FEDERAL COURT OF AUSTRALIA

Dobrinski v Shepard (Trustee); In the matter of Slade [2019] FCA 843

ORDERS

THE COURT ORDERS THAT:

1.    The parties are to bring in Short Minutes of Orders to give effect to these reasons within fourteen days.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

FLICK J:

1    The Applicant in the present proceeding (Ms Irene Dobrinski) claims she is a creditor in the bankrupt estate of her daughter, Ms Roslyn Slade. Ms Dobrinski is also the mother of Mr Barry Goldman.

2    The Respondent (Mr Adam Shepherd) is the trustee of the bankrupt estate.

3    The Applicant claims, in very summary form, that the trustee has breached his duties as a trustee. The Originating Application, as filed on 24 May 2018, seeks orders including orders (without alteration) that the trustee:

•    “account to the Application for such losses as have been occasioned to her by reason of the assignment of her claim as creditor in the Estate to Macquarie National”;

and

•    “repatriate the Estate as to the whole of the value of the Homebush Property…”.

Ms Dobrinski also claims damages, including aggravated and exemplary damages.

4    The facts which give rise to the dispute essentially emerge out of a sadly fractured family and a trustee in bankruptcy who became embroiled in the family disharmony.

5    Now before the Court is a Further Amended Interlocutory Application (the “Application”) seeking an order pursuant to r 9.63 of the Federal Court Rules 2011 (Cth) (the “Federal Court Rules”) that Ms Sarah Winter be appointed as the “litigation representative” of Ms Dobrinski. An initial difficulty with the Application is that the very basis upon which the application is made, namely the lack of capacity of Ms Dobrinski, of itself would preclude her giving instructions to her solicitor to make the application. In an attempt to remedy that difficulty, the Interlocutory Application as first filed on 14 November 2018 was amended. The Application as finally advanced was expressed to be an application by “Sarah Winter and / OR Amanda Garlick on behalf of [Ms Dobrinski]”. Ms Amanda Garlick is Ms Dobrinski’s granddaughter and has her power of attorney.

6    That Application is made in the context where it is common ground that Ms Dobrinski was mentally incapable of managing her own affairs and giving proper instructions as at the time the present proceeding was commenced and remains so incapacitated.

7    The Respondent to the proceeding opposes the Application, contending that it should either be dismissed for non-compliance with r 9.61 or refused in the exercise of the Court’s discretion conferred by r 9.63 on the basis (inter alia) that the appointment of Ms Winter as litigation representative cannot give “comfort that her appointment would promote protection of the applicant’s interests or the Court’s processes”.

8    The Applicant in the proceeding appeared by her solicitor, Mr Hall. The Respondent appeared by Counsel.

9    The present Application first came before the Court on 29 November 2018. On that occasion the hearing was adjourned in order to enable Ms Winter to obtain independent advice. That advice was obtained and the matter came back before the Court on 18 December 2018. The hearing on that date was again adjourned to enable inquiries to be made as to whether the New South Wales Public Trustee and Guardian would accept an appointment as litigation representative. Those inquiries were made and on 27 February 2019 that Office indicated in an email to the Applicant’s solicitor that it was “unable to act on Ms Dobrinski’s behalf, until and unless the management of her financial affairs have been committed to this Office” pursuant to s 41 of the NSW Trustee and Guardian Act 2009 (“Trustee and Guardian Act”). The interlocutory hearing came back before the Court on 28 February 2019. No order was then sought by the Applicant pursuant to s 41 of the Trustee and Guardian Act.

10    Ms Winter has provided a Consent to an appointment as a litigation representative for the purpose of r 9.63 of the Federal Court Rules.

11    It is concluded that:

    the proceeding was improperly instituted – it being concluded that as at the date of the commencement of the proceeding only a litigation representative was capable of commencing the present proceeding on Ms Dobrinski’s behalf;

but further concluded that:

    any such irregularity in the commencement of the proceeding was susceptible of being rectified by the subsequent appointment of a litigation representative.

Separate from such conclusions, and albeit with considerable misgivings, it is further concluded that:

    Ms Winter should be appointed as the litigation representative.

Rules 9.61 & 9.63

12    Rule 9.61 of the Federal Court Rules provides as follows:

Proceeding by or against person under a legal incapacity

A person under a legal incapacity may start, or defend, a proceeding only by the person’s litigation representative.

13    Rule 9.63 provides as follows:

Appointment of litigation representative by the Court

(1)    A party or an interested person may apply to the Court for an order appointing a person as a litigation representative.

  (2)    A copy of the application must be served on the person under a legal incapacity.

  (3)    The application must be accompanied by an affidavit stating:

(a)    that the person for whom the appointment is to be made is a person under a legal incapacity and giving details of the nature of the legal incapacity; and

    (b)    that the proposed litigation representative:

(i)    has consented, in writing, to the appointment; and

(ii)    is a person who, under rule 9.62, may be appointed as a litigation representative.

The presumption of capacity & the need for evidence

14    There is a presumption of the capacity of an individual to prosecute a proceeding. Where a question is raised as to the capacity of a litigant, the onus rests upon those who assert incapacity. And the discharge of that onus usually requires the assistance of a medical practitioner.

15    In L v Human Rights and Equal Opportunity Commission [2006] FCAFC 114, Black CJ, Moore and Finkelstein JJ summarised these principles as follows (without alteration):

[26]    There is a presumption of competence unless and until the contrary is proved; that is, there is a presumption that a litigant of full age is competent to manage his or her affairs: Masterman-Lister at [17] (Kennedy LJ); Murphy v Doman (2003) 58 NSWLR 51 at [36] (Handley JA). When it is alleged that a person is incompetent, the onus of proof is on those so asserting: Masterman-Lister at [17] (Kennedy LJ); Dalle-Molle v Manos (2004) 88 SASR 193 at [17] (Debelle J); Andreapoulou v Nowak [2002] VSC 462; Pratt v Dickson [2000] QSC 314.

[27]    The means by which the court will determine whether a guardian should be appointed can vary from case to case. In Masterman-Lister, Kennedy LJ said (at [29]) that the decision as to capacity rests with the court but in almost every case the court would need medical evidence to guide it. Earlier, Kennedy LJ had observed (at [17]):

‘even where the issue does not seem to be contentious, a district judge who is responsible for case management will almost certainly require the assistance of a medical report before being able to be satisfied that incapacity exists’.

Cases such as Hutchinson v Gaitazis (1980) 25 SASR 30; AJI Services Pty Ltd v Manufacturers’ Mutual Insurance Ltd [2005] NSWSC 709 and Levey v Levey (1979) 11 BCLR 97 (SC) were decided on medical evidence. There will, however, be cases where no medical evidence is available as, for example, when a litigant refuses to submit to a medical examination. And there will be cases where the lack of capacity is so clear that medical evidence is not called for. In those cases, and perhaps others, the court is entitled to rely on its own observation to make an assessment about the capacity of a party: see, for example Murphy v Doman at [37] (Handley JA); AJI Services Pty Ltd v Manufacturers Mutual Insurance Ltd at [57] (Bell J).

16    In the present proceeding there was no evidence from a medical practitioner as to the incapacity of Ms Dobrinski as at the date of the commencement of the proceeding or as at each of the dates of the hearing of the present Application. There was, however, some other evidence upon which an assessment as to her capacity could be reached.

17    First, a record of the aged care facility at which Ms Dobrinski resides thus records that as at February 2018 her diagnosis was (inter alia): “Dementia, Alzheimer’s disease including early onset, late onset, atypical or mixed type or unspecified, Depression, mood and affective disorders…”.

18    Second, Ms Winter deposed in her affidavit sworn 13 November 2018 as to the occasion on 13 November 2018 when she was introduced to Ms Dobrinski by Ms Slade. On that occasion, Ms Winter maintains that there was a lack of recognition on the part of Ms Dobrinski of her daughter, Ms Slade. Ms Winter was “left in no doubt that she [was] unable to carry on a proper conversation”.

19    Third, Ms Garlick maintained in her affidavit sworn 15 November 2018 that by 24 May 2018 Ms Dobrinski’s “mental capacity had … declined substantially and it was in these circumstances that I was the person that gave instructions that these proceedings be filed…”. Ms Garlick held Ms Dobrinski’s power of attorney. Ms Garlick goes on to state that had she been aware that these proceedings could only be commenced with the consent of a litigation representative she “would not have authorised the commencement of these proceedings”.

20    Fourth, Ms Dobrinski is over 95 years old and it was “common ground” between the parties that she was incapable of managing her own affairs.

21    Albeit an unsatisfactory factual foundation from which to proceed, it is concluded that:

    as at 24 May 2018 when the proceeding was commenced; and

    as at today’s date

Ms Dobrinski lacked and continues to lack the mental capacity to prosecute the present proceeding.

22    It follows that the present proceeding was irregularly commenced. And such a proceeding cannot continue unless a litigation representative is appointed and the irregularity in the commencement of the proceeding is regularised.

23    The irregularity in the institution of the proceeding, together with the background facts out of which the dispute arises, only dictate the need for the Court to approach the current Application with an added caution and to be assured that there is appointed a person who has properly reached a state of satisfaction as to the prudence of conducting the present proceeding.

The facts out of which the dispute arises & reasons for concern

24    The facts out of which the dispute and the litigation arise assume present relevance when attention is directed to the question as to whether Ms Winter has made an informed decision when consenting to act as a litigation representative.

25    Those facts and issues are such as to invite questions as to whether Ms Winter has made a truly informed decision.

26    Although it is unnecessary for present purposes to descend into the facts in any great detail, and it would be imprudent to do so, the facts would seem to start with an allegation made by Ms Dobrinski that her son, Mr Barry Goldman, “spirited her away from” her daughter (Ms Slade) and improperly used a power of attorney to commence proceedings against Ms Slade. Judgment was obtained in this proceeding in 2010: Dobrinski v Slade [2010] NSWDC 297. Ms Slade was unable to pay the debt and she voluntarily placed her estate into bankruptcy. Ms Dobrinski claims that she had “never intended or wished that the power of attorney be used to bring court proceedings against her daughter, or to obtain a judgment…”. She alleges that “the power of attorney was being used by Barry Goldman in circumstances that amounted to a fraud under [the] power”. Ms Dobrinski alleges that the trustee “was aware that Barry Goldman was acting fraudulently…”. It is also said that the trustee administered the bankrupt estate in a manner which benefited the interests of Mr Goldman in circumstances where the trustee (inter alia) “was aware there was reason to inquire as to Barry Goldman’s use of the power of attorney and the whole circumstances of the bankruptcy”.

27    With respect to the proceeding commenced in this Court in May 2018, there are at least three reasons for reservation as to the merits of the claims now sought to be advanced. However each of those reservations may ultimately be resolved is a matter which must await future consideration. But, for present purposes, the three immediately self-evident reasons for reservation arise out of:

    a Deed of Assignment whereby Ms Dobrinski has assigned all of her interest in the bankrupt estate of Ms Slade to Macquarie National Group Pty Ltd (“Macquarie National”);

    the institution and termination of proceedings in the Supreme Court of New South Wales; and

    the institution and resolution of proceedings in the Federal Circuit Court of Australia.

28    As to the first of these reasons, on 19 November 2013 Ms Dobrinski executed a Deed of Assignment of Debt. The parties to that Deed were herself (as assignor) and Macquarie National (as assignee) and Mr Goldman. Also executed on that date was an Irrevocable Authority and Direction to Pay whereby Ms Dobrinski directed the trustee of the bankrupt estate of Ms Slade to pay “all dividends otherwise payable to Irene Dobrinski out of the bankruptcy administration of Roslyn Slade” to Macquarie National.

29    The Deed recites (inter alia) the fact that Ms Dobrinski was a creditor in the bankruptcy administration of Ms Slade for an amount of $1,026,063.23 plus interest. Clause 1.1 to the Deed “assigns absolutely to the Assignee all of [Ms Dobrinski’s] right, title and interest in and to the Debt … with effect from the date of execution of this deed”.

30    By reason of the assignment, it is said on behalf of the trustee that as from 20 November 2013 Ms Dobrinski was not a creditor in the bankrupt estate of Roslyn Slade. The trustee – perhaps not surprisingly – queries whether the Court can now be satisfied that the pursuit of the present proceeding is in the best interests of Ms Dobrinski.

31    There seems to be at least some initial merit in the trustee’s concerns. It remains a matter for the trustee as to how it may wish to pursue its concerns.

32    As to the second of these reasons, the present proceeding was preceded by a number of other proceedings, including a like proceeding commenced by Ms Dobrinski against the trustee (as the Second Defendant) in the Supreme Court of New South Wales. That proceeding was discontinued in mid-2017. A Judge of that Court ordered Ms Dobrinski to pay costs: Dobrinski v Goldman (unreported, Sup Ct, NSW, 7 August 2017 per Parker J).

33    Notwithstanding statements apparently made to the Supreme Court that Ms Dobrinski sought to discontinue the Supreme Court proceedings and to commence proceedings in this Court to avoid any argument as to jurisdiction, the present proceeding was not commenced in this Court until May 2018.

34    Irrespective of the time taken to commence the present proceeding, the circumstances in which the Supreme Court proceeding was discontinued are, again, such as to occasion questions as to the merit of the claims now made by Ms Dobrinski.

35    As to the last of the three reasons, a proceeding had also been previously commenced in the Federal Circuit Court of Australia. That proceeding involved two applications, one filed by Ms Slade’s husband (Mr Abraham Slade) and the other filed by Ms Slade. Orders were sought (inter alia) for the removal of the trustee and for the transfer of the proceeding to the “Family Law Division of the Court”. The Respondent to both proceedings was the trustee. The “commonality of the defendant, and many of the relevant facts” led a Judge of that Court to hear both proceedings “at the same time, and to deliver a single set of reasons…”: Slade v Shepard [2013] FCCA 1237 at [4] per Altobelli J. Both proceedings were dismissed.

36    Although it may become necessary at a later time to consider the Federal Circuit Court’s decision in greater detail, it suffices for present purposes to note that the Judge of that Court summarised the claims being made and the response of the trustee as follows (in part):

[8]    Mr Slade’s grievance with the respondent trustee is that a proof of debt he lodged has been rejected. In the alternative he seeks orders in relation to the proceeds of sale of a property at 72 Parramatta Rd Homebush (“the Homebush property”), which proceeds of sale are held by the trustee.

[9]    Mrs Slade’s grievance with the respondent trustee relates to the latter’s alleged conduct as trustee and has several aspects to it. She complains about the manner in which the trustee took physical possession of the Homebush property. She complains about the trustee’s dealings with her (ie Mrs Slade’s) brother who holds power of attorney from her mother, who is the main creditor in the bankruptcy. …

The Judge thereafter set forth “Mrs Slade’s concerns about the trustee’s administration” of the estate and the matters in which she invited to Court to make an inquiry. The Judge thereafter stated:

[10]    The trustee’s case is that he has acted properly at all times (and will continue to do so in the future) and in all respects in rejecting Mr Slade’s proof of debt, and in the past, current and future administration of the estate.

[11]    There are clearly strong emotional undercurrents in these applications. The evidence creates the strong impression that the relationships between Mr and Mrs Slade, Mrs Irene Dobrinski (Mrs Slade’s mother) and Barry Goldman (who holds power of attorney from Mrs Dobrinski, and is Mrs Slade’s brother) are strained if not dysfunctional. A relevant issue for the court to consider is whether it was appropriate for this court’s jurisdiction under the Bankruptcy Act to be invoked as a forum for dealing with a dispute whose legal issues are so heavily overladen with emotional issues.

The Judge then reviewed the evidence and concluded (inter alia):

 [39]    There is no evidence to support Mr Slade’s claims as regards the Homebush property.

The Judge then proceeded to consider the claims made by Ms Slade and concluded (inter alia):

[56]    Insofar as Mrs Slade’s application seeks removal of the trustee, there is no basis for so doing on the evidence before the court.

These conclusions of the Federal Circuit Court Judge are, of course, by no means an exhaustive statement of the issues resolved. However, of potentially present relevance is the fact that claims similar to those now sought to be advanced by Ms Dobrinski have been previously explored – albeit at the suit of Mr and Ms Slade.

37    One of the written submissions advanced by Counsel on behalf of the trustee is that the present proceeding “appears to be functioning as a vehicle to further advance the grievances that have been ventilated by Rosyln Slade via Mr Hall for over five years in various forums”.

38    The submission does not lack self-evident merit. But it is not a submission which directly addresses the manner in which the discretion conferred by r 9.63 should be exercised. It may be that this submission may ultimately prevail; but a more detailed consideration of the issues is necessary to determine its ultimate fate.

39    The present application, in which a litigation representative is sought to be appointed to represent Ms Dobrinski, is obviously not the occasion to explore in any great detail any of these reasons for concern. But each of the reasons is such as to question whether the consent by Ms Winter to act as a litigation representative has been informed by a proper consideration of potential difficulties that may be experienced as to the conduct of the present proceeding.

The consent of Ms Winter

40    Ms Winter is a person who has known the Applicant’s solicitor (Mr Hall) for a period of approximately 15 years. She was asked by Mr Hall to act as the litigation representative of Ms Dobrinski. She maintains in the first of her two affidavits that she has “no interest in the litigation that is the subject of these proceedings” and that for “the purposes of considering whether I would accept this role as a litigation representative, I took steps to thoroughly read the documents provided to me in this matter and I read them repeatedly over some weeks”.

41    Missing from that affidavit was any indication that Ms Winter had formed any assessment as to the merit of the proceeding sought to be pursued by Ms Dobrinski and the potential difficulties that could be encountered. Concern as to the basis upon which Ms Winter initially reached an informed decision as to whether she should consent to act as the litigation representative arose because there was an absence of evidence that she was provided with documents of potential relevance, including:

    the Defence filed in the present proceeding;

    the Notice of Assignment of the debt of Ms Dobrinski in the bankrupt estate of Ms Roslyn Slade to Macquarie National, being the Notice dated 19 November 2013 and personally signed by Ms Dobrinski; and

    the earlier judgments of other Courts which had in one way or another addressed the central facts sought to be litigated in this Court.

Some of these documents, it may be accepted, assumed more significance than others. But it was the absence of any evidence that any of these documents were considered by Ms Winter which occasioned concern. That concern and the absence of independent legal advice occasioned the adjournment from 29 November to 18 December 2018.

42    In the interim Ms Winter obtained the advice of Senior Counsel. Although it may be that the written Advice so obtained could have more expressly addressed each of the three reasons for concern which had been identified, Senior Counsel was briefed with all of the relevant documents and expressed at the outset of his Advice his “summary” opinion that:

2.4    … the Plaintiff does have reasonable prospects of success.

Senior Counsel concluded:

3.44    … there appears no reason to suggest that the relief claimed against the Respondent trustee is without foundation. For these reasons, the relief claimed would appear to at least be fairly arguable.

Senior Counsel also advised:

Liability of a Litigation Representative

3.45    The obligations of a litigation representative are onerous, in that they carry on proceedings on behalf of another person in circumstances in which the benefits of that litigation will not flow to them, but they remain at risk in respect of the burden. That burden and in a case such as this includes the risk of burden or exposure to adverse orders as to costs. Those costs may ultimately turn out to be quite substantial.

43    The obtaining and provision of this Advice addresses the reservations initially expressed as to whether Ms Winter had truly made an informed decision when consenting to act as a litigation representative. An apparently brief conversation in November 2018 between Ms Winter and Ms Slade at a nursing home when Ms Winter visited Ms Dobrinski provides no reason to question the independence of Ms Winter. Nor does a more detailed exchange between Ms Winter and Ms Garlick on the same day occasion any reason to question the independence of judgment Ms Winter will bring to her responsibilities as a litigation representative.

44    Although there remains a residual concern as to whether it would be more prudent to attempt to secure the Public Trustee as the litigation representative, in circumstances where Ms Winter has consented to act and has been advised as to the prospects of success and her own exposure to costs, it is ultimately concluded that an order for her appointment should be made.

45    The Consent to an appointment as a litigation representative as tendered during the hearing on 29 November 2018, however, predates the advice of Senior Counsel and has not been filed. Should Ms Winter still be willing to consent to the appointment, a new form of Consent should be executed by her and filed.  

CONCLUSIONS

46    Although reservation is expressed as to whether the pursuit of the present proceeding is in the best interests of Ms Dobrinski, Senior Counsel has advised that it “does have reasonable prospects of success”.

47    It is concluded that the application to appoint Ms Winter as the litigation representative of Ms Dobrinski in the present proceeding should be granted, provided a new form of Consent is signed and filed. Whatever prospects of success the case may have may thereby be pursued by Ms Winter as Ms Dobrinski’s representative.

48    Compliance with r 9.61 of the Federal Court Rules should be dispensed with. The non-appointment of a litigation representative is as – as candidly accepted by the Applicant’s solicitor – his “fault”.

49    The proceeding should be stood over to 26 June 2019 at 9.30am with a view to giving directions to ready the case for hearing or to address any such interlocutory applications as may be filed by the Respondent.

50    Although submissions will be entertained as to the appropriate order to be made as to costs, it is presently considered that the Respondent has been put to at least some unnecessary expense in respect to the hearing of the Further Amended Interlocutory Application.

THE ORDER OF THE COURT IS:

The parties are to bring in Short Minutes of Orders to give effect to these reasons within fourteen days.

Associate:    

Dated:    6 June 2019