Mental incapacity does not terminate retainer

Before the decision in Blankley v Central Manchester and Manchester Children's University Hospitals NHS Trust [2014] EWHC 168 (QB) earlier this month it was generally thought that a solicitor's retainer was terminated automatically by the client's loss of capacity.

Although this might appear to be an arcane point it is actually of great importance to all solicitors who act for clients where there is an issue about mental capacity. In Blankley, the solicitors stood to lose circa £180,000.

The claimant in Blankley had suffered brain damage during surgery and brought proceedings for clinical negligence which eventually settled for £2.6m plus costs.

The claimant's capacity had fluctuated during the life of the case. Initially she had acted though her father as litigation friend, then by May 2005 she had regained capacity and entered into a conditional-fee agreement (CFA). In February 2007 it was determined that she no longer had capacity. A receiver was appointed shortly thereafter who acted as litigation friend.

In the costs proceedings the defendant contended that no costs were recoverable after the date of incapacity the retainer had been automatically terminated. At first instance, the defendant succeeded and the costs for the relevant period were not recoverable.

Agency, contract and retainer

Mr Justice Phillips held that the intervening incapacity did not frustrate or otherwise terminate a solicitors' retainer.

The judge noted that on the defendant's case, no matter how short the period of incapacity (theoretically, even a scintilla of time), nor how quickly a deputy was appointed by the Court of Protection, the original CFA would be lost and could not, in real terms, be replaced.

It was conceded in the case that the supervening mental incapacity of a principal has the effect of terminating the actual authority of his agent, and where an agent's authority arises from a contract (such as a solicitor's authority under the contract of retainer between the solicitor and his client), the termination of the authority by reason of supervening mental incapacity also had the effect of terminating the underlying contract.

Contracts entered into by a mentally incapacitated person are not void but only voidable. The judge held that it could not therefore be the case that subsequent mental incapacity would in itself automatically terminate the contract as a matter of operation of law.

Frustration doctrine

On the issue of frustration, the classical test set out in Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 was considered and the court held that the supervening inability of a party to give instructions personally, with the likelihood (if not the certainty) that a deputy will be appointed does not change the nature of the contract of retainer.

Given that a claimant may regain capacity or otherwise have a deputy in place in sort order, the court said, the delay arising from supervening capacity would not seem to be of sufficient expected duration to regard the retainer as having been frustrated.

Further, it would be contrary to the principle that the doctrine of frustration should be confined within narrow limits if the retainer could be terminated in cases where incapacity was only fleeting.

One of the alternative arguments dealt with was whether the retainer was a "contract for necessaries," as set out in section 7 of the Mental Capacity Act 2005 (in force from 1 October 2007). Obiter, the court considered that if a receiver had not been appointed, the retainer would have been a contract for necessaries under section 7 and the solicitors would have been entitled to recover their reasonable fees.

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Greg Cox is a partner at Colemans CTTS. He was an assessor alongside Mr Justice Phillips in the case.

www.colemans-ctts.co.uk

 

 

 

 

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