BANKRUPTCY – application by bankrupt to set aside sequestration order, or annul bankruptcy under s 153B of the Bankruptcy Act 1966 (Cth) – where bankrupt asserts defective service of creditor’s petition by reason of mental incapacity – whether mental incapacity proven
Legislation:
Bankruptcy Act1966 (Cth) ss 109(1)(a), 139ZQ, 153B, 153B(1), 154, 154(1)(b)
ROLAND ALEXANDER BROWNE AND ANTHONY FAIRLEA FITZGERALD
First and Second Respondents
PAUL JOHN COOK
Third Respondent
ORDER MADE BY:
O'CALLAGHAN J
DATE OF ORDER:
28 JUNE 2021
THE COURT ORDERS THAT:
1.The amended application dated 9 April 2021 be dismissed.
2.The first, second and third respondents file and serve any submissions or evidence on the question of costs, including whether the legal representative for the applicant should bear any part of the costs of the proceeding personally, by 4:00 pm on 5 July 2021.
3.The legal representative for the applicant file and serve any submissions or evidence upon…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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Details
AGLC
Burnett v Browne (No 3) [2021] FCA 703
Case
[2021] FCA 703
Decision Date
CaseChat Overview and Summary
Burnett v Browne (No 3) involved an application by Ms Burnett, a bankrupt, to set aside a sequestration order or annul the bankruptcy under s 153B of the Bankruptcy Act 1966 (Cth). Ms Burnett argued that the creditor's petition was defectively served due to her mental incapacity. The central legal issues were whether Ms Burnett's mental incapacity was proven and, if so, whether it affected her capacity to manage her own affairs in the proceeding.
The court considered the relevant Federal Court Rules, particularly r 11.15 of the Federal Circuit Court Rules 2001 (Cth), which addresses service upon a person who does not understand the nature and possible consequences of the proceeding or is not capable of adequately conducting, or giving adequate instruction for the conduct of, the proceeding. The court examined whether Ms Burnett had the ability to understand she required advice, communicate this need, instruct her advisor, and make decisions based on legal advice.
In reaching its decision, the court relied on psychiatric evidence from Dr Reid, who diagnosed Ms Burnett with continuous schizophrenia. Dr Reid explained that Ms Burnett's condition severely impaired her ability to understand the proceedings and follow legal advice. The court concluded that Ms Burnett's mental incapacity was proven and that it affected her capacity to manage the proceeding. However, the court found that this incapacity did not render the service of the creditor's petition defective.
The court dismissed Ms Burnett's application and ordered the respondents to file and serve submissions on costs by specified dates. The further hearing of the proceeding was adjourned to a date to be fixed.
Orders
Orders of the court
1. The amended application dated 9 April 2021 be dismissed.
2. The first, second and third respondents file and serve any submissions or evidence on the question of costs, including whether the legal representative for the applicant should bear any part of the costs of the proceeding personally, by 4:00 pm on 5 July 2021.
3. The legal representative for the applicant file and serve any submissions or evidence upon which he may rely on the question of costs by 4:00 pm on 30 July 2021.
4. The further hearing of the proceeding be adjourned to a date to be fixed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
I have already described the events precipitating this application as a long and sorry history. See Burnett v Browne [2021] FCA 85; Burnett v Browne [2019] FCA 1233. It is, however, now necessary to set out part of that history in some more detail.Background In around May 2012, Ms Burnett was considering a personal injury claim against the owner of the former K&D brickworks situated in New Town, Hobart. She sought advice from the creditors. The creditors later sued Ms Burnett for unpaid fees and disbursements in the Magistrates Court of Tasmania. On 20 November 2014, they obtained a judgment in the sum of $4,559.52 and lodged a caveat over Ms Burnett’s property. Ms Burnett eventually satisfied the judgment debt, and the caveat was withdrawn. In early May 2016, the creditors filed a bill of costs for $10,799.53 in the Magistrates Court and served it on Ms Burnett. Ms Burnett’s objection to the bill was unsuccessful, and a certificate of assessment was issued. On 1 July 2015, the Dragon Glenn Family Trust was established. Ms Burnett was to be the appointor, and her children, Ms Fiona Burnett and Mr Christopher Isherwood, were to be the trustees and beneficiaries. On 7 July 2015, the creditors lodged a caveat over Ms Burnett’s property at 56 Coleman Street, Moonah. Meanwhile, Ms Burnett had appealed the Magistrates Court judgment to the Supreme Court of Tasmania. Her appeal was listed for hearing on 30 July 2015. Around two weeks before the hearing she retained a lawyer, Mr Leonard Fernandez, to act on her behalf, and he filed an amended notice of appeal. On 29 July 2015, Mr Fernandez sent the creditors an email stating that Ms Burnett was willing to discontinue her appeal with no order as to costs. He filed a notice of discontinuance on her behalf later that day. Ms Burnett, no longer represented by Mr Fernandez, then applied to have the notice of discontinuance set aside. That application was listed for hearing before Pearce J in the Supreme Court of Tasmania on 19 October 2016. In the weeks leading up to the hearing, Ms Burnett applied for Pearce J to recuse himself, an application which his Honour refused on 5 October 2015. The hearing of the application to set aside the notice of discontinuance took place on 19 and 20 October 2015. Ms Burnett appeared before Pearce J on her own behalf, gave evidence, was cross-examined and made submissions. The creditors, who were the respondents on the application, appeared by counsel. Justice Pearce dismissed Ms Burnett’s application on 30 October 2015. See Burnett v FitzGerald (2015) 25 Tas R 42. His Honour’s reasons contain a detailed description of the conduct of the hearing and the controversy surrounding the notice of discontinuance. On 4 December 2015, there was a further hearing before Pearce J on the question of costs. Once again, Ms Burnett appeared on her own behalf. She read affidavits, tendered documents and made submissions by reference to authorities. Justice Pearce ordered her to pay the creditors’ costs of the recusal application and the application to set aside the notice of discontinuance.
Evidence
Evidence Before The Court
On 9 September 2019, Ms Burnett appeared before Kerr J and made submissions in support of an application for a stay of the 8 August 2019 orders. Kerr J dismissed that application on 25 September 2019. See Burnett v Browne (No 2) [2019] FCA 1597. Later that month, Ms Burnett also prepared an application for special leave to appeal against the 8 August orders, but it seems that application was never filed.The evidence of Dr Reid In support of the present application, Ms Burnett sought to rely on an affidavit sworn on 10 May 2021 by Dr Philip Reid, a psychiatrist, which annexed his psychiatric assessment of Ms Burnett in the form of a report dated the same day. In the report, Dr Reid answered a series of questions put to him by Mr Williams, the solicitor for Ms Burnett. Omitting formal parts, Dr Reid’s evidence was as follows:Q1.You have previously diagnosed Ms Burnett as being schizophrenic. Do you remain of this view?I previously interviewed Ms Burnett in August 2020 and again in March 2021 and provided a formulation of schizophrenia. I remain of this view.Q2.Given the previously supplied materials in July 2020, February 2021 and with this letter, what matters do you consider are relevant to diagnosing symptoms of the condition[?]A diagnosis of schizophrenia has come through mental state findings on examination, history given by Ms Burnett and the collateral history given by her son and daughter that you have documented.Q3.For example, what things have supported your diagnosis? What can you point to and how many factors alone can support such a diagnosis[?] For example, might it be one or more factors separately or together?The diagnosis has primarily come through express beliefs that I consider delusional and her disorganised speech. I considered that she suffers formal thought disorder in the form of illogicality and derailment. I would suspect you would have witnessed this form of communication, where she frequently returns to the concepts of fraud and conspiracy.History from her son and daughter is highly relevant, their statements about her paranoid beliefs assist with the diagnosis of schizophrenia. The document by Chris Isherwood from the 12 February 2021, states that ‘she thought Paul Cook was sitting over the road on numerous occasions, she thinks that he has tapped her phones and listening to what she is saying and she thinks that he is in her computer’. He stated that he considered that his mother had had these thoughts for many years, he agreed that she had thoughts about him in her computer around 2015 and that her condition was getting worse with time and not better.Likewise her daughter, Fiona Burnett documented at interview on the 23rd March 2021, very worrying concerns. This includes ‘she mentioned many times that the trustee was bugging her phone and computer and even went to the length of using my VPN [virtual private network] thinking that it would stop him being able to access her computer, email and files. She changes her number frequently which to my understanding is fuelled by this paranoia. She often comes up with seemingly bizarre things similar to what I have mentioned which really would not happen outside of a movie setting’.With regard to home care she reported ‘it is generally clean, but there are just stacks of paper everywhere, folders, there are suitcases full of papers. Spare rooms are taken up by papers and, yeah, but otherwise it is neat and clean. She is always very tidy’.Both mental state signs and history over a period of time confirms a diagnosis of schizophrenia.Using a DSM-V [Diagnostic and Statistical Manual of Mental Disorders, 5th ed] criteria, Ms Burnett satisfies the criteria A to F.Criteria A is met as I believe she has persecutory delusions and disorganised speech.Criteria B is met as there have been significant impact on her level of interpersonal functioning. For example, communication[s] with her children are strained and her daughter needs to keep their interactions brief to avoid conversations about the Court matter. I note that previously Ms Burnett had worked for the public service and now she finds herself living in a home where Court papers fill spare rooms, some placed in suitcases. This is decline in occupational functioning.With regard to Criteria C, I do not think that her mental state had changed from August 2020 to March 2021. Her daughter considers there has been a decline of her mother’s mental health since living at the brickworks and her son documents persecutory delusions in 2015. She therefore meets the criteria for continuous signs of disturbance.With regard to Criteria D, there is no history or mental state examination findings to suggest a mood disorder to explain her condition.Likewise, Criteria E is not relevant as there is no evidence of drug abuse.Criteria F is not relevant as Ms Burnett does not have a history of Autism Spectrum Disorder.Q4.The DSM-5 refers to the ‘course specifiers of schizophrenia[’]. It describes various levels of the condition with the ultimate expression being:•Continuous: Symptoms fulfilling the diagnostic symptoms criteria of the disorder are remaining for the majority of the illness course, with subthreshold symptom periods being very brief relative to the overall course.Yes the DSM-V does offer specifiers for the course of the illness. These are descriptive in the longitudinal outcome of her condition after a duration of twelve months.Q5.This, continuous schizophrenia, appears to refer to a permanent state of being. Is this correct?Schizophrenia with the specifier of continuous, simply means that the patient suffers symptoms sufficient for the diagnosis to remain prominent without a break.Q6.Do you consider that Ms Burnett falls into the category of Continuous Schizophrenia?Yes.Q7.If yes, what symptoms or factors do you relay on to make this diagnosis?The unchanged mental state between my two interviews would be consistent with schizophrenia with continuous on-going symptoms. More importantly, collateral history from her children suggest ongoing symptoms that have worsened with time. Ms Burnett has not sought or received any psychiatric treatment that would have ameliorated her condition.Q8.If not, what course specifier for her condition do you identify? Why?Not applicable.Q9.Assuming that you have reached a diagnosis of continuous schizophrenia, or what you do see as her course specifier, what would the impact of this be on Ms Burnett’s ability to understand that in her best interests as a party to litigation that she requires legal advice in respect of the relevant legal proceeding at any point in time?My formulation is Paranoid Schizophrenia with a specifier of continuous. Ms Burnett has been unwell for many years without treatment. I suspect the time of the on-set of the illness was when she lived at the brickworks.Her illness has played out through the Courts, with paranoid beliefs, thought disorder, illogicality and no resolution of the legal proceedings.Ms Burnett’s serious mental disorder has impacted her ability to understand that in her best interests as a party to litigation that she requires legal advice. Ms Burnett’s understanding of procedures would have been highly influenced by her delusional beliefs about her health, the legal process and practitioners such as Mr Brown and Mr Cook. She has fixed views that are not amenable to reason. Her beliefs held with emotional conviction would undermine her understanding of procedures.Q10.Assuming that you have reached a diagnosis of continuous schizophrenia, or what you do see as her course specifier, what would the impact of this be on Ms Burnett’s ability to consider and act on legal advice actually given to her and thus take steps in a relevant legal proceeding along the lines of legal advice received, such as to pay the debt and not oppos[e] the application?As part of Ms Burnett’s schizophrenia, I found her to be thought disordered and disorganised. She holds fixed false beliefs that are not amenable to reason. She has a paranoid view point which is rejecting of contrary advice. Her reasoning is overshadowed by paranoid beliefs such as being affected by the brickworks, being defrauded by Mr Brown and spied on by Mr Cook. With such strong convictions, she does not have the capacity to process other advice and concede to the system and individuals she disagrees with.Q11.As a person diagnosed with Schizophrenia, how likely or unlikely would Ms Burnett be able to modify her dominant belief(s) to the point where she would accept legal advice such as to pay the debt?Patients who suffer schizophrenia experience delusions. Delusions are fixed, false beliefs and are not amenable to reason. Patients who suffer schizophrenia therefore are unable to modify their beliefs.Ms Burnett may be able to take advice about simple tasks, but when asked to pay a debt that relates to delusions about her health and delusions involving legal practitioners, she quickly becomes paranoid and illogical.Q12.Another question is, given the diagnosis that you have reached, how do you describe the ability of Ms Burnett to make decisions and give instructions to lawyers based upon, or otherwise give effect to, such advice as might be received that do not meet her views about her case?Ms Burnett’s illness of schizophrenia impairs her ability to take on advice that is contrary to her own. She is restricted in her ability to process new information. It is common for patients who suffer schizophrenia to have limited or no insight. I understand she rejects my formulation and is adamant not to receive treatment. She therefore does not have any understanding how her beliefs have impacted her decision making.
Decision
Reasons for decision
Full text does not contain this section.
Ratio Decidendi
Legal Principle Established
Rule 10.09 of the FCR deals with service upon “a person who, because of a mental disability or illness, is not capable of managing the person’s own affairs in a proceeding”, whereas r 11.15 of the FCCR deals with service upon a person who “does not understand the nature and possible consequences of the proceeding or is not capable of adequately conducting, or giving adequate instruction for the conduct of, the proceeding”. Whether there is any material difference between the two provisions is doubtful, but in any event, it is the latter that applies here.Consideration In Owners of Strata Plan No 23007 v Cross (2006) 153 FCR 398 at 411 [53] (Cross), Edmonds J explained that “the provisions of O 43, r 13 [the predecessor to r 10.09 of the FCR] are triggered if the person to be served is a ‘person under disability’. Where it is said that the person is a ‘mentally disabled person’ rather than an infant or minor the relevant question is: Is the person concerned a person who, owing to mental illness, is incapable of managing his or her affairs in respect of the proceedings? The words ‘in respect of the proceedings’ are important because they focus upon the person’s ability to bring or defend proceedings rather than whether the person is able to manage his or her affairs generally or in relation to some other transaction”. The three references to “the proceeding” in r 11.08(1) of the FCCR have a similar effect. As Edmonds J explained, that approach is consonant with the common law approach to capacity, citing Gibbons v Wright (1954) 91 CLR 423 at 437 (Dixon CJ, Kitto and Taylor JJ) (“The law does not prescribe any fixed standard of sanity as requisite for the validity of all transactions. It requires, in relation to each particular matter or piece of business transacted, that each party shall have such soundness of mind as to be capable of understanding the general nature of what he is doing by his participation”). See Cross at 411 [53]. Edmonds J also referred to Masterman-Lister v Brutton & Co (Nos 1 and 2) [2003] 3 All ER 162 at 187-8 [74] (Chadwick LJ), citing Re C (adult: refusal of medical treatment) [1994] 1 All ER 819, in support of the proposition that “the exigencies of bringing or defending the proceedings are the focal point of the test of capacity for the purposes of the Rules”. See Cross at 412 [55]. His Honour then posed the next question that arises: namely, “what are the considerations to which the Court should have regard in applying that test”? See Cross at 412 [55]. After referring to Masterman-Lister v Brutton & Co (Nos 1 and 2) [2003] 3 All ER 162 at 188 [75] (Chadwick LJ) and related cases, Edmonds J said at 413 [61]:In light of what is said in these authorities and having regard to the use of the words ‘in respect of the proceedings’ in the [Federal Court Rules 1979 (Cth)], the following are relevant to determining capacity in the present case:(a)whether Ms Cross had the ability to understand that she required advice in respect of the Creditor’s petition which had been left with her;(b)whether she had the ability to communicate this requirement to someone who could arrange an appointment with an appropriate advisor or, alternatively, that she could arrange such an appointment of her own accord;(c)whether she had the ability to instruct her advisor with sufficient clarity to enable him or her to understand the situation and to advise her appropriately; and(d)whether she had the ability to make decisions and give instructions based upon, or otherwise give effect to, such advice as she might receive.