The recent case of Dunhill v Virgin [2004] UKSC18 extends protection to people who have made an agreement, which turns out to be a bad one, when they lacked the capacity to understand that agreement.

Generally in order to set aside any agreement, one needs to show not only that the person lacked capacity to enter into that agreement, but also that the other party to the agreement was, or should have been aware, that the person lacked capacity. This case means that in some situations it is no longer necessary to prove that the other person was aware of the disability. 

This applies only to the settlement of claims that are in court or should be in court. The reasoning being that the Court Rules require those persons who lack capacity to have any agreement specifically approved by the Court. If the agreement did not get formal Court approval and it can be shown that they lacked capacity at the time, then the agreement can be revoked. As such it is no longer necessary to prove that it was known by all that the person lacked capacity. 

Showing that someone lacked capacity is itself a complex process.  The Mental Capacity Act 2005 confirmed the previous common law position that capacity should be judged in relation to the particular decision or activity in question.  There has been a line of cases, including Masterman-Lister v Burtton & Co, which show that the Court will be fairly easy to persuade that someone lacks capacity to conduct litigation.  This is because litigation can be a particularly complex activity.

The case does mean that many old settlements can now be re-examined.  Furthermore, because the person lacked capacity, the usual time limits will not apply.