Were you of sound mind when you signed your Power of Attorney?

In the intricate web of Australian law, few legal matters carry as much significance as the capacity to create enduring powers of attorney (EPOAs) and the capacity to revoke them. These legal instruments empower individuals to name someone to manage their affairs when they are unable to do so. This article delves deep into the complex terrain of mental capacity within the context of EPOAs and their revocation in Australia. While legal tests exist to determine capacity, the article aims to shed light on the practical implications of these tests and the underlying presumption of capacity that informs them.

Presumption of being of sound mind when you signed your Enduring POA

Central to understanding mental capacity in Australian EPOAs is the presumption that every adult possesses the inherent capacity to engage in legal transactions. This presumption recognises our inherent ability to make decisions unless evidence suggests otherwise. However, this presumption is not rigid; it adapts to the specific circumstances of each case.

The test of mental capacity when signing a POA or Power of Guardianship

In New South Wales, South Australia, and Western Australia, the tests for capacity to create EPOAs comes from legal cases. These tests pivot on an individual’s ability to grasp the nature and implications of the transaction they are entering into.

Gibbons v Wright

Echoing the sentiments of Dixon CJ, Kitto, and Taylor JJ in the landmark case of Gibbons v Wright [1954] HCA 17; 91 CLR 423, mental capacity involves understanding the basic parts of a transaction when they are explained—a practical grasp of comprehension. This is like understanding the key details of a journey before embarking on it.

The Significance of Specificity and Granularity in mental capacity when signing POAs

Further delving into these tests, we uncover the crucial importance of understanding the finer details. Ranclaud v Cabban (1988) NSW Conv R 55-385 amplifies this point by setting out the contours of understanding required for a valid EPOA. It’s not merely about granting authority to another person; it involves a comprehensive understanding of the myriad actions an attorney can undertake on one’s behalf. From managing financial transactions to orchestrating property sales, the individual must grasp the full spectrum of possibilities.

Justice Young in Ranclaud v Cabban stated:

Such a power permits the donee to exercise any function which the donor may lawfully authorise an attorney to do. When considering whether a person is capable of giving that sort of power one would have to be sure not only that she understood that she was authorising someone to look after her affairs but also what sort of things the attorney could do without further reference to her.

Compare this to Lord Hoffmann in Re K8 [1988] Ch 310:

Finally, I should say something about what is meant by understanding the nature and effect of the power. What degree of understanding is involved? Plainly one cannot expect that the donor should have been able to pass an examination on the provisions of the Act. At the other extreme, I do not think that it would be sufficient if he realised only that it gave Cousin William power to look after his property. [Counsel as amicus curiae] helpfully summarised the matters which the donor should have understood in order that he can be said to have understood the nature and effect of the power. First, (if such be the terms of the power), that the attorney will be able to assume complete authority over the donor’s affairs. Secondly, (if such be the terms of the power), that the attorney will in general be able to do anything with the donor’s property which he himself could have done. Thirdly, that the authority will continue if the donor should be or become mentally incapable. Fourthly, that if the should be or become mentally incapable the power will be irrevocable without confirmation by the court.

‘Mental capacity’ is not just tested on the exact moment you sign your Power of Attorney

One of the most intriguing aspects of mental capacity lies in its inherent variability over time. Various factors, such as illness, stress, or medication, can significantly impact cognitive abilities. This fluidity underscores the delicate interplay between momentary capacity and ongoing, enduring understanding. The Queensland Guardianship and Administration Tribunal’s observation in 2005 underscores the fact that capacity goes beyond a single moment of signing; it encompasses the ability to consistently make well-informed decisions over time.

Understanding the “Who” and the “What”: A Complex Appraisal

For ‘capacity’ two elements emerge the “who” and the “what.” Barrett J’s analysis in Szozda v Szozda [2010] NSWSC 804 unravels these elements. It sheds light on the importance of trustworthiness, responsibility, and the capabilities of the appointed attorney. Capacity to appoint extends beyond merely understanding the POA’s contents; it necessitates a profound comprehension of the implications of granting power and the attributes of the chosen attorney. Barrett J states:

That concept of empowering another person to act generally in relation to one’s affairs raises two basic questions.

First, is it to my benefit and in my interests to allow another person to have control over the whole of my affairs so that they can act in those affairs in any way in which I could myself act – but with no duty to seek my permission in advance or to tell me after the event, so that they can, if they so decide, do things in my affairs that I would myself wish to do (such as pay my bills and make sure that cheques arriving in the post are put safely into the bank) and also things that I would not choose to do and would not wish to see done – sell my treasured stamp collection; stop the monthly allowance I pay to my grandson; exercise my power as appointor under the family trust and thereby change the children and grandchildren who are to be income beneficiaries; instruct my financial adviser to sell all my blue chip shares and to buy instead collateralised debt obligations in New York; have my dog put down; sell my house; buy a place for me in a nursing home?

Second, is it to my benefit and in my interests that all these things – indeed, everything that I can myself lawfully do – can be done by the particular person who is to be my attorney? Is that person someone who is trustworthy and sufficiently responsible and wise to deal prudently with my affairs and to judge when to seek assistance and advice? The decision is one in which considerations of surrender of personal independence and considerations of trust and confidence play an overwhelmingly predominant role: am I satisfied that I want someone else to be in a position to dictate what happens at all levels of my affairs and in relation to each and every item of my property and that the particular person concerned will act justly and wisely in making decisions?

This case highlighted the importance of considering the “who” in appointments. When choosing an attorney under an enduring power of attorney, people need to think about the attorney’s trustworthiness, responsibility, and ability. In this situation, Mrs Szozda’s three adult children wanted to invalidate her enduring and general power of attorney created in September 2006 when she was 95. They also sought other orders. Mrs Szozda’s daughter argued that the September 2006 power of attorney was valid and that the 2004 and March 2006 powers of attorney made by Mrs Szozda were revoked. After reviewing witness and medical evidence, Judge Barrett made factual findings about Mrs Szozda’s capacity at those times.

Capacity to sign an EPOA involves:

  • a balance between understanding the instrument’s nature
  • the authority it bestows
  • the specific powers vested in the attorney.

When you sign you need to understand both the general concept and the intricate specifics. This equilibrium gives rise to a vivid portrait of mental capacity within the dynamic legal context.

Navigating Complexity for Ensuring Certainty

The common law, in its pursuit of safeguarding autonomy while preventing exploitation, walks a delicate tightrope. It aims to strike a balance between setting the bar high enough to deter abuse while affording individuals the opportunity to exercise their rights. The endeavour to grasp the “far-reaching ramifications” of granting power embodies this equilibrium. It ensures that an EPOA remains a tool of empowerment, safeguarding against potential entrapment.

Conclusion: A Multifaceted Tapestry Woven with Realities

As we traverse the intricacies of mental capacity within the realm of Australian EPOAs and their revocation, a vivid and multifaceted landscape emerges. It becomes abundantly clear that capacity is a nuanced concept, adapting and evolving to fit the unique contours of each case. From the foundational common law tests to the pragmatic considerations of powers and their implications, the journey toward creating an EPOA is enriched with layers of comprehension. As the legal landscape continues to evolve and cases shape the terrain, mental capacity stands as a guiding principle, ensuring that the threads of autonomy and protection weave together seamlessly, crafting a multifaceted tapestry of empowerment, assurance, and legal certainty.