Bailey (by his sister & litigation friend J Ashton) v Warren [2006] EWCA Civ 51

B suffered serious head injuries a result of a road traffic collision.  He made a good recovery from his injuries but had some residual cognitive difficulties and post traumatic epilepsy.  The experts disagreed on the extent of the damage to his cognitive functioning.  Following W’s conviction for driving without due care and attention, B agreed to accept liability for the collision on a 50/50 basis.  Four years after the collision, members of B’s family felt he was incapable of living alone and managing his financial affairs.  A neurologist expressed the view that B lacked mental capacity and a litigation friend was appointed.  B’s new legal advisors argued before the High Court that at the time of agreeing the settlement, B had been a patient for the purposes of the litigation and that the compromise agreement should be set aside.  The court decided that although at the time of appeal he was a patient for the purposes of conducting litigation, he had not been for the purposes of the agreement to apportion liability on a 50/50 basis.  B applied for permission to appeal to the Court of Appeal.

There was a dispute between the medical experts whether, at the time B made the decision to accept liability on a 50/50 basis, he had the capacity to make this decision.  B’s adviser’s argued that if a claimant was a patient for the purposes of the conduct of litigation in relation to quantum of damages, he must also be a patient for the purposes of deciding the liability issue. B’s advisers also argued that CPR 21 stated that a person incapable of managing his own affairs must have a litigation friend and that no payment or settlement shall be valid unless approved by the court.

The Court of Appeal stated that the interpretation of the test in Masterman-Lister v Brutton & Co (2003) for determining  a person’s decision making capacity was at the heart of this appeal and re-stated the test for clarity.  The test was issue specific and directed to the transaction that had been effected.  The difficulty was in defining the ambit of that issue or that transaction.  In relation to each transaction, the party concerned should have an understanding of the general nature of what he was doing.  Thus a person may be perfectly capable of entering into some contracts but not others.  The court needed to focus on the individual and the particular transaction.  Hallet LJ held that the finding that a litigant was a patient for the purposes of administering an award of damages did not mean that he was a patient for all purposes.  In B’s case, because he lacked the capacity to deal with the issue of quantum, it did not necessarily mean that he lacked the capacity to decide whether or not he accepted that he was equally to blame for the collision.  The compromise of the issue of liability could be separated from the conduct of the whole litigation.

However, the remainder of the Court of Appeal held that the issue of capacity could not be judged piecemeal.  If a litigant had the ability to understand what was meant by a 50/50 split of liability but lacked the capacity to understand the concept of damages that resulted from that division of liability, then he lacked the true capacity to conduct those proceedings.  It would therefore have been pertinent to ask whether B had been ‘a patient’ for the purposes of Part 21 CPR when he approved the liability split.  In the circumstances, the High Court had therefore approached this aspect of the case too narrowly, Masterman-Lister v Jewell (2002) EWCA applied.

Nevertheless, the case would not be sent back to the High Court for rehearing.  It had heard all the relevant evidence and was satisfied that, at the time of agreement on liability, B did not lack the mental capacity to agree the settlement.  If the case were remitted to the judge, it was inevitable that he would either find against B or exercise his discretion in favour of the settlement on liability.  The court’s discretion to approve the compromise on liability was an unfettered one and would be used to ensure the protection of the patient and to ensure that his best interests were served. In the present case, the compromise avoided the necessity for a trial and B had had the full backing and support of his family when he agreed to it.  The compromise was not forced upon anyone. Furthermore, the parties had acted in good faith and any disadvantage caused to B was alleviated by the fact that he may have an arguable case against his former advisers if he was dissatisfied with the settlement. Accordingly, if the discretion fell to be exercised by the Court of Appeal, it would be exercised in favour of the original compromise.

Appeal dismissed.

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