Civil Procedure Rule 21.10 provides that where a claim is made by or on behalf of a party who lacks capacity to conduct the proceedings (a child or protected party), no settlement of that claim shall be valid without the approval of the court. The issue before Bean J in Dunhill v Burgin [2012] EWCH 3163 (QB) was whether the rule applies to a personal injury claim, settled at the door of the court, where at the time of the settlement the claimant was not known to lack capacity. Lord Pearson described this rule in Dietz v Lennig Chemicals [1969] 1 AC 170 as the ‘compromise rule’. However, despite the rule having been in existence for over 100 years, it had never been authoritatively decided until Dunhill.

Facts and issues

The claimant was injured after she had been stuck by the defendant’s motorcycle. The matter was subsequently settled on the day of the trial on 7 January 2003. The settlement was mentioned to the judge and a draft consent order was handed in, which was approved. Sometime later, doubts emerged about the claimant’s capacity. It was alleged that, at the time of the compromise, she had been a patient within the meaning of the Mental Health Act 1983. In December 2008 the claimant, this time acting by a litigation friend, issued proceedings in negligence against her counsel and solicitors who represented her in 2003.

On 11 February 2009, the claimant, again by a litigation friend, issued an application in the original 2002/3 proceedings, seeking a declaration that she did not have capacity at the time of the purported settlement of her claim on 7 January 2003 and, on that basis, applied for the 2003 order to be set aside and for directions to be given for the future conduct of the claim.

The two preliminary issues to be decided were: (1) Did the compromise and consent judgment made on 7 January 2003 require court approval?(2) If it did require approval, should it be approved now?

The defendant submitted that the issue was whether part 21 of the Civil Procedure Rules bites on cases like the present where a claimant issues proceedings in her own name, without a litigation friend, and reaches a compromise when the defendant does not know of the alleged incapacity. The defendant argued that if part 21 was inapplicable, there had been no requirement for the January 2003 compromise to be approved and the settlement could therefore not be reopened (see The Imperial Loan Company Ltd v Stone [1892] 1 QB 599). Bean J referred to this issue as the Imperial Loan issue.

The Imperial Loan issue was not resolved at the preliminary hearing. At that hearing, the judge held that the claimant did have capacity to enter into the settlement agreement. This decision was subsequently reversed by the Court of Appeal and the matter was referred back to the High Court for case management. In July 2012, Hamblen J gave directions for the trial of the remaining preliminary issue: does CPR part 21.10 have any application where the claimant brought a claim in contravention of CPR part 21.2, so that in the eyes of the defendant and the court she appeared to be asserting that she was not under a disability?

Imperial Loan

Bean J noted that the Imperial Loan issue had been considered, but not decided, in two cases: Masterman-Lister v Brutton and Co [2003] 1 WLR 1511 which was later followed in Bailey v Warren [2005] PIQR P15. In Masterman-Lister there had been a trial of the issue of whether the plaintiff had lacked capacity at the time of compromising his personal injury claim. The trial judge found that he had not and that conclusion was upheld in the Court of Appeal. However, Lord Justice Chadwick, despite referring to Imperial Loan, did not decide the issue nor was it fully argued in Bailey v Warren. Thus, Bean J found that there was no binding authority on the point.

Bean J then considered the defendant’s argument that CPR part 21, in particular rule 21.10, should be interpreted so as not to conflict with Imperial Loan. The claimant accepted that Imperial Loan v Stone (and Hart v O’Connor [1985] 2 All ER 880, [1985] AC 1000) were still good law, but tried to distinguish the cases. One involved a promissory note, the other a contract for the sale of land. Also, the claimant argued that neither case had anything to do with litigation. The claimant argued that rules about the compromise of litigation are part of the rules governing the conduct of litigation, and thus matters of ‘practice and procedure to be followed in the civil courts’, rather than part of the general law of contract.

Bean J accepted the claimant’s arguments and pointed to Gibbon v Manchester City Council [2010] 1 WLR 2081 in which the Court of Appeal held that CPR part 36 was a self-contained code to be read and understood according to its terms and without importing rules derived from the general law of offer and acceptance, save where that was clearly intended. Thus a part 36 offer, even if rejected by the offeree, remained open for acceptance until and unless it is withdrawn by the offeror.

Interpreting CPR 21

Bean J then considered how CPR 21 should be interpreted. He noted that a protected party must have a litigation friend to conduct proceedings on their behalf. Also, CPR 21.3(4) stated that any step taken before a protected party has a litigation friend (other than the issue of a claim and an application for the appointment of a litigation friend, which are dealt with earlier in rule 21.3) has no effect unless the court orders otherwise.

Turning his attention to CPR 21.10(1), Bean J noted that the rule applied to claims made ‘by’ as well as ‘on behalf of’ a protected party; and that ‘protected party’ is defined by CPR 21.1(2) as ‘a party, or an intended party, who lacks capacity to conduct the proceedings’. In other words, a party who in fact lacks capacity to conduct the proceedings is protected, even though he or she has not been officially declared to be such and is not acting by a litigation friend. It should also be noted that the rule applies whether or not the party in question is legally represented.

Bean J held: ‘In my judgment it is clear, as Ward and Arden LJJ held in Bailey v Warren, that CPR part 21 applies to invalidate a consent judgment involving a protected party reached without the appointment of a litigation friend and the approval of the court, even where the individual’s lack of capacity was unknown to anyone acting for either party at the time of the compromise.’

Bean J remarked that he had reached this conclusion as a matter of statutory interpretation but he also emphasised that, if the policy consideration of finality of litigation and certainty were taken into account, then the same result would be reached. Dunhill v Burgin is extremely significant as it is the first case which authoritatively deals with the compromise rule. It is now clear that a party who lacks capacity to conduct litigation is protected even though he or she has not been officially declared as lacking capacity. Furthermore, the rule applies regardless of whether or not the party in question is legally represented. It is also clear from Bean J’s comments that the courts will always seek to protect vulnerable individuals.

Masood Ahmed, University of Leicester