In 1999 the claimant underwent a termination and sterilisation at St Mary’s Hospital, Manchester (part of the defendant NHS Trust) during which she suffered cardio-respiratory arrest and anoxic brain injury. The claimant then brought proceedings in 2002 claiming damages for the alleged negligence of the defendant in relation to the procedure. She brought the claim acting through her father as her litigation friend and with the benefit of legal aid.
The proceedings were complex and contested but the parties agreed that judgement be entered for the claimant for damages to be assessed on the basis of 95% liability. By 2005 the claimant had regained mental capacity and an order was made that she carried on the proceedings without a litigation friend. The legal aid certificate was subsequently discharged. Following this the claimant entered into a conditional fee agreement with her solicitors, Linder Myers. This conditional fee arrangement covered all work up to 26 February 2007.
In February 2007 further assessment of the claimant determined that she no longer had mental capacity to conduct her own affairs and could not provide instructions in relation to her claim. An application was made to the Court of Protection for the appointment of Mr Cusworth, a trusts partner in Linder Myers, as the claimant’s receiver. The Court of Protection duly made the order, expressly providing that the receiver had authority to conduct these proceedings on the claimant’s behalf. On the coming into force of the Mental Capacity Act 2005 receivers automatically became Court of Protection deputies. Mr Cusworth was entitled to act as a litigation friend of the claimant.
The proceedings eventually resulted in a settlement of the claim in the amount of £2.6 million plus costs. Linder Myers submitted a Bill of Costs on behalf of the claimant.
Parts 4 to 7 of the claimant’s Bill of Costs related to the period after 6 March 2007, when the claimant was acting through Mr Cusworth as her receiver/deputy and litigation friend, claiming payment on the basis of the conditional fee arrangement, including a 25% success fee. The defendant contended that no costs were recoverable in relation to work done and disbursements incurred as claimed in parts 4 to 7, asserting that, as a result of the claimant’s mental incapacity, the conditional fee arrangement had automatically terminated prior to 6 March 2007, leaving Linder Myers without any retainer.
The matter came before Judge Harris as a preliminary issue. Judge Harris concluded at as follows:
“It is impossible not to be sympathetic to the position in which the Claimant’s Solicitors find themselves. The starting point is the contractual position relating to the capacity of the Claimant and the position that arises on her losing capacity. There seems to me to be no doubt that Yonge v Toynbee remains good law, and that the relationship between a Solicitor and their client under a conditional fee arrangement agreement or indeed a private funding agreement, is contractual, and that Yonge v Toynbee is good authority and that the loss of capacity terminates that contractual arrangement.”
Judge Harris further held that the receiver/deputy had not entered into any new contract with Linder Myers on behalf of the claimant and had not adopted the conditional fee arrangement. He reached what he accepted was the “desperately unfair” conclusion that the claimant’s solicitors should be deprived of their costs and disbursements as set out in parts 4 to 7 of the Bill of Costs.
The claimant did not apply for permission to appeal but instead made an application for reconsideration of the matter on the basis of fresh evidence and legal argument.
In his second judgement Judge Harris held that none of the new matters raised by the claimant satisfied him that he should amend the First Judgment. Judge Harris did, however, give the claimant permission to appeal against the Second Judgment, stating that the arguments before him raised issues of considerable importance, but he emphasised that he was not giving permission to appeal the First Judgment.
In October 2012 Bean J granted the claimant permission to appeal the First Judgment out of time on the basis of the same five arguments as raised in the appeal against the Second Judgment, but also in respect of a new sixth argument that the defendant was estopped from disputing the claimant’s liability to Linder Myers. Notwithstanding the considerable delay and previous counsel’s concession that the First Judgment was correct, Bean J was satisfied that the argument was essentially one of law and one which was recognised to be of considerable importance.
The matter then came before Mr Justice Phillips where five of the arguments in respect of which permission to appeal had been granted were advanced. These were: that supervening lack of capacity on the part of the claimant did not frustrate or otherwise terminate the CFA; that, if the CFA was frustrated, it was adopted by the receiver/deputy following his appointment; alternatively, that the claimant was liable for Linder Myers’ reasonable fees because the services were necessary within the meaning of section 7 of the Mental Capacity Act 2005 which came into force on 1 October 2007 and, prior to that, within the common law concept of “necessaries”; in further alternative, that the defendant was estopped by convention from denying that Linder Myers had authority to act for the claimant; and that in any event, Linder Myers and the deputy (on behalf of the claimant) entered a new agreement in March 2009 by executing the draft 2009 CFA, which agreement covered work done since March 2007 retrospectively.
The court found that it was common ground that the supervening mental incapacity of a principal terminated the actual authority of his agent. However, the termination of a solicitor’s authority by reason of mental incapacity did not ordinarily frustrate the underlying contract of retainer. In particular, a retainer such as that in the instant case, entered into with a person known to have fluctuating capacity, was not frustrated by any loss of capacity.
The supervening inability of an individual to continue to instruct his solicitor personally, with the likelihood that a deputy would be appointed, did not significantly change the nature of the contract of retainer. In the conditional fee arrangement, the obligation to provide instructions was express, and would be implied in any event. It followed that an inability to provide instructions was not something that was not dealt with by the contract. Supervening incapacity might cause a delay in performance of the obligation to provide instructions, but that would be a matter for the enforcement of the contract terms. Even if the delay was not within the scope of the contract terms, it would only amount to a frustrating event if it fell outside what the parties could reasonably contemplate at the time of contracting.
In the instant case, the possibility that the claimant might lose capacity had been within the reasonable contemplation of the parties. To treat the retainer as terminated by what might be a fleeting episode of incapacity would be unjust and unreasonable; the doctrine of frustration was to be confined within narrow limits and was not lightly to be invoked.
If the conditional fee arrangement had been frustrated, the question arose as to the basis on which Linder Myers had acted following Mr Cusworth’s appointment. Mr Cusworth had full authority to conduct the proceedings on the claimant’s behalf. Given that he had either given instructions to Linder Myers or, at the very least, ratified the steps that Linder Myers had taken, it could not be disputed that Linder Myers’ conduct of the proceedings had been authorised by the claimant’s duly empowered representative. The Trust therefore bore the burden of proving that the claimant was not liable for Linder Myers’ fees.
Had the conditional fee arrangement been frustrated, it would have ceased to exist and Mr Cusworth could not have adopted it. Had it been necessary to decide the point, the court would have found that Mr Cusworth had not implicitly entered a new conditional fee arrangement with Linder Myers.
Linder Myers’ pursuit of the proceedings fell within the definition of “necessary services” in section 7(2) of the Mental Capacity Act 2005. The appointment of a receiver or deputy did not mean that section 7 could no longer be relied upon. In any event, since Linder Myers had been instructed by Mr Cusworth, section 7 had no application.
Linder Myers had been acting with the claimant’s authority whether or not the conditional fee arrangement remained in force, and it was not necessary to rely on any estoppel to establish that. However, had Linder Myers been acting without authority, the Trust could not have been estopped from so contending. Solicitors warranted that they had the authority of the party they purported to represent, and the opposing party’s reliance on that warranty could not give rise to any form of estoppel if it subsequently proved to have been misplaced. The appeal was allowed and Linder Myers received their fees.
The case illustrates that only certain types of contract ‘fall in’ on the basis of supervening incapacity. Informal agency, where a person is asked to help someone do something, like run their bank account, is one such, however, and that is at the root of much misunderstanding in the social care sector, where a family member believes that they have the power to go on acting for a loved one, under best interests, whereas in fact they were doing so with permission, beforehand, and are no longer so doing, after capacity is lost.