Business Transactions and Mental Health
Who can make a financial transaction?
Clearly the answer is anyone who has the legal capacity can be a party to a financial transaction. Criteria such as age and intoxication, can be objectively defined.
Section 18 of the Minors (Property and Contracts) Act 1970 No 60. This Part does not make presumptively binding on a minor a civil act in which the minor participates, or appears to participate, while lacking, by reason of youth, the understanding necessary for his or her participation in the civil act.
On the other hand Mental capacity is difficult to objectively define or apply on a one size fits all basis.
How is Capacity Defined and Measured
In the UK case of Heart of England NHS Foundation Trust v JB  EWHC 342 (COP)
The Court said
“Do not allow the tail of welfare to wag the dog of capacity . An extremely foolish or irrational decision is still a decision and one that P is entitled to make. A decision can only be taken either in reliance on the general defence in s.5 MCA 2005 or by the court if and when it is proved on the balance of probabilities that (1) P is in fact unable to take the decision in question and(2) this inability is because of an impairment or disturbance in the functioning of the mind or brain”
In New South Wales there are number of approaches to providing an objective description of mental capacity. Section 6N of the Guardianship Act 1987 provides that evidence as to appointor’s capacity is satisfied by the certificate of a medical practitioner. Section 6N says, “ In any proceedings in which the question of whether, on a particular day or during a particular period, the appointor of an enduring guardian was a person in need of a guardian is in issue, the certificate of a medical practitioner to the effect that the appointor was, on that day or during that period, totally or partially incapable of managing his or her person because of a disability is evidence of the fact that the appointor was a person in need of a guardian.”
The Powers of Attorney Act 2003 does not define mental capacity. Section 30 says that The Supreme Court may, on the application of a principal under a power of attorney, confirm (whether in whole or in part) any power to do an act under the power of attorney that was beyond the understanding of the principal through mental incapacity at the time the power was given to the extent that it appears to the Court that:
(a) the principal has affirmed the power before or during the proceedings on the application, and
(b) the principal had sufficient mental capacity to affirm the power at the time the affirmation was made.
The Supreme Court in the landmark case of PY v. RJS (1982) 2 N.S.W.L.R. 700 ruled on what constitutes capacity. There Powell J defined capacity when he said “a person is incapable of managing himself or herself if it appears that there is a real risk of:
(a) his or her inflicting upon himself or herself serious injury;
(b) his or her sustaining serious injury by reason of his or her being unable adequately to protect himself or herself against such risk; or
(c) serious deterioration in his or her general health or well-being by reason of his or her being unable to take reasonably adequate steps to prevent such deterioration occurring 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 (see re an alleged incapable person (1959) 76 W.N. (N.S.W.) 477); 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 a most efficient manner:
The Mental Health Act 2007 section 14.
(1) A person is a mentally ill person if the person is suffering from mental illness and, owing to that illness, there are reasonable grounds for believing that care, treatment or control of the person is necessary:
(a) for the person’s own protection from serious harm, or
(b) for the protection of others from serious harm.
(2) In considering whether a person is a mentally ill person, the continuing condition of the person, including any likely deterioration in the person’s condition and the likely effects of any such deterioration, are to be taken into account.
Section 9 of the Contracts Review Act 1980 lists mental capacity as a matter to be considered by Court when it determines whether a contract or a provision of a contract is unjust.
Capacity is considered but not defined by the following legislation in NSW:
- Veterinary Practice Act 2003
- Sporting Injuries Insurance Act 1978
- Retirement Villages Act 1999
- Property (Relationships) Act 1984
- Motor Accidents Compensation Act 1999
- Motor Accidents Act 1988
- Legal Profession Uniform Admission Rules 2015
- Law Enforcement (Powers and Responsibilities) Act 2002
- Health Care Complaints Act 1993
GP Legal has considerable experience in helping clients resolve matters related to state of Mental health and legal decision making. Call us if you need assistance.