Kei Kin Hung v Hua She Asset Management (Shanghai) Company Limited

Capacity to conduct litigation is assessed by the two-limb test in the Mental Capacity Act 2005: an impairment or disturbance of the mind or brain, and resulting inability to make the relevant decision. Capacity is issue-specific. Expert evidence is important but cannot replace the court’s assessment; its weight depends on the reasoning connecting the diagnosis to decision-making. The court must consider actual functioning and all practicable remedial measures, including suitable indirect communication. An appellate court may not substitute its own evaluation for an evaluative first-instance judgment absent an identifiable flaw undermining its cogency. On the evidence, the appellant’s psychiatric reports did not establish the functional limb, while financial records showed sophisticated unaided decision-making. The appeal was dismissed.

Hua She obtained freezing and disclosure orders against Mr Kei following enforcement of an arbitral award. Mr Kei’s solicitors filed a litigation friend certificate under CPR 21, supported by psychiatric evidence that he lacked capacity under the Mental Capacity Act 2005. Foxton J held that incapacity had not been established and made an order reflecting that conclusion.

Permission to appeal was granted principally because Mr Kei sought to rely on fresh evidence concerning his reaction to a video conference with his solicitor and psychiatrist. The appeal challenged the evaluation of the psychiatric evidence and UBS banking records, the relevance of remedial measures, and the admissibility and effect of the fresh evidence. The central issue was whether incapacity to conduct the proceedings had been established on the balance of probabilities.

1. Appeal dismissed. Popplewell LJ gave the leading judgment. Phillips and Nugee LJJ agreed.
2. Under the Mental Capacity Act 2005, the test has a diagnostic limb and a functional limb. Capacity to conduct litigation is issue-specific and may require assessment by reference to a particular phase or aspect of the proceedings. The statutory starting point is that capacity exists unless lack of capacity is established.
3. Expert psychiatric evidence is important but not conclusive. The court must weigh it against all other relevant evidence. An opinion unsupported by reasoning which connects the diagnosis and observed symptoms to the statutory decision-making functions carries little weight. The UBS documents provided cogent evidence that Mr Kei had made sophisticated financial decisions and given detailed instructions during the period in which he was said to lack capacity. Those documents were properly before the court and remained unanswered.
4. All practicable steps to help a person make the relevant decision must be considered. Remedial measures are not confined to formal courtroom adjustments. They may include indirect written communication, assistance from trusted persons, and other arrangements capable of overcoming an aversion to direct contact with lawyers.
5. Foxton J had made an evaluative judgment. Under Re Sprintroom Ltd [2019] EWCA Civ 932, an appeal could succeed only upon an identifiable flaw or failure to take account of a material factor which undermined the conclusion. No such error was shown.
6. The fresh evidence was admitted under CPR 52.21(2), applying the three-part test in Ladd v Marshall [1954] 1 WLR 1489. It could not reasonably have been obtained for the first-instance hearing, and it had sufficient potential importance to satisfy the admissibility test. It nevertheless did not establish incapacity. Even assuming the appellant was not dissembling, the reaction to the video conference was compatible with capacity if appropriate remedial measures were used. The evidence was not supported by a reasoned expert assessment and did not explain how communication with the legal team could not be achieved indirectly.
7. The appeal was therefore dismissed. The appellant had failed to establish incapacity on the balance of probabilities.

• Court of Appeal (Civil Division) — the appeal against Foxton J’s decision was dismissed: [2023] EWCA Civ 1483.
• High Court, Commercial Court — Foxton J held on 7 July 2023 that Mr Kei had not established that he lacked capacity to conduct the proceedings. The conclusion was reflected in an order dated 14 July 2023.