Civil procedure, the CPR and the principles of the law of contract

In part one of this series, it was seen that the ordinary rules of contract are overridden by Part 36 but that they do nonetheless sit behind consent orders. Part two considers litigation settlement more widely to see if in the context of litigation the general law of contract provides the governing principles.

Settlement outside of Part 36

Settlement offers that are either not intended to be Part 36 offers or which fail to comply with Part 36 will inevitably be governed by ordinary contract principles. On that basis the parties can impose whatever conditions for settlement they see fit and avoid the constraints of Part 36, especially as to costs.

Bellway Homes Ltd v Seymour (Civil Engineering Contractors) Ltd [2013] EWHC 1890 (TCC) is a good example where Akenhead J referred to a supposed lacuna in the Civil Procedure Rules (CPR) that there is no express provision for reference by a party to the court to permit it to accept the Part 36 offer during the 'relevant period' but with the court being left to resolve issues of costs.

The answer appears to be then to use a Calderbank response, 'accepting' the terms on offer but subject to the court's decision as to costs, thus taking it outside of Part 36. Such a response is of course itself a counter-offer but it will be taken into account on costs.

Settlement and mental capacity

In Dunhill v Burgin [2014] UKSC 18 the unknown lack of mental capacity of the claimant when settling a claim by consent order was relied upon to overturn the consent order.

In the Supreme Court it was argued that ordinary contract law principles applied but it was held they did not.

In particular, it was argued that the rule in Imperial Loan Co Ltd v Stone [1892] 1 Q.B. 599 should be applicable to the settlement of civil claims and that once the parties had reached agreement the court should not interfere in the bargain. Imperial Loan states that a contract made by a person who lacks capacity is valid unless the other party to the contract knew or ought to have known of the lack of capacity in which case it is voidable.

That argument, based on ordinary contract principles, failed with the Supreme Court drawing from Dietz v Lennig Chemicals Ltd [1969] 1 A.C. 170 as having introduced a substantial and specific exception (in respect of protected parties) to the common law rule in Imperial Loan. It is also clear that the validity of the consent order was defeated on policy grounds in that protected parties required and deserved protection.

David Chalk is a consultant for DAS LawAssist

www.daslawassist.co.uk

He is a senior fellow in the faculty of business, law and sport at the University of Winchester

Chalk was the university's founding head of law from 2006 to 2009 having joined from Anglia Ruskin University where he was principal lecturer in law. He has taught law at undergraduate level for more than 30 years and has also taught at Master's level and at the vocational stage for both barristers (BBPTCC) and solicitors (LPC)