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Bailey v Warren, Court of Appeal, 7 February 2006

15 February 2006
The issues

Masterman-Lister Test – Mental Capacity – Compromise Of An Action – Whether Claimant Had Sufficient Comprehension To Take An Informed Decision As To A Liability Split

The facts

The Claimant had a road traffic accident on 3rd May 1998. He suffered severe head injuries from which he made a good physical recovery. His injuries however resulted in permanent damage to his cognitive functioning. In 2000 the parties agreed to a liability split on a 50/50 basis. In 2001 Judgment was entered for the Claimant for 50% of the value of his claim.

In 2003 Professor Neary a Neurologist expressed the view that the Claimant lacked mental capacity. The Court ordered that an Application be made for a Litigation Friend to be appointed. New solicitors took over the case and expressed concerns about the Claimant’s capacity and also about the extent of the investigation into the accident carried out by their predecessors and the level of settlement. That came before the High Court on a referral by the District Judge to consider two preliminary issues:-

1. Whether the Claimant had at any time from the accident been a patient within the meaning of the CPR and if so, when and for what periods.
2. As a matter of law, what effect did the agreement as to liability between the Claimant and the Defendant have in these proceedings.

The High Court Judge found the Claimant to have been a patient in December 2001 but not in November 2000 and directed that the 50/50 apportionment should stand. In so concluding the Judge considered that a distinction could be drawn between the Claimant’s understanding as to the issues of liability and as to the issues of quantum finding that although he might not have understanding in respect of the second, he had sufficient understanding in respect of the first. The Claimant appealed.

The decision

1. The law was contained in Masterman-Lister v Jewell (the Masterman-Lister Test). That test was one of mental capacity and had to be applied in relation to the particular transaction – its nature and complexity – in respect of which the question of whether a party had capacity fell to be decided. It was issue specific in that the Court had to focus upon the particular individual and the particular transaction. The relevant issue was the issue of whether the Claimant had the capacity to conduct proceedings. The client had to be able to understand all aspects of those proceedings and it could not be judged piecemeal. If he had the ability to understand what was meant by a 50/50 split of liability but lacked the capacity to understand the concept of damages which resulted from that division of liability, then he lacked the true capacity to conduct the proceedings. In the circumstances the Judge had approached this aspect of the case too narrowly and not in accordance with the Masterman-Lister test.
2. The case would ordinarily be sent back to the Judge for re-hearing. However the Judge had heard all the relevant evidence and was satisfied that the time of agreement on liability the Claimant did not lack the mental capacity to agree the settlement. If the case was sent back to the Judge either he would find against the Claimant or exercise his discretion in favour of the agreement on liability. The Court had an unfettered discretion to approve the compromise. It would be used to ensure the protection of the patient. In this case the compromise avoided the necessity for a Trial. Moreover the parties had acted in good faith. Any disadvantage caused by the Claimant was made up for by the fact that he might have an arguable case against his former advisors if he was dissatisfied with the settlement. Therefore the discretion would fall to be exercised in favour of the original compromise.
Note – The Judgment of Lady Justice Hallett takes a contrary view to Lord Justice Ward and Lady Justice Arden finding that “issue specific” extended to issues within the conduct of litigation.

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