Maria Dunn's article on mental capacity sets out details of the test for determining whether an individual has mental capacity and discusses how the legal framework applies to decision making by individuals.
In the context of litigation, CPR 21 deals with circumstances where a person lacks capacity to conduct proceedings. When this occurs, they are called a "protected party". CPR 21 applies to insolvency proceedings by virtue of rule 12.1 IR 2016.
A protected party must have a litigation friend to conduct proceedings on their behalf. A person may not, without the court’s permission, make an application against a protected party before proceedings have started, or take any step in proceedings except issuing and serving a claim form; or applying for the appointment of a litigation friend.
A person may act as a litigation friend if they can fairly and competently conduct proceedings on behalf of the protected party, and have no interest adverse to that of the protected party.
No settlement, compromise or payment (including any voluntary interim payment) and no acceptance of money paid into court shall be valid, so far as it relates to the claim by, on behalf of or against the protected party, without the approval of the court.
While there are a wealth of cases concerning capacity, including significant numbers in the context of health and social care, two relatively recent decisions relating to insolvency proceedings illustrate the impact issues of capacity can have in such litigation.
Kumar v Hellard [2021] EWHC 181 (Ch)
This case concerned an appeal against a bankruptcy order on petition by liquidator of a company. The bankruptcy order was made in December 2019 and the appeal was lodged in early January 2020.
The appeal was made on grounds that a question had been raised as to the bankrupt's mental capacity, on the basis of an Alzheimer's diagnosis, the bankrupt, age 82, having had dementia for several years prior to this diagnosis.
The bankrupt had written a letter to the Court requesting an adjournment of the hearing of the petition, due to medical appointments, which had been sent to both the Court and the petitioning creditor. The transcript of the hearing, at which the petitioner opposed the request for an adjournment, discusses the letter (and enclosures amounting to various medical documents) and the District Judge raised the question of whether the bankrupt had mental capacity. However, the bankruptcy order was made on the basis that the judgment debt remained outstanding.
The more detailed evidence of cognitive decline, which was available to the Court on appeal, made it clear that the difficulties in short term memory and fluency meant the bankrupt was unable to participate in court proceedings. While ordinarily an appellate court would not interfere with case management decisions, the reason for the adjournment request was one which went to the bankrupt's capacity. It was evident that the individual was suffering from some form of dementia.
The Court considered the bankruptcy order wrongly made, so allowed the appeal and set the bankruptcy order aside, and appointed a litigation friend. The petitioning creditor was obliged to pay the Official Receiver's costs, on the basis that he was aware of the capacity issue and brushed over this, and also the costs of the appeal. While these were modest, clearly the Court took the view that where a party is aware of a potential capacity issue, brushing over this was not the appropriate step to take.
Sriram v HMRC [2024] EWHC 853 (Ch)
This was a bankruptcy case concerning Ms Sriram, who was made bankrupt in 2017 by HMRC. She she sought an annulment under s282(1)(a) of the Insolvency Act 1986, on grounds that she lacked capacity during the currency of the bankruptcy proceedings.
Ms Sriram's position was that she was suffering from severe psychiatric illness and was undergoing treatment in India in 2017. She claimed that, even if she had been aware of the proceedings, she could not have engaged with them as she lacked capacity, within the meaning of the Mental Capacity Act 2005, to deal with the proceedings
The Court granted permission for expert medical evidence to be adduced by both Ms Sriram and HMRC. By 12 May 2022, when Ms Sriram was examined by Dr John Shaw, she had lost capacity to conduct the proceedings. Dr Shaw provided a certificate to that effect. ICC Judge Prentis appointed the Official Solicitor as Ms Sriram's litigation friend on 17 October 2022.
Although Ms Sriram provided witness evidence, she could not be cross-examined as a result of her ongoing illness. Her statements were treated as admissible hearsay.
The parties jointly instructed medical experts to provide an opinion as to Ms Sriram's mental capacity at the point at which the statutory demand and petitions were served. They agreed that Ms Sriram suffers from a severe mental disorder, referred to as schizoaffective disorder. This haw symptoms of both bipolar disorder and schizophrenia and Ms Sriram had suffered depressive episodes and manic episodes, on occasion becoming what was termed "floridly psychotic", which to say that her psychosis was very evident. Both experts agreed that schizoaffective disorder is episodic in nature, with periods of remission during which patients are able to regain function to varying degrees. They disagreed as to the extent to which Ms Sriram regained such function between, and during, hospital admissions and have formed different views as to what the medical records indicate.
The experts agreed that Ms Sriram suffered from an impairment of, or a disturbance in the functioning of, the mind or brain. They disagreed as to whether this affected decision making ability at the material time.
In reaching a conclusion that Ms Sriram did not have capacity at the relevant time, the Court heavily relied on the experts' evidence in reaching that decision. The Judge was satisfied that Ms Sriram was suffering from a serious mental illness and that her condition declined from the point that she stopped taking her medication in mid-2016. While her illness was punctuated by instances of "florid psychosis" Ms Sriram did not regain the capacity to manage her affairs between those instances so as to have been able to address the bankruptcy proceedings.
Having reached that conclusion, the Judge was then required to consider the discretion to annul, noting that while the starting point for a bankruptcy that proceeded during a debtor's incapacity ought to be annulled, there were a number of factors requiring an exercise of discretion against annulment. These included:
- the application was not made for some 18 months after the point at which Ms Sriram says that she became aware of the bankruptcy, and well after she had regained capacity.
- Ms Sriram's lack of candour with the trustee and the fact that Ms Sriram's assets and liabilities remain opaque as a result of her own lack of cooperation.
- That HRMC took all reasonable steps to serve Ms Sriram with both the statutory demand and the petition and acted in good faith throughout
- The real risk of detriment to creditors if the bankruptcy was annulled.
In this case, the bankruptcy order stood, notwithstanding the debtor's lack of capacity during the petition proceedings.
Comment
While the cases have a difference in outcome, these at least in part due to the speed with which applications were made, and largely in relation to the bankrupt's conduct. What is more interesting is the similarity, as both decisions clearly show that the question of mental capacity is one the court expects parties to consider seriously, and which undeniably has an impact in terms of procedure and costs.
This is a complex area and ever-evolving, as society understanding of mental health and mental capacity evolves. Where there is any doubt about capacity, it will be important for office holders to carefully consider the implications and take appropriate next steps, and be very aware of the impact on procedure, costs and timetabling, especially if applications to the Court of Protection may be required before litigation can proceed.
