England and Wales High Court (Senior Courts Costs Office) Decisions

IN THE HIGH COURT OF JUSTICE
SENIOR COURTS COSTS OFFICE

		29 March 2017

Master Brown:

1. The issue that arises for determination is whether the First Claimant ('the Claimant') is entitled to recover a success fee pursuant to a costs order against the Defendants in respect of work carried by his solicitors for a period after the Claimant's mother was replaced as a litigation friend by the Official Solicitor.
2. As the title above records, the Claimant is a protected party and the Official Solicitor currently acts as his litigation friend. The Claimant suffered injuries in an accident which occurred on 18 October 2005 at the Trico Bay Holiday Park, South Wales. Then aged seven, the Claimant was found unconscious underwater in a swimming pool at the park; he sustained catastrophic hypoxic brain damage leading to severe and permanent injuries of the utmost severity. On 9 March 2015 HH Judge Court QC approved an order for the payment by the Defendants to the Claimant of lump sum damages of just over £1.35 million and periodical payments commencing at £171,000 per annum. The order provided for the payment of the Claimant's reasonable costs by the Defendants.
3. The Claimant's claim was originally pursued on instruction from his mother as litigation friend pursuant to a conditional fee agreement which was entered by her with solicitors Irwin Mitchell LLP ('the solicitors') on or about 7 February 2006. The CFA appears in standard form and describes her as the client as mother and litigation friend of the claimant. She was duly appointed litigation friend on the issue of proceedings. The agreement records that the success fee was set at 100% of base profit costs.
4. In due course concerns arose as to the mother's ability to cope with the effects of the Claimant's injuries and at a CMC on 18 April 2013 HH Judge McKenna ordered her removal as litigation friend and replacement with the Official Solicitor. On 25 July 2013 the Official Solicitor signed a document headed 'Deed of Ratification and Affirmation' (the deed) the evident purposes of which were that instructions of the solicitors continued the same CFA terms as that which had applied earlier. By the terms of the deed the Claimant was described as the client, the parties acknowledged the appointment of the Official Solicitor as litigation friend; further, it was agreed and recorded that on the signing of the deed the Official Solicitor thereby ratified and affirmed the CFA entered into on the client's behalf and confirmed "the instructions of the Official Solicitor to [the solicitors] to continue to conduct the Claimant's claim under the terms of that CFA". There were default provisions such that if there had been no effective ratification or affirmation there was deemed to be a new contract with the solicitors and the success fee was limited to a maximum of 25% of the damages awarded to her, in accordance with the Conditional Fee Agreements Order 2013.

The parties' contentions

5. The Defendants maintain that it was not possible in fact or law for the Official Solicitor to ratify or affirm the CFA entered by the Claimant's mother. They contend that the effect of the deed was that the Official Solicitor entered a new CFA. No point is taken about the enforceability of any new CFA but because of it being a CFA entered into after 1 April 2013 it is said that no success fee would be recoverable from the Defendants (see section 44 (4) Legal Aid Sentencing and Punishment of Offenders Act 2012).
6. The Claimant maintains an entitlement to the success fee in respect of the disputed period principally on the basis that the claim for costs is and remains that of the Claimant himself and that the retainer was properly to be regarded as one between the Claimant and the solicitors from the outset and continuing to date. Reliance is placed on the decision of Blankley v Central Manchester and Manchester Children's University Hospitals NHS Trust [2015] EWCA Civ 18 in support of the contention that in circumstances such as these a retainer entered into between solicitors and a litigation friend is properly to be regarded as a retainer between the claimant and those solicitors whom his litigation friend instructs, the relationship between the claimant and the litigation friend being one of principal and agent, or least one akin to it.

Submissions

7. Neither party relies upon the precise the wording of the CFA or the deed as determinative of the outcome. However, Mr. Marven, for the Defendants, submits that the Official Solicitor could not have ratified or affirmed the terms of the earlier CFA. A principal ratifies the unauthorised acts of a person who has purported to act for him while having no actual authority (Bowstead and Reynolds, para. 2-004); affirmation is ordinarily used to describe the position where an innocent party, notwithstanding an entitlement to accept a repudiatory breach, elects to treat the contract as continuing (Chitty, para. 24-003). Neither terms could properly be said to be apply here and thus, he submits, a new contract must have been entered into.
8. Mr. Mallalieu says that the Claimant's case does not depend upon there being a successful affirmation or ratification of the CFA; if he is right, he says, it is not necessary for the original terms of the CFA to have been ratified or affirmed as the terms of the initial retainer continue as a matter of law.
9. In Blankley the issue determined in the appeals was whether or not a CFA had terminated automatically by reason of frustration when a claimant lost capacity; it was said that the CFA no longer governed the continuing conduct of the proceedings by a receiver/deputy appointed by the Court of Protection to act on her behalf. The claimant in that case had fluctuating capacity to conduct legal proceedings. Following discharge of a legal aid certificate in a period when she was found to have capacity, she entered a CFA with her solicitors. Some 18 months later it was determined that she had lost capacity and on 16 April 2006, a partner in the firm of solicitors she had instructed, was appointed as her receiver (in October 2007 on the coming into force of section 66 of the Mental Capacity Act 2005 the partner automatically became a Court of Protection Deputy). Whilst a draft of a new CFA was prepared it appears that an executed version of the agreement could not be found. On an assessment of costs the paying party contended that the CFA had terminated automatically before the appointment of the receiver/deputy and that no costs were payable in respect of the period thereafter.
10. In the first appeal ([[2014] EWHC 168 (QB)) Phillips J rejected the contention of the defendants. He considered the relevant principles governing frustration and said as follows:

"37. Applying the established test and the other above principles it is clear, in my judgement, that termination of a solicitor's authority by reason of mental incapacity does not, in itself and in the usual case, frustrate the underlying contract of retainer. It is even clearer, in my view, that a retainer such as the CFA in this case, entered with a person known to have fluctuating capacity, is not frustrated by the loss of such capacity.

38. First, whilst the giving of instructions and the consequent authority of a solicitor to act on behalf of a client according to those instructions is certainly central to the contract in question, the manner and capacity in which those instructions is given is not. This 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, radically or even significantly. The position would seem no different to a company providing instructions to its solicitors through its board of directors. If the entire board resigned, there might be no individual capable of giving instructions until a new director was appointed, that would not in itself change the nature of the contract of retainer so as to frustrate it."

11. On a further appeal the Court of Appeal expressed agreement with all the reasons given by Phillips J without qualification (see para.41) (it is not necessary to me set out all the further reasons here). Mr Mallalieu says, following this reasoning, that there has been in place a retainer throughout between the Claimant and the solicitors under the terms for the first CFA of 2006; such is the position, he submits, whether the express terms of the CFA contemplated the Claimant's mother as the principal. The identity of the litigation friend was not material to the continuation of retainer: the litigation friend acted as agent for the Claimant and the original agreement continued under the terms of the CFA, there being no reason why the Official Solicitor could not be substituted for the Claimant's mother into the agreement.
12. Mr. Mallalieu refers me to various further decisions which he says are supportive of his case.
13. In Steeden v Walden [1919] Ch 393 Eve J cited with approval the following dicta:

"It is undeniable that the habit of the court has been to encourage persons to come forward as next friend for the purposes of obtaining aid on behalf of the parties who are incapacitated to sue for themselves" [for 'next friend' now, of course, read 'litigation friend']

With that in mind, he held that an infant was required to indemnify a next friend in respect of the expenses incurred by the next friend in litigation.

14. In Helps v Clayton (1864) 17 CB (NS) 553 a father acting for his daughter was described as acting in the role of agent in respect of the preparation of a marriage settlement and the daughter's infancy was held not to be a defence to an action against her by solicitors to recover the costs of the marriage settlement; this was in circumstances where the preparation of the settlement was considered to be a 'necessary' suitable to her condition.
15. In B v B [2010] EWHC 543 (Fam) the Official Solicitor claimed costs against a litigant for whom the Official Solicitor had been appointed to act in matrimonial proceedings after the litigant had lost capacity to conduct the litigation. Bennett J stated:

"…Thus for the purposes of this case the litigation cost of Mr. B fell to be funded by the Official Solicitor. Thus, putting it into legal language the Official Solicitor bore out his own monies the costs of his principal, namely Mr. B."

16. Mr. Marven says that the decision in Blankley and the other authorities relied upon by Mr. Mallalieu should be distinguished and that none of the authorities could properly be regarded as supporting the Claimant's contention. He submits that crucially the claimant in Blankley did have a valid CFA which could be continued under the terms of section 18 (1) (f) of the Mental Capacity Act 1995. In this case however the Claimant could never have had capacity and there was never any prospect that he could gain it. It is impossible for an individual who lacks capacity to act as a principal; accordingly the CFA could not have been with the Claimant himself and there was no prospect of the agreement or any enforceable obligation ever being transferred from him or remaining with him.

Decision

17. In my judgment the analysis in Blankley is clear and it leads to the conclusion that the retainer that was first entered into 2006 has remained effective during the course of the claim unaffected by the substitution of a new litigation friend. Accordingly, the claim for costs in the period after the appointment of the Official Solicitor is not dependent upon the Official Solicitor having entered into a new agreement on 1 April 2013 or indeed founded upon any such agreement. There was already in existence an agreement which was sufficient to ground the liability of the Claimant to pay the success fee under the original CFA for the period after the appointment of the Official Solicitor.
18. I am not persuaded that there is a proper basis for distinguishing the decision of Blankley. The point raised by Mr. Marven is addressed by Phillips J in the following paragraph of his decision:

"30. For the defendant, Mr Smith accepted that, whilst a client's loss of mental capacity has the legal effect of terminating the existing authority of his solicitor, such loss of capacity does not, in itself, have the legal effect of terminating the underlying contract of retainer. That concession was entirely realistic. The normal rule (often referred to as the rule in Imperial Loan Co. v Stone [1892] 1 QB 599) is that contracts entered into by a mentally incapacitated person are not void but only voidable, and only then if that person can show he was, at the time of contracting, incapable of knowing what he was doing, and that the other party was aware of the incapacity: see Bowstead & Reynolds on Agency 19th edition, paragraph 2-009. As a contract is not void even if one party lacked mental capacity when it was made, it cannot be the case that subsequent mental incapacity would automatically terminate the contract."

19. Accordingly, even if it were right that it were necessary for the Claimant to be regarded as a principal for these purposes, I do not consider that the matters raised by Mr. Marven are a sufficient basis for distinguishing the decision: the Claimant's incapacity does not prevent him being a principal for these purposes or otherwise from properly incurring the relevant costs liability.
20. I would note that it has not been argued by Mr. Marven that the construction of the retainer in Blankley detracts from the protection that is intended for a protected party. The appointment of the Official Solicitor was in writing and plainly for the benefit of the Claimant. Moreover, I would respectfully add that there are, in my judgement, good grounds for following the reasoning that underlies that decision here, even if the result in that case could be justified on other grounds.
21. The outcome is in keeping the dicta of Eve J cited above. It avoids the difficulties that would arise if the initial CFA were considered to have been terminated (as to which I refer to the passages in para. 42 of the judgement of Phillips J in Blankley, cited with approval by the Court of Appeal at paragraph 24 of its decision). I would also observe that if the Defendants were correct the Official Solicitor would be liable for the success fees and would be required, potentially, to pass this liability on to the Claimant, a matter of potentially very significant and serious prejudice; whereas this outcome (and assuming that the success fee is otherwise recoverable- at least in principle- against the Defendants) avoids what seems to be in the nature of a windfall.
22. Accordingly, I find for the Claimant on this preliminary issue.