Very Short Summary from Swarb.co.uk
Ratio: The Court was asked ‘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’
Held: Whether a paty has capacity to conduct proceedings under CPR Pt 21 depended upon his capacity to conduct the claim or cause of action which the claimant in fact had, rather than any claim formulated for her by her lawyers. A consent order based on the settlement of a claim by a claimant who did not have capacity but remained without a litigation friend was not valid whether or not she was legally represented.
Longer Summary From Law Society
Mental health – Persons who lack capacity. The claimant, D, was injured in a road accident and lacked the mental capacity to conduct proceedings on her own behalf. She issued proceedings against the road user who had injured her, and was not represented by a litigation friend. She was persuaded to settle the claim for a grossly undervalued sum. The Supreme Court held that D had lacked the capacity to commence and conduct proceedings. She ought to have had a litigation friend from the outset, and any settlement ought to have been approved by the court under CPR 21.10(1). The consent order under which the claim had been settled would be set aside and the claim would go to trial.
CPR Pt 21, so far as material, provides: ‘21.2(1): a protected party must have a litigation friend to conduct proceedings on his behalf… 21.10(2): Where – (a) before proceedings in which a claim is made by, or on behalf of, or against a child or patient (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 judgment is available at:  UKSC 18
In June 1999, the claimant, D, was seriously injured when she was struck by a motorcycle driven by the defendant, B. She experienced, among other things, a severe closed head injury. In May 2002, she issued a claim for damages. She claimed to be suffering from, among other things, forgetfulness, personality change, mood swings and occasional suicidal ideation. At trial, she was accompanied by a mental health advocate, counsel and a trainee solicitor. In January 2003, the claim was compromised for the total sum of £12,500 with costs. That was embodied in a consent order. That sum was, on any view, a gross undervaluing of the claim. In February 2009, her litigation friend issued the instant proceedings. She sought: (i) a declaration that D had not had capacity at the time of the purported settlement of the matter; and (ii) that the consent order be set aside and directions given for the further conduct of the claim. It was agreed between the parties that there should first be a trial of whether or not the consent order required the approval of the court. That depended on two issues: (i) whether D had been a ‘patient’ within the meaning of CPR Pt 21 (the term ‘protected party’ was used in place of ‘patient’ at the instant time); and (ii) what the consequences were if she was such a patient, specifically whether that meant that the consent order ought to have been approved by the court under CPR 21.10. Issue (i) was tried in February 2011. The court held that capacity was to be judged by reference to the decisions that the claimant had actually been required to take in the action as drafted and not to the decisions which she might have been required to take had it been differently framed. In the light of that decision, issue (ii) did not arise. D successfully appealed to the Court of Appeal on the point of law. The case was remitted to the High Court to determine issue (ii). The court held that the settlement was void, the order should be set aside and the case should go for trial. The court further held that the conditions were met for a ‘leapfrog’ appeal on issue (ii), so that the issues could be heard together. B appealed to the Supreme Court.
Two issues arose. First, what the test was for deciding whether a person lacked the mental capacity to conduct legal proceedings on her own behalf, in which case the CPR required that she have a litigation friend to conduct the proceedings for her. Secondly, what happened if legal proceedings were 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. If D was found to fall within CPR Pt 21.10(1), the further issue arose as to whether the settlement and the court order would automatically be of no effect (the compromise rule issue). First, B contended that the rule in CPR 21.10(1) (the compromise rule) would only apply where the patient, or protected party, had a litigation friend. Only then would the other party to the settlement be put on notice that the settlement required the approval of the court. Secondly, B submitted that, without the limitation for which he contended, the rule would be ultra vires.
The appeals would be dismissed.
(1) The test of capacity to conduct proceedings for the purpose of CPR Pt 21 was the capacity to conduct the claim or cause of action which the claimant in fact had, rather than to conduct the claim as formulated by her lawyers (see  of the judgment).
On B’s argument, D’s capacity would depend on whether she had received good advice, bad advice or no advice at all. If she had received good advice or she had received no advice at all, but brought the claim as a litigant in person, she would lack the capacity to make the decisions that the claim required of her. However, if she had received bad advice, she would possess the capacity to make the decisions required of her as a result of that bad advice. That could not be right (see  of the judgment).
It followed that D ought to have had a litigation friend when the proceedings had been begun (see  of the judgment).
Masterman-Lister v Brutton & Co  All ER (D) 59 (Jan) applied.
(2) With regard to regularising the position where a claimant had not had a litigation friend, but ought to have done, everything would depend on the particular facts. It might be appropriate retrospectively to validate some steps but not others (see  of the judgment).
In the instant circumstances, it would not be just to rectify the position retrospectively. While every other step in the proceedings might be capable of cure, the settlement finally disposing of the claim was not. The fact that the settlement had been embodied in a consent order had not constituted the approval of the court for the purpose of CPR 21.10(1). The purpose of that rule was to impose an external check on the propriety of the settlement and the accompanying practice direction set out the evidence which had to be placed before the court when approval was sought (see  of the judgment).
Masterman-Lister v Brutton & Co  1 WLR 1511 applied.
(3) Regarding the ultra vires argument, it was clear on the case law that the making and re-making of the compromise rule had been valid exercises of the rule-making power. Where the claim of an infant or other person under disability was before the court, the court needed, for the purpose of protecting his interests, full control over any settlement compromising his claim (see  of the judgment).
With regard to the compromise rule issue, B’s first argument would fail, since it required words to be written into the rule that were not already there. If anything, the words of CPR 21.10(1) hinted at the reverse, since they referred to a claim made ‘by or on behalf of’ a patient or a protected party. To disapply the rule where there was no litigation friend in each case required the words ‘having a litigation friend’ to be written into the rule. Further, it was clear that, regarding CPR 21.10, ‘the claim’ had to mean the cause of action rather than any proceedings in which the claim was asserted. That claim necessarily pre-dated the commencement of proceedings. If there were not yet any proceedings, there could be no litigation friend. The compromise rule was intra vires and applied to the instant case (see , ,  of the judgment).
On the test properly to be applied, D had lacked the capacity to commence and to conduct proceedings arising out of her claim against B. She ought to have had a litigation friend from the outset and any settlement should have been approved by the court under CPR 21.10(1). The consent order would be set aside and the case would go to trial (see  of the judgment).
Dietz v Lennig Chemicals Ltd  2 All ER 282 applied; Drinkall v Whitwood  All ER (D) 76 (Nov) considered; Bailey v Warren  All ER (D) 78 (Feb) considered; Masterman-Lister v Brutton & Co  All ER (D) 59 (Jan) applied; Imperial Loan Co v Stone [1891-4] All ER Rep 412 considered; Archer v Cutler  1 NZLR 386 considered; Grosvenor Hotel, London (No 2), Re  3 All ER 354 considered.
Decision of Bean J  EWHC 3163 (QB) affirmed.
Decision of Court of Appeal, Civil Division  EWCA Civ 397 affirmed.
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