Mental Capacity - Damages - Appropriate Test to Determine Mental Capacity - CPR, r 21.10 - Effect of Incapacity - Setting Aside Settlement
Lady Hale (Deputy President), Lords Kerr, Dyson, Wilson & Reed
12 March 2014
A claimant who had compromised and settled her personal injury claim many years ago was deemed not to have mental capacity to conduct proceedings. The court therefore set aside the consent order and brought the matter to trial. CPR Part 21 invalidates any settlement made by a protected party or minor without the court's approval.
On 25 June 1999, the claimant was injured by the defendant in a road traffic accident. She suffered a severe closed head injury and soft tissue injuries to both legs. In May 2002, the claimant commenced court proceedings and claimed a complete loss of taste and smell, some hearing loss, forgetfulness, headaches, personality change and psychological symptoms. Liability was in dispute and the matter proceeded to trial in January 2003. Negotiations took place and the claim was eventually compromised for the total sum of £12,500 plus costs for the claimant and embodied in a consent order.
In July 2006, the claimant sought advice from new solicitors and in February 2009 her litigation friend issued these proceedings seeking a declaration that she "did not have capacity at the time of the purported settlement in January 2003" and that the consent order be set aside and further directions given. By any view the settlement was a gross undervaluation as her new solicitors claimed it was worth over £2,000,000. A claim for professional negligence against the former solicitors was also issued in December 2008. Those proceedings were stayed pending further order.
The two issues to be determined were firstly, what was the test for deciding whether a person lacks the mental capacity to conduct legal proceedings on their own and secondly, what happens if legal proceedings have been settled or compromised without it being recognized that one of the parties lack that capacity? It was held that capacity was to be judged by reference to the decisions which the claimant was actually required to take in the action as drafted and not to the decisions which she might have been required to take had it been differently framed. The claimant appealed on this point and the Court of Appeal held that the judge should not have confined himself to the actual decision required of her in January 2003, but should have considered her capacity to conduct the proceedings as they should have been framed.
The case was remitted for the second issue as to whether CPR, r 21.10 has any application. The general rule laid down in Imperial Loan Co Ltd v Stone  1 QB 599 was referred to. It was decided that where a civil claim is issued, the CPR are incorporated into any agreement made to settle the case and that CPR, r 21.10(1) required that this settlement be approved by the court irrespective of how matters appeared at the time. The settlement was therefore void and the court order should be set aside and the case should go to trial. The defendant appealed both issues.
It was held, 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 claims as formulated by her lawyers. Judged by this test, the claimant did not have capacity to conduct the claim. The claimant should have had a litigation friend when the proceedings were begun, as required by CPR, r 21.2(1). While every other step in the proceedings might be capable of a cure, the settlement finally disposing of the claim was not. The embodiment of the settlement in a consent order did not constitute the approval of the court for the purpose of the rule. The purpose of the rule is to impose an external check on the propriety of the settlement. It was held that policy underlying the CPR is clear: children and protected parties require and deserve protection, not only from themselves but also from their legal advisers. Masterman-Lister v Brutton & Co  EWCA Civ 1889,  1 WLR 1511 applied.
Both appeals were dismissed. The claimant lacked capacity and she should have had a litigation friend from the outset. The consent order was set aside and case was order to trial.
The case highlights the court's power to set aside a consent order and bring the matter to trial if it appears the claimant did not have mental capacity at the time of the original settlement. Both claimant and defendant solicitors may see the return of cases, which they long believed were settled, in such circumstances. This case is fact sensitive and it is unlikely that this will open up more cases for challenges. However solicitors will be more cautious of settling cases involving those with head injury without evidence relating to capacity even in cases where the injury may not be as severe as those suffered by the claimant in this case.