In this case the Supreme Court considered two difficult, but important, questions. The first being what is the test for deciding whether a person lacks the mental capacity to conduct legal proceedings on their own behalf. The second is what happens if legal proceedings are settled, or compromised, without it being recognised that one of the parties lacked capacity.
In 1999, Ms Dunhill was hit by a motorcycle driven by Mr Burgin whilst crossing the road. She suffered a severe head injury and in May 2002 she issued a claim for damages. The case was listed for trial in January 2003 and on the day of the trial, the claim was compromised for the total sum of £12,500 plus costs. The settlement represented a gross undervalue of the claim, which Ms Dunhill’s legal advisors valued at over £2 million, and Mr Burgin’s at £800,000.
In 2006, Ms Dunhill instructed new solicitors and an application was issued by a litigation friend to a) seek a declaration that Ms Dunhill lacked capacity at the time that the claim was compromised; and b) that the Consent Order should be set aside on this basis.
In considering the application, the High Court held that capacity was to be judged by reference to the decisions which Ms Dunhill had actually been required to take in the action, rather than those which she might have been required to take had the action been framed differently. On this basis, the High Court concluded that she did have capacity. The Court of Appeal disagreed. They held that the correct test is whether the individual has capacity to conduct the proceedings as they should have been framed and on this basis, Ms Dunhill lacked capacity. The case was remitted back to the High Court who found that Ms Dunhill’s lack of capacity rendered the settlement void, on the basis that it had not been approved by the Court as required by CPR 21.10.
Subsequently, the Supreme Court granted permission to Mr Burgin to appeal against both findings and in reaching a conclusion, the Supreme Court carefully considered the following questions:
Question 1: What is the test for deciding whether a person lacks capacity?
The Supreme Court concluded that the correct test was to consider whether the individual “lacks capacity in relation to the proceedings”. They acknowledged that the CPR clearly defines “lacks capacity” as meaning lacks capacity under the Mental Capacity Act 2005, however they noted that such clarity is not afforded to what was meant by “proceedings”. They questioned whether the meaning of proceedings under the CPR was limited to the proceedings that had been brought, on the advice of legal representatives, or whether it extended to the ability to understand a large range of questions which might arise, from commencement to resolution, in the claim or cause of action that they actually have. The Court held that the latter must apply and that the test of capacity to conduct proceedings is the capacity to conduct the claim, or cause of action, which the Claimant in fact has, as opposed to the claim as formulated by the lawyers.
Question 2: What happens if legal proceedings are settled or compromised without it being recognised that one of the parties lacked capacity?
In finding that Ms Dunhill lacked capacity to conduct the general proceedings, the Court held that it followed that she should have had a litigation friend when the proceedings were begun. The Court noted the provisions under the CPR which state that any step taken before a protected individual has a litigation friend shall be of no effect unless the Court orders otherwise, and considered whether this automatically meant that the settlement, and Court Order, was void. The Court concluded that this was the correct position, and that the settlement needed to be approved by the Court at the time. As it was not, it had no effect and must be set aside. The Court made clear that the CPR rules also apply to the settlement of claims with a protected party before a claim has been issued. Accordingly, should a settlement or compromise be reached with an individual who lacks capacity, whether they are represented by a solicitor or not and where proceedings have not yet been issued, an application should be made to the Court (by way of a simplified process) to seek the Court’s approval of the order.
The sentiment, and conclusion, of this case mirrors the policy underlying Part 21 of the CPR that protected parties require and deserve protection, not only from themselves, but also from their legal advisors. The decision made by the Supreme Court is succinct, clear and must not be underestimated. This was a personal injury case however the consequences and repercussions will reach all litigious matters. The Supreme Court confirmed that the CPR had the power to modify the normal rule of English law, i.e. that a contract made by a person who lacked capacity to make it was not void, but could be avoided by that person, provided that the other party knew of their incapacity and verified that with or without knowledge. It sets out that if a person lacks capacity, the Court’s approval is required to progress, settle or compromise any cause of action. Accordingly, this case should act as a reminder to practitioners to be vigilant and alert to the question of capacity, and take the appropriate steps in the first instance to prevent the case reopening years down the line.
For further information, please contact Georgina Squire or the Partner with whom you usually deal.