Australia: Tutors, costs and risks — Litigation and the incapable in NSW

A person under a legal incapacity is incapable of binding themselves to a legal outcome or incurring liability for costs. As such, they are incapable of asserting or protecting their rights through the institution, or defence, of legal proceedings. In order to overcome these issues in legal proceedings, to safeguard the interest of the incapable person and to protect the processes of the Court, the Court required a "next friend" (an expression which has been replaced by the expression "tutor") to be appointed as an officer of the Court to represent the incapable person in the litigation.

The next friend was not a party to the litigation, and derived his or her authority from the Court, not the incapable person. The next friend could be removed, if, for example, they acted improperly or had an interest adverse to that of the incapable person.¹

There is a specific statutory regime, namely Div 4 of Pt 6 of the Civil Procedure Act 2005 (NSW) (CPA) and Div 4 of Pt 7 of the Uniform Civil Procedure Rules 2005 (UCPR), which governs the issue of legal incapacity in legal proceedings in New South Wales. In addition, the Supreme Court also has an inherent power under its parens patriae jurisdiction to appoint a tutor for the purposes of litigation where there may be doubt as to whether a person's mental state falls within the statutory definition of "persons under legal capacity".² This paper will focus on the statutory regime, costs implications and other risks that can arise from legal proceedings involving persons under a legal incapacity.

1. The requirement of a tutor for a "person under a legal incapacity"

UCPR r 7.14 provides that a person under a legal incapacity cannot commence or carry on legal proceedings except by their 'tutor'. The term 'tutor' in relation to a person under legal incapacity, is defined in s 3 of the CPA to mean: a tutor appointed to represent the person (whether by the court or otherwise) in accordance with the uniform rules".³ Similarly, the Dictionary to the UCPR specifically refers to a tutor appointed to represent the person (whether by the court or otherwise) in accordance with Div 4 of Pt 7 (ie UCPR rr 7.13–7.18).

In general terms, a tutor is the person appointed to represent the incapable person in legal proceedings.

The rule requiring that a tutor be appointed to commence or carry on legal proceedings on behalf of an incapacitated person is more than a mere procedural rule. It is a requirement of substantive law,⁴ and a consequence of the law recognising that incapable persons cannot bind themselves by instituting or subjecting themselves to legal proceedings. In Steinecke (bht Gardos) v Wayne, Brereton J explained the proposition as follows:

What [Myers v Nominal Defendant] does make abundantly clear is that the requirement for a tutor issue is more than a mere procedural matter, but a requirement of substantive law imposed because a child or an incapable person is not capable of binding themselves by the institution of proceedings. This is particularly important, to ensure not only that the proceedings and the conduct of litigation is under the conduct of a responsible person, but also to ensure that the parties to the proceedings are bound by the outcome, and to secure a successful defendant's costs. Because of the importance of that rule and its substantive nature, I do not accept that it would be appropriate to dispense with it.⁵

The effect of an appointment of a tutor is that someone other than the incapable person has the conduct of the specific piece of litigation.⁶ The appointment of a tutor protects all parties and the court's processes.⁷ The purpose of the rule requiring a tutor is therefore three-fold:⁸

1. it ensures that proceedings are under the control of a responsible person
2. it ensures that the parties are bound by the outcome of the proceedings, and
3. it ensures that the successful party, in the event that it obtains a costs order, has someone against whom that order can be enforced.

The scheme of UCPR Pt 7 Div 4 is aimed at protecting the interests of persons who are under a legal incapacity and who are not capable of pursuing their own interests effectively. The scheme also provides a degree of protection for other litigants and the Court from expense and expenditure of time in dealing with a litigant who is not capable of prosecuting proceedings in a rational manner.⁹

2. Who is a "person under a legal incapacity"?

Section 3 of the CPA defines "person under legal incapacity" as:

This section should also be read in conjunction with r 7.13 of the UCPR, which defines a "person under legal incapacity" as including "a person who is incapable of managing his or her affairs".¹⁰

There is no universal test for determining whether a person "is under a legal capacity" for the purpose of legal proceedings.¹¹ However, the starting point is the test of capacity that was set out by Dixon CJ, Kitto and Taylor JJ in Gibbons v Wright, namely that:

Next, in the specific context of participating in legal proceedings, it is pertinent to consider the test formulated by Chadwick LJ in Masterman-Lister v Brutton & Co, which has been applied in Australia:¹³

In Dalle-Molle v Manos, Debelle J noted that the test laid down by Chadwick LJ was "helpful" and also noted that "the person must be able to understand the nature of the litigation, its purpose, its possible outcomes, and the risks in costs which of course is but one of the possible outcomes".¹⁵

3. Twelve principles relating to the appointment of tutors and proceedings involving persons under legal incapacity

The following is a summary of the general principles applicable to proceedings involving a person under a legal incapacity and the appointment of a tutor for that person:

1. Any person is eligible to be the tutor for a person under legal incapacity in respect of Court proceedings, unless the putative tutor is also a person under legal incapacity, or is a person involved in the administration of a Court or is a person who has an interest in the proceedings adverse to the interests of the person under legal incapacity.¹⁶
2. In the normal course, at the outset of any litigation, an appropriate tutor is procured for a person with a legal incapacity, and the necessary forms and consents are filed; by which that tutor "becomes" the tutor for the incapacitated person without the need for an order of the Court.¹⁷ A parent is, when available, generally a preferred appointee as tutor. In any event, it is desirable that the tutor be a close relation or friend, rather than a mere willing stranger.¹⁸
3. If the incapable person has no relative or friend who consents to act, an independent solicitor will be an appropriate person to appoint as tutor.¹⁹
4. Where a litigant becomes a person under legal incapacity during proceedings, the proceedings cannot continue without the appointment of a tutor.²⁰ A failure to appoint a tutor for the litigant does not necessarily invalidate the proceedings — the Court has the power to make directions to cure the irregularity.²¹ If a tutor cannot immediately be appointed, the Court may stay the proceedings until the litigant recovers or a tutor can be appointed.²² If a solicitor continues to accept instructions from the incapable litigant, they are liable to have costs awarded against them on the indemnity basis (see further discussion below). Conversely, if a person's legal incapacity comes to an end, the tutor cannot continue to conduct the proceedings.
5. An order of the Court is not necessary for a person to become the tutor of a person under legal incapacity unless there is a change of tutor; or, for whatever reason, a tutor is required to be appointed during the proceedings.²³
6. Special provision is made in relation to a person whose estate is subject to management under the NSW Trustee and Guardian Act 2009 (NSW), in that the tutor of that person is to be the person who has the management of the person's estate, unless he or she declines to act as tutor, is unable to act as tutor or the Court orders otherwise.²⁴
7. Where a person is under an incapacity, it is not an alternative to the appointment of a tutor that instructions are given by an attorney under an existing enduring power of attorney.²⁵
8. Where a person under legal incapacity is sued, unless an appearance is entered by a tutor for the person, the plaintiff cannot take any steps in the proceedings other than by making an application to the Court under UCPR r7.18 for the appointment of a tutor for the person.²⁶
9. In any proceedings in which a party is or becomes a person under legal capacity, if the person does not have a tutor, the Court may appoint a tutor; or, if the person has a tutor, the Court may remove the party's tutor and appoint another tutor (for example where the tutor is found to have an interest in the proceedings adverse to the incapable person, or where the tutor is closely connected with another party who has an adverse interest).²⁷
10. Where there is continuing difficulty in locating a tutor for a person under legal incapacity, the Court may give consideration to the making of a protection order under s 41 the NSW Trustee and Guardian Act 2009 (NSW). Such an order would ordinarily result in the NSW Trustee and Guardian being appointed as the tutor.²⁸
11. There are special requirements for court approval of settlements or compromises of actions involving persons under legal incapacity.²⁹ In the case of the settlement of proceedings commenced by or on behalf of, or against a person under legal capacity, there may not be any compromise or settlement of the proceedings except with the approval of the Court.³⁰
12. A tutor for an incapable person unsure of how to proceed can apply to the Court for directions with respect to the tutor's conduct of the proceedings.³¹

4. Tutors beware - Tutor's liability for legal costs

A tutor is prima facie liable for the costs of solicitors retained for the person under the legal incapacity and potentially liable for the costs of the other party. In this regard, Campbell JAobserved in Azar v Kathirgamalingan that:

However, a tutor is usually entitled to indemnity for costs properly incurred on behalf of the person under legal incapacity, either from the person procuring the appointment or out of the estate of the person under legal incapacity, provided the tutor acted bona fide.³³ In appropriate circumstances, the tutor can protect his or her position by seeking a "protective costs order", which relieves the tutor from personal liability as an incidental term of the order appointing the tutor. This was explained by Gleeson JA in Smith v NRMA Insurance Ltd as follows:

A protective costs order may be sought where no person or entity willing to consent to act as tutor without protection from personal liability for costs has been identified.³⁵

A recent example — Macura v Sarasevic

A recent illustration of the risk of personal liability with which a tutor is confronted when commencing or carrying on proceedings for a person under a legal incapacity, is the case of Macura v Sarasevic [2019] NSWSC 1409. In that case:

1. The plaintiff, Branco Macura, commenced proceedings against the estate of the late Milorad Adzic (Deceased) on 7 November 2017, claiming that:

2. (a) the Deceased made a testamentary gift to him of a property owned by the Deceased in Liverpool;

   (b) in the alternative, that the executors were estopped by their conduct form denying the gift; and

   (c) if those claims failed, an order for provision out of the estate or notional estate of the Deceased ought to be made in his favour.

2. On 20 March 2018 the parties participated in a court-annexed mediation and a settlement was reached on the basis that the plaintiff receive a lump sum legacy of $100,000 (inclusive of costs) from the estate. In evidence, the plaintiff deposed to feeling unwell on the day and communicating that to his solicitor throughout the day.
3. Short minutes of order were prepared to record the parties' agreement and were signed by the parties' legal representatives on behalf of their respective clients following the mediation. In the plaintiff's case, the short minutes of order were signed by his legal representative on 23 March 2018 (bearing his signature in various places).
4. However, no orders in terms of the short minutes of order were entered in the proceedings. Not long after the conclusion of the mediation, the plaintiff disputed the existence of a binding settlement agreement and asserted, in effect, that he did not have capacity to enter into the terms of settlement agreed on 20 March 2018. This was first communicated to the Family Provision List Judge,36 Hallen J, on 29 March 2018.
5. On 29 March 2018, Hallen J directed the plaintiff to serve any evidence setting out the facts and circumstances going to the reasons why he contended he should not be bound by the signed short minutes of order.
6. By notice of motion filed 16 May 2018 (and amended 23 April 2019), the executors sought a declaration pursuant to s 73 of the CPA that the settlement agreement should not be set aside.
7. The executors' motion was initially listed for 13/14 February 2019 but was later adjourned to 23/24 April 2019.[37]
8. On 18 April 2019 the plaintiff's solicitor filed an application for the appointment of a tutor to represent the plaintiff in the proceedings. An order was subsequently made appointing the proposed tutor on the basis of evidence that the plaintiff had a persistent delusion as to his Vietnam war service that made him incapable of providing proper instructions in relation to the conduct of the proceedings going forward.[38]

In determining the main issue of the executors' motion, namely whether the plaintiff had capacity as at 20 March 2018 to enter into the settlement agreement, Ward CJ in Eq noted that the test for capacity is "issue specific" and that capacity is, therefore, to be tested by reference to the particular transaction or conduct in which the person proposes to engage.³⁹

In finding for the executors and upholding the terms of the settlement agreement, Ward CJ in Eq observed that the particular transaction at issue was the settlement of the legal proceedings by entering into or signing the short minutes.⁴⁰ After considering the level of capacity necessary to give sufficient instructions and to participate in legal proceedings,⁴¹ Ward CJ in Eq was not satisfied that the plaintiff had established on the balance of probabilities that he lacked capacity to give instructions in relation to, and enter into, a compromise of his claims.⁴²

However, Ward CJ in Eq considered that it was not necessary to make a final determination on the issue of incapacity because, even if there was such an incapacity, it had not been established that the executors knew or ought to have known of that incapacity.⁴³ To this regard, Ward CJ observed that:

On the question of costs, Ward CJ in Eq held as follows:

The plaintiff was therefore ordered to pay the costs of the defendants (executors) of the proceedings from the date he had signed the disputed settlement agreement, on the ordinary basis. Further, the plaintiff's tutor was ordered to indemnify the defendants for that costs order in respect of the defendants' costs incurred after the tutor had accepted his appointment.

5. Risk to the solicitor of acting on instructions from an incapable person

Proceedings involving a person under a legal incapacity are only validly constituted if a tutor is appointed to manage the proceedings on behalf of that person. In the absence of a tutor, the person under a legal incapacity is not bound by the outcome. It follows, that a solicitor, whether knowingly or not, who acts in proceedings for a client under a legal incapacity without the appointment of a tutor, is acting without instructions and without a retainer. In such circumstances, the solicitor may be personally liable for the costs of those proceedings⁴⁶ — just as if the solicitor had instituted proceedings in the name of someone without instructions.⁴⁷ In this regard, Bell J in Goddard Elliot v Fritsch observed that:

Further, if a solicitor acts on instructions from a person who is later proven to have been incapable of providing instructions, that person's proceedings may be struck out on the ground that the solicitor that purported to act for the person was not retained.⁴⁹

6. Concluding remarks

With Australia's aging population and the associated increase in age-related illnesses, issues of capacity in the context of the provision of instructions and participation in legal proceedings by the elderly are likely to arise more frequently. In this regard, r 8 of the Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 provides that "a solicitor must follow a client's lawful, proper and competent instructions." This suggests that a solicitor ought to assess whether a client has the requisite mental capacity before either taking instructions or assisting them to make a legal decision which will affect their interests.

Furthermore, solicitors have ethical duties to the Court, their clients, and to the administration of justice to ensure that the interests of their clients are promoted and protected at all times.⁵⁰ As the Hon Justice Brereton pointed out:

The personal risks to the solicitor, which can include professional disciplinary consequences, can be severe if the solicitor does not take appropriate steps to satisfy themselves of the client's capacity before taking and acting on instructions to commence legal proceedings.

Footnotes

¹NSW Insurance Ministerial Corporation v Abualfoul (1999) 94 FCR 247; 162 ALR 417; [1999] FCA 433 at [28]–[33] (Sackville J).

²Bobolas v Waverley Council (2012) 187 LGERA 63; [2012] NSWCA 126 at [60] (McColl JA).

³See also the definition of 'tutor' in the Dictionary to the UCPR which reflects the definition in the CPA.

⁴The Hon Justice P L G Brereton, 'Acting for the incapable — a delicate balance' (2012) 35 Australian Bar Review 244 (Brereton), 245 citing Myers v Nominal Defendant (1966) 1 NSWR 659.

⁵Steinecke (bhtGardos) v Wayne [2011] NSWSC428;BC201103356 at [3].

⁶Brereton, above, at 245; Doulaveras v Daher (2009) 253 ALR 627; [2009] NSWCA 58 at [156] (Campbell JA).

⁷Rappard v Williams [2013] NSWSC 1279; BC201312752 at [93] (Hallen J).

⁸Brereton, above, at 245; see also Smith v NRMA Insurance Ltd (2016) 77 MVR 480; [2016] NSWCA 250 at [29]–[36] (Gleeson JA).

⁹Mao vAMPSuperannuation Ltd [2015] NSWCA252;BC201508156 at [48]; Mao v AMP Superannuation Ltd [2018] NSWCA 72; BC201802560 at [11]–[12].

¹⁰This phrase has been the subject of much judicial treatment, particularly in the context of s 41 of the NSW Trustee and Guardian Act 2009 (NSW) and s 25G of the Guardianship Act 1987 (NSW). See PY v RJS [1982] 2 NSWLR 700 at 702 in which Powell J adopted an objective test for inability "to manage his or her own affairs". In more recent cases, the Court has favoured a subjective approach: see Re D [2012] NSWSC 1006; BC201207141 at [46]–[62]; PB v BB [2013] NSWSC 1223 at [4]–[9]; Re R [2014] NSWSC 1810 at [84]–[94]; CJ v

AKJ [2015] NSWSC 498 at [22]–[24]; see generally Rappard v Williams [2013] NSWSC 1279 at [71]–[81] (Hallen J).

¹¹A v A [2015] NSWSC 1778; BC201511602 at [76]–[79].

¹²Gibbons v Wright (1954) 91 CLR 423; BC5400600 at CLR 437; see also Guthrie v Spence (2009) 78 NSWLR 225; [2009] NSWCA369 at [174]–[175] (Campbell JA); Azar vKathirgamalingan (2012) 62 MVR 462; [2012] NSWCA 429 at [168] (Campbell JA).

¹³See, eg, Farr v Queensland [2009] NSWSC 906; BC200907997 at [14]–[16] (Price J); Murray v Williams [2010] NSWSC 1243; BC201008009 at [26] (Hammerschlag J); see also Goddard Elliott (a firm) v Fritsch [2012] VSC 87; BC201201151 at [550].

¹⁴Masterman-Lister v Brutton & Co [2002] EWCA Civ 1889 [2003] 3 All ER 162 at [75].

¹⁵Dalle-Molle v Manos (2004) 88 SASR 193; [2004] SASC 102 at [26], [16]–[30]; see also Macura v Sarasevic [2019] NSWSC 1409; BC201909414 at [208]–[213] (Ward CJ in Eq).

¹⁶UCPR r 7.15(2).

¹⁷UCPR rr 7.15(1), 7.16; see generally Martin Gorrick, 'Protective Jurisdiction in New South Wales' [2016] (43) Australian Bar Review 205, 235.

¹⁸Saravinovska v v?Saravinovski (No 5) [2015] NSWSC 128 (27 February 2015) [32]–[34].

¹⁹Deputy Commissioner of Taxation v P (1987) 11 NSWLR 200, 204.

²⁰Uniform Civil Procedure Rules 2005 (NSW) r 7.14(1).

²¹See Civil Procedure Act 2005 (NSW) s 63.

²²See Murphy v Doman (2003) 58 NSWLR 51; [2003] NSWCA 249; BC200305305 at [52].

²³Uniform Civil Procedure Rules 2005 (NSW) r 7.15(5).

²⁴Uniform Civil Procedure Rules 2005 (NSW) r 7.15(3)–(4).

²⁵Smilevska v Smilevska [2015] NSWSC 1794; BC201511657 at [30]–[36] (Slattery J).

²⁶Uniform Civil Procedure Rules 2005 (NSW) r 7.17(1).

²⁷UniformCivil Procedure Rules 2005 (NSW) r 7.18; Saravinovska v Saravinovski (No 5) [2015] NSWSC 128; BC201500971 at [32].

²⁸See Uniform Civil Procedure Rules 2005 (NSW) r 7.15(3); see, generally, LexisNexis, Ritchie's Uniform Civil Procedure NSW [7.15.12], [7.18.3].

²⁹See Civil Procedure Act 2005 (NSW) Div 4, ss 74–80; Rappard v Williams [2013] NSWSC 1279; BC201312752 at [100]–[102] (Hallen J).

³⁰Civil Procedure Act 2005 (NSW) s 76; see, eg, Kelly v Kelly [2019] NSWSC 994; BC201906935 at [73]–[74] (Hallen J).

³¹Civil Procedure Act 2005 (NSW) s 80.

¹Azar v Kathirgamalingan (2012) 62MVR 462; [2012] NSWCA 429 at [204].

³²Murray v Kirkpatrick (1940) 57 WN (NSW) 162; Spina v Permanent Custodians Ltd (2009) 14 BPR 26,923; [2009] NSWCA 206 at [147]; NSW Insurance Ministerial Corporation v Abuafoul (1999) 94 FCR 247; 162 ALR 417 at [28].

³³Smith v NRMA Insurance Ltd (2016) 77 MVR 480; [2016] NSWCA250; BC201607773 (Smith) at [33]–[36] (Gleeson JA).

³⁴Smith, above, at [44], [48].

³⁵Now known as the 'Succession List Judge'.

³⁶See Macura v Sarasevic [2019] NSWSC 1409; BC201909414 (Macura) at [20]–[36] for the circumstances giving rise to the adjournment.

³⁷Macura, above, at [45].

³⁸Macura at [207].

³⁹Macura at [208].

⁴⁰Macura, above, at [208]–[213].

⁴¹Macura, above, at [223].

⁴²Macura, above, at [225].

⁴³Macura, above, at [226], [234].

⁴⁴Macura, above, at [242].

⁴⁵Brereton, above, at 245 citing Yonge v Toynbee [1910] 1 KB 215 in which the defendant initially had capacity, but subsequently ceased to have capacity due to unsoundness of mind. The defendant's solicitors continued to act for him after he lost capacity. Buckley LJ, in finding that the defendant's solicitors were personally liable to pay the plaintiff's costs, observed at 228 that "During all this time [the solicitors] were putting the plaintiff to costs, and these costs were incurred upon the faith of their representation that they had authority to act for the defendant."

⁴⁶Brereton, above, at 245.

⁴⁷Goddard Elliott (a firm) v Fritsch [2012] VSC 87; BC201201151 at [550].

⁴⁸John Hamilton et al, NSW Civil Procedure Handbook 2019 (Thomson Reuters, 2019) at 381.

⁴⁹See Legal Profession Uniform Law Australian Solicitors' Conduct Rules 2015 (NSW); see, eg, Goddard Elliott (a firm) v Fritsch [2012] VSC 87; BC201201151; The Law Society of New South Wales, When a client's mental capacity is in doubt: A practical guide for solicitors (The Law Society of New South Wales, 2016) at 4.

⁵⁰Brereton, above, at 245.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.