Retainers / Recovering Costs and Fluctuating Capacity
As legal professionals we may experience instances where a client lacks capacity at the outset of the case and requires a litigation friend/deputy/agent, but what happens when that capacity changes during the course of the case and how does it affect our ability to recover costs?
The lead case in this area is Blankley v Central Manchester And Manchester Children’s University Hospitals NHS Trust [2015] EWCA Civ 18 (27 January 2015) (bailii.org) in which the Claimant experienced bouts of fluctuating capacity during the conduct of PI proceedings.
On 6th August 1999 the Claimant underwent surgery at the St Mary’s Hospital, Manchester, namely a suction termination and laparoscopic sterilization. The procedure resulted in a cardiorespiratory arrest and anoxic brain damage.
The Claimant was granted Legal Aid in July 2000 to pursue an action for alleged clinical negligence during the medical procedure, and proceedings were issued on 5th August 2002.
The Claimant at the time was not running the claim with a Litigation Friend and had instructed Linder Myers as her solicitors. Capacity was assessed in December 2002, and a Consultant Neuropsychiatrist concluded that the Claimant lacked capacity. The final result was the appointment of the Claimant’s father as her Litigation Friend.
The claim reached an agreement on liability after complex and contested litigation. February 2005, a judgment was entered for the Claimant, and costs were assessed on a 95% liability basis.
The Claimant was assessed to have regained capacity by May 2005 and an Order determining for proceedings to continue without the appointed Litigation Friend was duly made and the Legal Aid certificate was discharged on 7th July 2005. A CFA was entered into the next day with Linder Myers, with inclusion of a 25% success fee. There was no contest on the validity of the signing of the CFA.
However, less than 2 years later, the Claimant was assessed to have once again lost capacity (Feb 2007). The impact of this assessment led to the Court of Protection appointment of a trusts partner (Mr Cusworth) in Linder Myers as the Claimant’s receiver, the application for which was made on 26th February 2007 and granted on 16th April 2007.
New legislation relating to Court of Protection (CoP) receivers came into force on 1st October 2007 (s. 66 of the Mental Capacity Act 2007) which meant that receivers automatically became CoP deputies. Subsequently Mr Cusworth, as a deputy, was entitled to act as a litigation friend.
Copies of the CFA were provided to Mr. Cusworth, and the Litigation Solicitor of Linder Myers wrote to Mr. Cusworth, querying the requirement of a new CFA. A draft of the new CFA, prepared in March 2009, was not located for proceedings.
Quantum settled at £2.6 million-plus costs on 5th March 2010.
The argument before the court was that supervening incapacity did not frustrate the CFA and as a result, was adopted by the receiver for the Claimant. Further, the Claimant was liable for Myer’s reasonable costs because services were necessary within the meaning of S.7 of the Mental Capacity Act 2007, which came into force on 1st October 2007. Before this action, everything fell within the common law concept of necessaries. Additionally, the Claimant advised the Defendant was estopped by a convention, meaning the Defendant could not deny that Linder Myers had the authority to act for and later on behalf of the Claimant in a deputy role.
Contesting the Claimant’s position, Defendant used the following precedents; Drew v Nunn (1878) 4 QBD 661 at 666, and Yonge v Toynbee (1910) 1 KB 215. The assertion that when a principal and an agent relationship terminates because of supervening mental incapacity, the underlying contract terminates as well. Defendant adopted the position that a client’s mental incapacity would not terminate a solicitor’s retainer from a legal perspective. There was a practical effect of the termination of a solicitor’s authority where the contract could not be performed, and the CFA would be frustrated.
The Court did not agree with the Defendant’s position and disagreed that the CFA was frustrated. Phillip J used, by analogy, the fact that the resignation of an entire board of directors who had instructed solicitors on a company’s behalf would not change the nature of the contract of retainer.
The Defendant brought an appeal to apply the further argument to the role of mental capacity assessment. The court dismissed the appeal, maintaining its position on the point of principle and explained that the Claimant had an obligation to give instructions but was unable to comply with that obligation due to supervening incapacity.
The fluctuation of a Claimant’s capacity did not prevent recovery of costs inter partes under a Conditional Fee Arrangement.
What about the success fee? Is this still capable of recovery?
The case of Mole & Anor v Parkdean Holiday Parks Ltd & Anor [2017] EWHC B10 (Costs) (29 March 2017) (bailii.org) assists us here.
This case assessed the position of costs recovery of a success fee according to a cost order against a Defendant when the Claimant’s litigation friend was replaced by the Official Solicitor during proceedings due to inability to cope with the proceedings.
The Court agreed with the analysis applied in the case of Blankley, determining that the change of Litigation Friend to the Official Solicitor did not change the nature of the retainer and in practice amounted by analogy to a substitution of Litigation Friend. Consequently, the CFA was not frustrated by the deed of the Official Solicitor against the terms of the CFA, which applied a 100% success fee.
Finally, can we still recover costs if the retainer is not updated to reflect that a minor has come of age?
Dunn v Crescenzo Mici [2008] EWHC 90115 (Costs) (25 June 2008) (bailii.org) the Defendant challenged the validity of the CFA applied by the Claimant according to the Indemnity principle.
The contention was the bill fell to a nil value as regulation 4(2)(c), Conditional Fee Agreement Regulations 2000 had not been complied with.
The Court asserted that an agent’s signing of a CFA on behalf of a principal did not interfere with the principal being the client for the CFA regulations. The requirement to have a litigation friend in protected proceedings is only obligatory at the point of issue of proceedings.
The Claimant reached the age of majority after the signing the CFA but before the proceedings. The Claimant’s litigation friend (mother) did not act for him following the issue of proceedings, and according to CPR 21.6, the court determined that costs were recoverable.
The Claimant (Mr. Dunn) was born on 30th April 1984 and on 12th January 2002, while age 17, experienced a moped collision with a vehicle driven by the Defendant (Mr. Mici). Personal Injuries included a fracture-dislocation of the Claimant’s left ankle. The Claimant entered into a CFA on 4th March 2002 with Anthony Gold. At this time, the Claimant was a minor and therefore a protected party. The Claimant reached the age of majority in the next month on 30th April 2002.
Protective proceedings issued on 14th April 2002 and on 8th November 2006, the matter settled by way of a consent order following an admission of liability by the Defendant on 21st May 2003. Damages settled at £60,000.00 (Gross of CRU) together with costs to be assessed on the standard basis if not agreed.
Detailed assessment commenced on 15th August 2007. Points of dispute served on 28th September 2007 challenged the validity of the CFA funding, asserting that the litigation between Anthony Gold & Co and the Claimant’s mother acting as the Claimant’s litigation friend. In short, the Defendant challenged the recovery of costs because of no updates to the funding agreement to reflect when the Claimant became an adult and was no longer a protected party. The position under Regulation 5 (1) of the Condition Fee Agreement Regulations stipulates that a funding agreement must be signed both by the client and the legal representative. As the client who signed the funding agreement was not the Claimant but his mother, the Defendant disputed costs incurred post 30th April 2002.
The Claimant defended the costs with the following positions:
- Mr. Dunn was the client and party to the CFA, which enabled compliance to the funding regulations.
- Further or Mr. Dunn and his mother were both clients. Only Mr. Dunn received compliance advice and that the CFA remained to be enforceable.
The Claimant established that the application of a litigation friend did not act to diminish Mr. Dunn contracting to the funding agreement. Under CPR 21.2, the Claimant asserted that there was no requirement for Mr. Dunn to have a litigation friend because a litigation friend is only required once proceedings were issued and the client is a minor. Although the CFA signed several weeks short of the Claimant reaching 18, proceedings were not published until after his 18th Birthday. The Claimant added that Mr. Dunn’s mother did not act as a litigation friend, and neither the Courts and Legal Services Act 1990 nor the CFA Regulations prevented a person under the age of 18 from actually entering into a CFA. Consequently, the Claimant outlined no bar to Mr Dunn being the client under the Law of Contract or incapacity.
The argument from the reading of the CFA that the Claimant was the client. The Claimant advised the signing by Mr. Dunn’s mother did not intervene with Mr. Dunn being the client to the CFA. Mrs. Dunn acted as a conduit on behalf of the principal. Only Mr. Dunn could be liable under the CFA and no appointment made under CPR 21.9 (6). Mrs. Dunn could not be held responsible for costs.
The court’s decision addressed that the wording of Anthony Gold’s CFA created complexities that gave an impression of being fatal to the validity of the agreement. The named litigation friend to the CFA had not acted as a litigation friend under CPA 21 at the time of proceedings, and it was clear that Mrs. Dunn was not the client.
The Court agreed that an agent could sign the CFA on behalf of the principal and confirmed that there was no requirement for a litigation friend to be appointed as the obligatory instruction of a litigation friend would only be triggered upon the issue of proceedings. The Claimant was an adult, and the litigation friend did not act on his behalf.
The Court supported the recovery of costs and the permission to appeal.
Fluctuating capacity does not automatically frustrate a CFA, assuming the client had capacity at the outset. An agent, if they have authority to do so, may act on the client’s behalf while not affecting the underlying retainer.
There is no need for a minor who comes of age before the issue to have signed the CFA provided the terminology used in the CFA clarifies that the minor is the client. An agent can sign on the minor’s behalf.
In the case of fluctuating capacity Partners in Costs strongly suggests you thoroughly check your retainers. Case specific advice should be sought where these issues arise.
Allison Ward, Costs Consultant
06.05.21