Dunhill v Burgin

Capacity to conduct litigation is assessed by reference to the claim or cause of action which the party actually has. It does not depend on how lawyers have formulated the claim or on the quality of their advice.

A settlement made by or against a party lacking litigation capacity requires court approval under Part 21 of the Civil Procedure Rules 1998. This applies even where no litigation friend was appointed, the other party neither knew nor should have known of the incapacity, or the settlement preceded proceedings. Incorporating the agreement into a consent order is not approval. The compromise rule is valid and creates a specific exception to the ordinary contractual rule governing agreements made by persons lacking capacity.

Following a road accident, Mrs Dunhill sustained a serious head injury and commenced a damages claim which was compromised for £12,500 in January 2003. Her lack of litigation capacity was not recognised, no litigation friend acted for her, and the settlement was embodied in a consent order without approval under Part 21 of the Civil Procedure Rules 1998.

Silber J held that capacity should be assessed by reference to the claim as actually formulated and that incapacity had not been proved: [2011] EWHC 464 (QB). The Court of Appeal reversed that decision, holding that the relevant claim was the substantially larger claim which should have been advanced: [2012] EWCA Civ 397. Bean J subsequently held that the unapproved settlement was invalid and ordered the consent order to be set aside: [2012] EWHC 3163 (QB); [2012] 1 WLR 3739.

The defendant appealed both rulings. The issues were the proper scope of the test for litigation capacity and the legal effect of a settlement made without recognising a party's incapacity.

Lady Hale delivered the judgment of the court, with which Lord Kerr, Lord Dyson, Lord Wilson and Lord Reed agreed.

1. Both appeals were dismissed. Capacity under Part 21 of the Civil Procedure Rules 1998 is capacity to conduct proceedings concerning the claim or cause of action which the party actually has. It is not capacity to conduct only the claim as formulated by the party's lawyers. Otherwise capacity could depend irrationally on whether the party received good advice, bad advice or no advice. On the agreed application of the correct test, Mrs Dunhill lacked capacity to commence and conduct the personal injury claim.

2. A party whose capacity does not fluctuate should either have or not have a litigation friend throughout the proceedings. The test is not reapplied to every individual decision. Although steps taken before appointment of a litigation friend may be validated retrospectively under rule 21.3(4), validation depends on the particular circumstances. It was not just to validate the settlement in this case.

3. Rule 21.10(1) made the settlement invalid without court approval. The rule applies whether a protected party acts personally or through a litigation friend. It also applies to settlements reached before proceedings begin. Its reference to a claim therefore means the underlying cause of action, rather than only proceedings in which that claim has been asserted. Incorporation of the settlement into a consent order did not supply the required approval because the rule requires an external judicial assessment of the settlement's propriety.

4. The compromise rule is intra vires. The court followed Dietz v Lennig Chemicals Ltd [1969] 1 AC 170, by which it was bound absent a very good reason to depart. Rule 21.10 creates a substantial but specific exception to the ordinary rule in Imperial Loan Co Ltd v Stone [1892] 1 QB 599 governing contracts made by persons lacking capacity. The protection applies irrespective of whether the opposing party knew or ought to have known of the incapacity.

5. The court expressed no opinion on the separate argument that incapacity prevented counsel from possessing actual or apparent authority to compromise the claim. The authorities on agency were confused and the issue did not arise. The consent order was set aside and the personal injury claim was to proceed to trial.

1. United Kingdom Supreme Court: The defendant's appeals in Dunhill v Burgin [2014] UKSC 18 were dismissed unanimously. The consent order remained set aside and the personal injury claim was to proceed to trial.
2. Court of Appeal: In [2012] EWCA Civ 397, the court allowed Mrs Dunhill's appeal from Silber J. It held that capacity had to be assessed by reference to the proceedings as they should have been framed and remitted the consequences of incapacity to the High Court.
3. High Court, Bean J: In [2012] EWHC 3163 (QB); [2012] 1 WLR 3739, the court held that rule 21.10 applied despite the absence of an appointed litigation friend. It set aside the unapproved settlement and consent order and directed that the claim proceed to trial.
4. High Court, Silber J: In [2011] EWHC 464 (QB), the court assessed capacity by reference to the claim as actually drafted and held that the presumption of capacity had not been rebutted. That legal approach was reversed by the Court of Appeal.