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  • Writer's pictureShane Ellis

Court Confirms Capacity To Make a BDBN

A recent court ruling is a reminder to advisers that capacity is determined by whether a person understands a relevant document after it was explained to them, says a specialist legal counsel.

Shaun Backhaus, senior associate with DBA Lawyers, said the NSW Supreme Court decision in van Camp v Bellahealth Pty Ltd [2024] NSWSC 7 (22 January 2024) (van Camp v Bellahealth) provides important lessons for advisers when considering a person’s capacity to make a Binding death benefit nomination (BDBN) and reinforces the value of keeping good records and file notes.

The facts of the case are that Dr Nespolon was the sole member of an SMSF and sole director of the corporate trustee, Bellahealth Pty Ltd (Trustee).

He signed a BDBN in hospital on the day he died from cancer at the age of 57 directing the fund’s trustee to pay his member benefits to his de facto partner, Ms van Camp.

The trustee and other defendants claimed that Dr Nespolon lacked the capacity to make the BDBN and alleged unconscionable conduct on the part of Ms van Camp in procuring it. They sought an order that the BDBN be set aside or a declaration that it is void or unenforceable.

“Relevant to this matter was that the BDBN reflected a change in Dr Nespolon’s prior instructions to some advisers and may have somewhat conflicted with the intentions outlined in his will,” Mr Backhaus said.

“The court relied on various documentary evidence and a number of witnesses including various advisers to Dr Nespolon who were required to give evidence as to the advice they had given him and details relating to his capacity.”

Mr Backhaus said the evidence also included emails, phone calls, text messages and meetings that Dr Nespolon had with his advisers, and highlights the importance of professionals keeping good records of all client interactions, as these could one day be before a court.

“As well as his advisers, Dr Nespolon’s doctors, who witnessed the BDBN, gave evidence as to his capacity at the time,” he said.

“There was also expert evidence led by a doctor regarding the effects that various drugs would have had on Dr Nespolon’s capacity.”

The court found the defendants did not establish that Dr Nespolon lacked the mental capacity to make the BDBN.

In its ruling, the court said “Considering the issue of capacity, it is necessary to focus on the BDBN, as the particular instrument signed by Dr Nespolon and the effect it would have”. It referred to the High Court decision in Gibbons v Wright at 438 which states “the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being affected by means of the instrument, and may be described as the capacity to understand the nature of that transaction when it is explained”.

The ruling also noted the essential general nature and broad operation of the BDBN is apparent from its terms, namely that “Dr Nespolon, the sole member of the fund, was specifying how his member benefits were to be paid on his death in a manner binding on the fund trustee, rather than leaving the decision as to how they were to be paid to the discretion of the trustee”.

Finally, the judgement stated that in assessing capacity, consideration should be given to whether Dr Nespolon was capable of understanding that the act of making the BDBN would have the particular effects described above.

In particular, the court noted whether he had the capability of understanding that all of his member benefits would be paid directly to Ms van Camp and would not be used by the executors in accordance with the terms of his will if such an explanation had been provided to him.

“A general understanding of these matters would not require a particularly complicated explanation in the circumstances of this case,” the judgement noted.

The court heard that when asked by his doctor at the time of making the BDBN “Do you know what you are signing?”, Dr Nespolon said that the document related to his will and words to the effect that it would prevent Ms van Camp from being “taxed out of her brains”.

“This statement was a relevant fact that supported a finding that Dr Nespolon understood the general nature and effect of the BDBN,” Mr Backhaus said.

Although the defendants were claiming “unconscionable conduct”, the court held it was not satisfied that the BDBN was the result of Ms van Camp taking advantage of any known special disadvantage of Dr Nespolon in circumstances that were unconscionable.

“The court declared that the BDBN was valid and binding and directed the trustee to pay out the death benefits to Ms van Camp,” Mr Backhaus said.

“The case highlights that whether a person had capacity at a particular time can be determined by a plethora of evidence. Advisers who have been involved with a client at the relevant time are likely to be called to give evidence on these matters, and without a well-kept and thorough file that contains copies of file notes of all relevant communications with a client, an adviser is unlikely to be well received in court.”

Written by Keeli Cambourne for SMSFAdviser


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