It is widely known that a settlement entered into with a protected party is not binding until approved by the courts. CPR 21 sets out the procedural framework.
The need for approval can cause unexpected problems. For example in Dunhill v Bergin  UKSC 18 a claim long thought to have been settled was re-opened as the claimant lacked capacity at the time of settlement which was, as a consequence, not binding. A different context was seen earlier this year where settlements agreed, but not approved, prior to announcement of the discount rate change were resiled from by claimants who sought the benefits of the reduced rate. In Joseph Revill v Damiani matters were the other way round. The defendant wished to resile from an unapproved settlement. The claimant wanted the settlement to be binding and mounted an argument that the requirement for a protected party to have court approval of a settlement before it was binding breached the claimant’s human rights. The claimant did not succeed.
With the prospect of a future rate change, and changes more often (no more than three years), clarity over the position of unapproved settlements may be important to both sides in a case, but how they will view it will depend on whether an increased or reduced rate is expected.
The settlement and withdrawal
The claimant sustained a severe brain injury in a motor accident on 6 April 2015. He was aged 27 at the time. He lacked capacity. Liability was not in dispute.
Settlement was agreed at a meeting on 24 February and recorded in a memorandum dated that day. A lump settlement was agreed using a 2.5% discount rate. By that date it was known that the Lord Chancellor would make an announcement varying the rate but not what the rate would be. Consequently the memorandum provided for the future losses to be recalculated should the rate be reduced. It was also agreed that the claimant would issue an application for approval by 31 March 2017.
Three days later when the minus 0.75% rate was announced, counsel for the claimant re-calculated the damages in accordance with the new rate and as provided for by the memorandum.
A few week’s later – at which time the settlement remained unapproved – the defendant wrote to the claimant saying that the defendant was withdrawing from the settlement, which they were legally entitlement to do. Given the provision in the memorandum providing for recalculation after a rate reduction one can only assume it was the size of the reduction which prompted a different approach.
The claimant sought a declaration that the defendant was bound by the settlement agreement or, if not, that CPR 21.10 was incompatible with the provisions of the Human Rights Act 1988 (HRA).
It was not disputed that previous House of Lords decisions meant that a compromise agreement with a protected party was not binding unless and until approved by the court. Either party could withdraw, as the defendant had in this case. The judgment makes reference to previous cases which established that point (Dietz v Lennig Chemicals Limited  1 AC 170 and Drinkall v Whitwood  EWCA Civ 1547). As this was common ground, unless the HRA led to a different result, the defendant was entitled to resile from the settlement.
The claimant’s case was that CPR 21.10 (set out in appendix 1) was incompatible with his rights protected by article 14 of the European Convention on Human Rights (ECHR) when read with either article 6 or article 1 of the first protocol of the ECHR. The provisions amounted to unjustifiable discrimination against him as a protected party when compared to a party who is not protected.
In considering this argument it would be necessary to consider if CPR 21.10 was necessary for the protection of protected parties and the requirements imposed by it were justifiable and proportionate.
CPR 21.10 and its purpose
In referring to the rules (see appendix 1) the judge referred to the commentary in the White Book:
1. to protect the interests of the protected party, including from any lack of skill on the part of their legal advisers; 2. to provide a means by which the defendant may obtain a valid discharge in respect of the claim; 3. to ensure that money recovered is properly looked after; and 4. to ensure that the interests of dependents entitled to a share of the recovery are properly defined and protected.
Reference was also made to the over-arching objectives under the rules: the “overriding objective of enabling the court to deal with cases justly and at proportionate cost”, and the requirement that the court “must further the overriding objective by actively managing cases.”
The HRA provisions relied upon
The HRA gives domestic effect to the ECHR and s3 (1) requires that any primary or secondary legislation must be read so as to deliver an outcome which is compatible with the Convention rights. If that is not possible a declaration of incompatibility may be made.
The claimant relied on the following articles of the ECHR:
“In the determination of his civil right and obligations… everyone is entitled to a fair and public hearing.”
“The enjoyment of the rights and freedoms set forth in this convention shall be secured without discrimination on any ground… or other status.”
Article 1 of the First protocol
“Every natural person… is entitled to the peaceful enjoyment of his possessions.No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.”
The judgment reviews previous case law on these articles and summarising the content:
- Article 6: the right of access to the court is subject to limitations, and signatories to the convention enjoyed discretion in regulating access provided it did not impair the very essence of the right of access. In cases involving those with disabilities there was discretion to make relevant procedural arrangements to secure the good administration of justice, protect the mental health and interests of the person concerned, and to make accommodations to allow equal access to justice.
- Article 14: difference in treatment is discriminatory if it “has no objective and reasonable justification”, that is, if it does not pursue a “legitimate aim” or if there is not a “reasonable relationship of proportionality, and a connection between the means employed and the aim sought to be realised, and are no more than necessary to achieve that.”
- Article 1 of the first protocol: The court disagreed that this proviso was relevant. That was because the question of whether there had been a binding compromise did not affect the claimant’s enjoyment of his rights – he did not stand to lose anything. Either the settlement was binding or another settlement would be negotiated (or the court would award damages). There was no loss of rights.
It was common ground that a claimant without capacity came within article 14 (they came within the “or other status”; that the damages claim fell within article 6, and that there was a difference in treatment because as a protected party he had do something which other litigants who were not protected parties, did not, which was to seek approval of a settlement.
So the issue came down to whether the difference in treatment caused by CPR 21.10 had an objective and reasonable justification, which meant that it pursued a legitimate aim and was a proportionate response.
The claimant referred to the practice in Family proceedings whereby a settlement “subject to approval of the court” was a binding settlement. There was no reason why the procedure rules could not have been written in a similar way, achieving an outcome less restrictive of the claimant’s rights and more proportionate.
Nevertheless the judge took the view that the approach taken by CPR 21.10 to compromises and court approval was a proportionate means of achieving the legitimate aim of ensuring the protection of protected parties from other parties, from themselves, and from legal representatives. That the rules could have been written differently (to mirror family court practice) did not mean they were disproportionate. It was within the discretion afforded to the rule-making body to adopt a different approach; continuing the long held practice under CPR 21.10 meant parties knew where they stood, and allowing either party to withdraw before approval where they wanted to do so, was fair to both parties (worth bearing in mind the claimants who, after the rate change, withdrew from unapproved settlements seemingly unconcerned about their human rights).
Accordingly the judge would not grant a declaration that the defendant was bound by the compromise nor that CPR 2.10 was incompatible with the HRA.
What this decision means for you
The decision is a sensible and appropriate view of the objectives behind the scheme for approval of protected parties’ settlements and a balancing of these against any impact on a protected party by subjecting them to the additional step of seeking approval. In fact, were it not for the obvious benefit the claimant sought to obtain here it is surprising the scheme was challenged. The judgment records that shortly after the decision was indicated (and prior to delivery of the draft judgment) the parties reached an alternative settlement agreement, subject to approval, so the approach adopted by the defendant achieved the objective.
Had the claimant succeeded, either the rules would have had to be read in a way compatible with the HRA and presumably (as the claimant argued) to make settlements reached by negotiation binding before approval had taken place, or a declaration of non-compatibility made which would have required a rule change.
This does seem curious given that most instances in which the non-binding nature of pre-approved settlements has been considered, it has been to the claimant’s benefit for the settlement to be found to be non-binding. We mentioned Dunhill v Bergin in which a claimant who had received compensation too low for the serious deterioration later in life was able to open up the claim where evidence showed she lacked capacity at the time of the earlier settlement, although that was not appreciated and no approval was obtained. Also those claimants who sought to re-negotiate settlements after the rate change on the basis that any settlement was non-binding exercised a right to do so which the claimant in this case was intent on arguing away.
From a defendant’s point of view it is always important to regard a settlement as “unfinished business” until approval is obtained. Within the anticipated new process for setting the discount rate there may be some caution needed over timing of settlements and approval with one eye on the rate review process and possibly underlying indicators which might dictate how any rate change, if any, might go. Defendants will want settlements at the existing rate approved quickly if a rate reduction could arise and claimants will want swift approval if an increase is possible. However either party can resile if a rate change occurs prior to approval.
Appendix 1 - Compromise etc. by or on behalf of a child or protected party
(1) Where a claim is made –
(a) by or on behalf of a child or protected party; or
(b) against a child or protected party,
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.
(2) Where –
(a) before proceedings in which a claim is made by or on behalf of, or against, a child or protected party (whether alone or with any other person) are begun, an agreement is reached for the settlement of the claim; and
(b) the sole purpose of proceedings is to obtain the approval of the court to a settlement or compromise of the claim,
the claim must –
(i) be made using the procedure set out in Part 8 (alternative procedure for claims); and
(ii) include a request to the court for approval of the settlement or compromise.
(3) In proceedings to which Section II or Section III of Part 45 applies, the court will not make an order for detailed assessment of the costs payable to the child or protected party but will assess the costs in the manner set out in that Section.