Dunhill (a protected party by her litigation friend Tasker) (Respondent) v Burgin (Appellant)
Dunhill (a protected party by her litigation friend Tasker) (Respondent) v Burgin No 2 (Appellant)
Lady Hale, Deputy President
JUDGMENT GIVEN ON
12 March 2014
Heard on 3, 4 and 5 February 2014
James Rowley QC
(Instructed by Keoghs LLP)
Christopher Melton QC
(Instructed by Potter Rees)
LADY HALE (with whom Lord Kerr, Lord Dyson, Lord Wilson and Lord Reed agree)
The history of this case
"Since capacity to conduct proceedings includes . . . the capacity to give proper instructions for and to approve the particulars of claim, the claimant lacked that capacity. For her to have capacity to approve a compromise she needed to know . . . what she was giving up and, as is conceded, she did not have the faintest idea that she was giving up a minor fortune without which her mental disabilities were likely to increase."
The test of capacity
"To have that capacity she requires first the insight and understanding of the fact that she has a problem in respect of which she needs advice . . . Secondly, having identified the problem, it will be necessary for her to seek an appropriate adviser and to instruct him with sufficient clarity to enable him to understand the problem and to advise her appropriately . . . Finally, she needs sufficient mental capacity to understand and make decisions based upon, or otherwise give effect to, such advice as she may receive".
Applied to the facts of this case, this could suggest 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. The same might be said of the test as stated by Chadwick LJ at para 75 of Masterman-Lister:
"For the purposes of Order 80 – and now CPR Pt 21 – the test to be applied, as it seems to me, is whether the party to legal proceedings is capable of understanding, with the assistance of such proper explanation from legal advisers and experts in other disciplines as the case may require, the issues on which his consent or decision is likely to be necessary in the course of those proceedings."
The effect of incapacity
"Order 80 and CPR Pt 21 are worded in such a way as to indicate that in that event the litigation is ineffective and decisions made in the course of litigation are invalid – see for example, Order 80, rr 2(1) and 10, CPR rr 21.2(1) and 21.10(1), but CPR r 21.3(4) does suggest a solution. It provides: 'Any step taken before a child or patient has a litigation friend, shall be of no effect, unless the court otherwise orders'".
Kennedy LJ went on to say that "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" (para 31). But 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.
"Where a claim is made – (a) by or on behalf of a child or patient [now protected party] (b) against a child or . . . patient [now protected party], no settlement, compromise or payment and no acceptance of money paid into court shall be valid, so far as it relates to the claim, by, on behalf of or against the child or patient [now protected party], without the approval of the court."
The embodiment of this settlement in a consent order did not constitute the approval of the court for the purpose of this rule. The purpose of the rule 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 (see now 21PD.6). Given the finding that Mrs Dunhill was a patient at the time, does this automatically mean that the settlement and court order are of no effect?
"Where – (a) before proceedings in which a claim is made by, or on behalf of, or against a child or patient [now, protected party] (whether alone or with any other person) are begun, an agreement is reached for the settlement of the claim; and (b) the sole purpose of proceedings on that claim is to obtain the approval of the court to a settlement or compromise of the claim, the claim must (i) be made using the procedure set out in Part 8 (alternative procedure for claims); and (ii) include a request to the court for approval of the settlement or compromise."
The "claim" at the end of (a) must necessarily predate the commencement of proceedings. If the "claim" in CPR 21.10(2) predates the commencement of proceedings, there is no reason why the "claim" in CPR 21.10(1) should not also do so. If there are not yet any proceedings, there can be no litigation friend. There is no obvious way to read a limitation to cases where the party lacking capacity has a litigation friend into CPR 21.10(1) as it applies to proceedings which have already been started but not as it applies where proceedings have not yet begun. Nor would it make any practical sense to do so. The other party is, if anything, in a rather better position to assess whether his opponent may lack capacity to conduct the proceedings after they have begun than he is beforehand.
"To my mind it is not self-evident that rules 10 and 12 [the predecessors to CPR 21.10(1) and 21.11] have any application where the plaintiff brings a claim in contravention of rule 2 – so that, in the eyes of the defendant and the court, he is asserting that he is not under a disability. If rules 10 and 12 were intended to apply in such a case (which I doubt) then it would be open to question whether the rule making body had power to change the substantive law expounded in Imperial Loan Co Ltd v Stone  1 QB 599 and Hart v O'Connor  AC 1000."
In Imperial Loan Co Ltd v Stone  1 QB 599, the Court of Appeal held that a contract made by a person who lacked the capacity to make it was not void, but could be avoided by that person provided that the other party to the contract knew (or, it is now generally accepted, ought to have known) of his incapacity. As Mr Rowley points out on behalf of the defendant, this rule is consistent with the objective theory of contract, that a party is bound, not by what he actually intended, but by what objectively he was understood to intend. The rule in Imperial Loan was applied by the Judicial Committee of the Privy Council in Hart v O'Connor  AC 1000, a case from New Zealand, where the issue was whether this only applied if the contract was fair. Overruling prior New Zealand authority to the contrary in Archer v Cutler  1 NZLR 386, but consistently with the decision of the High Court of Australia in McLoughlin v Daily Telegraph Newspaper Co Ltd (No 2) (1904) 1 CLR 243, the Board held that a contract made by a person who was ostensibly sane could not be set aside simply because it was unfair but only if there was equitable fraud which would also avail a sane person.
"There was a suggestion made in the course of the argument that the Compromise Rule, if it meant what it appears to say – if 'invalid' means 'of no legal effect' – is ultra vires. I do not accept that suggestion. When the claim of an infant or other person under disability is before the court, the court needs, for the purpose of protecting his interests, full control over any settlement compromising his claim. In my view, the making and re-making of the Compromise Rule were valid exercises of the rule-making power under the Judicature Acts, which is now contained in section 99 of the Act of 1925."