TIO Annual Report 2004/05

Case Studies

Legal capacity to contract

The complaint:

An officer of the state Public Trustee contacted the TIO on behalf of a couple who had entered into 18 mobile contracts over a six-week period, incurring a debt of $14,000.

The officer claimed that, about four years earlier, she had told the provider that she was managing the couple’s financial affairs, as they suffered from medical conditions which impaired their capacity to make reasoned financial decisions. She argued that the contracts were void due to the complainants’ impaired legal capacity. The provider did not accept this.

TIO response:

The TIO asked the provider to confirm whether it was aware that the Public Trustee had been appointed to act for the complainants at the time of approving the mobile applications. It also queried whether the provider had adhered to its own internal policies in allowing the complainants to enter into so many contracts over such a short period, and asked what credit checks the provider had conducted before allowing the complainants access to such a large amount of credit.

The outcome:

The provider claimed that it had conducted full credit checks and that, at the time of the applications, there were no outstanding debts on any of the accounts. It advised that its normal policy was to allow only three “mobile repayment options” per account, but that it had exercised its discretion to exceed this limit. It could not provide any reasons for exercising this discretion.

In relation to the validity of the contracts, the provider initially argued that there is a legal presumption that all adults have legal capacity. However, it eventually accepted evidence from the complainants’ treating psychiatrist that they did not have sufficient legal capacity. The provider also acknowledged that it had been sending the complainants’ landline bills to the Public Trustee since June 2000 and therefore should have been aware of the Public Trustee’s appointment.

In resolution, the provider agreed to waive its right to pursue the outstanding debt, provided that the complainants returned any handsets they still had in their possession. The provider advised that the debt would remain on its systems and on the complainants’ credit files as a guard against them incurring further debts.

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