Does the other side have capacity to conduct proceedings?

 In Comment

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Mental capacity testDunhill v Burgin [2014] UKSC 18

What is the test to determine whether a party lacks mental capacity to conduct proceedings on his own behalf and thus whether he is required to have a litigation friend by CPR Part 21? And what is the status of an agreement apparently compromising proceedings which a party purportedly entered into at a time when, unbeknownst to the opposing party, he lacked mental capacity to conduct proceedings? These difficult and important questions were considered and answered by the Supreme Court in March this year.

The background facts

On 25th June 1999 the defendant, Mr Burgin, whilst driving his motorbike collided with the claimant, Mrs Dunhill, a pedestrian who was crossing the road. Mrs Dunhill suffered a severe closed head injury. On 13th May 2002, shortly before the expiry of the relevant limitation period, she issued a claim for damages for personal injury against Mr Burgin by which she sought general damages for pain, suffering and loss of amenity and special damages. She complained that she was still suffering from a complete loss of the senses of smell and taste, some hearing loss, forgetfulness, headaches, personality change, low moods and tearfulness, anxiety, mood swings, occasional suicidal ideation and self-mutilation. Her total claim was limited to £50,000 and was supported by two reports from a consultant surgeon. Mr Burgin denied liability and in the alternative alleged contributory negligence.

Mrs Dunhill’s claim came on for trial in the county court on 7th January 2003. Mrs Dunhill attended court accompanied by a mental health advocate and was represented by a trainee solicitor and by counsel. One of her witnesses did not attend court and settlement negotiations took place at court which resulted in Mrs Dunhill accepting in settlement of her claim a lump sum of £12,500 payable within 21 days plus costs (to be assessed if not agreed). A consent order to that effect was signed by both counsel and placed before the trial judge (albeit as a courtesy rather than to seek the court’s approval of its terms).

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It subsequently transpired that Mrs Dunhill’s claim had been grossly undervalued: the advisers representing the parties before the Supreme Court indicated that her claim was likely to be worth between £800,000 and £2m on a full liability basis.

In July 2006 Mrs Dunhill instructed new solicitors. In December 2008 professional negligence proceedings were issued by a litigation friend acting on Mrs Dunhill’s behalf against her former legal advisers. Those proceedings were then stayed and on 11th February 2009 Mrs Dunhill’s litigation friend made an application in the earlier personal injury proceedings – which had been purportedly compromised 6 years previously – seeking a declaration that Mrs Dunhill had lacked mental capacity at the time of the purported consent order on 7th January 2003, an order that the purported consent order be set aside and directions to trial (so-called ‘Masterman-Lister’ proceedings following Masterman-Lister v Brutton & Co (Nos 1 & 2) [2002] EWCA Civ 1889).

The parties agreed that the first issue to be decided was whether the consent order needed to be approved by the court. This in turn depended on whether (i) Mrs Dunhill had been a ‘patient’ within the meaning of CPR Part 21 as in force on 7th January 2003[1] and (ii) if she had been, what the consequences were in relation to the consent order, and in particular whether the court’s approval of the consent order had been required by CPR rule 21.10.

In February 2011 the matter came before Silber J. The parties agreed that to determine whether Mrs Dunhill had been a ‘patient’ the court had to determine whether she had had mental capacity to conduct the proceedings; this in turn was to be judged by reference to her capacity to make the decisions likely to be required of her in the proceedings. However, the parties disagreed as to whether the test had to be applied to the proceedings as they had actually been brought (on advice which appeared to have been negligent), or to the proceedings as they might have been brought had Mrs Dunhill been advised differently. It was common ground that Mrs Dunhill would have lacked capacity to conduct the larger and more complicated proceedings which might have been brought.

Silber J decided that the test had to be applied to the proceedings as they had actually been brought. The question was therefore whether Mrs Dunhill had had sufficient mental capacity to accept the sum which had been offered to her on 7th January 2003 and Silber J held that on the evidence the presumption of capacity had not been rebutted and that therefore Mrs Dunhill had had mental capacity. As a result, issue (ii) did not arise.

Mrs Dunhill appealed to the Court of Appeal, who reversed Silber J’s decision on issue (i), holding that the test had to be applied to the larger and more complicated proceedings which Mrs Dunhill could have brought. As it was common ground that Mrs Dunhill lacked capacity to conduct the larger and more complicated proceedings, the Court of Appeal remitted the case to the High Court to decide issue (ii). On that issue Bean J held that CPR rule 21.10(1) required the consent order to be approved by the court irrespective of how matters appeared at the time and that as a result the purported settlement was void and the claim should proceed to trial. Meanwhile the Supreme Court had granted Mrs Dunhill permission to appeal the Court of Appeal’s reversal of Silber J’s decision on issue (i). Bean J with the parties’ consent certified that his decision on issue (ii) was suitable for a “leapfrog” appeal so that all relevant issues could be determined by the Supreme Court, who heard the appeal on 3rd, 4th and 5th February 2014.

Supreme Court’s decision

The Court’s unanimous judgment was delivered by Lady Hale. On issue (i) the Supreme Court agreed with the Court of Appeal and held that the ‘proceedings’ which a party is required by CPR Part 21 to have capacity to conduct are any proceedings in respect of which the party has a cause of action, and not just the particular proceedings as framed and drafted by the party’s legal advisers:

[18] I would hold, therefore, that the test of capacity to conduct proceedings for the purpose of CPR Part 21 is the capacity to conduct the claim or cause of action which the claimant in fact has, rather than to conduct the claim as formulated by her lawyers.

On issue (ii) the Supreme Court held that because Mrs Dunhill had lacked capacity on 7th January 2003, the purported consent order was invalid as it has not been approved by the court as required by CPR rule 21.10. In doing so the Court rejected the argument that a settlement of a claim was the same as any other contract and was accordingly subject to the common law rule in Imperial Loan Co Ltd v Stone [1892] 1 QB 599 (as applied in Hart v O’Connor [1985] AC 1000) which provides that a contract made by a person who lacked the capacity to make it is not void but can be avoided by that person provided that the other party to the contract knew or ought to have known about the incapacity. Instead the Supreme Court held (at [30]) that CPR rule 21.10 carved a “substantial but quite specific exception” to the rule in Imperial Loan Co Ltd v Stone.

The result on the facts was that the purported settlement agreement was set aside and directions were given for the case to go to trial.

Interesting points

A number of interesting – and difficult – points emerge from the decision.

  1. A party to proceedings cannot be satisfied that the opposing party has capacity to conduct proceedings from the mere fact that the opposing party has instructed lawyers and that those lawyers have given no indication of any doubt about their client’s capacity. It is suggested that this has the potential for unfairness, and indeed one might feel some sympathy for Mr Burgin, who the Supreme Court acknowledged neither knew nor ought to have known of Mrs Dunhill’s lack of capacity (at [21]). So what can a party do in practice to minimise the risk of finding himself in Mr Burgin’s position months – or even years – after a purported settlement? It is suggested that where a party has reason to doubt the opposing party’s mental capacity (e.g. in personal injury cases involving head injuries or – perhaps more frequently in the private client world – in family disputes in which one of the parties is elderly and/or suffers from some form of mental impairment such as dementia) that party should request that the opposing party provides medical evidence as to his capacity to conduct proceedings. Such medical evidence should be framed broadly: in light of Dunhill v Burgin the question for the expert is not just whether the opposing party has sufficient mental capacity to conduct the particular proceedings as they have been framed, but rather whether the opposing party has sufficient mental capacity to conduct any proceedings arising out of his cause of action. If the opposing party fails or refuses to provide sufficient evidence to allay the concerns about capacity, thought should be given to an application to court for the appointment of a litigation friend pursuant to CPR Part 21.
  2. The decision also highlights the importance of obtaining the court’s approval of settlements where one or more of the parties lacks capacity (or is a minor). Although this is frequently perceived by clients as an expensive nuisance – particularly where a lot of time, effort and expense has already gone into reaching the settlement itself – the importance of taking this final step should not be underestimated.
  3. Although all of the above may seem rather alarming, it should not be forgotten that a court has wide powers to regularise steps retrospectively: as Kennedy LJ indicated in Masterman-Lister (in a passage cited in Dunhill v Burgin at [19]): “Provided everyone has acted in good faith and there has been no manifest disadvantage to the party subsequently found to have been a patient at the relevant time I cannot envisage any court refusing to regularise the position”. On the particular facts of Dunhill v Burgin no attempt was made to seek retrospective validation because the advice Mrs Dunhill had initially received appeared to have been seriously negligent; had the settlement been a favourable one, the case may well have unfolded differently.
  4. Finally, the decision is a useful reminder of the Supreme Court’s holistic approach to deciding cases. Mr Burgin complained that over the course of the lengthy litigation the issues in dispute – and thus the goal-posts – had repeatedly shifted. However, his complaints were dismissed by Lady Hale (at [11]):

As so often happens, the parties do not agree on precisely how the issues should be formulated and new arguments have been introduced to bolster the decisions reached in the courts below. The defendant, in particular, has a sense of grievance at the way in which the issues and arguments have shifted over time. But in this court we have to do our best to arrive at the right result and thus to allow all relevant arguments to be deployed before us unless this would be unfair to an opposing party. There is no unfairness here. Everyone has been well aware from the outset of what the underlying questions are and each party has had sufficient time to respond to all arguments deployed.

 

[1] CPR Part 21 was subsequently amended and references to ‘patients’ were substituted with references to ‘protected parties’.

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