Vulnerability and costs – the litigator’s dilemma

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Guest post from Victoria Morrison-Hughes, director of Integral Legal Costs

Morrison-Hughes: Costs of investigating vulnerability should follow the costs of the case

Practice direction 1A, coupled with an amendment to the overriding objective introduced in April 2021, introduced a whole new extra level of due diligence for legal representatives (LRs) when it comes to vulnerability.

They require LRs to ensure that parties are on “equal footing” and “can participate fully in proceedings”.

This is not a new obligation – under the SRA Code of Conduct 2019, solicitors are required to “consider and take account” of their “client’s needs, attributes and circumstances” and to provide information to their clients in a “way they can understand”.

These obligations have however taken on a greater emphasis since the introduction of the extended fixed recoverable costs regime, particularly the provisions of CPR 45.10, providing a possible escape route for solicitors from fixed costs.

The provisions create an insurmountable hurdle for representatives of vulnerable consumers, such that some may find it untenable to continue to act given the introduction of essentially a four-stage test to unlock the additional costs.

Firstly, the representative has to identify that that person is a vulnerable party. There is no clear definition of vulnerability. The rules consider that a person could be vulnerable where a personal or situational, permanent or temporary factor exists. Relevant factors include age, immaturity, lack of understanding, communication or language difficulties, social domestic or cultural considerations.

As such it is going to be extremely difficult for an untrained professional like an LR to accurately identify whether or not they are handling a vulnerable client or witness.

An LR would probably feel more comfortable – once the potential of a vulnerability is identified – if they could conduct an assessment properly and in the client’s own environment. However, that is unlikely to be economically viable under the fixed costs regime.

If a client or witness is believed to be vulnerable, the LR must, secondly, identify what reasonable and proportionate adjustments should be made to ensure that they understand and are on an equal footing so that they are able to participate fully in the proceedings. The LR should record how those adjustments have increased the amount of work they have had to do.

Thirdly, the additional work required must – in additional to being reasonable and proportionate – have increased the net time spent on the file by more than 20%.

Finally, they must convince a judge on assessment that: there was a vulnerability, additional work was required, it was reasonable and proportionate, it exceeded the fixed costs by at least 20%, and thus an escape from fixed costs is justified so that they can recover those additional costs between the parties.

All of these concerns are considered and echoed in the Civil Justice Council’s consultation paper last month on the procedure for determining mental capacity in civil proceedings.

It raises questions such as whether all parties have an interest in determining a party’s capacity, whether clear guidance is needed as to what should trigger a belief that there is a capacity issue, who should determine capacity, and ultimately who pays for its investigation and determination.

The jeopardy faced by a LR in these situations to satisfy their professional and commercial obligations is such that they are going to be reluctant to accept instructions from a client they consider to be vulnerable or lack capacity.

Alternatively, the LR will need to ensure that the vulnerable or incapacitated client has the means (or the potential in damages) to cover any shortfall in costs themselves.

Furthermore, as these are very personal and private issues which a LR is now required to take into account, LRs are going to have to probe the client or witness about the nature and extent of their possible vulnerability or lack of capacity. This could be quite a difficult situation to manage and is likely to give rise to more complaints by clients.

If the client does not accept or is offended by the LR’s assessment – or indeed they do not consider the adjustments and additional costs to be reasonable – this places the risk fully with the LR.

However, woe betide the LR who does not take the necessary measures to identify a vulnerability or investigate any capacity concerns for fear of offending their client or witness. This could come back and bite you. For example, if your client later tells you that they are illiterate, this could negate your entire contractual arrangement.

Or what if you become aware of a capacity or vulnerability issue that means pursuing the action no longer meets a cost-benefit analysis?

Save for a few exceptional circumstances, a solicitor is required to perform their entire contract and cannot decline to continue to act if the additional measures mean that conducting the claim within the fixed fee is no longer commercially viable.

PD 1A and codes of conduct potentially come into conflict here, not to mention the major access to justice concerns.

If it is the case that “it is no answer to a claim for a fractured skull that the owner had an unusually fragile one” (the famous egg-shell rule from Owens v Liverpool Corp [1939] 1 KB 394), then surely the winner in any civil litigation action, who is then entitled to recover their costs from the loser, should be able to recover ALL their costs – to include the legal expense of investigating capacity, vulnerability and funding options?

I have never understood the logic behind the decision in Claims Direct Test Cases [2002] EWHC 9002 (Costs) that funding costs are not recoverable between the parties, as this is at odds with the well-established principle of the egg-shell rule.

I therefore think the answer to both dilemmas (vulnerability and capacity) in civil proceedings is the following:

1. There should be a capacity/vulnerable test completed by all clients at the time of instructing their LR. If this is done as a matter of routine, the potential conflict between LR and client is removed and the cost is de minimis. Clients and LRs alike accept that they have to comply with the Money Laundering Regulations at the start of a retainer and in time will accept a capacity test as a routine requirement too.
2. Should a vulnerability or capacity issue be raised, then the additional costs of investigating it, to satisfy the court and their obligations should be recoverable between the parties in the usual manner i.e. loser pays winner’s legal costs.
3. Capacity and vulnerability concerns should be the responsibility of all parties in the action but any malicious, tactical or vexatious raising of concerns should be severely penalised in costs.
4. If an LR establishes a vulnerability or capacity concern was valid, but they subsequently lose the case, then the discreet costs of investigating and establishing vulnerability should be recoverable from a non-means tested legal aid pot.