Dunhill v Burgin19 concerns the application of Civil Procedure Rule 21.10 to a personal injury claim which has been settled at a time when the claimant was not known to lack capacity.

In 1999, the claimant (an adult) was struck by a motor cycle ridden by the defendant and sustained a fractured skull. Proceedings were issued in her name in 2002 and were listed for a liability trial on 7 January 2003. Both parties were represented by counsel and the claimant was accompanied by a Mental Health Advocate. At the door of the court, the matter was settled in the sum of £12,500 and the judge was asked to order by consent that judgment be entered in the agreed sum. The judge was not asked to approve the settlement. Subsequently doubts emerged as to whether the claimant had capacity to enter into the compromise agreement in 2003 and it was alleged that at the material time she had been a “patient” within the meaning of the Mental Health Act 1983. In February 2009, by her litigation friend, the claimant issued an application in the original 2002 proceedings seeking a declaration that she did not have capacity at the time of the purported settlement of her claim and, on that basis, applying for the 2003 order to be set aside and directions given for the future conduct of the claim.

The question as to whether the claimant had lacked capacity in 2003 was resolved by the Court of Appeal on 3rd April 2012 in the claimant’s favour.20 The effect of this decision was that she was considered to have been a protected party within the meaning of CPR Part 21 at the time the settlement was reached. CPR 21.10 provides that “no settlement compromise or payment (including any voluntary interim payment) and no acceptance of money paid into court shall be valid, so far as it relates to the claim by, on behalf of or against the child or protected party, without the approval of the court.”  The defendant raised the question as to whether this provision would bite in circumstances in which the defendant had been unaware that the claimant lacked capacity at the material time. The defendant further submitted that if CPR 21.10 did not apply, there would have been no requirement for the settlement to be approved and it could not be reopened. This argument reposed primarily on the decision in The Imperial Loan Company Ltd v Stone21 which established that where a defendant in an action on a contract sets up the defence that he was insane when the contract was made he must, in order to succeed in this defence, show that at the time of the contract his insanity was known to the plaintiff.

This was the preliminary issue which came before Mr Justice Bean for determination. The Judge considered two previous decisions of the Court of Appeal. In Masterman-Lister v Brutton and Co,22 Chadwick LJ held obiter that it is not self-evident that the protection offered to claimants lacking capacity (then under rules 10 and 12 of RSC 80) has any application where the claimant brings a claim in contravention of the procedural rules (r.2) which provided that a person under disability might not bring proceedings except by his next friend and might not defend proceedings except by his guardian ad litem. Chadwick LJ referred to the Imperial Loan case and expressed the opinion that where the claimant had not asserted any disability at the time of entering in to a compromise agreement, it may well be that its validity is not open to review.

In Warren v Bailey,23 the majority of the Court of Appeal (Arden LJ and Ward LJ) reached a different conclusion. Arden LJ reasoned (again obiter) that the starting point under CPR Part 21 was that a contract was not valid unless approved by the court and there was nothing in the CPR which suggested that this should be disapplied by virtue of the fact that the defendant was not aware of the claimant’s lack of capacity at the material time. Ward LJ emphasised that the principle established in Imperial Loan had to be read in the context of CPR 21.10 and the protections included therein.

Bean J accepted the defendant’s submission that there was no binding authority on point but noted that it is highly persuasive when obiter dicta of the Court of Appeal in one case are fully considered and disapproved by the obiter dicta of a majority in a later case. The judge rejected the defendant’s argument that the CPR had no power to disapply the common law as established in Imperial Loan, preferring the claimant’s submission that when a claim is issued in the civil courts, any agreement to settle the dispute should be regarded as incorporating the CPR and that these rules so incorporated will trump general principles of contract law. He concluded that the principles of statutory interpretation supported the conclusion contended for by the claimant and attached particular significance to the fact that CPR 21.10 applies to claims made “by” as well as “on behalf of” a protected party; and that “protected party” is defined by CPR 21.1(2) as “a party, or an intended party, who lacks capacity to conduct the proceedings”. Thus, a party who in fact lacks capacity to conduct the proceedings is protected even though he or she has not been officially declared to be such and is not acting by a litigation friend. The judge also noted that the rule applies whether or not the party in question is legally represented and that policy considerations would support the same conclusion. While there is a public interest in certainty and finality in litigation, there is also a public interest in the protection of vulnerable people who lack the mental capacity to conduct litigation.

Accordingly, Bean J concluded that CPR 21.10 applies to invalidate a consent judgment involving a protected party reached without the appointment of a litigation friend or the approval of the court, even where the individual's lack of capacity was unknown to anyone acting for either party at the time of the compromise. This decision has potentially far reaching consequences for defendants to personal injury proceedings. It is a reminder that where there is any question as to a claimant’s capacity, that issue should be resolved prior to any compromise being entered in to such that if appropriate, the approval of the Court may be sought.