This very recent case in the Supreme Court has laid clear guidelines for cases that settle where one of the parties to the litigation does not actually have capacity to conduct the litigation, but where this is not known at the time of settlement.
The central issues in this case are summarised in paragraph 1 of the Court’s judgment:
“There are two issues in this case, both of them simple to state but neither of them simple to answer. First, what is the test for deciding whether a person lacks the mental capacity to conduct legal proceedings on her own behalf (in which case the Civil Procedure Rules require that she has a litigation friend to conduct the proceedings for her)? Second, what happens if legal proceedings are settled or compromised without it being recognised that one of the parties lacked that capacity (so that she did not have the benefit of a litigation friend and the settlement was not approved by the court as also required by the CPR)? Can matters be re-opened long after the event or does the normal rule of English law apply, which is that a contract made by a person who lacks capacity is valid unless the other party to the contract knew or ought to have known that she lacked that capacity in which case it is voidable (the rule in Imperial Loan Co Ltd v Stone [1892] 1 QB 599)?”
Joanne Dunhill settled her personal injury claim in 2003 for £12,500 but after consulting another solicitors they formed the opinion she was due further compensation. Rather than pursuing a professional negligence claim against her former solicitors, they have attacked the original settlement on the basis she didn’t have capacity to agree to the settlement.
The Supreme Court found for the claimant in that she didn’t have capacity to conduct the litigation and therefore that she should have had a litigation friend supporting her throughout the case, meaning the settlement could be re-opened and re-assessed. It also didn’t matter that the insurers on the other side of the case had no idea the claimant lacked capacity to agree the settlement.
There are obvious policy issues in allowing cases to be re-opened long after they have settled. Settlements require a degree of certainty and finality in order for all parties to move on and put the litigation behind them. However, it is clear that the need to protect and ensure protected parties’ interests are properly represented, overrides these considerations.
Although It is possible this decision could lead to far more cases being re-opened and settlements re-assessed, it is more desirable than failing to properly protect the interests of claimants who lack capacity.
