The plaintiff commenced these proceedings against the defendant on 6 April 2022 claiming orders for specific performance of a contract for sale of land dated 19 August 2021 between the plaintiff (as purchaser) and the defendant (as vendor).
On 12 May 2022, each of the defendants' three sons filed a consent to act as the defendant's tutor in these proceedings.
No order was sought from or made by the Court appointing those persons as the defendant's tutors. Nor was any such order required, if the defendant was a person under legal incapacity. Rule 7.15(1) of the Uniform Civil Procedure Rules 2005 (NSW) provides that a person may become the tutor of a person under legal incapacity without the need for any formal instrument of appointment or any order of the Court. The rules do not appear to contemplate the appointment of multiple tutors. It is not clear why three tutors were appointed for the defendant in this instance.
The plaintiff's claim for specific performance, together with a notice of motion filed by the defendant on 16 June 2023, were listed for hearing commencing on 19 September 2024 with an estimated hearing time of two days.
The defendant's notice of motion sought declarations to the effect that the parties had entered into a binding settlement deed in respect of these proceedings on 28 March 2023, and that the defendant had validly rescinded the contract for sale of land on 29 March 2023 pursuant to clause 2(d) of that settlement deed after the parties failed to complete the contract on 28 March 2023.
The parties reached a settlement agreement during the course of the morning of the first day of the hearing, and the parties then applied to the Court for approval of that settlement agreement pursuant to s 76 of the Civil Procedure Act 2005 (NSW). I determined that s 76 applies because the defendant is a person under legal incapacity, and that the settlement should be approved. I made orders accordingly on the basis that I would publish my reasons as soon as possible. These are those reasons.
Section 3 of the Civil Procedure Act defines "person under legal incapacity" as meaning any person who is under a legal incapacity in relation to the conduct of legal proceedings.
The question is whether the defendant has capacity in relation to these specific proceedings, including whether he is capable of understanding the nature and purpose of the proceedings, making informed decisions, with the benefit of relevant legal and expert assistance, about the issues in the proceedings, understanding the possible outcomes of the proceedings, and evaluating the risks and prospects of the proceedings. The fact of tutors having been appointed is not determinative of whether the defendant is a person under legal incapacity, or whether the proceedings should have been conducted by the defendant through a tutor: Rappard v Williams [2013] NSWSC 1279 at [62]-[80] (Hallen J) and the authorities there cited; Stokes v McCourt [2014] NSWSC 61 at [22]-[32] (McDougall J).
The defendant relied on evidence of Mr Andrew Heald, one of the defendant's sons and tutors, and a detailed report of clinical and forensic psychologist, Dr Linda Thomas dated 13 August 2022. The plaintiff made no objection to that evidence being admitted on the application for approval of the proposed settlement.
Mr Heald gave evidence that his father had suffered a mild stroke in 2018 and a further stroke in 2019. Mr Heald began to be concerned about certain aspects of his father's behaviour in the 12 months after the first stroke, such as being unable to find keys that were in his pocket, buying multiple power tools that were all the same, and attempting to buy cars at auction that he did not need and could not use.
Dr Thomas undertook cognitive and psychometric testing of the defendant, which indicated an overall measure of extreme impairment of cognitive function, extremely low performance in the domains of immediate memory, delayed memory and attention, and significant impairment in delayed and immediate recall of verbal information. Dr Thomas acknowledged that the defendant's extremely low scoring on these tests rendered the outcomes potentially unreliable, but opined that this may be due to extenuating neuropsychological factors impacting the defendant's capacity to complete the testing, and that the outcomes were consistent with the defendant's medical and psychiatric history (including depression, and depression-related structural and functional brain changes revealed by neuroimaging in frontolimbic regions which underlie performance on memory, attention and executive tasks). In Dr Thomas' opinion, the defendant's cognitive testing outcomes should therefore be regarded as an accurate representation of his cognitive capacity. Dr Thomas opined that successful decision-making requires the ability to reason about cognitively complex information, and that the defendant has mental incapacity which would negatively affect his ability to undertake cognitively complex tasks, such as understanding the outcome of his actions in signing the contract for sale of land that is the subject of these proceedings.
I accept the opinions of Dr Thomas to which I have referred above, in the absence of any evidence to the contrary and in the absence of any objection by the plaintiff to the tender of the report on the application for approval of the settlement.
The conduct of these proceedings, including attending to matters of the kind described at [8] above, must also require the ability to reason about cognitively complex information. On the basis of the evidence of Mr Heald and Dr Thomas, I am satisfied that the defendant is a person under legal incapacity in relation to these proceedings.
Section 76 of the Civil Procedure Act relevantly provides that there may not be any settlement of proceedings commenced against a person under legal incapacity except with the approval of the Court. If the agreement is approved by the Court, it binds the person under legal incapacity as if they were of full capacity.
The Court's function in considering an application for approval of a settlement is protective. The proper discharge of that function requires the Court to determine whether it is satisfied that the settlement is beneficial to the interests of the person under legal incapacity. That will generally turn on an assessment of whether there is a sufficient prospect of obtaining a more favourable judgment to outweigh the value of the certainty reflected in the settlement. The settlement should be consented to by the person's tutor, and there should be opinions from the tutor's legal advisers that they consider the settlement to be beneficial to the person under legal incapacity. Unless the Court is affirmatively satisfied that the settlement is for the person's benefit, approval should be withheld and the person under legal incapacity will not be bound by the settlement: Permanent Trustee Co Ltd v Mills (2007) 71 NSWLR 1; [2007] NSWSC 336 at [29] (Hammerschlag J, as his Honour then was).
The terms of the settlement are that the contract for sale of land entered into on 19 August 2021 is to be specifically performed, with completion to occur by 31 October 2024, time being of the essence, and that the plaintiff purchaser is to pay the defendant vendor the sum of $50,000 on completion in addition to the balance of the purchase price that is payable on completion subject to the usual adjustments for council rates and similar charges. The terms of settlement provide that, if the defendant fails to complete the contract on that date then, upon the plaintiff paying into Court the monies payable to the defendant on settlement (including the additional $50,000), the Registrar is empowered to execute the transfer of land and any other documents necessary in order to specifically perform the contract in the name of and on behalf of the defendant. The terms of settlement further provide that the Court makes no order as to the costs of the proceedings, with the intent that the parties each pay their own costs.
The tutors consent to the terms of the settlement.
I was not provided with any opinion of the tutors' legal representatives. Counsel for the defendant, instructed by the tutors, submitted that there are risks to both parties in these proceedings, that there is no way to predict the outcome of the proceedings, and that much would depend on cross-examination.
As counsel for the defendant acknowledged, the terms of the settlement provide the defendant with no benefit in addition to that which would have been available to him on 29 March 2023 under the previous settlement that is the subject of his notice of motion filed on 16 June 2023, if the defendant had not rescinded or purported to rescind the contract for sale of land on 29 March 2023, relying at that time on clause 2(d) of the settlement deed that he contends was binding on the parties and rejecting the plaintiff's ongoing attempts to complete the contract at that time.
In my opinion, the settlement agreement made on 19 September 2024 is nevertheless beneficial to the defendant because the prospects of him obtaining a more favourable judgment following a contested hearing of the plaintiff's summons and the defendant's notice of motion are not sufficient to outweigh the value of the certainty reflected in the settlement, which removes the risk that the defendant otherwise faced of being ordered to pay the plaintiff's costs of the whole of these proceedings, which have been on foot for approximately two and a half years.
The exposure to an adverse costs order represented a significant risk for the defendant because, in my opinion, his notice of motion had very poor prospects of success and his defence of the plaintiff's claim for specific performance would have depended on his challenge to the plaintiff's evidence that it was ready, willing and able to perform. As at the commencement of the hearing on 19 September 2024, that challenge was speculative. The plaintiff was intending to read an affidavit of its sole director in which he gave evidence about the sources of funds that were available to the plaintiff to complete the contract. There have been no orders for discovery in these proceedings. It was not until after 4:00 pm on the day before the hearing that the defendant first sought leave to issue a notice to produce to the plaintiff for documents relevant to its readiness, willingness and ability to perform. The parties' settlement negotiations on the morning of the first day of the hearing overtook the defendant calling on that notice to produce.
I have not overlooked that the defendant's written outline of opening submissions in these proceedings stated that the plaintiff's claim for specific performance "would have been fought on various grounds including his cognitive ability, hardship and unfairness", but that "subject to what arises at trial, it is likely that no dispositive rulings will be necessary in that regard, as [the defendant] says that the parties entered into a binding settlement deed." However, no cross-claim was filed on behalf of the defendant seeking orders setting aside the contract for sale of land, or seeking any other relief against the plaintiff, on the grounds of the defendant's cognitive deficiencies. Even if the defendant had been permitted to make such a claim at trial without having pleaded it, I consider that it would have had very poor prospects of success in circumstances where there was a solicitor acting for the defendant in relation to the contract for sale of land, and there was no evidence that the plaintiff knew or ought reasonably to have known about the defendant's cognitive deficiencies at the time the contract for sale of land was entered into. The defendant (by his tutors, represented by solicitors and counsel) had agreed to complete that contract under the 2023 settlement in consideration for an additional payment of $50,000, subject to the disputed clause 2(d) which, if it formed part of the parties' bargain, gave either party right to rescind the contract if it was not completed on 28 March 2023. That is an objective matter that tells against the plaintiff having procured the defendant's entry into the contract for sale of land on 19 August 2021 by taking unconscientious advantage of the defendant's cognitive deficiencies, even assuming for present purposes that the defendant had been able to point to some evidence that the plaintiff had actual or constructive knowledge of those deficiencies.
The defendant's notice of motion filed on 16 June 2023 had very poor prospects of success because the defendant's contention that he had a right to rescind the contract for sale of land depended on the Court finding that signed counterparts of the settlement deed containing clause 2(d) had been exchanged on 28 March 2023. The contemporaneous email correspondence provided strong support for the plaintiff's contention that no such exchange had occurred, and that the counterpart of the deed signed by the plaintiff had been provided to the defendant's solicitor to be held in escrow pending satisfaction of a condition which was never fulfilled. Even if the Court had held that the counterparts had been exchanged, the contemporaneous email correspondence and PEXA records relating to the failed settlement of the contract for sale of land on 28 March 2023 provided strong support for the plaintiff's alternative contention that the defendant was not entitled to exercise the right of rescission under clause 2(d) of the settlement deed for failure to achieve completion on that date because the defendant's own breach of his obligation under clause 6.2 of the deed to do everything reasonably necessary to give effect to its terms - including everything reasonably necessary to facilitate completion of the contract for sale on 28 March 2023 - had materially contributed to the parties' failure to complete on that date.
I accept the submission that the outcome of these proceedings could not be known prior to the conclusion of a final, contested hearing. However, contrary to the submissions of counsel for the defendant, I consider that the litigation risks in these proceedings were stacked far more heavily against the defendant than against the plaintiff.
Whilst it is regrettable that the defendant has incurred the costs of continuing these proceedings for the past 18 months only to achieve a settlement on the same terms as were available to him on 29 March 2023, it is my opinion that the terms of the settlement made on 19 September 2024 are for the benefit of the defendant, bearing in mind the significant risk to the defendant of the plaintiff's claim succeeding and an adverse costs order being made against the defendant if the matter had proceeded to a contested final hearing, for the reasons that I have explained above. For those reasons, I determined on 19 September 2024 that the settlement reached between the parties on that day should be approved pursuant to s 76 of the Civil Procedure Act.
[2]
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Decision last updated: 23 September 2024