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Dunhill v Burgin, High Court, 9 November 2012

22 November 2012
The issues

Person under a disability – compromise – whether agreement valid where parties did not know of lack of capacity at time of settlement

The facts

The claimant had a road traffic accident on 25 June 1999 and suffered a fractured skull. Proceedings were commenced. A liability trial was listed in January 2003. At the doors of the court a negotiated settlement was reached in the sum of £12,500. The agreement was mentioned to the judge and a draft consent order handed in. The judge was not asked to approve the settlement but simply to order by consent that judgment be entered for the agreed sum on costs. Afterwards doubts emerged about the claimants’ capacity. In December the claimant, acting by a litigation friend, issued proceedings in negligence against her counsel and solicitors. The claim had been stayed. Subsequently the claimant, also acting by a litigation friend, issued an application in the original proceedings seeking a declaration that she did not have capacity at the time of the settlement of her claim and asking for the order of the judge to be set aside and directions given. Subsequently directions were given in that action for preliminary issues to be heard, namely:

  • did the compromise and consent judgment require court approval?
  • if it did require approval, should it be approved now?

Whilst there was a public interest in certainty and finality of litigation, there was also a public interest in the protection of vulnerable people who lacked the mental capacity to conduct litigation

The first preliminary issue

The High Court judge found that the claimant did have capacity to enter into the compromise agreement therefore dismissing the claim for a declaration. That matter went to the Court of Appeal which reversed the judges’ decision and, at the time of the hearing, the matter was before the Supreme Court for permission. Meanwhile, the High Court gave directions for the trial of the remaining preliminary issue raised on the basis that the claimant did lack capacity to enter into the agreement, and redefined it so as to ask whether CPR Part 21.10 had 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 assert she was not under a disability.

The decision

It was argued for the defendant that CPR Part 21 should be interpreted so as to not conflict with the decision in Imperial Loan Company v Stone (1892), whereby the common law principle was established that where a person of unsound mind contracted with another person, the contract was valid unless the person contracting knew of the mental incapacity of the contractor. For the claimant it was argued that, whilst that case was still good law, it had to be distinguished because it was a contractual matter involving a promissory note and had nothing to do with litigation. Rules about the compromise of litigation on the other hand were part of the rules governing the conduct of litigation and therefore matters of practice and procedure.

Gibbon v Manchester City Council had decided that Part 36, dealing with offers of settlement, was a self-contained code to be read and understood according to its terms and without bringing into play rules derived from the general law of offer and acceptance, save where that was clearly intended.

Where a claim was issued in the civil courts the Civil Procedure Rules were, so far as relevant, impliedly incorporated into any agreement the parties reached to settle the dispute, especially if, as in this case, the settlement was embodied in a judgment of the court. The rules therefore took precedence over the general law of contract. It was clear following Bailey v Warren, a decision of the Court of Appeal in 2005, that CPR Part 21 applied 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. This result was strongly supported by policy considerations. Whilst there was a public interest in certainty and finality of litigation, there was also a public interest in the protection of vulnerable people who lacked the mental capacity to conduct litigation.

Note:
Subsequently the Supreme Court granted leave to appeal on the issue of capacity.
Accordingly, the judge granted a certificate under s12 of the Administration of Justice Act 1969 allowing an application to the Supreme Court to be made for permission to bring a ‘leap frog’ appeal to that Court from this decision.

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