Loss of capacity does not automatically terminate solicitor’s retainer

18 February 2014 by Richard Mumford

Blankley v Central Manchester and Manchester Children’s University Hospitals NHS Trust, Phillips J with assessors, 5 February 2014 – read judgment

Upholding the rights of individuals who lack the mental capacity to conduct proceedings can be a minefield for the unwary or even, as shown by this case, the wary. The point at issue before the court was whether, where a party loses mental capacity in the course of proceedings, such loss of capacity has the automatic and immediate effect of terminating their solicitor’s retainer.

The determination of the point was of particular importance in this case where Ms Blankley’s solicitors had been acting under a CFA entered into before the changes brought about on 1 April 2013 by reason of the Legal Aid, Sentencing and Punishment of Offenders Act 2012. If the CFA was found to have been terminated by Ms Blankley’s supervening incapacity, then under the new regime there would be no means of replicating the terms of the CFA. On one view therefore this was a case about how much the Claimant’s solicitors would get paid. However, looked at more widely, it raised the question of the extent to which a court-appointed deputy merely steps into the shoes of a party who loses capacity in the course of litigation and/or may step out of those shoes if and when capacity is regained.

In 1999 the claimant suffered anoxic brain damage following cardio-respiratory arrest during surgery at the defendant’s hospital. In 2002 she brought a claim with the benefit of legal aid, at that time acting through her father as litigation friend. A compromise was reached that she be paid 95% of damages and judgment was entered to that effect. By May 2005 the claimant had regained mental capacity and an order was made that she carry on the (quantum only) proceedings without a litigation friend. Her legal aid certificate was discharged and the next day she entered into a CFA with her solicitors. In February 2007 further assessments of the claimant by psychiatrists determined that she no longer had mental capacity to conduct her own affairs and could not provide instructions in relation to her ongoing claim. An application was made to the Court of Protection for the appointment of a professional receiver (since 1 October 2007 deemed to be the claimant’s deputy), which was granted. Settlement was eventually reached in the sum of £2.6m plus costs. In response to the Claimant’s bill of costs the Defendant raised the issue of the recoverability of costs for work done after the appointment of the receiver/deputy. The costs in issue were about £185,000. In short, the costs judge at first instance disallowed those costs on the basis that there was no valid retainer for that work once the Claimant lacked the mental capacity to conduct the litigation.

On appeal to Phillips J, the opposite conclusion was reached. The court reviewed the key authorities on the frustration of contract (in particular Bingham LJ’s judgment in The Super Servant Two [1990] 1 Lloyd’s Rep 1). Suffice it to say that the court considered that the supervening incapacity of a client was not an event which frustrated the contract, leading automatically to its termination. The decision of the Senior Costs Judge in Findley v Barrington Jones [2009] EWHC 90130 (costs) that where a claimant lost capacity so that he was no longer able to give instructions, the contract of retainer was at that point frustrated, must be regarded as at best doubtful. Phillips J indicates at paragraph 44 of his judgment that he regarded Findley as wrongly decided by reason of not having considered the principles governing the frustration of contracts.

Standing back from the costs context of this case, the decision of Phillips J is plainly right. The court should not readily embrace an interpretation of the law which gives rise to a situation where the parties and lawyers in litigation involving vulnerable clients are left in doubt as to the validity of steps taken in that litigation. Where at all possible, litigation should be conducted seamlessly and efficiently, without satellite disputes being generated as to whether at a particular point in time a client (whose mental state may fluctuate) fell the wrong side of capacity with the result that all bets are off. Phillips J’s judgment restores common sense to the law in this area.

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