Borchert v Terry - [2009] WASC 322

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: BORCHERT -v- TERRY [2009] WASC 322

CORAM: KENNETH MARTIN J

HEARD: 1 SEPTEMBER 2009

DELIVERED : 6 NOVEMBER 2009

FILE NO/S: CIV 1589 of 2009

BETWEEN: JESSICA MICHELLE BORCHERT by next friend THE PUBLIC TRUSTEE
Plaintiff
AND
LIANE KAYE TERRY
First Defendant
THE INSURANCE COMMISSION OF WESTERN AUSTRALIA
Second Defendant

Catchwords:

Application for summary judgment by defendants - Application to strike out - No arguable cause of action - Deed of release - Voidability - Mental capacity to instruct former solicitors to settle - Statement of claim struck out with leave to replead

Legislation:

Guardianship and Administration Act 1990 (WA)
Limitation Act 1935 (WA), s 38, s 40
Motor Vehicle (Third Party Insurance) Act 1943 (WA), s 29
Rules of the Supreme Court 1971 (WA), O 16 r 1, O 20 r 19, O 70

Result:

Application to strike out allowed
Leave to replead granted
Application for summary judgment adjourned pending further pleading amendment

Category: C

Representation:

Counsel:

Plaintiff:     Mr D L Jones
Second Defendant         :     Mr G Bourhill
First Defendant             :     Mr G Bourhill

Solicitors:

Plaintiff:     Holyoak-Roberts Legal
Second Defendant         :     Lavan Legal
First Defendant             :     Lavan Legal

Case(s) referred to in judgment(s):

Anderson v Effexseven (1998) 10 ANZ Ins Cas 61-424
Crago v McIntyre [1976] 1 NSWLR 729
Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87
Forsayth v Northern Gold NL (Unreported, WASCA, Library No 940012a, 20 January 1994
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
Gibbons v Wright [1954] HCA 17; (1954) 91 CLR 423
Imperial Loan Co v Stone [1892] 1 QB 599

KENNETH MARTIN J: The defendants by chamber summons of 25 May 2009, seek summary judgment pursuant to O 16 r 1 of the Rules of theSupreme Court 1971 (WA) (RSC) against the plaintiff, or by O 20 r 19(1)(a), to strike out the plaintiff's statement of claim, on the basis that it discloses no reasonable cause of action or alternatively, is an abuse of process (the same orders as sought pursuant to the court's inherent jurisdiction to protect against abuse of process). Alternatively, relief is sought pursuant to O 20 r 19(1)(c) of the RSC on the basis that the statement of claim is either entirely or in part embarrassing. The proceedings were commenced by the plaintiff by writ on 27 March 2009 to which a statement of claim was endorsed. There was a change of solicitors on behalf of the plaintiff from the Public Trustee to the plaintiff's current solicitors, Holyoak Roberts Legal of Armadale on 5 May 2009.
Strictly speaking, the defendants appear to require leave in order to advance all interlocutory applications. But no issue was taken about that in the argument before me and I am satisfied that there is sufficient merit in the defendants' applications for a grant of leave, bearing in mind that the 21‑day limits specified in O 16 r 1 and in O 20 r 19(3)(a) of the RSC, have only been marginally exceeded. The plaintiff's counsel did not articulate any objection to the grant of leave.
It is necessary for me to sketch the background to the applications. Jessica Borchert suffered severe injuries, including head injuries, in a motor vehicle accident which occurred at Boulder, Western Australia on New Years Day 1994. The plaintiff was only just 12 years of age at the time, her birthday being 1 December 1981. The driver of the vehicle was the plaintiff's step‑mother, the first defendant. The degree of injuries sustained by the plaintiff required her to undergo a period of about two months' hospitalisation at Perth. The extent of her injuries is described in a number of medical reports attached to the affidavits filed respectively by the applicant (defendants) and the plaintiff. On behalf of the defendants, an affidavit is sworn by Anthony Michael Edwardes of 20 May 2009 (Edwardes affidavit) containing some 31 attachments ('AME1' ‑ 'AME31'). On behalf of the plaintiff, the defendants' summary judgment application is resisted by the affidavit of Shaun William Conlin (Conlin affidavit), who is the Director Trustee Services for the Public Trustee in and for the State of Western Australia. The Conlin affidavit contains nine attachments ('SWC1' ‑ 'SWC9').
On 17 February 1994, roughly a month and a half after the motor vehicle accident involving his daughter, the plaintiff's father Mr Hubert Borchert, gave notice of an intention to make a claim to the State Government Insurance Commission pursuant to s 29 of the Motor Vehicle (Third Party Insurance) Act 1943 (WA). He described the circumstances of the accident in which his daughter sustained head injuries in succinct terms as, 'The van hit a tree.'
The serious nature of Jessica's injuries, both physical and psychological, are dealt with throughout many medical reports and communications passing between solicitors and found within the attachments to the Edwardes affidavit and the Conlin affidavit. It is not necessary for me to set out the entire tragic story as to the profound negative effects the motor vehicle incident has had upon Jessica's life subsequent to New Years Day 1994. Attachment 'AME4', a report on Jessica's behalf by Corser & Corser Lawyers (formerly Corsers Barristers and Solicitors and BHK Legal) (Corsers) of 9 June 2000 to the managing director of the Insurance Commission of Western Australia of some six pages, provides a brief insight and culminates in an articulation of a claim (made without prejudice) for damages for Jessica, in the amount of $577,189.16. By that time of course Jessica had reached the age of 18 and was an adult in the eyes of the law (as at 1 December 1999).
Correspondence and more medical reports were gathered concerning Jessica's condition. She was suffering psychological problems. On 9 November 2000 in a report to the Insurance Commission of Western Australia, Associate Professor of Occupational Medicine, Peter Hollingworth, reported after a consultation with Jessica and her father (see 'AME'). At page 4 (second paragraph) he referred to the fact that it was obvious that Jessica had severe intellectual problems and that her answers to him reflected 'an obvious tardive cerebration'. At par 6 (page 5) of his concluding comments Professor Hollingworth said:
I very rarely suggest a young person is totally and permanently disabled and unlikely to enter the workforce, but the best I could see for this young woman would be entry into a sheltered workshop situation. Even then her psychological status may make that a failure. I am not familiar with Goldfields region, and I am not even aware of whether there is a sheltered workshop facility in that area.
I also refer to Professor Hollingworth's concluding comment at par 7 (page 5) regarding his view that it was:
[B]etter that her claim be finalised and that any monies which are coming to her are very carefully put in the hands of some sort of public authority which can limit her access to them whilst maintaining an adequate income for her to live on in reasonable manner and, thus, prevent her squandering them.
I observe in passing that my review of the materials makes it plain that there was no issue about liability being accepted, from the perspective of the second defendant.
Another matter which is significant, is that it is apparent that from at least June 2000 (see 'AME4') the plaintiff has had the benefit of ongoing legal representation in a pursuit of her personal injuries claim as an adult - through Corsers.
On 11 June 2002 (see 'AME8') Corsers wrote to the defendants' solicitor reporting about developments concerning Jessica. Corsers advised:
The situation with our client is that she now appears to be outside the influence of her father who was refusing it would appear, to give us further instructions. She has now given those instructions herself and we have referred her to Dr Dingenis Teunissen who replaces her former general practitioner Dr Butcher.
The penultimate paragraph of that letter read:
We are awaiting further contact from your client and a report from Dr Teunissen concerning whether or not he has seen fit to make a referral to a psychiatrist as recommended by Mr Hunt [referring to the report of Michael W Hunt, Clinical Neuropsychologist dated 24 April 2001, see attachment 'AME6' at page 5, numbered answer 4].
On 2 May 2003, Corsers further advised the defendants' solicitor that:
It is our intention to bring an application for the appointment of an Administrator, under the provisions of the Guardianship and Administration Act 1990, of our client's estate. It is anticipated that the administrator will be the Public Trustee.
Under that circumstance it is suggested that an application under s 29 at this time might be a little premature.
On 24 June 2003, Dr John Booth, a consultant in psychological medicine (see 'AME10'), responded to a written request dated 20 June 2003 from Corsers for a psychiatric report concerning Jessica. Dr Booth referred to Mr Hunt's report and observed at page 1:
It is quite clear that whatever problems Jessica has in terms of self-worth, depression etc started after the accident of 01 January 1994. She told me that she was in Princess Margaret Hospital for approximately three months and returned to Kalgoorlie almost unable to walk. She was embarrassed at this, but happy to be at home. Her self‑esteem and self‑worth started to slide, such that by the age of 14 she remembers feeling totally depressed, neglected by all and essentially a piece of human refuse.
Dr Booth referred to various other tragic circumstances concerning Jessica's development including depression, alcohol abuse and sexual abuse. In response to certain questions posed for him by Corsers, Dr Booth provided a series of responses including the following:
Question 3:What is our client's psychological state?
Answer:Ms Borchert's psychological state is of severe major depressive illness.
Question 4:Is our client capable of managing her own affairs or should she have an administrator appointed to administer them given that she stands to receive compensation in excess of $500,000? (any appointment would be pursuant to the Guardianship and Administration Act)
Answer:Given Ms Borchert's current incapacity, and the possibility that she might not recover from her longstanding depressive disorder, I would recommend that an administrator be appointed to administer any compensation monies.
Question 7:Is it appropriate to finalise our client's claim? If not, please give reasons.
Answer:I believe it is appropriate to finalise your client's claim. Firstly, it may be that the psychiatric disorder is untreatable. Second, it is highly probably that the compensation issue itself is a major [sentence terminates at this point, apparently incomplete in Dr Booth's report].
After addressing question 8, which was in relation to numerous symptoms and complaints concerning Jessica, Dr Booth concluded:
All Ms Borchert's observations/complaints are believable and are almost certainly true. She is essentially cataloguing the musculoskeletal residual symptoms of her accident, together with the facts and feeling of an ongoing untreated major depressive disorder.
For a time it would appear that Corsers were known as BHK Legal. Correspondence passed between the solicitor for the defendants and that firm concerning Jessica's claim and her treatment.
On 16 September 2003 the defendants' solicitor wrote to BHK Legal in these terms (see 'AME11'):
[W]e note the comments of Dr Booth and we want to know what your client's general practitioner proposes in respect of treatment for the alleged depressive disorder.
Can you please advise us why you have 'deferred' the application under the Guardianship and Administration Act. Is that application going to be abandoned in which case please confirm that you are able to take instructions directly from Ms Borchert. If however, it is intended that the application is to be delayed we seek further explanation.
On 18 September 2003 Dr Booth wrote in these terms to BHK Legal:
Thank you for your letter of 15 September 2003 regarding the abovenamed. I understand that you require my opinion as to whether or not I consider Ms Borchert is capable of understanding legal advice, and being able to decide whether or not to accept or reject any offers of settlement, and to generally provide instructions in relation to her claim.
Notwithstanding Ms Borchert's psychological disabilities, I would deem her capable of understanding legal advice, giving legal instructions etc, etc. I say this in the sure knowledge that you would be acting in an altruistic capacity for her, and that she is therefore unlikely to be encouraged to damage herself as a result of whatever decision she might make under these circumstances.
On 18 February 2004, Corsers advised the defendants' solicitor that Jessica was presently considering her position and that:
In the circumstances, whilst we wish to bring the matter to a conference as soon as possible, we suggest it would be prudent to address certain matters which have been raised by our client as these will affect the potential settlement of the matter.
On 17 June 2004 (see 'AME14'), Corsers attached a detailed written submission as to Jessica's claims and condition to the solicitor for the defendants 'for your consideration'. The covering letter from Corsers also said:
On the information which is now being provided to us, it appears that our client's condition is deteriorating both physically and psychologically. In this respect, we have requested that our client's present GP, Dr Mal Hodson, to provide us with a further report to clarify this.
The covering letter attached a 10‑page written submission dealing comprehensively with Jessica's position with regards to a settlement of her claim for personal injuries. It dealt with issues such as:
•non economic loss;
•past economic loss;
•future economic loss;
•gratuitous services/homecare;
•past medical expenses;
•future medical expenses; and
•special damages.
A claim for legal costs in the amount of $20,000 was also made.
In aggregate, the anticipated claim of Jessica then amounted to $699,833.65, or at least it was assessed as of that magnitude by the defendants' solicitor in his advice to the second defendant of 27 July 2004 (see 'AME15', at page 3).
That advice contained the following recommendations/quantum estimates at page 3:
The medical evidence is out of date, mainly because Borchert has not been directed to the appropriate treatment or is simply not prepared to keep appointments. It is questionable whether she has the capacity to make decisions for herself, although Dr Booth thinks she does. You mention the need to involve the Public Trustee at settlement but this depends on whether she is deemed incapable of managing her affairs, which is not certain at this stage. An up to date report is certainly required from her general practitioner.
By letter dated 27 July 2004, the second defendant was advised by its solicitor that a settlement conference (ie between solicitors) was desirable at least to ascertain what points of difference there were, if the matter was unable to be settled.
It appears that a settlement conference was held at the offices of the solicitor for the first and second defendants on 20 September 2004 and attended by Mr Edwardes on behalf of the second defendant, the defendants' solicitor and a Mr Evans of Corsers, on behalf of Jessica. According to the letter of advice provided by the second defendant's solicitor to the second defendant, dated 21 September 2004, a settlement proposal was put at the conference on behalf of the second defendant. The proposal was in the order of figures 'around $350,000' - for the plaintiff's solicitor and Jessica to consider and to discuss with people assisting her in Kalgoorlie ‑ with a view to obtaining a response by the end of October 2004.
The advice also recorded that Mr Evans had said at the settlement conference that Jessica 'was in the most stable personal relationship she had been in and we presume this is with the father of her recently born son'.
It was also observed that 'Mr Evans is also making endeavours to obtain a report from Borchert's general practitioner but so far without success'. Significantly, it stated that:
We asked Mr Evans about Borchert's capacity to give instructions and he said that he considered she was able to give instructions so long as she had some advice on hand (we presume from, currently, Maureen Hatton) and time to consider her options.
Ms Hatton was earlier referred to in communications as a person associated with the Department of Community Development at Kalgoorlie.
The October 2004 time line passed without any apparent development. Reminders were sent and on 8 February 2005 Corsers advised the defendants' solicitor:
In relation to the Department of Community Development, Maureen Hatton ceased employment at the Kalgoorlie office on 3 December 2004. We were subsequently advised by the Kalgoorlie office of the Department on 5 January 2005 that they are no longer prepared to assist our client in this matter.
In February 2005, Jessica was 23 years and 2 months in age. Her 24th birthday was on 1 December 2005 - by which time she would have been an adult for six years. Potential looming limitation of action implications arose at 1 December 2005 - by reason of s 40 of the Limitation Act 1935 (WA) (Limitation Act), as regards the six‑year period of limitation to any cause of action for damages that Jessica had acquired against the first defendant during her infancy. Section 40 reads:
If any person entitled to any such action as is referred to in section 38(1) was at the time of the cause of action accrued within the age of 18 years or insane, then such person may commence the same within such time as is before limited after being of full age or sane as if that was the time at which the cause of action accrued.
The six‑year period of limitation in respect of Jessica's cause of action for her personal injury sustained as a child in the motor vehicle accident of 1 January 1994, when she was 12 years old, looked to have been running, by reason of s 38(1)(c)(vi) of the Limitation Act, from the time Jessica became an adult on 1 December 1999 ‑ if issues of sanity did not intrude. Those provisions required Jessica to commence proceedings within six years of her 18th birthday.
As at February 2005, no proceedings had been commenced by or on behalf of Jessica. Nor had any application been made to appoint a next friend on Jessica's behalf, in accordance with the provisions of O 70 of the RSC. Nor had any application been made as regards Jessica under the Guardianship and Administration Act 1990 (WA) (Guardianship Act), as was foreshadowed on 2 May 2003 by Corsers.
On 15 February 2005, Corsers advised the defendants' solicitor that the offer made at the informal conference held on 20 September 2004 (totalling $345,450) was rejected. But the information requested by the defendants' solicitor in a letter dated 4 February 2005 foreshadowed the conclusion to the correspondence from Corsers dated 15 February 2005.
Communications between the solicitors continued throughout April 2005 (see 'AME20'). On 10 June 2005, Corsers sent a 'Calderbank offer' by way of a letter to the defendants' solicitor for $530,000 in respect of all damages; with indemnification in respect of amounts payable to the Health Insurance Commission; and a contribution towards legal costs of $25,000. The proposal was left open for acceptance for a period of 21 days. Corsers foreshadowed an intention to claim indemnity costs, in the event of an equivalent or greater amount of damages ultimately being awarded by a court at trial, in the last sentence of the letter.

On 30 June 2005, the defendants' solicitor responded with a written offer of $400,000 inclusive of special damages, with indemnification for crash‑related Health Insurance Commission expenses. An amount of $20,000 was offered for costs plus disbursements to be agreed (subject to proof). The defendants' solicitor's response concluded by using Calderbank terminology as regards the use of the letter in potential support of a claim for indemnity costs by the second defendant.
On 29 July 2005, Corsers (see 'AME23') sent a further written Calderbank proposal to the defendants' solicitor, this time offering to accept $475,000 inclusive of special damages and with a contribution towards legal costs of $25,000.
The proposal was also not accepted. But it would seem that there followed a telephone conversation between the respective solicitors on 15 August 2005, the terms of which are recorded in Corsers' letter to the defendants' solicitor dated 22 August 2005, advising:
We confirm that our client is prepared to settle this matter on the basis that:
1.[D]amages be agreed in the total sum of $450,000, inclusive of special damages;
2.the Insurance Commission of Western Australia (ICWA) contribute the sum of $22,500 towards our client's costs; and
3.the ICWA also pay our client's disbursements.
The matter was still not resolved, however.
On 25 August 2005, the defendants' solicitor sought instructions from the managing director of the second defendant as to the escalating levels of the proposed settlement figures and as to a conversation held on 15 August 2005 with Mr Evans for Jessica. The defendants' solicitor advised the managing director that:
On 15 August 2005 the writer raised again the question of Ms Borchert's capacity to provide instructions. Mr Evans said that he considered she was capable of giving instructions and referred to the opinion of Dr Booth (18 September 2003). We observe that this opinion is nearly two years old and a more recent opinion would have been preferable but there has been considerable difficulty obtaining any evidence in recent times. The request of Dr Hodson for a report appears to have gone unanswered.
On 1 September 2005 the defendants' solicitor confirmed a preparedness to settle on behalf of Jessica on a basis of $450,000 inclusive of special damages, together with $22,500 in respect of legal costs (without disbursements). The letter indicated the basis for implementation of a settlement in those terms (see 'AME27').
These negotiations ultimately led to the execution of a deed of release signed by Jessica, given to the first and second defendants in respect of receipt of the amounts of $450,000 for damages and $22,500 in respect of costs ‑ and referred to in aggregate as the settlement money.
The deed of release appears to be executed as a deed. It bears Jessica's signature and is witnessed and dated 14 September 2005.
On 29 September 2005, the motor vehicle personal injury division of the second defendant forwarded a cheque (after allowing certain deductions in respect of amounts sent directly to the Health Insurance Commission and to Centrelink) for $404,692.78.
On 8 December 2005, an order was made in the State Administrative Tribunal pursuant to the Guardianship Act appointing the Public Trustee as plenary administrator of the estate of Jessica. The terms of the order are found at 'SWC2'. I refer particularly to subpars 2(a), (b), (c) and (d). Order 2(c) directs the administrator to 'examine the recent settlement of the personal injury claim of the represented person and to determine whether the settlement of her claim and the terms of settlement were in her best interests'. That SAT order was to be reviewed by 8 December 2006. On that date (see 'SWC2') the order of 8 December 2005, appointing the plenary administrator was, in effect, extended until 5 December 2011.

Causes of action

The statement of claim currently contends at par 10 in these terms:
At the time of the settlement [ie 14 September 2005] the plaintiff did not have capacity to enter into a binding agreement to settle her claim.
Paragraph 16 is in these terms:
As a result of her cognitive impairment and psychiatric state at the time the plaintiff gave the discharge to settle her claim, she did not have the capacity to understand the nature of the transaction she was entering into and to exercise sound judgment in consideration of the offer to settle her claim.
I observe that the averment of lack of mental capacity as at 14 September 2005, is not an assertion of unconscionable conduct. The plaintiff does in fact articulate a distinct claim of unconscionable conduct at par 18. But that is a different plea I will evaluate separately.
The plaintiff's prayer for relief claims, (a) a declaration that the discharge of 14 September 2005 is voidable and is void, (b) damages, (c) interest, (d) costs.
At par 17 of the statement of claim, inexorably allied to the pleas under pars 10 and 16, is seen the averment that the second defendant 'had notice of or should have had notice that the plaintiff did not have the capacity to enter into an agreement to compromise the claim'. The particulars to par 17 at subpar 17.1 to 17.3 refer to the report of Dr Hollingworth of 9 November 2000, the report of Dr Hunt of 24 April 2001 and the report of Dr Booth of 24 June 2003 ‑ which I have mentioned in the narrative.

Law as to summary judgment applications

There is no controversy between the parties as to the legal test applicable to a defendant's application for summary judgment under O 16 of the RSC. The defendants accept that they carry a high onus to establish that the plaintiff cannot raise a real question to be tried, see Anderson v Effexseven (1998) 10 ANZ Ins Cas 61-424 at 7475 and Forsayth v Northern Gold NL (Unreported, WASCA, Library No 940012a, 20 January 1994).
I approach the issue of summary judgment raised by the defendants on the basis that an exercise of the power in the defendants' favour would have a consequence of denying the plaintiff her day in court on the merits of the case which she wishes to advance. Courts do not lightly deprive litigants of that fundamental right. Considerable care must be exercised before a summary dismissal power is invoked against a plaintiff or a defendant. As to plaintiffs, see Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, 99.
I approach the summary judgment issue then on the basis of assessing whether the plaintiff's case, as it now presents, is so misconceived, or flawed in its argued construction that essentially it can be comfortably evaluated as lacking any realistic prospect of success at a trial. I also proceed on a basis that where there arises a significant issue over a disputed fact or facts, that resolution by trial is the appropriate mechanism by which those disputations should be determined.

The plaintiff's first basis to set aside the settlement and deed of release: incapacity to the knowledge of the defendants

The decision of the High Court in Gibbons v Wright [1954] HCA 17; (1954) 91 CLR 423 establishes that instruments affected by the mental incapacity of a party may be voidable - but that until election is made to avoid the instrument, it remains effectual.
In the present case, an issue arises about whether the plaintiff has in fact even elected (assuming it were open to her to do so) to avoid the deed of release of 14 September 2005. That avoidance outcome is certainly the relief sought in par (a) of the plaintiff's prayer for relief, but it is submitted that there was no act of election by the plaintiff (by her next friend) prior to issue of the writ. This only raises, I think, an issue for trial - rather than a matter for determination at summary judgment level. No argument was submitted to me on the point, but it may be that the mere issue of the writ of summons on 27 March 2009, with its endorsed statement of claim seeking such avoidance, could constitute, upon service, a sufficient act of election as to the avoidance of an instrument, were it otherwise voidable.
The more significant issue argued before me is whether the deed of release of 14 September 2005 is capable of being avoided. Again, reference to Gibbons is of assistance in resolving that issue.
In Gibbons, Dixon CJ, Kitto and Taylor JJ delivered joint reasons dismissing an appeal from the Supreme Court of Tasmania. After an extensive consideration of the early case authorities, Dixon CJ, Kitto and Taylor JJ (441) arrived at the decision in Imperial Loan Co v Stone [1892] 1 QB 599 and referred to the reasons for judgment therein of Lopes LJ. Their honours said at 441:
This step having been taken, it was possible for Lopes LJ in Imperial Loan Co v Stone (1892) 1 QB 599, to state the principle to be deduced from the cases in these terms: 'A contract made by a person of unsound mind is not voidable at that person's option if the other party to the contract believed at the time he made the contract that the person with whom he was dealing was of sound mind. In order to avoid a fair contract on the ground of insanity, the mental incapacity of the one must be known to the other of the contracting parties. A defendant who seeks to avoid a contract on the ground of his insanity, must plead and prove, not merely his incapacity, but also the plaintiff's knowledge of that fact, and unless he proves these two things he cannot succeed' [Imperial Loan Co at pp 602 ‑ 603] .
Once the law had become committed to this view, it could not be maintained that problems concerning the contracts of persons of unsound mind could be solved by the simple formula: a contract requires the assent of both parties; a person of unsound mind is incapable of assenting; therefore no contract can come into existence between parties of whom one is of unsound mind.
Dixon CJ, Kitto and Taylor JJ continued at 443:
In truth the plea does not deny the defendant's execution of the document. It assumes his execution of it. It concedes that his mind, such as it was, went with his act. What it asserts is that the state of his mind was such that if the other contracting party was aware of it he ought not to be allowed to insist upon the contract. The essence of the plea is, therefore, not that the contract was not signed by the defendant, but that 'a person who takes an obligation from another under such circumstances is guilty of actual fraud: per Parke B in Gore v Gibson (1845) 153 ER 260 at 262.
At page 444, their Honours' analysis extended towards whether the state of the law which they had determined with respect to contracts was otherwise with respect to conveyances. At page 449, their Honours concluded that it was not.
An ascertainment of Jessica's capacity to enter into the deed of release compromising her claims as at September 2005, will be a matter of fact to be determined based upon evidence, including cross‑examination at trial. But I proceed from a premise that at a summary judgment level the plaintiff is entitled to have her case assessed on the hypothesis that she can make good at trial all matters contended for under pars 11 to 16 of the statement of claim.
However, the establishment of those matters alone will be insufficient. Gibbons establishes that it is also necessary to plead and prove the second matter referred to by Lopes LJ in Imperial Loan Co, namely the defendants' knowledge of her incapacity. The plaintiff has submitted in its written submissions that at trial the onus will be on the second defendant to establish that it was ignorant of the mental disability affecting Jessica and to demonstrate that it dealt fairly with her. It relies upon Crago v McIntyre [1976] 1 NSWLR 729. My reading of that decision does not assess it as supporting an onus proposition at the level for which the plaintiff relies.
In the present case, it is apparent that the plaintiff, throughout the course of a long negotiation conducted between solicitors from about 2000 to September 2005, had the benefit of continuing legal advice through Corsers. There is nothing on the materials to suggest that the legal advice that she received was anything less than competent and timely. There is nothing before me to suggest that there is such great disparity between the ultimate settlement amount accepted in September 2005 and what a plaintiff suffering like injuries to Jessica's might have been expected to be offered, (in circumstances where negligence is not in dispute) which may give rise to potential grounds for suspicion that Jessica's interests were not being fully, indeed robustly advanced by Corsers at the time.
My analysis of the long negotiation is that the ultimate settlement reached was drawn out and hard won. Indeed, several of the letters to which I have referred, were in the nature of Calderbank offers and put the defendants at risk of indemnity costs orders in the event that the matter proceeded to a trial and the plaintiff 'beat the offer'.
The medical reports which are relied upon as constituting notice at par 17 of the statement of claim seem to contend for actual, or alternatively constructive notice of a lack of capacity in Jessica. But my analysis of each par 17 report is to the contrary. The report most proximate in time to September 2005 (by Dr Booth of 24 June 2003), was by a consultant in psychological medicine. It was in comprehensive terms. The fact that Dr Booth, by answering question 4, recommended that an administrator be appointed to administer compensation monies, deals with a distinct scenario ie, post‑settlement and post (assumed) receipt of compensation. Dr Booth's report does not address, and nor is question 4 framed to address, the distinct issue of Jessica's capacity to sufficiently instruct her solicitors to settle her claim at the time.
But on 18 September 2003, Dr Booth addressed that very issue (see 'AME12' dated 18 September 2003) when he wrote 'notwithstanding Ms Borchert's psychological disabilities, I would deem her capable of understanding legal advice, giving legal instructions etc etc'. That, in my assessment, is powerful, uncontradicted specialist medical evidence - contrary to the present contention that the second defendant had notice of or should have had notice that Jessica did not have capacity to enter into an agreement to compromise her claim.
Dr Booth then continued in these terms:
I say this in the sure knowledge that you would be acting in an altruistic capacity for her, and that she is therefore unlikely to be encouraged to damage herself as a result of whatever decision she might make under these circumstances.
The plaintiff contended that that sentence was relied upon as somehow undermining the prior sentence's opinion about Jessica's capability of understanding legal advice and giving instructions. However, that is not my reading of the second sentence which, in my assessment, says no more than that Dr Booth, the examining psychiatrist, was comforted in his assessment on the basis that Jessica had the benefit of competent professional solicitors acting for her, and in her best interests. That observation made a fairly self‑evident point. It was not inappropriate in context. Nor does it undermine or detract from what came before it. That is the correct analysis of Dr Booth's additional observation, in my view.
The plaintiff also contended that the defendants recognised that Dr Booth's observation was nearly two years' old at 23 August 2005 (see 'AME25') and that a 'more recent opinion would have been preferable'. However, the defendants' solicitor went on to observe, in the same letter, that there had been considerable difficulty over time, in effect obtaining evidence and medical reports concerning Jessica. That, in my assessment, was an accurate, reasonable observation of what had occurred over time in terms of Jessica not attending medical appointments and therefore her medical reports taking time to be prepared and exchanged. Much of that was no doubt attributable to Jessica's underlying condition, but there is nothing to detract from a reasonable reliance by the second defendant and its solicitors upon Dr Booth's opinion of 18 September 2003.
The defendants' solicitor asked the capacity question of Corsers as to Jessica, which was appropriate. It was raised again on 15 August 2005 with Mr Evans. The response was that Mr Evans considered Jessica capable of giving instructions and that the report of Dr Booth of 18 September 2003 supported that conclusion, as it did. There was no basis to second guess Jessica's legal advisers at the time.
Furthermore, the underlying principles in the voiding of an instrument due to incapacity of the person concerned - where a party taking a benefit in the transaction is on notice of incapacity - were analysed in Gibbons. Their Honours traced the principle back to 1845 and Baron Parke in Gore. The analysis revealed an underlying rationale of actual fraud, by taking advantage of a person's lack of capacity. Fraud is a scenario removed from present consideration.
Here, Jessica was robustly represented over time by what presented the defendants to be competent solicitors, who undeniably carried primary responsibility for satisfying themselves as to their client's ability to instruct them and to understand their advice to her. It is to be expected that the defendants' solicitors would extend a reasonable degree of deference as to the views of the solicitors for Jessica on the issue of her capacity. I make that observation in the complete absence of any material raised, let alone pleaded, to indicate that Corsers were not acting competently or appropriately in Jessica's interests over the period of some five years.
Furthermore, this application is brought on the plaintiff's behalf by the Public Trustee. New solicitors for Jessica's interests are now involved. No evidence has been put before me from Corsers, or Mr Evans. In the circumstances, there is an unexplained silence - from the source having the most insightful perspective on the matter of Jessica's capacity - over what would appear to be a period approaching not less than five years' continuing legal representation. Nothing in the materials suggests that Corsers have acted with anything less than competent and proper concern for Jessica's interests.
I reach a view therefore that the statement of claim must be struck out for failing to disclose an arguable cause of action as regards the issue of incapacity and alleged notice thereof in the defendants.
Similar observations and conclusions must apply in respect of the plaintiff's pleas as regards unconscionable conduct (or unconscientious conduct, as it is now referred to as) at par 18 of the statement claim. On my analysis however, everything that follows in subpars 18.2, 18.3 and 18.4 seems to be structurally dependant upon the averment in 18.1 - to the effect that the second defendant had been 'put on notice of the plaintiff's disability that she did not have the capacity to settle her claim'. Essentially the same matters which are ventilated as particulars under par 17, are relied upon again in par 18 ‑ at least as I read the pleading.
On my analysis, those matters do not suffice to raise an argument in the plaintiff's favour that can potentially undermine the deed of release of 14 September 2005. Furthermore, par 18 appears, in any event, to be deficient in a second respect, (which counsel for the plaintiff accepted during oral argument) in that it does not disclose the required benefit which the defendants allegedly obtained arising in the context of the alleged unconscientious conduct.
In my view, it is appropriate to strike out the entirety of the plaintiff's statement of claim, on the basis that as currently framed the pleading fails to disclose an arguable cause of action: see General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 130 per Barwick CJ.

However, I am not prepared at this point to go further and grant the defendants' application for summary judgment under O 16 of the RSC, thereby completely dismissing the plaintiff's action. With the benefit of the observations which I have made herein as to what I perceive to be a current structural deficiency in the statement of claim, there should still be one further opportunity for the plaintiff through her advisers and next friend to consider these observations and amend to meet them if they can. They may then attempt, if they assess it to be possible, a re‑pleading of Jessica's case to address the current structural deficiencies, particularly as regards the issue of notice of incapacity, which is a required element of a cause of action. The currently deficient nature of par 17 inhibits the plaintiff's ability to make good a coherent argument of incapacity - thereby rendering the deed of release of September 2005 as arguably voidable.
I consider it appropriate then that the plaintiff at least have a last opportunity to replead her case. Accordingly that I propose to adjourn the defendants' O 16 of the RSC application for summary judgment, reserving liberty to the defendants to bring on a further application in the event that the plaintiff either does not bring forth a compliant statement of claim within a determined timeframe or, that amendments effected to a fresh statement of claim still present the same conceptual inadequacies.
I reach this view as to O 16 of the RSC on the principle that the exercise of summary judgment against a plaintiff is a process approached with caution. Notwithstanding considerable reservations at this point as to the plaintiff's future ability to sufficiently overcome the deficiencies to which I have referred, particularly as to notice of incapacity, I will afford the plaintiff and her advisers that last opportunity to replead.
Accordingly the orders I propose will be:
1.the statement of claim is struck out under O 20 r 19 of the RSC, on the basis that it fails to disclose an arguable cause of action;
2.there will be liberty to replead with a fresh statement of claim within a time to be fixed;
3.the costs of the present applications will need to be provided for; and
4.the defendants' application for summary judgment under O 16 of the RSC is adjourned with leave for the defendants to re‑apply as they see fit in the circumstances which I have identified.