News & Insights

Series on Family disputes relating to mental capacity issues – Challenges to Enduring Powers of Attorney

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Authored by: Sherlynn Chan and Hazel Wong

Enduring Powers of Attorney (EPAs) have become a very hot topic in our community, which is aging and has seen an increase in the early onset of strokes in people between the ages of 18 and 55, as shown in a recent survey by the Medical Faculty of Hong Kong University.

Enduring Powers of Attorney

So, what exactly is an EPA and how is it different to a general Power of Attorney? An EPA is a legal document made under the Enduring Powers of Attorney Ordinance (Cap. 501) (EPAO), whereby a person (the Donor) appoints someone else (the Attorney) to handle his/her financial affairs.  The key difference is the “enduring” power granted to an Attorney under the EPA, which enables the Attorney to handle the Donor’s financial affairs even after the Donor becomes mentally incapacitated. On the other hand, a conventional/general Power of Attorney becomes invalid when the Donor becomes mentally incapacitated.

According to statistics from the High Court Registry, the number of registrations of EPAs nearly doubled from 560 in 2020 to 1,109 in 2021 and continues to rise.  With the increasing use of EPAs, it is important for people to be aware of potential challenges to EPAs and ways to prevent disputes relating to them.

Challenges to mental capacity of Donor

One common type ofchallenge is whether the Donor had the requisite mental capacity at the time of executing the EPA.

In the case of To Lee Wah Samuel v Yum Huin Ming & Another [2019] HKCFI 1441, the Judge laid down the relevant test for mental capacity in relation to the execution of an EPA. 

Mrs To has 3 sons and 2 daughters. She executed two EPAs, appointing her youngest son as the Attorney to deal with all her assets. Her eldest son later sought to challenge her mental capacity at the time of execution of the two EPAs.

The Judge confirmed the test for determining the issue of capacity in execution of an EPA with reference to the EPAO and the Powers of Attorney Ordinance (Cap. 31). In gist, a person is mentally incapable of executing an EPA if he/she is suffering from a mental disorder or mental handicap and is either (i) unable to understand the effect of the power of attorney or (ii) by reason of his/her mental disorder or mental handicap, unable to make a decision to grant a power of attorney. Alternatively, if the person is unable to communicate to any other person an intention to grant a power of attorney, even though the other person has already made a reasonable effort to understand him/her, he/she does not possess the requisite mental capacity for the making of EPA.

Under common law, an adult is presumed to have mental capacity, unless it is shown otherwise and the burden is on the party asserting otherwise to prove that a person has no such capacity. The Judge found that the Plaintiff had failed to discharge the burden of proving that Mrs To did not have the requisite mental capacity to execute the two EPAs based on the expert medical evidence adduced.

This type of challenge against the validity of an EPA is becoming more and more common, especially where the children of a family are divided into two or more camps, with one camp taking control of the patriarch/matriarch’s financial affairs through an EPA.

From our experience, a lot of these disputes arise from the lack of communication and transparency between family members. Such disputes may be avoidable if the Donor notifies or involves the other adult children in the rationale and making of the EPA, thereby reducing mistrust and suspicion.

Attorneys’ fiduciary duties

As one would expect, an Attorney owes a fiduciary duty to the Donor. This is specifically set out under s.12 of the EPAO, which provides that the Attorney has a duty to exercise his power honestly with due diligence, keep proper accounts and records, not to enter into any transactions where a conflict of interest would arise with the Donor and not to mix the property of the Donor with other property.

S.11(1) of the EPAO offers protection to the Donor, by providing that the Court may, on the application of an interested party, require the Attorney to produce records and accounts and make an order for their auditing; revoke or vary the Attorney’s powers; or in cases where the Court is satisfied that the interests of the Donor so require, to remove the Attorney.

Other challenges

Other challenges to EPAs may include challenges to the scope of authority and the exercise of powers by the Attorney. Stay tuned for our next article(s) and case updates covering these topics.

Our Family and Vulnerable Client Practice team at Deacons is experienced in handling contentious matters relating to mental capacity and EPAs, as well as family wealth planning, using such tools as EPAs. Please reach out to us if you would like to know more.

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