Michael.1
Insolvency and related law and policy, and more

Michael Murray is an Australian author and commentator on corporate and personal insolvency law and related issues, in Australia and internationally. He has a strong law and policy background, is independent of any connections, and his views are his own. He gives no legal advice. 

Litigation representatives and bankruptcy

A daughter’s evidence that her mother’s litigation and bankruptcy proceedings had become her mother’s “entire life” with her house “full of stacks of paper” and and that the mother had expressed suspicions that her trustee was bugging her phone was not enough to allow a litigation representative to be appointed to the mother’s legal proceedings.

A court can appoint a litigation representative to take over the litigation of a person who is “under a legal incapacity” meaning a minor or a “mentally disabled person”, the latter defined in the Federal Court Rules as a person who, because of a mental disability or illness, is not capable of managing their own affairs in a proceeding.[1]  Because such an order deprives “a person of their fundamental civil rights under the common law, being the right to sue or defend in their own name, and to compromise litigation without the approval of the court” it is only to be made on proper evidence.

Such an application was made by the family of a woman who was bankrupt and involved in on-going personal injury litigation, as well as proceedings to end her 2017 bankruptcy. What was the second such application[2] was again dismissed by the Federal Court; among other things the psychiatric evidence was not to the point or admissible, and the family’s evidence was insufficient.

The woman’s daughter gave evidence that her mother’s litigation and then her bankruptcy were “now her mother’s “entire life”” with her house “full of stacks of paper concerning [these] …. her mother has often said that her trustee in bankruptcy is bugging her phone and computer”.

But the mother otherwise attended to her own shopping and banking and while she was “very fixated on a piece of litigation”, she had the ability to understand her position and she was proceeding to apply to end her bankruptcy.[3]

She was not accepting certain legal advice but, as the Judge noted, that is “not unheard of even in circumstances where, objectively speaking, a person’s interests would best be served if they did”.

The question whether an applicant is able to manage their own affairs in a particular proceeding is not to be equated with their ability to make prudent decisions.[4] Nor does it follow, merely because a person lacks insight to reflect, or is fixated or obsessed with the litigation, that they are, without more, incapable of managing their own affairs in the proceeding.

The Court compared this matter with other similar cases in bankruptcy where the evidence supported, or would have, such an appointment. In dismissing the first application, O’Callaghan J had referred to the principles in Cross[5] including whether the person had the ability to understand that they needed legal advice, to seek advice, to properly instruct an adviser, and to properly act on that advice. The decision in Temelkovski[6] involved relevant evidence of the person’s “behaviours, responses and inability to deal with the matters in a timely manner”.

Any psychiatric or supporting family evidence “must demonstrate why it is that the diagnosis or those matters compromise the applicant’s ability to provide instructions, to seek advice and to participate, if necessary, in a hearing.”  In this case the evidence fell a long way short of that required: Burnett v Browne (No 2) [2021] FCA 373.

In general respects, see A guide for those dealing with clients experiencing mental health and financial stress | Murrays Legal Commentary and other mental health articles on this website.

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[1] Federal Court Rules 2011

[2] The first was Burnett v Browne [2019] FCA 1233

 

[3] Being heard in May 2021.

[4] AJI Services Pty Ltd v Manufacturers’ Mutual Insurance Ltd [2005] NSWSC 709 at [57].

[5] Owners of Strata Plan No 23007 v Cross [2006] FCA 900; (2006) 153 FCR 398].

[6] Owners of Strata Plan 58041 v Temelkovski [2014] FCCA 2962].

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