Setting aside Compromise Agreements where the Claimant is a protected party
Dunhill v Burgin (2014) UKSC18
Background
The Claimant suffered a severe closed-head injury and soft tissue injuries to her leg when she stepped out from between parked cars on a dual carriageway and was struck by a motorcycle driven by the Defendant.
The Claimant obtained a report from an expert in Accident & Emergency medicine. There was no psychiatric evidence, despite reference in the documentation to various psychiatric issues.
The case was listed for trial on the issue of liability. When one of the Claimant's witnesses did not arrive at Court, the claim was compromised for GBP 12,500, plus costs. This settlement was recorded in a Consent Order and sealed by the Court.
The settlement was a gross undervaluation of the Claimant's claim which the Defendant and Claimant later estimated as being worth (on a full liability basis) around GBP 800,000 or over GBP 2 million respectively. There was no suggestion that at the time of original settlement the Defendant either knew or ought to have known of the Claimant's lack of capacity however.
Nearly six years after the Consent Order was made, the Claimant commenced professional negligence proceedings against her former solicitors.
That action was stayed pending the hearing of an application made in the original proceedings seeking a declaration that the Claimant did not have capacity at the time of settlement, so that the Consent Order should be set aside.
The Supreme Court was required to answer two questions, namely:
- What is the test for deciding whether a person lacks the mental capacity to conduct legal proceedings on his/her own behalf (so that a litigation friend is required)?
- What happens if legal proceedings are compromised without it being recognised that one of the parties lacks capacity?
Findings
On the first question the parties agreed that the issue of capacity was to be decided by asking if the Claimant had capacity to make decisions likely to be required of her in the course of "the proceedings" – Mastermann Lister v Brutton & Co [2003] 1 WLR 1511 applied.
However, the Claimant and Defendant disagreed as to whether or not "the proceedings" were those which the Claimant had actually brought, or whether the test should be the proceedings that should have been brought had her lawyers given her correct advice. If it was the latter, the parties agreed that the Claimant did not have capacity to conduct the larger and much more complicated claim which should have been brought on her behalf.
The Supreme Court decided that the answer must be whether the Claimant had capacity to make decisions in the larger claim that should have been brought on her behalf.
The Court then considered whether it could regularise the settlement actually agreed, or whether it needed to be reopened notwithstanding the length of time that had passed.
The Court recognised that, provided everyone had acted in good faith and there was no manifest disadvantage to the Claimant, it would be usual for the Court to endorse the settlement actually agreed. However, each case turned on its facts and the Court did not consider it would be just to do that in this case.
The Court further considered that the normal rule of English law, namely that a contract made by a person who lacks capacity is valid (but voidable) except where the other party ought to have known about the lack of capacity does not apply to the compromise of civil claims.
The rules require that the Claimant should have had a litigation friend from the outset, and that any settlement should have been approved by the Court. Accordingly the Consent Order was set aside and the case was remitted for trial.
Key points for defendants
- When deciding whether a person has or lacks mental capacity to conduct legal proceedings, the capacity test has to be applied to the proceedings as they should have been brought, not as they were actually brought
- The Courts will set aside settlements entered by a person under a disability who has not had the benefit of a litigant in person and where the settlement has not been approved by the Court, unless there is no manifest disadvantage to the person under a disability in the position being regularised
- A Defendant, who acted in good faith throughout and had no reason to suppose a Claimant was under a disability, could find proceedings being reopened many years after they believe the matter had been resolved
- Defendants should ensure that the Claimant instructs the correct expert and ensure that the expert is instructed on the proper test of capacity (and if possible raise pertinent Part 35 questions)
- Defendants should ask the Court to invoke its inherent jurisdiction to approve settlement, even though it may be accepted that the Claimant is not a protected party at the particular juncture (in accordance with Coles v Perfect 2013)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
