Did The Claimant Have Capacity To Enter Into A Valid Retainer? Solicitors' Obligations To Investigate Considered

FURLEY PAGE LLP V KFL [2025] EWHC 1703 (SCCO)

In Furley Page LLP v KFL [2024] EWHC (Costs), the court determined whether the defendant had contractual capacity to enter into a retainer with the claimant solicitors on 4th October 2020, impacting the validity of £71,850.64 in unpaid fees. The defendant, a 91-year-old barrister diagnosed with dementia, contested capacity under the Mental Capacity Act 2005, arguing the claimant knew or ought to have known of his incapacity, per Dunhill v Burgin [2014] UKSC 18. Costs Judge Whalan held the defendant retained capacity until 22nd June 2021, rejecting claims the Mental Capacity Consult assessments were unreliable and noting the Office of the Public Guardian’s January 2021 finding of capacity. The court clarified constructive knowledge of incapacity sufficed to avoid a contract, though actual knowledge only arose on 29th July 2021 when Cobb J’s judgment in related Court of Protection proceedings was delivered. The retainer remained valid for work pre-22nd June 2021, but the claimant could not recover fees for post-29th July 2021 services. The detailed assessment was adjourned to address quantum implications.

“In summary, therefore, the Defendant had capacity to enter into the contractual retainer agreed with the Claimant on 4th October 2020. He maintained such capacity until 22nd June 2021 when, on the balance of probabilities, his dementia had deteriorated to the extent that he no longer had the capacity to contract. The Claimant’s solicitors had actual and/or constructive knowledge of this from 29th July 2021.”

Citations

Dunhill v Burgin [2014] UKSC 18 A contract entered into by a person lacking capacity is voidable if the other party knew or ought to have known of the incapacity, imposing a duty on the contracting party to avoid taking unfair advantage in costs arrangements. Imperial Loan Co Ltd v Stone [1892] 1 QB 599 A contract made by a person lacking capacity is not void but voidable, and may be set aside if the other contracting party knew or had constructive knowledge of the incapacity, impacting enforceability of solicitors’ retainers. Re K: T (& Anor) v L (& Others) (Inherent Jurisdiction: Costs) [2021] EWHC 2147 (Fam) Where a party’s capacity is in dispute, courts may direct that each side bears its own costs to reflect the complexities and sensitivities inherent in incapacity-related proceedings.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

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Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

A solicitor’s entitlement to recover costs under a contractual retainer may be voidable if the client lacked capacity at the time of agreement, provided the solicitor had actual or constructive knowledge of the incapacity. [17]
The presumption of capacity under the Mental Capacity Act 2005 is rebuttable on a balance of probabilities, and the burden of displacing this presumption falls on the party asserting incapacity. [16, 40]
For the purposes of contractual enforceability, knowledge of a party’s incapacity can be established on the basis of either actual or constructive knowledge; solicitors may therefore be fixed with constructive knowledge of a client’s incapacity. [17, 40]
Where questions arise regarding a client’s capacity to enter into a retainer, solicitors must take reasonable steps to verify capacity, particularly where there are indications of vulnerability or cognitive impairment. A failure to do so may support a finding of constructive knowledge. [31]
A solicitor who continues to act under a retainer after the client has lost capacity and where the solicitor knows or ought to know of that loss may not recover costs incurred after the point at which such knowledge arose. [44–45]

"As ever, reaching such absolute conclusions in a case in which bright-line certainty is characteristically absent, is a challenging process. But my conclusions accord with the expert findings and the manner in which this evidence was construed in the High Court proceedings."

Key Findings In The Case

The Defendant was found to have had capacity to enter into the contractual retainer with the Claimant solicitors on 4 October 2020; as such, the retainer was valid and enforceable up to that date. [42]
The Defendant lost the mental capacity to contract by 22 June 2021, on the balance of probabilities; accordingly, any costs incurred after this date may only be recoverable if the Claimant lacked actual or constructive knowledge of the incapacity. [43]
The Claimant solicitors were found to have actual knowledge of the Defendant’s incapacity to contract from at least 29 July 2021, following the judgment of Cobb J in Re K, and were therefore not entitled to recover costs incurred after that date. [44–45]
The Claimant was held not to have actual or constructive knowledge of incapacity prior to 29 July 2021, given the contemporaneous capacity assessments provided by Mr Ofori and the conclusion of the Office of the Public Guardian in January 2021 that the Defendant retained decision-making capacity. [42–44]
The Defendant, having asserted incapacity as a ground for resisting the detailed assessment of costs, failed to discharge the burden of proof on a balance of probabilities to show that he lacked capacity at the time the retainer was entered into. [42]

"For a party to avoid a contract due to lack of capacity, it is clear, following the Supreme Court judgment in Dunhill v. Burgin (ibid), that the other party must have actual or constructive knowledge of the incapacity. I reject the Claimant’s narrow construction purporting to limit the test to actual knowledge only."

Background

The costs proceedings arose from a Part 8 claim for detailed assessment under section 70 of the Solicitors Act 1974, brought by Furley Page LLP against their former client, KFL. The defendant was a distinguished 91-year-old barrister and academic who had been diagnosed with mixed Alzheimer’s disease and vascular dementia in August 2020.

On 4th October 2020, the defendant purportedly entered into a retainer with the claimant solicitors to assist with creating a new will. The retainer comprised a Client Care Letter dated 29th September 2020 and additional Terms of Business. Between October 2020 and December 2021, the claimant delivered seven invoices totalling £72,850.64, of which £1,000 had been paid on account, leaving an outstanding balance of £71,850.64.

The retainer’s validity became contested in the context of wider Court of Protection proceedings. In October 2019, the defendant had executed Lasting Powers of Attorney appointing two former colleagues as attorneys. In late 2020, these attorneys received notice that the LPAs had been revoked and replaced by new attorneys (the defendant’s nephew and niece). This led to High Court proceedings in early 2021, with the Official Solicitor appointed as the defendant’s litigation friend.

Following expert assessments, the parties agreed by consent order in July 2021 that an application should be made for a statutory will. On 29th July 2021, Cobb J delivered judgment ordering that all parties bear their own costs in the High Court proceedings. By May 2021, Martin Terrell of Warners Solicitors had been appointed as the defendant’s Deputy for Property and Financial Affairs.

Costs Issues Before the Court

The preliminary issue before Costs Judge Whalan concerned whether the defendant had contractual capacity to enter into the retainer with the claimant solicitors on 4th October 2020. This issue was crystallised in Point 1 of the Points of Dispute, which asserted that the defendant lacked contractual capacity at the time of instruction and that the claimant knew or ought to have known of this incapacity.

The legal framework required consideration of the Mental Capacity Act 2005, particularly sections 3 and 4, and the associated Codes of Practice. The court needed to determine whether the defendant was capable of understanding the nature, terms and effect of the contract at the relevant time, applying the principle that capacity is presumed but rebuttable.

A secondary issue was whether, if the defendant lacked capacity, the claimant had actual or constructive knowledge of this incapacity, following the principle established in Dunhill v Burgin [2014] UKSC 18 that a contract made by a person lacking capacity could be avoided if the other party knew or ought to have known of the incapacity.

The Parties’ Positions

The defendant submitted that he lacked capacity to enter into the retainer, relying on five broad factors. First, the context showed minimal involvement from the defendant himself, with contact handled by the new attorneys. An attendance note from September 2020 described him as “very vulnerable”. Second, the absence of witness evidence from any fee earner involved at the time of the retainer invited an adverse inference.

Third, the defendant challenged the reliability of capacity assessments conducted by Peterkin Ofori of Mental Capacity Consult between October and December 2020. Counsel argued these assessments were of “little evidential value” as Mr Ofori’s qualifications were unclear and his questioning was highly leading. Fourth, expert evidence from Professor Robert Howard demonstrated that by November 2020 the defendant’s episodic memory was “extremely impaired” and by April 2021 he lacked capacity to contract. Fifth, evidence from Jon Turner, one of the original attorneys, suggested significant cognitive impairment around October 2020.

The defendant further argued that the claimant had actual or constructive knowledge of his incapacity, having failed to make adequate enquiries of the existing attorneys and ignoring warning signs in attendance notes and assessments.

The claimant, through Mr Waters (Costs Lawyer), maintained that the defendant retained capacity to enter into the retainer. They emphasised the high burden required to displace the presumption of capacity under the Mental Capacity Act 2005. The claimant relied on the Mental Capacity Consult assessments, which all concluded the defendant had capacity for the relevant decisions. They noted that the Office of the Public Guardian concluded in January 2021 that the defendant had capacity to make decisions about his lasting power of attorney.

The claimant argued they had acted appropriately by commissioning capacity assessments from the outset, demonstrating awareness of potential issues. They contended that any deterioration in the defendant’s condition was gradual, with no clear point marking loss of capacity. Mr Waters also argued that only actual knowledge, not constructive knowledge, would suffice to invalidate the contract – a submission rejected by the court.

The Court’s Decision

Costs Judge Whalan found that the defendant had capacity to enter into the contractual retainer on 4th October 2020. The judge determined that the burden of proving incapacity, which lay with the defendant on the balance of probabilities, had not been discharged. The court accepted that both actual and constructive knowledge of incapacity would suffice to avoid a contract, rejecting the claimant’s narrower interpretation.

The judge found that the Mental Capacity Consult reports accurately recorded and assessed the defendant’s capacity in October and November 2020. The court noted these assessments were commissioned properly by solicitors aware of the defendant’s dementia diagnosis and keen to ensure capacity. The Office of the Public Guardian’s conclusion in January 2021 that the defendant had capacity supported this finding.

Crucially, the court determined that the defendant lost capacity to contract from 22nd June 2021, based on the expert consensus reached at that time. The judge found that the claimant had actual knowledge of the defendant’s lack of capacity from 29th July 2021, when Cobb J delivered judgment in the High Court proceedings, though noted the material from those proceedings appeared to have been available contemporaneously.

The practical effect was that the retainer was valid from 4th October 2020 until 22nd June 2021, after which point the defendant lacked capacity to contract. The claimant could not rely on the retainer for work done after 29th July 2021, when they had actual knowledge of the incapacity. The judge indicated that the implications of these findings would be considered at an adjourned detailed assessment hearing.

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