The Supreme Court pronounces on litigation capacity (and the effect of incapacity) in civil proceedings

Dunhill v Burgin (Nos 1 and 2) [2014] UKSC 18

Summary

Ms Dunhill sought to have a compromise agreement into which she had entered declared void due to her having lacked litigation capacity at the time it was agreed.  She had suffered a brain injury in a car accident with Mr Burgin and had instructed solicitors to bring a claim for personal injury. The claim was settled for £12,500 on the first day of trial, but it had subsequently transpired that if properly pleaded, the claim would have been worth at least £790,000, and possibly as much as several million pounds.

At first instance ([2011] EWHC 464 (QB)), the Court held that Ms Dunhill had not lacked capacity at the time the consent order was agreed, and had been given a sufficiently clear explanation of the terms of the order, which she had understood.  Silber J made it clear that he reached his decision by asking himself whether the Claimant had had capacity to enter into the consent agreement, rather than whether she had the capacity to conduct the proceedings as a whole.

Ms Dunhill appealed.  The Court of Appeal allowed her appeal ([2012] EWCA Civ 397).  Giving the sole reasoned judgment (with which Lewison LJ and Sir Mark Potter agreed), Ward LJ noted (paragraph 22) that the case raised the same broad issue as in the pre-MCA cases of Masterman-Lister v Brutton & Co [2003] 1 WLR 1511, and Bailey v Warren [2006] EWCA Civ 51, namely whether a previous compromise/order could be set aside for want of capacity.  Those cases had established that the proper question is whether the individual in question “ha[s] the necessary capacity to conduct the proceedings or, to put it another way, to litigate” (paragraph 24). In the circumstances, Ward LJ considered that Silber J. had fallen into error because he had approached matters too narrowly by treating the relevant transaction as the actual compromise negotiated outside court which led to the consent order in question because: “[s]ince the compromise [was] not a self-contained transaction but inseparably part and parcel of the proceedings as a whole, the question is not the narrow one of whether [the Claimant] had capacity to enter into that compromise but the broad one whether she had the capacity to conduct the proceedings.” (paragraph 24).  Framing the test this way, Ward LJ had no hesitation in finding that she lacked the requisite capacity.

Mr Burgin appealed to the Supreme Court.  In the interim, the claim was remitted to the High Court for case management, and a further issue arose as to the effect of Ms Dunhill’s incapacity upon the settlement agreement because it had not been approved by the Court as was required under CPR r.21.10, Ms Dunhill being a protected party.   Bean J held ([2012] EWHC 3163 (QB)) that her incapacity rendered the settlement void, but granted Mr Burgin permission to appeal directly to the Supreme Court.

The two appeals were heard together, so the Supreme Court had the opportunity to consider: (1) the test for deciding whether a person lacks capacity to conduct legal proceedings; and (2) the consequences if legal proceedings are compromised without it being recognised that one of the parties lacked that capacity.

The Supreme Court unanimously dismissed Mr Burgin’s appeals.  Lady Hale gave the judgment on behalf of the court.   In the material parts of her judgment, she held:

  1. The general approach of the common law, now confirmed in the Mental Capacity Act 2005, is that capacity is to be judged in relation to the decision or activity in question and not globally. Hence it was concluded in Masterman-Lister that capacity for this purpose meant capacity to conduct the proceedings (which might be different from capacity to administer a large award resulting from the proceedings). This was also the test adopted by the majority of the Court of Appeal in Bailey v Warren [2006] EWCA Civ 51, [2006] CP Rep 26, where Arden LJ specifically related it to the capacity to commence the proceedings (para 112).   Lady Hale noted that “it would have been open to the parties in this court to challenge that test, based as it was mainly upon first instance decisions in relation to litigation and the general principle that capacity is issue specific, but neither has done so. In my view, the Court of Appeal reached the correct conclusion on this point in Masterman-Lister and there is no need for us to repeat the reasoning which is fully set out in the judgment of Chadwick LJ” (paragraph 13).
  2. Construed properly, CPR r 21 (in requiring that a protected party must have a litigation friend) “posits a person with a cause of action who must have the capacity to bring and conduct proceedings in respect of that cause of action. The proceedings themselves may take many twists and turns, they may develop and change as the evidence is gathered and the arguments refined. There are, of course, litigants whose capacity fluctuates over time, so that there may be times in any proceedings where they need a litigation friend and other times when they do not. CPR 21.9(2) provides that when a party ceases to be a patient (now, a protected person) the litigation friend’s appointment continues until it is ended by a court order. But a party whose capacity does not fluctuate either should or should not require a litigation friend throughout the proceedings. It would make no sense to apply a capacity test to each individual decision required in the course of the proceedings, nor, to be fair, did the defendant argue for that” (paragraph 15).
  3. Further, apparent suggestions in earlier cases which could be read as to the effect that, “having identified a problem and gone to a lawyer, all that is needed is the capacity to understand and make decisions based upon the actual advice given by that lawyer” could not be correct as this would mean that whether a person had or lacked litigation capacity would depend upon whether they received good advice, bad advice or no advice at all.  Rather “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” (paragraph 18).
  4. Judged by that test, it was common ground that Ms Dunhill did not have capacity to conduct the claim (paragraph 18).  She should therefore have had a litigation friend from the outset of the proceedings;
  5. As Kennedy LJ had noted in Masterman-Lister, CPR r 21.3(4) does suggest a solution to the fact that litigation conducted in the absence of a litigation friend is ineffective.  This provides: “[a]ny step taken before a child or patient has a litigation friend, shall be of no effect, unless the court otherwise orders.” Lady Hale endorsed the comments of Kennedy LJ to the effect that “[p]rovided 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,” but noted that “[b]ut of course, everything must depend upon the particular facts. It might be appropriate retrospectively to validate some steps but not others. In this case, we have not been asked to validate anything, but no doubt we could do so of our own motion if we thought it just” (paragraph 19);
  6. In the instant case, it would not be just retrospectively to validate the settlement (and the Supreme Court had not been asked to do so).  As Lady Hale noted, “[w]hile every other step in the proceedings might be capable of cure, the settlement finally disposing of the claim is not” (paragraph 20).  The purpose of requiring approval by the court of a settlement involving a protected party “is to impose an external check on the propriety of the settlement and the accompanying practice direction sets out the evidence which must be placed before the court when approval is sought” (paragraph 20);
  7. As CPR r.21.10 was intra vires, and did not require that Mr Burgin be on notice of Ms Dunhill’s incapacity (the rule being a substantial, but specific exception to the common law principle set down in Imperial Loan Co Ltd v Stone), the combined effect of Ms Dunhill’s incapacity and the absence of court approval of the settlement order meant that that order was of no effect (paragraphs 20, 22 and 30);
  8. Policy arguments could not answer the legal questions before the court, but to the extent to in any event that “the policy underlying the Civil Procedure Rules is clear: that children and protected parties require and deserve protection, not only from themselves but also from their legal advisers The notes to Order 80 in the last (1999) edition of the Supreme Court Practice stated that among the objects of the compromise rule was ‘to protect minors and patients from any lack of skill or experience of their legal advisers which might lead to a settlement of a money claim for far less than it is worth’, a sentiment which has been carried forward into the current edition of Civil Procedure.” (paragraph 33).

The consent order was therefore set aside, and the matter remitted to be set down for trial.

Comment

The Supreme Court’s decision as to litigation capacity does not perhaps come as a substantial surprise given the careful and comprehensive judgment of the Court of Appeal on this aspect.   It is interesting, though, to note that Lady Hale left open the possibility that the parties could have challenged the long-established test for litigation capacity (albeit that she then shut down such a challenge by affirming the reasoning of the Court of Appeal in Masterman-Lister).

The decision in relation to CPR r.21.10, likewise, is perhaps not altogether surprising.  The decision is also useful confirmation of the limits of the power under CPR r 21.3(4) to remedy steps taken in the absence of a litigation friend.    It is perhaps also worth noting in this regard that there is no equivalent to this power in the COPR.  However:

  1.  The silence in the COPR may, in and of itself, mean that the court retains a discretion retrospectively to approve any steps to be taken prior to the appointment of a litigation friend (whether or P or another party to the proceedings) – see in this regard the commentary in Jordans’ Court of Protection Practice 2014 (Jordans, 2014) at p. 762, in the commentary to COPR r141.
  2. It would also be open to a Court of Protection judge to apply CPR r.21.10 through the (often overlooked) provisions of COPR r.9, which provide that “In any case not expressly provided for by these Rules or the practice directions made under them, the Civil Procedure Rules 1998 (including any practice directions made under them) may be applied with any necessary modifications, insofar as is necessary to further the overriding objective.

No matter how the discretionary power arises, I would suggest that the comments of Lady Hale would be applicable so as to suggest that the court should proceed with caution before endorsing any steps that went beyond the merely procedural.

I am grateful to Jonathan Auburn for comments upon an earlier version of this post.

 

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One Reply to “The Supreme Court pronounces on litigation capacity (and the effect of incapacity) in civil proceedings”

  1. Hi Alex,

    I think this decision is an interesting one. In particular, it seems to set an almost impossible test of capacity – a person has to be able to understand their legal claim, even though their solicitors didn’t! But I can see why Lady Hale ended up here, for policy reasons. However, this test of capacity might have ‘interesting’ repercussions for people who are in disagreement with their litigation friend…

    I’ve always thought it a bit odd that the COPR have no equivalent to CPR 21.10. I was concerned that potentially litigation friends might settle or withdraw cases without any court oversight, but it does seem from TA v AA [2013] EWCA Civ 1661 and The Local Authority v Mrs D & Anor [2013] EWHC B34 (CoP) that the CPR 21.10 procedure is followed. Do you have any thoughts on why there’s no equivalent to CPR 21.10 in the COPR? Was this an oversight, or do you think there’s flexibility and sometimes this procedure isn’t followed? I wonder if this will be introduced as a rule if the COPR are revised?
    L

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