Gross under-settlement void

Posted: 21st March 2014

roadA catastrophically injured road accident victim who was mistakenly advised to settle her damages claim for just £12,500 could now be in line for more than £2 million after the Supreme Court ruled in a landmark case that she lacked the mental capacity to sign up to the compromise, which therefore had no legal effect.

The woman had been struck by a motorbike as long ago as June 1999. She had issued a claim against the motorcyclist’s insurers, seeking a maximum of £50,000 damages, and had eventually settled her claim for £12,500. It subsequently emerged that she was much more gravely injured than had been thought and that the compromise represented a gross undervaluation of her claim.

Her legal team argued that the woman had lacked the mental capacity to reach an informed decision as to whether or not to accept the settlement. Those submissions prevailed before the Court of Appeal, which ruled that a litigation friend should have been appointed to represent her interests during the negotiations.

In dismissing the insurers’ challenge to that decision, the Supreme Court found that the woman had lacked the capacity to understand the complexities of the litigation. The settlement therefore could not be agreed as a matter of private contract but had to be approved by the High Court. As that procedure had not been followed, the compromise was not worth the paper it was written on.

The Court acknowledged the need for finality in litigation and the difficulty in re-opening cases so long after the event. However, such factors had to be weighed against the requirement to protect the interests of children and vulnerable adults. The case was therefore remitted to the High Court for consideration of quantum issues, with the woman’s lawyers valuing her claim at more than £2 million.