Judge: Ward, Lewison LJJ and Sir Mark Potter
Citation:  EWCA Civ 397
Summary: The Claimant sought to have a compromise agreement into which she had entered declared void due to her having lacked litigation capacity at the time it was agreed. The Claimant had suffered a brain injury in a car accident and had instructed solicitors to bring a claim for personal injury. The claim was settled for £12,500 on the first day of trial, but it had subsequently transpired that if properly pleaded, the claim would have been worth at least £790,000, and possibly as much as several million pounds.
At first instance, the Court held that the Claimant had not lacked capacity at the time the consent order was agreed, and had been given a sufficiently clear explanation of the terms of the order, which she had understood. Silber J made it clear that he reached his decision by asking himself whether the Claimant had had capacity to enter into the consent agreement, rather than whether she had the capacity to conduct the proceedings as a whole.
The Claimant appealed. The Court of Appeal allowed her appeal. Giving the sole reasoned judgment (with which Lewison LJ and Sir Mark Potter agreed), Ward LJ noted (paragraph 22) that the case raised the same broad issue as in the pre-MCA cases of Masterman-Lister v Brutton & Co  1 WLR 1511, and Bailey v Warren  EWCA Civ 51, namely whether a previous compromise/order could be set aside for want of capacity. Those cases had established that the proper question is whether the individual in question “ha[s] the necessary capacity to conduct the proceedings or, to put it another way, to litigate” (paragraph 24). In the circumstances, Ward LJ considered that Silber J. had fallen into error because he had approached matters too narrowly by treating the relevant transaction as the actual compromise negotiated outside court which led to the consent order in question because:
“[s]ince the compromise [was] not a self-contained transaction but inseparably part and parcel of the proceedings as a whole, the question is not the narrow one of whether [the Claimant] had capacity to enter into that compromise but the broad one whether she had the capacity to conduct the proceedings.” (paragraph 24)
In the circumstances, Ward LJ had no hesitation in concluding (at paragraph 29) that:
“[w]ith proper advice (proper explanation being a part of Chadwick LJ’s test in  of his judgment [in Masterman-Lister] this claim would never have been advanced for the limited sums pleaded. Since capacity to conduct proceedings includes, per Arden LJ at  [of Bailey], the capacity to give proper instructions for and to approve the particulars of claim, the claimant lacked that capacity. For her to have capacity to approve a compromise she needed to know, again per Arden LJ at , what she was giving up and, as is conceded, she did not have the faintest idea that she was giving up a minor fortune without which her mental disabilities were likely to increase. If the litigation had been conducted properly, it would have been conducted differently. Given that scale of award and the claimant’s limited understanding of the implications arising from a claim of that size, a litigation friend should and would have been appointed for her if not when the proceedings commenced, as I believe should have been the case, then at least certainly when the compromise was under discussion. Had she been recognised to be a patient, the compromise she in fact entered into would never have been approved by the court.”
Comment: Whilst (as Silber J. noted) the injustice that the Claimant undoubtedly suffered as a result of the entry into the compromise agreement could have been remedied, at least in part, by the bringing of an action for professional negligence against the Claimant’s former advisers, the robust approach adopted by the Court of Appeal provided a very much more direct route to setting matters aright.
More broadly, this case is a useful – if unsurprising – ringing endorsement of the continuing relevance of the principles established in Masterman-Lister and Bailey regarding the determination of litigation capacity. The case also stands as an interesting example of how it is possible to fall into error when assessing capacity not just by defining the relevant issue too broadly, but also by defining it too narrowly.