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  • Courts can be called upon to approve settlements which involve parties who do not have legal capacity as defined under the Civil Procedure Act 2005 (NSW).
  • Although courts have a protective role in such settlement approval applications, particular care must nonetheless be taken by those acting for vulnerable parties.
  • Whilst there are well established procedures for obtaining court approval for parties with a legal incapacity, the identification of such a party may not always be clear or obvious, and it may not always be possible to obtain the protection of court approval for a settlement entered into by that party.

In approving settlements involving parties with a legal incapacity the court must be persuaded that the settlement is in the best interests of the vulnerable party: Civil Procedure Act 2005 (NSW) ss 75-76; Yu Ge v River Island Clothing Pty Ltd [2002] NSWSC 28. The definition of ‘persons under a legal incapacity’ includes children, involuntary patients as provided by the Mental Health Act 2007, persons under guardianship, and: ‘an incommunicate person, being a person who has such a physical or mental disability that he or she is unable to receive communications, or express his or her will, with respect to his or her property or affairs’. While the opinion of legal advisers will be taken into account, it is for the court, not the parties, to determine whether the settlement will be beneficial to the vulnerable party (Permanent Trustee v Mills [2007] NSWSC 336).

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