Client loses capacity. Retainer frustrated?

The facts:

Claimant with fluctuating capacity to conduct legal proceedings. Retained a firm of solicitors on a CFA when she had capacity. She later lost capacity. Receiver appointed. No new retainer entered. Claimant succeeds. When presented with a bill of costs the opponents dispute liability for costs for the period following the incapacity on grounds no retainer because CFA frustrated.  

The key issues

Did the supervening incapacity cause the CFA to be terminated by reason of frustration because the Claimant could not give instructions to the solicitor and the contract therefore became incapable of performance.

Where an agent's authority arises from a contract (such as under a contract of retainer), does the termination of the principal's authority also terminate the underlying contract?

The Principles

Previously established that supervening mental incapacity of a principal terminates the agents actual authority. Drew v. Nunn (1879) 4 QBD 661 at 666. The agent may however have continuing ostensible authority to bind the principal and be liable for breach of warranty of authority.

Previous case law, Yonge v. Toynbee and Drew v. Nunn, considered only the question of the consequences of a solicitor's lack of authority and did not decide or even consider whether the underlying contract of retainer terminated on the client's mental incapacity.

The normal (Imperial Loan Co. v Stone [1892] 1 QB 599) rule is that contracts entered into by a mentally incapacitated person are not void but only voidable. 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 in itself automatically terminate the contract as a matter of law.

The relevant legal test for frustration.

Frustration occurs whenever, without default of either party, a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract

The question is whether the contract is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end."

The frustrating event must be fundamentally different from anything contemplated by the contract

The object of the doctrine was to give effect to the demands of justice, to achieve a just and reasonable result.

Since the effect of frustration is to kill the contract and discharge the parties from further liability under it, the doctrine is not to be lightly invoked, must be kept within very narrow limits.

Original decision.

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 that a retainer such as the CFA in this case, entered into with a person known to have fluctuating capacity, is not frustrated by the loss of such capacity.

COA Decision

The COA concurred.

The fact that supervening incapacity prevented the Claimant from giving instructions personally did not render the contract of retainer impossible of performance; it simply gave rise to a short period of delay pending appointment of a receiver/deputy who could continue the conduct of the proceedings on the claimant's behalf and give instructions to the solicitors for that purpose.

Blankly v Central Manchester and Manchester Children’s University Hospital NHS Trust [2015] EWCA CIV 18


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