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Dunhill v Burgin
Factual and Procedural Background
On 25 June 1999, the Plaintiff sustained serious head and leg injuries when she was struck by the Defendant’s motorcycle while she crossed a dual carriageway in The City. Acting shortly before the limitation period expired, the Plaintiff commenced personal-injury proceedings on 13 May 2002. Her claim, then valued at no more than £50,000, was disputed by the Defendant.
The matter was listed for trial on liability on 7 January 2003 in the County Court. After one of the Plaintiff’s witnesses failed to attend, negotiations led to a compromise for £12,500 plus costs. Counsel for both parties signed a consent order, which was placed before the trial judge and sealed.
Subsequent medical advice obtained in 2006 suggested that the Plaintiff’s true claim might be worth between £800,000 and £2 million. In 2008 a litigation friend issued professional-negligence proceedings against the Plaintiff’s former legal advisers (now stayed). On 11 February 2009 separate “Masterman-Lister” proceedings were issued within the original action, seeking a declaration that the Plaintiff had lacked litigation capacity in 2003 and that the consent order should be set aside.
Silber J (2011) held that capacity should be judged in relation to the claim as actually framed and found that the Plaintiff had capacity. The Court of Appeal (2012) reversed that decision, holding that capacity must relate to the claim as it ought properly to have been framed. Bean J (2012) then ruled that Civil Procedure Rule (CPR) 21.10 invalidated the 2003 settlement because no court approval had been obtained. The Defendant obtained permission for a “leapfrog” appeal so that both issues—capacity and the effect of CPR 21.10—could be considered together by the Supreme Court.
Legal Issues Presented
- What is the correct test for determining whether a party lacks capacity to conduct legal proceedings for the purposes of CPR Part 21?
- Where a settlement was reached without recognising that one party lacked that capacity, is the settlement automatically invalid under CPR 21.10, or is it subject to the common-law rule that a contract made by a person lacking capacity is voidable only if the other party knew or ought to have known of the incapacity?
Arguments of the Parties
Plaintiff’s Arguments
- Capacity must be assessed by reference to the claim the Plaintiff actually possessed, not the limited claim her lawyers advanced.
- Because she lacked capacity, CPR 21.2 required the appointment of a litigation friend from the outset, and CPR 21.10 rendered any settlement without court approval invalid.
- The compromise rule is intra vires; precedent such as Dietz v Lennig Chemicals Ltd supports the necessity of judicial approval irrespective of the other party’s knowledge.
- Policy favours protecting vulnerable litigants from improvident settlements, even at the expense of reopening concluded litigation.
Defendant’s Arguments
- Capacity should be judged only in relation to decisions required in the proceedings as actually drafted; on that view the Plaintiff had capacity in 2003.
- CPR 21.10 applies only where a litigation friend is in place, so the rule was not engaged; in any event, extending the rule would be ultra vires because it conflicts with Imperial Loan Co Ltd v Stone.
- Finality of litigation, certainty for insurers, and the availability of professional-negligence actions against advisers weigh against reopening the settlement.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Imperial Loan Co Ltd v Stone [1892] 1 QB 599 | A contract made by an incapable person is valid unless the other party knew or ought to have known of the incapacity. | Distinguished; the Court held that CPR 21.10 creates an exception requiring approval irrespective of the other party's knowledge. |
| Masterman-Lister v Brutton & Co (Nos 1 and 2) [2002] EWCA Civ 1889; [2003] 1 WLR 1511 | Capacity is decision-specific and relates to the ability to conduct proceedings. | Formed the foundation of the Supreme Court’s capacity test, but interpreted to focus on the claim the litigant actually has. |
| Bailey v Warren [2006] EWCA Civ 51 | CPR 21.10 applies to settlements reached before issue of proceedings; same protection for children and incapable adults. | Relied upon to reject the Defendant’s argument that lack of a litigation friend removes the need for court approval. |
| Dietz v Lennig Chemicals Ltd [1969] 1 AC 170 | Judicial approval is mandatory for settlement of a child’s claim; compromise rule intra vires. | Cited as authority that the compromise rule is valid and extends beyond cases where incapacity is apparent. |
| Drinkall v Whitwood [2003] EWCA Civ 1547; [2004] 1 WLR 462 | “Claim” in CPR 21.10 refers to the underlying cause of action, not merely issued proceedings. | Used to reject a narrow construction of “claim” and reinforce the need for approval. |
| White v Fell (unreported, 1987) | Early formulation of factors relevant to litigation capacity. | Quoted to illustrate competing approaches; ultimately not adopted. |
| Hart v O'Connor [1985] AC 1000 | Confirmation of the Imperial Loan rule in an international context. | Considered but held overridden by the specific requirements of CPR 21.10. |
| McLoughlin v Daily Telegraph Newspaper Co Ltd (No 2) (1904) 1 CLR 243 | Addresses fairness and incapacity in contract law. | Referenced in the discussion of substantive contract principles. |
| Yonge v Toynbee [1910] 1 KB 215 | Incapacity terminates an agent’s authority. | Mentioned in argument on agency; issue left undecided. |
| In re Grosvenor Hotel Ltd (No 2) [1965] Ch 1210 | Rules of court cannot change substantive law without statutory authority. | Cited in Defendant’s ultra vires argument; ultimately not persuasive. |
Court's Reasoning and Analysis
1. Capacity Test. The Court construed CPR 21 as requiring capacity to conduct the claim or cause of action the litigant actually possesses, not the narrower claim presented by advisers. Assessing capacity decision-by-decision would produce arbitrary outcomes dependent on the quality of legal advice and was rejected as illogical.
2. Application to the Facts. On that test the Plaintiff lacked capacity throughout; therefore CPR 21.2 mandated a litigation friend from the outset.
3. Effect of CPR 21.10. The compromise rule invalidates any settlement of a claim by or against a protected party unless approved by the court. The rule contains no limitation to cases where a litigation friend exists, and precedent (Dietz; Drinkall) shows it applies even before proceedings are issued.
4. Ultra Vires Argument. Relying on Dietz, the Court held that the compromise rule is within the rule-making power conferred by statute and legitimately creates a specific exception to the common-law contract rule in Imperial Loan.
5. Discretion to Cure Defects. Although CPR 21.3(4) allows the court to validate steps taken without a litigation friend, the Court declined to do so with respect to the 2003 settlement because it disposed of the entire claim and was grossly disadvantageous to the Plaintiff.
6. Policy Considerations. While acknowledging the public interest in finality, the Court prioritised the protective purpose of CPR Part 21, emphasising that vulnerable litigants must be safeguarded even when the other party lacked knowledge of the incapacity.
Holding and Implications
HOLDING: Both appeals were DISMISSED. The Plaintiff lacked capacity to litigate; the 2003 consent order is set aside; the claim will proceed to trial with a litigation friend in place.
Implications: The decision affirms that capacity is assessed against the underlying claim and that CPR 21.10 invalidates unapproved settlements involving protected parties regardless of the other side’s knowledge. Practitioners must investigate capacity at the outset, and settlements with potentially incapable parties require judicial approval. No new cause of action was created, but the case clarifies and strengthens existing procedural protections.
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