H. GROUNDS 1 AND 3
38 Appeal grounds 1 and 3, as articulated in the appellants' written and oral submissions, involve intermingled contentions that the primary judge erred by applying the wrong test in determining whether Ms Rossi was a "handicapped person" within the meaning of O 15.01 and in her application of the test to the terms of the Deed. The appellant accepted that, in the application of O 15.01 to the facts of Ms Rossi's case, the question of whether she was incapable by reason of mental infirmity of managing her affairs was to be determined by reference to the transaction constituted by the Deed. Mental capacity was to be measured, it was submitted, by reference to the particular circumstances of the transaction in question and, in this case, required Ms Rossi to be capable, at the time of executing the Deed, of: (a) understanding and processing the information with which she was presented; (b) making a decision about that information; (c) communicating that decision to her lawyers; and (d) yielding claims against Qantas in the practical implementation of the Deed. The appellant submitted that the primary judge erred in concluding that the requisite mental capacity was satisfied, relying upon evidence given by Dr Parmegiani concerning the distinction between awareness of events and cognitive processing of information, access to expressive language and sufficient psychological strength to do something other than acquiesce in signing the document.
39 The primary judge undertook a review of the authorities relevant to mental capacity in varying contexts (PJ at [38]-[65]) and derived from that analysis the criterion that Ms Rossi's capacity to enter into the Deed was to be measured by whether she would have understood the nature and effect of the transactions then contemplated if an explanation had been given to her: PJ at [70]. As earlier stated, the primary judge considered that the identified criterion would be satisfied if Ms Rossi had the capacity to understand something of her prospects of success, that any claims against Qantas would be resolved and come to an end if a settlement was achieved, that there would be no necessity for a trial, and that she would be paid the sums of money for which the Deed provided: PJ at [71] and [396].
40 We are not persuaded that this approach was in error. There is no dispute that the guiding principle in respect of the impugnment of a specific transaction on the ground of mental incapacity is that identified by the High Court under the general law in Gibbons v Wright (1954) 91 CLR 423 (Gibbons v Wright). The essential element is that the relevant party to the transaction must have the capacity to understand the general nature of the transaction upon it being explained. However, this does not involve the application of a fixed standard, since "the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument" (at 438). This test thereby takes into account the degree of complexity of the transaction in question. It has been described as "task-specific", so that a person may have the capacity to perform one task but lack the capacity to perform a different task: Guthrie v Spence (2009) 78 NSWLR 225; [2009] NSWCA 369 at [175]. It is also time-specific, in that it is recognised that a party suffering from a mental infirmity may have different levels of capacity at different times, with the test being applied to the time at which the party entered into the transaction: A v N [2012] NSWSC 354 (A v N) at [22]; Rappard v Williams [2013] NSWSC 1279 at [76].
41 The fourfold test posited by the appellant and reproduced at [38] above appears to be substantially derived from Re Erdogan's Application: Erdogan v Ekici (2012) 36 VR 579; [2012] VSC 256 (Erdogan). As the primary judge observed (PJ at [64] and [354]), the context of this decision is significant. Erdogan concerned whether the plaintiff, who had an acquired brain injury as a result of a vehicle collision, should have access to the settlement sum paid in respect of the injury which had been paid into court some years earlier on the basis that he now had the capacity to manage his affairs. This required determination as to whether the plaintiff was a "handicapped person", meaning "a person who is incapable by reason of injury, disease, senility, illness or physical or mental infirmity of managing his or her affairs", under the Supreme Court (General Civil Procedure) Rules 2005 (Vic). The test applied by the Court (Dixon J) was, following Gibbons v Wright, "whether the beneficiary has sufficient cognitive function to be capable of understanding the general nature of what he is doing by his or her participation in managing his or her affairs" (at [70]), with the plaintiff's "affairs" involving the self-management of property and financial affairs both in the present and future (at [71]). The personal circumstances which defined the focus of the required inquiry were said to include: the nature of the person's assets and liabilities; their understanding about sources of income, the reliability of supply and amount, and the obligations of taxation, expenses and debt; tasks and activities associated with the management and maintenance of assets; tasks or activities involved in everyday financial transactions; the protection of the security of assets; the management of debt obligations; and the appreciation of capital risks and income risks and the appropriate uses for debt (at [76]). In this context, Dixon J described the evaluative task required as follows:
[74] Evaluating such capacities or competencies requires identification of the cognitive ability to implement or participate in processes, particularly:
(a) An ability to identify and comprehend the existence of an event, transaction or issue which requires management - a decision or a choice.
(b) Once the matter is identified, insight into, and understanding of, the matter is needed. The person must be able to understand or appreciate and recall the relevant facts, the alternatives available, whether by action or inaction, including seeking advice or assistance where appropriate, with sufficient clarity to permit rational choice or decision.
(c) The person must have the capacity to reason, to make a rational decision or choice about the steps to be taken, or avoided to achieve an appropriate outcome or otherwise give effect to or implement a transaction.
[75] What needs to be demonstrated is the capacity to understand, absorb and retain information, whether numerical, language, or spatially based, a capacity to process that information rationally, a capacity to balance risk and need in context, and a capacity to appreciate consequence as opposed to the immediate.
42 We agree with the primary judge's observation (PJ at [64]) concerning Erdogan that "[t]he focus of the assessment of capacity in the context of the compromise of litigation must be narrower". The task-specific nature of the test in Gibbons v Wright means that the nature of the consideration required to assess capacity in relation to the closed event of a past compromise of litigation must have a more confined scope than in the circumstances described in Erdogan, where capacity was required to be assessed by reference to a wide range of potential future transactions and other events. The need to adapt the test to these differing circumstances recognises that a litigant may have the capacity to decide whether to settle litigation but not have the capacity to administer the settlement sum received as a result: Masterman-Lister v Brutton & Co [2003] 3 All ER 162; [2003] 1 WLR 1511; [2002] EWCA Civ 1889 (Masterman-Lister) at [27] (a decision followed in a number of the Australian cases).
43 Cases in which the test in Gibbons v Wright has been applied to statutory analogues of O 15.01 disclose that the assessment required in respect of a compromise of litigation includes consideration of whether the relevant litigant had the capacity to understand the context of the proposed compromise, namely the nature of the litigation the subject of the compromise, its purpose, its possible outcomes, and the risks (including as to costs) associated with it. The degree of complexity of the litigation will be relevant in this context: Dalle-Molle v Manos (2004) 88 SASR 193; [2004] SASC 102 at [23], [26]. As to the compromise itself, the litigant must have the capacity to understand the general purport of the transaction if a proper explanation of it had been given. This looks to a hypothetical explanation, not to the explanation or advice that was actually given (or not given): Hanna v Raoul [2018] NSWCA 201 (Hanna v Raoul) at [161]-[162]. The litigant must be able to comprehend the legal advice and the nature of the legal and other consequences which will be brought about by the compromise: Goddard Elliott (a firm) v Fritsch [2012] VSC 87 at [559]. Consideration must be given to the nature and complexity of the documents effecting the compromise and the transaction as a whole: A v N at [401]-[407]. While it may be accepted that mental capacity necessarily includes the capacity for decision-making, capacity is not to be determined by reference to the actual reasons for making the decision to enter into the transaction in question or by an assessment of the quality or rationality of that decision: Hanna v Raoul at [53]; Kanjian Holdings No 1 Pty Ltd v Kanjian [2021] NSWSC 839 at [692]; A v N at [445]; Masterman-Lister at [78]-[79]. We consider that the approach taken by the primary judge in her assessment of Ms Rossi's capacity to enter into the Deed accorded with the legal principles described and we reject the appellant's contention that the primary judge erred by applying the wrong test.
44 As to the contention that the primary judge erred in her application of that test to the facts of Ms Rossi's case by understating the complexity of the Deed, it is first necessary to consider the nature of the litigation and the general purport of the terms of the Deed and the overall compromise. Ms Rossi's proceedings in the County Court concerned a claim for monetary compensation for a psychological injury alleged to have been caused by or to have arisen from her employment with Qantas. There was no dispute that Ms Rossi was suffering from a psychological illness, with the issue in dispute being whether the requisite causal connection with the employment existed. Dr Gill's further medical reports of 15 September and 10 October 2008 placed Ms Rossi's claim in severe peril. This was the position which Ms Rossi faced when she attended the settlement conference, which was arranged for the purpose of attempting to achieve a settlement of her claim, on 27 October 2008.
45 The Deed, and the overall settlement, involved the following elements from Ms Rossi's perspective: (1) Ms Rossi would be paid the amount of $75,000 by Qantas as compensation for her alleged workplace injury; (2) Qantas would pay $40,000 for her legal costs; (3) the proceedings before the County Court would come to an end; (4) Ms Rossi could make no further claim against Qantas in respect of her employment; and (5) the settlement was to be kept confidential and Ms Rossi could not disparage Qantas. There were certain machinery elements required to effect the settlement and avoid tax liability on the settlement sum, including that Ms Rossi's claim would be repleaded as one for damages at common law and that, while Qantas denied liability, a serious injury certificate would issue. However, we do not consider that these matters formed part of the "general purport" of the settlement beyond perhaps the fact that Ms Rossi would receive the settlement sum clear of tax. These terms, as expressed in the terms of settlement and the Deed, ran to only a few pages.
46 We agree with the primary judge's conclusion that the Deed, and the compromise in its totality, was not complex. In her appeal submissions, the appellant contended that complexity arose from the explanation which her lawyers should have given her concerning the release in the Deed. The appellant submitted that this hypothetical "optimal" explanation should have encompassed advice about the "various causes of action traded off", including concerning the capacity to seek uncapped damages under federal anti-discrimination legislation, and that, if such an explanation had been given, Ms Rossi would not have had the capacity to understand it because of its complexity.
47 It is unclear whether this submission formed part of the appellant's case below. In any event, it is rejected. An explanation of the general purport of the release in the Deed did not, in our view, require advice about the range of hypothetical causes of action which would cease to be available if the Deed were executed. That is particularly the case concerning the claims of discrimination which were brought to the AHRC and then to this Court more than a decade after the events in question. We note that Ms Rossi does appear to have inquired about an alternative claim in negligence, and this was specifically addressed in advice given in the "Your Claim" letter as well as earlier. The explanation of the general purport of the release against which capacity must be measured is that its effect would be that Ms Rossi could not pursue any further claims against Qantas arising from her employment. That is not a complex concept.
48 Capacity to understand a transaction is not dependent upon demonstration that the relevant person actually understood the transaction: A v N at [445]. However, as the appellant accepted, evidence of actual understanding would logically be demonstrative of capacity to understand. The primary judge made a number of findings concerning the state of Ms Rossi's actual understanding that were not directly challenged in her appeal. These include that:
(a) From 9 October 2008, Ms Rossi knew that there was to be a settlement conference to take place on 27 October 2008 and understood its purpose: PJ at [250] and [217(2)].
(b) At the time of the pre-conference meeting on 27 October 2008, Ms Rossi understood that Dr Gill had changed his position concerning the extent to which her impairment was caused by work and the level of her impairment, and further understood Mr McCristal's advice concerning the impact this would have on her prospects of success: PJ at [254]. Mr Hutchinson also told her she did not have a strong case: PJ at [259]. Ms Rossi took issue with what was conveyed to her about her medical history: PJ at [255]-[256].
(c) Ms Rossi understood that, at the conference on 27 October 2008, Qantas had made an offer of settlement of $50,000 with no provision for ongoing medical expenses: PJ at [264].
(d) Immediately after the conference, Ms Rossi exhibited that she was able to process and think about the events of the day: PJ at [272].
(e) Ms Rossi told Ms Allan after the conference on 27 October 2008 about Dr Gill's revised position and that she had to decide whether to accept Qantas' offer: PJ at [273].
(f) She told Dr Singleton on 28 October 2008 that the offer involved a term which would prevent her from discussing her experiences with Qantas: PJ at [266], [274]. She also told Dr Singleton about the monetary offer, describing it as "pitiful": PJ at [274]. She demonstrated knowledge by this time that a settlement would require some form of deed or document: PJ at [217(4)].
(g) The "Your Claim" letter was read out to Ms Rossi on 29 October 2008 and she was taken through it by Mr McCristal: PJ at [277].
(h) The Deed and the terms of settlement were read out to Ms Rossi: PJ at [277] and [282]. Ms Rossi recognised that the terms of settlement (which reflected Qantas' revised offer) were different to the terms described in the "Your Claim" letter: PJ at [281].
(i) In respect of the confidentiality term, Ms Rossi raised that she wanted to be able to discuss the settlement with her family: PJ at [284].
(j) Mr Hutchinson advised Ms Rossi to accept the revised offer, and both he and Mr McCristal said her prospects of success were not good: PJ at [285]. Ms Rossi knew there were difficulties with her claim which had been exacerbated by Dr Gill's revised position: PJ at [285]. While Ms Rossi disagreed with this, she accepted that Mr Hutchinson and Mr McCristal had conveyed their views as to prospects of success to her: PJ at [284]-[285].
(k) Ms Rossi conveyed to Mr Hutchinson a willingness to accept the terms of settlement and enter into the Deed, despite her obvious disappointment in that outcome: PJ at [286].
(l) When she signed the Deed, Ms Rossi took into account the consequences if she did not sign, including that there might be costs consequences: PJ at [284].
(m) Ms Rossi did not say in her evidence that she did not understand the Deed: PJ at [286].
49 Taking into account that the Deed and the settlement involved no particular or unusual complexity, we consider that the above findings amply support the inference that Ms Rossi had the capacity to understand the settlement process she was engaging in and the general purport of the Deed and the settlement. The primary judge did not err in drawing that inference. For the above reasons, grounds 1 and 3 are rejected.