Mental capacity – litigation
This case represents the third in a series of judgments arising out of the attempts by a Claimant to have put aside a compromise agreement into which she had entered on the basis that she lacked litigation capacity at the time that it was entered into.
Joanne Dunhill was struck by a motor cycle ridden by the Defendant as she crossed a dual carriageway on foot. She sustained a fractured skull. Proceedings were issued in her name in 2002. Both parties were represented by Counsel and the Claimant was accompanied by a Mental Health Advocate. The matter was settled in the sum of £12,500 outside Court on 7 January 2003. Subsequently doubts emerged as to whether the Claimant had capacity to enter in to the compromise agreement and, by her litigation friend, she issued proceedings in negligence against her legal representatives. Further, the Claimant (again by her litigation friend) 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 on 7th January 2003 and, on that basis, applying for the 2003 order to be set aside and directions given for the future conduct of the claim.
The issue of the Claimant’s litigation capacity was resolved (for the time being) by the Court of Appeal on 3.4.12 (Ward and Lewison LJJ and Sir Mark Potter)  EWCA 397;  PIQR P15 when the court granted "a declaration that the claimant did not have capacity at the time of the purported settlement on 7 January 2003." The claim was referred back to the High Court for ‘case management.’ The preliminary issue that came before Bean J was formulated as follows:
"The Court having declared that the Claimant lacked capacity to enter into the compromise agreement of 7th January 2003 and the Defendant declining to ask this Court to approve the compromise retrospectively, does CPR Part 21.10 have any application where the Claimant brought a claim in contravention of CPR Part 21.2 so that in the eyes of the Defendant and the Court she appeared to be asserting that she was not under a disability?"
In material part, CPR Part [in fact, Rule] 21.10 provides that
"Where a claim is made –
(a) by or on behalf of a …. protected party; or
(b) against a ……protected party,
no settlement, compromise or 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…. protected party, without the approval of the court."
In his judgment, Bean J first considered whether there was any binding precedent on the issue before him. In particular, he considered the Court of Appeal decisions in Masterman-Lister v Brutton and Co  1 WLR 1511 and Bailey v Warren  PIQR P15, both of which referred to the principle established in Imperial Loan Co v Stone  1 QB 599, namely that when a person enters into a contract, and afterwards alleges and proves that he was so insane at the time that he did not know what he was doing, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about.
In Masterman-Lister, the Court of Appeal upheld a decision that the Claimant had not lacked capacity at the time when he compromised a personal injury claim and therefore, the effect of any lack of capacity on the validity of the settlement did not need to be decided. Nevertheless, Chadwick LJ held obiter that it was not self-evident that the protection offered to Claimants lacking capacity (then under rules rr 10 and 12 OSC Ord 80) have any application where the Claimant brings a claim in contravention of the procedural rules (r.2) which provided that 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.
In Warren v Bailey, the Claimant was found to have lacked capacity when entering an agreement compromising liability at 50/50. Arden LJ and Ward LJ reached the opposite conclusion to that expressed by Chadwick LJ. Arden LJ reasoned (again obiter) that the starting point was that a compromise of proceedings is 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.
Bean J held that none of these cases had decided the issue before him in the present proceedings. Nevertheless, he considered it highly significant that obiter dicta of the Court of Appeal in one case were fully considered, and disapproved, by the obiter dicta of a majority in a later case.
Bean J went on to conclude that, on the basis of statutory interpretation alone, CPR Part 21 applies to invalidate a consent judgment involving a protected party reached without the appointment of a litigation friend and 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. In reaching this conclusion he held (paragraph 28) that:
"It is significant 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.’ In other words, a party who in fact lacks capacity to conduct the proceedings is protected (or, in 2003 terminology, was a patient) even though he or she has not been officially declared to be such and is not acting by a litigation friend. It should also be noted that the rule applies whether or not the party in question is legally represented."
The Judge went on to hold that policy considerations would support the same conclusion. Whilst there is a public interest in certainty and finality in litigation, he noted that there is also a public interest in the protection of vulnerable people who lack the mental capacity to conduct litigation, holding (at paragraph 30) that:
"If Chadwick LJ's Imperial Loan point is right it must apply equally to unrepresented parties, of whom there are likely to be more in the future. It is not difficult to imagine the case of a claimant who is capable of signing and posting an acceptance form sent by a loss adjuster, but who (unknown to the defendant or the loss adjuster) is incapable of managing his affairs. It would be disturbing if the ‘compromise’ reached by such a person could not be reopened."
We have noted both the previous decisions in this case in previous issues of our newsletters. Bean J has followed the robust approach adopted by Ward LJ in the Court of Appeal and this judgment further emphasises the need to provide direct redress to the Claimant although she could (and indeed has) issued proceedings against her legal representatives in negligence. This decision is therefore highly relevant to both Court of Protection and also Personal Injury Practitioners and underscores the need to consider the issue of capacity when entering in to any consent order, particularly if the proposed settlement appears to be under value.
The decision is not, however, the final word, as the Supreme Court will be hearing in due course the Defendant’s appeal against both the decision of the Court of Appeal as to Ms Burgin’s capacity to enter into the compromise agreement and (thanks to the grant of permission by Bean J for a ‘leapfrog’ appeal) the appeal against Bean J’s conclusions as to the effect of CPR 21.10.