example of proceedings under the Protected Estates Act for the appointment of a manager with authority to conduct District Court proceedings.

Tutor, next friend, guardian ad litem or best interests representative
A tutor, next friend or guardian ad litem may be appointed to bring or defend proceedings in the name of an incapable person. The circumstances in which a tutor can be appointed are set out in the rules of a number of courts, for example Part 63 of the Supreme Court Rules and Part 45 of the District Court Rules.

A next friend may be appointed under Order 15, Division 4 of the Family Court Rules.

A guardian ad litem may be appointed for a child, young person or parent under s.100 of the Children and Young Persons (Care and Protection) Act, which also makes provision for the appointment of a best interests representative, who represents a party on the basis of what is in that person's best interests, rather than on their instructions. A best interests representative may be appointed for a child or young person or a parent if appropriate.

As mentioned above, under certain legislation, proceedings may be brought on behalf of an incapable or disabled person without the formal appointment of a substitute decision-maker. For example, in the Anti-Discrimination Act 1977, the Victims Support and Rehabilitation Act 1996, and the Community Services (Complaints, Review and Monitoring) Act 1993, proceedings may be brought by a person who has a "genuine concern for the person's welfare" or a "genuine interest in the welfare of the victim" or a "genuine concern in the subject matter of the complaint".

Act on instructions from client or substitute If a client is found to lack capacity and a substitute decision-maker is appointed, a solicitor generally must act on the instructions of the substitute rather than the client, unless the substitute agrees. One notable exception to this statement is where a client wishes to challenge a finding that they lack capacity, for example in seeking to set aside a Guardianship or Financial Management Order, or in a hearing of the Mental Health Review Tribunal (see s.288 of the Mental Health Act 1990).

If a client's instructions are not to be followed because of their incapacity, it is nevertheless important that both the substitute and the solicitor respect and take into account the client's wishes as much as is possible. The solicitor must remain committed to the duty to put the client's interests first.