If you liked it then you should of put a stamp on it – settlement for incapacitated claimant should have been court approved – AEW v BW [2016] NSWSC 905

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Last updated: 02 Sept, 2021
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Originally Published by Alexandra Kyprianos on Thursday, July 28, 2016 12:00:00 AM


Author: Alexandra Kyprianos

Judgment Date: 14th July, 2016

Citation: AEW v BW [2016] NSWSC 905

Jurisdiction: Supreme Court of New South Wales


Principles

  • The absence of a finding of incapacity by a court, the NSW Civil and Administrative Tribunal or the Mental Health Review Tribunal will not be conclusive on the issue of whether a person has legal capacity.

  • A claim made by or on behalf of a person who is, or is reasonably thought to be legally incapable must be, or should be on discretionary grounds, exempted from assessment by the Claims Assessment and Resolution Service (CARS).


Background

Solicitors acting for a legally incapacitated person (the defendant) purportedly settled a claim with the consent of the defendant, without court approval or a power of attorney, and on the basis that the settlement figure was inclusive of costs. The solicitors, in consultation with the defendant's family, deducted their costs without due authority or assessment. The defendant's son (the plaintiff) prepared an application under s 41 of the NSW Trustee and Guardian Act 2009 (NSW) (the NTGA) for protected estate management orders, including:

  1. A declaration that the defendant was incapable of managing her affairs

  2. An order that the plaintiff be appointed as manager of the protected estate

  3. An order that funds held on the plaintiff's behalf in a controlled monies account be released to the plaintiff.


Decision

The Supreme Court of New South Wales (Supreme Court) considered that there were no provisions in the Motor Accidents Compensation Act 1999 (NSW) (the MACA) that would prevent an application for approval of settlement on behalf of a person under a legal incapacity pursuant to s 75(2) of the Civil Procedure Act 2005 (NSW) (the CPA) and the making of orders as to payment under s 77 of the CPA.

The Supreme Court then went on to consider s 92(1) of the MACA and cl 8.11.3 of Motor Accidents Authority's Claims Assessment Guidelines (the Guidelines) which, at cl 1.6.27, defines 'person under a legal incapacity' to include:

  • A child under the age of 18 years

  • A temporary patient, continued treatment patient or forensic patient within the meaning of the Mental Health Act 1990 (NSW)

  • A person under guardianship within the meaning of the Guardianship Act 1987 (NSW)

  • A protected person within the meaning of the Protected Estates Act 1983 (NSW)

  • An incommunicate person, being a person who has such a physical or mental disability that he or she is unable to receive communications, or express his or her will, with respect to his or her property or affairs.

The Supreme Court considered that the definition of 'person under legal incapacity' in the Guidelines differed from the definition of 'person under legal capacity' in s 3(1) of the CPA in three material aspects, being that:

  1. It excludes a reference tying the concept of legal incapacity to the business at hand

  2. It has not been updated to reference the current legislation that governs this area, namely the NTGA

  3. It does not include 'a person who is incapable of managing his or her own affairs' as under a legal incapacity.


The Supreme Court then reviewed the relevant case law in relation to what defines legal incapacity and confirmed that:

  1. There is no fixed standard of 'capacity' – it depends on the particular business being transacted1|

  2. Where cognitive behavioural emotional sequelae owing to a traumatic brain injury places someone at a disadvantage in "conducting her own financial affairs competently" and places them "at significant risk of either dissipating or losing the money"2

  3. A subjective approach is preferred, which measures a person's self-capacity against the affairs of the particular individual, rather than "the ordinary affairs of man"

  4. An inquiry into whether a person is or is not capable of managing his or her affairs focuses not merely upon the day of the decision but also the reasonably foreseeable future.3


The Supreme Court also considered the purpose of the protective jurisdiction and how it operates:

  1. Protection of those not able to take care of themselves4

  2. The welfare and interests of the person in need of protection are paramount5

  3. Whatever is done or not done upon exercise of protective jurisdiction is measured against what is for the interest and benefit of the person being protected6

  4. A large and liberal approach of 'benefit' is to be applied. It includes more than what directly benefits him or her if they were able to manage their own affairs.7


It was found that the absence of a finding of incapacity by a court, the NSW Civil and Administrative Tribunal or the Mental Health Review Tribunal will not be conclusive on the issue of whether a person has legal capacity.


Further, the definition of 'person under a legal incapacity' found in cl 8.11.3 of the Guidelines, and defined at cl 1.6.27, was found to extend to a person who is not capable of managing his or her own affairs. If a person falls under this category then the claim should generally be determined by the Supreme Court and a tutor appointed.

The Supreme Court was critical in this instance, of the solicitors' reliance on a medical report from a psychologist which only considered whether the defendant was capable of giving instructions but did not consider whether the defendant was capable of managing the fruits of a successful claim.

The Supreme Court considered that there may be situations where a person was incapable of managing their own affairs but have legal capacity to enter a contract or participate in a CARS assessment. There remained a practical risk that a person could have the requisite capacity but be at 'special disadvantage' as defined under equitable principles.

The Supreme Court concluded that where there was doubt as to capacity and no enduring power of attorney, a prudent practitioner would have appointed a tutor and sought court approval, making settlement conditional on approval.

The Supreme Court did not go so far as to suggest that the solicitors were acting in bad faith but indicated that there appeared to be a lack of understanding of the purpose of protective jurisdiction and its application in the circumstances.

The Supreme Court appointed the plaintiff as manager of the defendant's estate subject to the NSW Trustee and Guardian reviewing whether settlement was reasonable and the defendant's affairs were in order by putting a plan in place for management. The NSW Trustee and Guardian was ordered to report back to the Supreme Court regarding whether the settlement figure and costs appropriated were reasonable and to provide guidance as to what, if any, steps should be taken on behalf of the defendant.


Why this Case Note is important

This case reaffirms that insurers should be alive to the issue of capacity during settlement negotiations. If there is evidence of incapacity or doubt as to same, it would be prudent for the insurer to suggest and support Supreme Court approval to prevent any questions as to whether the settlement was entered in good faith and whether the settlement sum was reasonable.


  1. Gibbons v Wright (1954) 191 CLR 423, 438.
  2. DW v JMW [1983]] 1 NSWLR 61, 63.
  3. McD v McD [1983] 3 NSWLR 81, 86C-D.
  4. Marion's case (1992) 175 CLR 218,258.
  5. Holt v Protective Commissioner (1993) 31 NSWLR 227, 238B-C.
  6. Holt v Protective Commissioner (1993) 31 NSWLR 227, 238D-F.
  7. Protective Commissioner v D (2004) 60 NSWLR 513,522.