The hidden link

The Mental Capacity Act 2005 (MCA 2005) is nearly 10 years old. As the decade has passed, awareness of the act has grown, and it has become increasingly embedded in the wider practice of each firm. With this increase in awareness has come a rise in the number of enquiries about mental capacity issues from non-mental capacity practitioners. This article focuses on the practical steps that mental capacity solicitors can take to avoid problematic mental capacity situations occurring, and what advice to give when mental capacity issues emerge from other areas of practice.

While it may be second nature to mental capacity solicitors, the concept that capacity can fluctuate and is time- and issue-specific can be difficult to apply in a commercial transaction

Tailored training

Most firms have in-house mental capacity specialisms. This should mean that mental capacity issues can be largely dealt with proactively before they become client care issues. A sensible way to ensure that non-private client practitioners are aware of and know how to deal with any mental capacity issues can be for the mental capacity specialists to deliver tailored training to them. This training should, as a very minimum, cover the following areas.

1. Who is the client?

There is often confusion about who the ‘client’ is in a transaction where an attorney or deputy is involved, from whom instructions should be taken, and for whom anti-money laundering ID should be obtained. Section 87 of the Solicitors Act 1974 defines client for the purposes of contentious business as ‘any person who as a principal or on behalf of another person retains or employs, or is about to retain or employ a solicitor, and any person who is or may be liable to pay a solicitor’s costs’. This definition is not always helpful, particularly when read alongside the definition of client in the SRA Handbook 2012, which states that a client is ‘the person for whom you act’.

However, what is clear is that who the client is will vary depending on the specific instructions in hand, and should be considered carefully in the very first instance. Often, it will be the incapacitated person, even though they are unable to give instructions directly. It is also worth reminding colleagues that a solicitor’s retainer survives mental incapacity (Blankley v Manchester NHS Trust [2015] EWCA Civ 18). Additionally, a solicitor should only accept instructions from a person who is not the client where they have clear evidence of that person’s authority to so act. It is best practice to obtain money laundering evidence of both the incapable person and their agent, in any event.

2. Five principles of the MCA 2005

Specific reference should be made to the presumption of capacity (section 1(2)), the duty to take all reasonable steps to facilitate capacitated decision-making (section 1(3)), and the duty to act in a way that is least restrictive to the person lacking capacity (section 1(6)).

3. General test for mental incapacity (section 3 of the MCA 2005)

While it may be second nature to mental capacity solicitors, the concept that capacity can fluctuate and is time- and issue-specific can be difficult to apply in a commercial transaction. In cases of fluctuating capacity, it can be useful for practitioners to break down the proposed instruction or transaction into small sections or questions, and suggest that each specific element is considered individually with the person who has limited or fluctuating capacity.

It is possible that, at a good moment, very thorough instructions can be given to the solicitor, in writing, and documents signed in escrow, acknowledging the fact that the client is giving instructions that may be carried out at a time that they may lack capacity. The solicitor can then act on these instructions at a later stage.

It is always worth reminding colleagues that a general power of attorney can only be relied on while the donor has capacity to instruct the attorney, and a lasting power of attorney (LPA) should be urgently considered.

4. Guidance on assessing mental capacity

The Law Society practice note ‘Meeting the needs of vulnerable clients’ (tinyurl.com/mzktfbs) has clear, practical guidance, particularly at paragraph 4, on best practice and techniques for assessing mental capacity.

5. The golden rule

While the legal duty is on the practitioner to take valid and appropriate instructions from their client, it is important to underline the golden rule to colleagues: if in doubt about the specific capacity of a client to instruct on the particular matter in hand, a medical opinion should be obtained, ideally from a consultant working with the client.

6. Different powers of attorney

Many practitioners are aware that ‘powers of attorney’ exist, but not of the nuances of the differences between LPAs and enduring powers of attorney (EPAs), deputyship and personal injury trusts. Equally, there is much confusion regarding when each can or should be created and how long this takes; the court’s powers in relation to creating trusts and deputyships for minors; when each is valid and can be used; who is authorised to act under each and when; the extent of fiduciary powers under each; and what evidence of each authority the practitioner will need, and when to require such evidence. It is worth highlighting specifically that an attorney, deputy or trustee is not automatically entitled to act as a litigation friend. Refer colleagues to the actual text of a specific power of attorney, deputyship order and trust by way of example.

7. Duty to act in the best interests of a person that lacks capacity

Where a practitioner has genuine concerns that the attorney or deputy may be acting in breach of their duties, they should seriously consider whether they are acting in the best interests of their client in accordance with principle 4 of the SRA Code of Conduct, and also of an incapacitated person (section 4 of the MCA 2005) by taking the attorney’s or donee’s instructions. It is important that the practitioner understands that this is an issue which may arise, and knows to ask for specialist advice from a mental capacity specialist if it does.

This is particularly important where there are concerns about a possible conflict of interest between the incapable person and their attorney or deputy. Where a conflict arises, a solicitor must not act for all potential parties, with very minimal exceptions, particularly as the incapable party cannot give informed consent in writing to the transaction, and/or there is an unequal bargaining position between the parties. The onus will be on the solicitor to demonstrate that it was reasonable to act for all of the clients at the same time in the transaction.

8. Undue influence

It should be made clear to colleagues that even if it can be ascertained that the vulnerable party has clear capacity to instruct, or valid instructions can be obtained from a third party, and there is no conflict of interest, there is always a risk that the client or their representative may be subject to undue influence behind the scenes, which will possibly invalidate any instructions. It is important that colleagues are alive to this, for the reasons outlined below.

9. Implications for acting without proper instruction

Ideally, a practitioner will always comply with their positive obligations under the MCA 2005. However, it can be useful to highlight that failing to do so may result in a claim for damages or compensation against the solicitor or the firm if, as a result of not complying with the duties to assess capacity or act on appropriate instructions, the validity of the transaction may be open to challenge. Further, complaints may be made against the solicitor to the Legal Ombudsman or Solicitors Regulation Authority (SRA), which could result in reputational damage and/or financial penalties.

The above are general points that apply to all areas of practice. Below at two areas of practice in which particular issues usually arise.

Property transactions

Due to the facts that the conveyancing team deals with a high proportion of elderly clients as they downsize or move into residential accommodation, and that conveyancing is a high-turnover, low-profit-margin sector, mental capacity issues often arise at the 11th hour in property transactions.

Where there are concerns about capacity, conveyancers should be encouraged to meet the client in question, or at the very least obtain specific medical evidence about the client’s ability to instruct on the matter in hand, whether it be a sale or a purchase, or both. It is also always worth reminding conveyancing colleagues that SRA indicative behaviour 1.25 confirms that where there are joint instructions, both clients must give instruction, ‘unless you are satisfied that the person providing the instructions has the authority to do so on behalf of all of the clients’ (my emphasis). This authority must be capacitated authority, unless an EPA, LPA or deputyship is in place.

It is also worth highlighting to conveyancing colleagues the common law test for gifting (Re Beaney [1978] 2 All ER 595), as this is one area that is not in line with the test in section 3 of the MCA 2005, and also the very complicated issues that may arise out of trustee incapacity where there is more than one owner of land, which could include an application to the Court of Protection being required before a property or land can be bought, charged or sold (section 36(9) of the Trustee Act 1925).

Commercial law

The incapacity of a sole trader, shareholder, senior employee, director or partner can cause serious problems for a business. This is particularly the case where the business is in a period of transition or involved in a significant transaction. Where a sole trader has made an LPA or EPA, or has a deputy, that person can act in the sole trader’s role. However, this may be of limited use if the attorney or deputy is a family member, who has no or limited knowledge of running a business. Commercial practitioners should consider advising clients to make separate business and personal LPAs to avoid this happening.

In contrast, the appointment of a director partner or an employee is a personal one (Mancini v Mancini [1999] NSWSC 799), and therefore an attorney or deputy cannot usually act in this role on behalf of the director or employee, unless the specific mechanism underpinning that appointment or partnership authorises this. This can be particularly problematic in the case of a director, as from 28 April 2013, section 3 of the Mental Health (Discrimination) Act 2013 states that for those companies to which the new model articles apply, or which have otherwise adopted the above, an incapable director is no longer automatically removed from office by virtue of their incapacity.

Mental capacity specialists need to ensure that their commercial colleagues are alive to the above, and that they are encouraging their clients to consider the issues posed by them at an early opportunity, rather than leaving matters to chance.