Aina Khan Law Limited, R (on the application of) v Legal Ombudsman

On 8 September 2020 CXV (whose name has been anonymised throughout these proceedings), the interested party, contacted the claimant, a firm of solicitors called Aina Khan Law Limited (“AKLL”), for urgent legal advice and representation, following the breakdown of her marriage and the commencement of proceedings by her husband. She sought advice regarding divorce, arrangements for the two children of the marriage, and a freezing injunction against her husband’s assets.

Aina Khan OBE is the sole director of AKLL. She is an experienced solicitor specialising in family law. From the outset there was evidence that CXV had mental health issues. Aina Khan noted that her client was “emotionally raw” and would need a good deal of support. In addition, “she has to be careful to keep an eye on the costs and make sure that they are proportionate to what she is seeking to achieve”. Accordingly, AKLL provided CXV with an estimate at the start and it was agreed that there would be cost reviews throughout the case so that she could decide whether to proceed to the next stage and could plan ahead.

On 15 October 2020 the Family Court ordered a psychiatric assessment of CXV. The parties agreed that Dr. Geoff Isaacs, a consultant psychiatrist, be jointly instructed to produce a report. He did so on 12 November 2020.

As part of the context for his assessment, Dr Isaacs noted the following central issues in the litigation:

Dr. Isaacs concluded that CXV was suffering from paranoid psychosis and that her allegations of sexual abuse, drugging and electronic surveillance formed part of a paranoid delusional system. The doctor considered that the amphetamine which had been prescribed was very likely the cause of the psychosis and recommended that an anti-psychotic drug be prescribed in place of the amphetamine so that the paranoid delusions would cease. He also advised that CXV was not then able to engage fully with the proceedings because of her delusions.

On 20 November 2020 the Family Court ordered that CXV’s mental capacity be assessed by a joint expert. On 4 December 2020 Dr. Isaacs provided a certificate that CXV lacked capacity within the meaning of the Mental Capacity Act 2005 (“the 2005 Act”) to conduct the proceedings. He certified the impairment in the functioning of the mind or brain as “paranoid psychosis probably amphetamine induced that results in a complex delusional system” and that “this had lasted since August 2020”. The delusions concerning her husband prevented CXV from weighing appropriately information about her daughter’s well-being, needs and issues. In a covering letter the doctor added that although she understood that others might see her allegations against her husband as delusional, after questioning herself she remained convinced of their veracity. It was her conviction about the validity of her allegations against her husband that “could seriously impact on her capacity to weigh up information correctly as regards the proceedings”. In addition, there were other factors needing to be considered within capacity, “including awareness of funding, the chances of succeeding and the risk of adverse order as to costs…”.

On 15 December 2020 the Family Court made a finding that CXV lacked litigation capacity in relation to the proceedings.

Meanwhile, AKLL had exceeded the initial costs estimate given to CXV and the subsequent upwards revision. On 9 December 2020 AKLL wrote to a proposed litigation friend, CXV’s sister, making arrangements for her appointment. The solicitors issued terms of business to the litigation friend on 18 December 2020 with costs estimates and provision for reviews.

On 27 April 2021 CXV’s sister complained to AKLL about the level of fees. On 12 July 2021 CXV filed a complaint with the solicitors. That was rejected by a letter from AKLL dated 3 September 2021.

On 28 October 2021 CXV lodged a number of complaints with the Legal Ombudsman. The ombudsman accepted five complaints for investigation, of which the first two were:

“1.

The firm failed to adequately assess CXV’s litigation capacity.

2.

The firm have charged excessive costs for the work completed.”

An investigator in the ombudsman service rejected the complaints on 3 April 2023.

CXV asked for a review. In a provisional decision on 4 August 2023 an ombudsman, Ms Andrea Vaughan, concluded that the costs charged had been excessive in the sum of £35,500 (complaint 2). An opportunity was provided for representations.

The ombudsman issued a revised provisional decision on 28 November 2023 in which she also concluded that AKLL had failed to arrange for CXV’s capacity to be assessed from the point of instruction and proposed additional compensation of £15,692.60 (complaint 1).

There was then a further opportunity for representations following which the ombudsman issued the final decision on 12 February 2024, with reasoning in substantially the same terms as the letter of 28 November 2023, and a total award of compensation of £51,192.60 in relation to the two complaints.

On 13 May 2024 AKLL issued a claim for judicial review. The claim sought to quash the ombudsman’s decision on five grounds, but permission to apply for judicial review was granted on only the three following grounds:

The substantive hearing took place before Mr David Pievsky KC sitting as a Deputy High Court Judge. In a detailed reserved judgment the judge rejected grounds 1 and 2 ([82]-[93]). Those matters have not been pursued on appeal.

The judge dealt with the allegations of irrationality (ground 5) in relation to the ombudsman’s conclusions on complaint 1 (capacity) at [72]-[80] and on complaint 2 (costs estimates and updates) at [81].

The judge rejected the challenge to the ombudsman’s handling of the costs updates issue and so the award of £35,500 as compensation for that matter stood [81]. AKLL sought to cross-appeal against that part of the decision by a Respondent’s Notice but Newey LJ refused permission.

However, the judge accepted the rationality challenge in relation to the ombudsman’s decision on complaint 1 (the capacity issue). He quashed that part of the ombudsman’s direction that AKLL pay CXV compensation in the sum of £15,692.60. Newey LJ granted the ombudsman permission to appeal both against that order and the judge’s order on the costs of the proceedings.

In summary, there are three grounds of appeal in relation to the quashing order:

Ground 4 is a challenge to the judge’s reasoning in support of his order on the costs of the claim, which I will address after dealing with the main part of the appeal.

Both counsel submit that the appeal raises important, but different, points of principle. Mr Stephen Kosmin for the appellant submits that the case is concerned with the nature of the decision-making function of the ombudsman and the approach taken by the courts in judicial review to scrutinising such decisions. Ms Gemma Lindfield for AKLL submits that the ombudsman’s decision, if not quashed for irrationality, would have a significant impact on the provision of legal services to family law clients, because of the expectations it creates as to what a solicitor should do when faced with potential issues about the mental health and capacity of a client.

In my judgment this appeal does not raise issues which are either new or of wide-ranging importance. The legal framework within which the ombudsman operates, and the principles of judicial review are well-established and clear. The issues raised by the grounds of appeal are really only concerned with the application of those principles to the judge’s findings of irrationality in the ombudsman’s reasoning dealing with the facts and circumstances of this case.

Part 6 of the Legal Services Act 2007 (“the 2007 Act”), entitled “Legal Complaints”, established the legal ombudsman service. Section 112 requires that an “approved regulator”, such as the Law Society, must have regulatory arrangements requiring persons it authorises to carry on a “reserved legal activity” to operate or be subject to complaints procedures. These processes, which are often in-house, are generally expected to be a first port of call for clients.

Section 114 established the Office for Legal Complaints, which is responsible for administering “the ombudsman scheme” (s.115).

Section 113 sets out an “overview of the scheme”. It provides inter alia that:

“(1)

This Part provides for a scheme under which complaints which—

(a)

relate to an act or omission of a person (“the respondent”) in carrying on an activity, and

(b)

are within the jurisdiction of the scheme (see section 125),

may be resolved quickly and with minimum formality by an independent person.

(2)

Under the scheme—

(a)

redress may be provided to the complainant, but

(b)

no disciplinary action may be taken against the respondent.”

Thus the key principles of the scheme are that:

Section 122 provides for the appointment of a Chief Ombudsman and assistant ombudsmen.

Section 137 deals with the determination of complaints. In so far as material it provides:

“(1)

A complaint is to be determined under the ombudsman scheme by reference to what is, in the opinion of the ombudsman making the determination, fair and reasonable in all the circumstances of the case.

(2)

The determination may contain one or more of the following—

(a)

a direction that the respondent make an apology to the complainant;

(b)

a direction that—

(i)

the fees to which the respondent is entitled in respect of the services to which the complaint relates (“the fees”) are limited to such amount as may be specified in the direction, and

(ii)

the respondent comply, or secure compliance, with such one or more of the permitted requirements as appear to the ombudsman to be necessary in order for effect to be given to the direction under sub paragraph (i);

(c)

a direction that the respondent pay compensation to the complainant of such an amount as is specified in the direction in respect of any loss which has been suffered by, or any inconvenience or distress which has been caused to, the complainant as a result of any matter connected with the complaint;

(d)

a direction that the respondent secure the rectification, at the expense of the respondent, of any such error, omission or other deficiency arising in connection with the matter in question as the direction may specify;

(e)

a direction that the respondent take, at the expense of the respondent, such other action in the interests of the complainant as the direction may specify.

(3)

For the purposes of subsection (2)(b) “the permitted requirements” are—

(a)

that the whole or part of any amount already paid by or on behalf of the complainant in respect of the fees be refunded;

(b)

that the whole or part of the fees be remitted;

(c)

that the right to recover the fees be waived, whether wholly or to any specified extent.

(4)

…

(5)

The power of the ombudsman to make a direction under subsection (2) is not confined to cases where the complainant may have a cause of action against the respondent for negligence.”

Thus, the ombudsman is required to determine a complaint according to what is “fair and reasonable in all the circumstances of the case”, and is not limited to determining whether a lawyer may have been negligent. Section 137(2) gives an ombudsman flexible powers to direct that a respondent shall provide redress to the complainant, including limiting the fees payable, or requiring that fees be remitted or refunded.

Section 140(1) and (2) requires an ombudsman to prepare “a written statement of the determination” giving his or her “reasons for the determination”. If the complainant accepts the determination, it is final and binds both the complainant and the respondent (s.140(4)).

Section 145 requires the regulatory arrangements of an approved regulator to require the persons it licenses to give ombudsmen such assistance as they may request for the investigation or determination of a complaint. Under s.147 an ombudsman may require a party to a complaint to produce documents or information which he or she considers necessary to determine the complaint.

It is therefore plain that this scheme, like other similar ombudsman schemes, is inquisitorial, not adversarial (R (Williams) v Financial Ombudsman Service [2008] EWHC 2142 (Admin) at [26]; R (Maxwell) v Office of the Independent Adjudicator [2011] EWCA Civ 1236; [2012] PTSR 884 at [32]; R (Miller) v Health Service Commissioner for England [2018] EWCA Civ 144; [2018] PTSR 801 at [48]). In Miller Ryder LJ emphasised at [55] that it was important that the courts should not import the procedures of courts and tribunals into the informal, non-judicial process of administrative and complaints adjudicators such as ombudsmen.

Section 133 of the 2007 Act requires “scheme rules” made by the Office for Legal Complaints (s.115(1)) to set out the procedure for the making of complaints under the scheme and the investigation, consideration and determination of complaints by an ombudsman. The relevant Scheme Rules are dated 1 April 2019. Rule 5.36 repeats the test contained in s.137(1) of the 2007 Act for the determination of a claim. Rule 5.37 adds:

“5.37

In determining what is fair and reasonable, the ombudsman will take into account (but is not bound by):

a)

what decision a court might make;

b)

the relevant Approved Regulator’s rules of conduct at the time of the act/omission; and

c)

what the ombudsman considers to have been good practice at the time of the act/omission.”

Guidance issued by the Legal Ombudsman on the application of rule 5.37 refers to the provision of “reasonable service” by a legal practitioner. So in the decisions in the present case the appellant considered whether the service provided by AKLL was, or was not, of a reasonable standard.

In R (Crawford) v The Legal Ombudsman [2014] EWHC 182 (Admin); [2014] 4 Costs LO 560 Popplewell J (as he then was) identified two important aspects of the scheme at [20]:

“(1)

It is intended to resolve complaints swiftly and informally. In order to achieve this, the Ombudsman will often have to do the best he can on limited material and without hearing detailed evidence. To assist in these objectives, he can rely on evidence which would not be admissible in court, and may draw adverse inferences from failure to provide information or documents.

(2)

In resolving complaints by reference to the statutory criterion of what is fair and reasonable in the circumstances, the Ombudsman is afforded a considerable latitude of discretion. The test is what “in his opinion” is fair and reasonable. He is not bound by the Approved Regulator’s code of conduct, although he must take account of it. He may apply his own standards of what he considers to have been good practice at the time.”

In R (Heather Moor & Edgecomb Limited v Financial Ombudsman Service [2008] EWCA Civ 642; [2008] Bus. L.R. 1486 Rix LJ stated at [80] that the reference to the opinion of the ombudsman (see s.137(1) of the 2007 Act) emphasises that the decision is one for the ombudsman, not a judge. But that decision is amenable to judicial review on public law grounds such as perversity or irrationality (see also R (Options UK Personal Pensions LLP) v Financial Ombudsman Service Limited [2024] EWCA Civ 541; [2024] Bus. L.R. 1307 at [77]).

In Crawford Popplewell J summarised the court’s powers in a judicial review at [21]:

“21.

In exercising powers of review, this court does not put itself in the position of the Ombudsman and test the reasonableness of the decision against the decision the court would make. It does not review the merits of the decision as if it were exercising the statutory powers itself. To do so would be to subvert the intention of Parliament in vesting the Ombudsman with the function of administering the scheme. His decision may only be overturned as unreasonable if it is unreasonable in the Wednesbury sense (Associated Provincial Picture House Ltd v Wednesbury Corporation [1948] 1 KB 223). There are a number of different formulations of this well-known and oft-applied test. A common modern formulation is that the decision must be outside the range of reasonable responses open to the decision maker (see e.g. Boddington v British Transport Police [1992] 2 AC 143 at 175H per Ld Steyn). This is a high threshold, particularly in the context of a scheme intended to resolve complaints swiftly and informally in which the decision maker is afforded a wide discretion to do what he thinks is fair and reasonable in all the circumstances. One way in which a decision may pass the threshold is if it is irrational in the proper sense of the word, that is to say if its reasoning is not logically capable of supporting the conclusion (see e.g. R v Parliamentary Commissioner for Administration, ex parte Balchin [1998] 1 PLR 1, 13E–F per Sedley J and R (Norwich and Peterborough Building Society) v Financial Ombudsman Service Ltd [2002] EWHC 2379 (Admin) at para 59 per Ouseley J).”

That reference to Balchin for irrationality based on illogical reasoning has more recently been labelled as “process irrationality”, as opposed to “outcome irrationality” (see R (Law Society) v Lord Chancellor [2018] EWHC 2094 (Admin); [2019] 1 WLR 1649 at [98] and R (KP) v Secretary of State for Foreign, Commonwealth and Development Affairs [2025] EWHC 370 (Admin) at [55]-[57]). In the present case, AKLL accepted that its challenge was based on process, not outcome, irrationality (see para.17 of its skeleton). The judge explicitly relied on process irrationality at [78] and did not suggest that the decision was flawed by outcome irrationality.

On the standard of reasoning for the decision of an ombudsman, Popplewell J said this in Crawford at [25]:

“25.

Decisions of the Legal Ombudsman are to be read with a degree of benevolence (see R (Siborurema) v Office for the Independent Adjudicator [2007] EWCA Civ 1365; [2008] ELR 209 at para 79) and should not be construed as if they were statutes or judgments, nor subjected to pedantic exegesis (see Osmani v Camden LBC [2005] HLR 325 at para 38(9) per Auld LJ).”

It has often been said that a court should not review administrative decisions in a legalistic or forensic way. Decision letters must be read fairly and as a whole and on the basis that they are addressed to the parties who are familiar with the materials and the issues before the decision-maker, in this case the ombudsman.

The judge summarised the relevant provisions of the Mental Capacity Act 2005 and certain principles derived from case law at [62]-[69] in terms which have not been criticised by either side. For reasons which appear below, I do not find it necessary to delve into the law on incapacity in order to resolve the issues in this appeal which need to be determined.

Section 3 of the Code of Conduct issued by the Solicitors Regulation Authority is entitled “Service and competence”. Paragraph 3.4 requires:

“You consider and take account of your client’s attributes, needs and circumstances.”

The Law Society has issued Guidance to solicitors entitled “Meeting the needs of vulnerable clients” to help solicitors identify and meet the needs of clients who have difficulty using legal services or who may be at risk of acting against their own best interests. The Guidance identifies “three broad categories of vulnerable clients”, the first two of which are:

“clients who have capacity to make decisions and give instructions, but need extra support to do this because of inter alia mental disabilities (this group is considered in the section entitled “identifying vulnerable clients”)

clients who lack mental capacity to make decisions and provide instructions, for whom statutory and other safeguards must be followed (this group is considered in the section entitled “clients who may lack mental capacity”). Solicitors are told that they should have “the skills and processes to be able to identify a situation where someone may have reduced mental capacity.””

In the section dealing with the first group, “Identifying vulnerable clients”, the Guidance gives a list of 25 different indicators of vulnerability which range widely from advanced age to young age and include “mental health problems” and “psychological or emotional factors, such as stress”:

“One or more of these risk factors may mean that your client is vulnerable and may need your help to express their wishes, understand relevant advice and give you instructions, or that they may lack capacity to make relevant decisions and to give your instructions.”

This passage relates the risk factors to the same two broad groups, vulnerable clients and clients who may lack capacity. Where a solicitor is aware of “risk factors” he or she should help their client inter alia to“overcome any difficulties to understand relevant advice” and “give valid instructions”. The Guidance indicates that family members may be able to assist.

Under the heading “clients who may lack mental capacity”, the Guidance states:

“Under paragraph 3.4 of the SRA’s Code of Conduct for Solicitors, RELs and RFLs, you must consider and take account of your client’s attributes, needs and circumstances. As such you must satisfy yourself about their capacity if you have any doubts about whether your client has the capacity to give instructions.

This is also important as it can enable the client tomake decisions or protect them from making a decision when they lack capacity, and reduces the risk of any subsequent complaint or challenge.” (emphasis added)

Thus the Guidance makes it clear that a person who begins to instruct a solicitor may have mental health issues making them “vulnerable” in the broad sense explained in that document, but without lacking mental capacity, and that such a person may need assistance e.g. from a relative or friend. It is well-recognised that mental capacity is both issue-specific and time-specific. It may fluctuate over time. A person may lack mental capacity at one point in time and be in the broader sense “vulnerable” at another. In other words mental health issues may relate to a spectrum of conditions and problems.

In her final decision dated 12 February 2024 the ombudsman adopted her revised provisional decision dated 28 November 2023 in its entirety and added some observations on representations made by AKLL in its response to that earlier document. She pulled together guidance for solicitors, contemporaneous evidence and subsequent representations about the complaint and draft decision letters, and she addressed the main issues using reasoning which was succinct, accessible and intended to satisfy the purposes of the scheme as set out in s.113.

At the beginning of the provisional decision dated 28 November 2023 the ombudsman directed herself by reference to rules 5.36 and 5.37 of the Scheme Rules. She said that she had to decide whether AKLL had provided a reasonable level of service and, if not, what detriment, if any, was caused to CXV by any failings in the service provided.

Although complaint 1 was labelled as “the firm failed to adequately assess CXV litigation capacity”, it is plain that the decision letter considered both the first and second of the three groups of vulnerable clients in the Law Society’s Guidance (see [43]-[45] above). Paragraph 1.1 referred to the Guidance on “clients who may lack mental capacity” (the second group) and para.1.2 referred to some of the “vulnerability indicators” for identifying “vulnerable clients” (the first group). The beginning of para.1.2 clearly indicated that the ombudsman was considering both of these groups in the alternative:

“my first consideration is if there were any indicators which were present which should have alerted the firm to the fact that the client was vulnerable or lacked mental capacity.”

Much of the judge’s criticism of the decision letter was directed at parts of paras. 1.3 and 1.14. But those passages have to be read together with the reasoning which preceded and followed them. As I have said, the letter must be read as a whole and on the basis that it was addressed to parties familiar with the materials and the issues.

At para.1.3 the ombudsman summarised evidence where she thought it clear that “CXV should have been considered vulnerable and there were indications of issues with mental health”. Those matters were set out initially in paras.1.3.1 to 1.3.3, covering the period 8 September 2020 (the first meeting) to 14 September 2020, and also in paragraph 1.3.4.

Paragraph 1.3.4 referred to a letter to CXV dated 19 November 2020 in which Ms Khan said that although she considered her to have capacity at that point in time, there had been times in the past when she had perhaps lacked capacity. Ms Khan then said “So your barrister and I would like to know for sure that, at the times you might lack capacity, if ever that happens, that we can speak to your sister … to be able to give instructions on your behalf”.

It is necessary to read para.1.3.4 of the decision alongside para.1.9 where the ombudsman referred to a letter she received dated 23 October 2023 in which Ms Khan said:

“By 18 October [2020] it became apparent to both me and the barrister that the client’s behaviour was growing erratic and that on some days she was paranoid and delusional.”

The ombudsman said that, according to the letter, it was “apparent” by that date that such behaviour was “growing”. She was therefore entitled to infer from this passage that Ms Khan had observed this behaviour before 18 October 2020. She was also entitled to consider that this reinforced her view that “from the point of instruction there were issues that indicated that CXV was suffering from mental health issues” (which was an indicator of relevant vulnerability as a client). Ms Khan also said in her letter of 23 October 2023 that Dr Isaacs’ report of 12 November 2020 “confirmed that we were right to suspect that this client now lacked litigation capacity because of paranoid psychosis”. Read in context, that suspicion must have arisen some time before the report, indeed by the first half of October 2020. The letter of 23 October 2023 therefore supported the ombudsman’s earlier reliance upon the letter of 19 November 2020.

The ombudsman referred in para.1.11 of her decision to Dr. Isaacs’ opinion on 4 December 2020 that CXV lacked capacity because of paranoid psychosis and had done so since August 2020. She added: “this confirms my view that CXV did not have capacity to act from the outset”, that is when CXV instructed AKLL from 8 September 2020. On any fair reading, at that point in the decision the ombudsman was simply setting out what objectively had been CXV’s state of health when AKLL was first instructed. That was how AKLL had understood Dr. Isaacs’ report (see judgment at [55(ii)]).

It is clear that, although the ombudsman did refer in parts of her decision to “mental capacity”, she was also looking more broadly at whether AKLL had provided a reasonable level of service to meet the needs of CXV as a “vulnerable client”, in accordance with the Law Society’s Guidance. Given that CXV was diagnosed with paranoid psychosis in the report dated 12 November 2020 and was certified as having lacked mental capacity since before 8 September 2020, it was rational for the ombudsman to consider whether, from the date when they were first instructed, the solicitors were aware of matters calling for an assessment of CXV’s vulnerability and/or mental incapacity and need for assistance, for example from a relative. The litigation was recognised as being complex and expensive, involving the use of a silk.

The ombudsman referred to indicators from the outset of vulnerability and/or potential capacity issues, namely referral to a psychiatrist, a diagnosis of ADHD, treatment by amphetamines since April 2020 and a suggestion that CXV was suffering from psychosis specifically because of the medication (attendance note – 14 September 2020). It is not without significance that Dr. Isaacs subsequently stated that that was the cause of the psychosis he diagnosed.

On 13 October 2020 Ms Khan spoke with CXV’s treating psychiatrist, Dr. Dannhauser. He explained that ADHD was characterised by inter alia “giving incoherent accounts”. But CXV was making serious allegations and Dr. Dannhauser also said that he was “concerned about [CXV] turning psychotic”. He advised that it may be too much for CXV to take on the case and she needed a high level of support. The ombudsman plainly relied upon this discussion in para.1.8 of her decision (although she misstated the date by a few days).

At para.1.13 the ombudsman referred to Ms Khan’s letter to her dated 7 February 2023 in which she said:

“This was a frontloaded case from the start, requiring my personal daily work and support for a deeply disturbed client.”

Later on, when dealing with the high volume of communications between CXV and AKLL, Ms Khan said this:

“We had a duty to provide extra care given CXV vulnerable state of mind and did our best to support her. However we grew increasingly concerned and ordered a capacity report in November 2020.”

Paragraph 1.14 of the decision is important:

“To make a decision on this complaint I have to consider if when CXV first contacted the firm there was anything to give them an indication that she couldn't give instructions. From the evidence provided, the first point of concern was the meeting in September, and it was clear from the outset that (as I have outlined at point 1.3) CXV was suffering from mental health issues. Having considered all the evidence provided I have concerns that the firm were aware that CXV had mental health issues from the first meeting on 9 September 2020 and that they should have taken steps earlier on in the process to assess if CXV had litigation capacity and to make sure she was fully supported to make decisions on what was a very difficult and expensive situation for her. The firm in their correspondence with the Ombudsman highlighted at point 1.7 state that their client was deeply disturbed and was erratic. I agree that the firm provided support to CXV but that was at significant cost to her, and at the outset, the firm should have considered other options such as involving other family members to ensure that CXV understood and was supported in her actions and decision making. This aspect is discussed in more detail in the next complaint.”

In that paragraph the ombudsman plainly set out her views that:

In para.1.15 the ombudsman explained why she rejected AKLL’s contention that they should not have involved family members until after Dr. Isaacs’ report in November 2020. She considered that it had been clear to them by mid-October that there was cause for concern.

In a similar vein the ombudsman said this at para.1.16:

“I do not feel that the firm adequately assessed CXVs litigation capacity and took steps once they became aware of issues with mental health. After the first meeting on [8] September 2020 the firm should have looked at appropriate options to ensure she was supported and understood the implications of the decisions she was making, particularly related to the costs that she was building up in a very short space of time with the firm referring to CXVs ‘erratic demands and interactions’. This is discussed in more detail in the next complaint.”

In paras.1.17 to 1.18 the ombudsman concluded that AKLL had not taken steps from the start of the instruction to confirm whether CXV had capacity to make and understand all the decisions she was making and their implications. But read fairly and as a whole it is clear that the ombudsman’s decision looked at the position more broadly than simply considering mental capacity under the 2005 Act. The ombudsman explained how she also considered CXV as a vulnerable client.

Turning to complaint 2 the ombudsman noted at para. 2.1 that CXV signed the terms of business on 27 October 2020, after AKLL had become concerned about “issues with mental health”, notably that CXV was sometimes paranoid and delusional (see para.1.9). Estimated fees were agreed at £43,500 plus VAT to cover children, divorce, financial settlement and domestic abuse, subject to monthly review. The estimates given on 27 October 2020 were the same as the estimates AKLL had given to CXV at the first meeting on 8 September 2020.

The ombudsman said that it would have been reasonable on a monthly review for AKLL to notify CXV if the estimated figures had been exceeded and to provide revised estimates (para.2.1). However, the ombudsman pointed out that the first costs review did not take place until 19 November 2020 and CXV was not told about that review until AKLL’s letter to her on 24 November 2020. By then the costs to date were in excess of £65,000, plus VAT and counsels’ fees. There was a revised costs estimate up to a hearing in December of £75,000 plus VAT (para.2.4). There was no evidence that AKLL had previously advised CXV when the initial estimate of £43,500 plus VAT had been exceeded.

On 22 December 2020 AKLL wrote to CXV’s sister, the litigation friend, to advise that costs had reached £89,000 plus VAT and the revised estimate for costs to the hearing in December was £105,000 plus VAT (para.2.8).

In para.2.14 the ombudsman said that in relation to complaint 2 she would consider two issues:

Referring back to the attendance note of the first instruction, the ombudsman concluded that there was no evidence that AKLL had kept CXV informed of costs incurred and future costs in accordance with the terms of business. She rejected the explanations given by AKLL as unsupported by any records (paras.2.16 to 2.17). The first costs review did not take place until 19 November 2020 and so reviews were not carried out and notified monthly.

At paras.2.20 to 2.21 the ombudsman reached the following conclusions on the first costs issue:

“2.20.

If I consider the costs incurred up to 19 November 2020 as outlined in the letter of 24 November 2020, this states the costs are now in excess of £65,000. This is an increase in costs from the original figure given of £43,500 of £21,500. I do not accept that as part of a reasonable service the firm can incur this level of costs and then notify their client, there has to be transparency around costs and the firm should have completed a costs review at the point that they incurred costs up to £43,500. If I look at Instruction 1114 (as named in the firms records), which is the instruction related to the children and the one which incurred the most costs, the original agreed costs would have been reached on or around 7 October 2020.

2.21.

At the time of the costs review in November 2020, the firm gave a revised estimate of costs up to the December hearing of £75,000 but when they carried out a costs review on 22 December 2020, they confirmed the costs were now in excess of £89,000. Again, the same principle applies, the firm at the point of exceeding the estimate given of £75,000 should have notified the client and not waited until the fees has exceeded this estimate by £14,000.”

At paras.2.24 and 2.27 the ombudsman reached the following conclusions on the second costs issue:

“2.24.

My second consideration is around the capacity to understand the costs. I have already upheld the first complaint against the firm which considered litigation capacity and my concern in this matter is not only that the costs were not clear and agreed to before the work was undertaken but also that CXVs issues with her mental health means that she did not fully understand how costs were mounting at a significant rate throughout the first three months of the instruction to the firm. I take this view as at the outset there is evidence that CXV was concerned about costs (as noted at 2.3 above) but her significant interactions with the firm would have increased the costs but this did not seem to be highlighted in her contacts with the firm and as they didn’t update her on the costs position, she had nothing to track against how the costs were escalating. I would also suggest that this raises issues as to whether CXV could lawfully instruct/validly enter into an agreement in respect of costs at this time.

2.27.

I am upholding this complaint and feel that the evidence demonstrates that CXV was not in a position to make a decision on if the costs incurred were being managed and also that the firm did not keep their client updated on costs and how they had significantly increased above their original estimates which would allow CXV to make an informed decision about future engagement. I will summarise my remedy at the end of this decision.”

In the section of the decision dealing with redress the ombudsman noted that the total fees paid by CXV to AKLL amounted to £113,963 including VAT. She directed that AKLL repay to CXV the fees which, according to the costs reviews on 19 November and 22 December 2020, exceeded the original estimate of £43,500, that is to say £35,500 comprising the sums identified in paras.2.20 and 2.21 of £21,500 and £14,000. The effect of that award was to reduce AKLL’s fees from £113,963 to £78,463 (inclusive of VAT).

The ombudsman then turned to consider the additional award that should be made in respect of complaint 1 which, as we have seen, she treated as relating to a failure to assess both vulnerability and mental capacity issues and to arrange for appropriate support. The ombudsman’s reasoning on compensation has to be read in that light:

“I now have to consider that from the outset, CXV did not have capacity to act and therefore did not have the ability to enter into a contract and I have to consider the validity of any agreement to pay fees due. As the contract was potentiallyvoid from the outset, there is a strong argument that none of the firm’s fees are recoverable or payable by the client and a full waiver of costs could be justified. However, I acknowledge that the work that the firm carried out had value and it is fair to them to recognise this. Notwithstanding that, I have to consider what would be an appropriate compensatory award (based on the facts and circumstances of the case) to recognise that the firm entered into a contract with someone who, based on the face of the evidence, did not have capacity to act. I consider that from outset the firm were on notice of the issues and challenges that their client faced and should have had due regard to the SRA guidance.”

That Guidance referred to the potential need for an assessment. The ombudsman then stated that a further 20% reduction applied to the residual figure of £78,463 would be a fair and reasonable sum to be refunded to CXV, namely £15,692.60 inclusive of VAT.

The ombudsman decided not to make a further award for the stress and distress suffered by CXV when AKLL refused to return her passport to her because of outstanding fees (complaint 4 which had been upheld). The ombudsman considered that, although such an award would normally be made, the total sum of £51,192.60 was sufficient to fully compensate for the poor service which had been provided by AKLL to CXV.

The judge upheld AKLL’s irrationality challenge to the ombudsman’s decision on complaint 1 at [74] to [78]:

“74.

First, I consider that the Decision did conflate indications of mental health conditions with indications of a lack of capacity, or at best failed to keep the critical distinction between those concepts in mind. §1.14 of the Decision specifically recorded that “it was clear from the outset that (as I have outlined in §1.3) [the IP] was suffering from mental health issues from the first meeting on [8] September 2020…”. But the mere fact that the IP had “mental health issues” begs an important question. In my Judgment the Defendant needed to address and explain, at minimum, whether those “issues” had consequences such as to require a reasonable solicitor to have doubts about the potential client’s capacity, and if so why.

75.

Secondly, the Defendant in its Decision placed reliance on three particular facts as justifying the view that the Claimant should have done more to assess the IP’s capacity at the outset of the retainer: (i) the fact that the IP had been “referred to a psychiatrist”; (ii) the fact that she was “taking amphetamines”, and (iii) the fact that she “had suspected psychosis”. However:

i)

Being referred to a psychiatrist does not of itself indicate anything about capacity. There are a multitude of reasons for seeing a psychiatrist. Many people receiving assistance from a psychiatrist are likely to have capacity to seek and receive legal advice.

ii)

The IP was taking amphetamines for her ADHD. Again, being diagnosed with or treated for ADHD does not come close to indicating a loss of capacity.

iii)

The reference to the IP potentially having “psychosis” in the 8 September 2020 Attendance Note was a reference to an allegation being made by the IP’s husband. That was, in my Judgment, important and should not have been ignored in any rational analysis of the question of capacity. The IP had told the Claimant that her mental health was being weaponised against her by her husband. Indeed, the context was one in which each party to the marriage was accusing the other of being an unsuitable parent. It was not reasonable, in this context, for the Defendant to rely on the notion that there was a “suggestion” of psychosis at the 8 September 2020 meeting (as though that suggestion was coming from a medical professional, or arose from the conduct of the IP herself at the meeting).

76.

Thirdly, there is no evidence that the Defendant had regard to or grappled with the following relevant considerations: (i) that the IP had consulted the Claimant on an urgent basis, as a respondent to proceedings very recently commenced by the husband; (ii) that divorce and family proceedings often involve individuals who present from the outset as distressed, emotionally raw, depressed, or even (in some cases) delusional; (iii) that the IP was alleging that her child had been sexually abused, and that she was being controlled or manipulated, by the husband, and that the IP had given the Claimant reasons for holding these beliefs; or (iv) that Ms Khan concluded, in early September 2020, that she could not simply dismiss those allegations out of hand, and told the Claimant that she believed her, although she also knew (and advised) that they would be very difficult to prove. These were in my Judgment obviously relevant considerations. They ought at least to have been considered and addressed, if the Claimant was going to be held to have acted improperly or inadequately. They were not.

77.

Fourthly, the Decision does not explain why it was not “adequate” or “reasonable” for Ms Khan, an experienced family law practitioner, to have considered the IP’s mental health for herself, to have considered that the IP did have capacity albeit she was in distress and had some mental health issues, and to have checked her own view with that of leading counsel.

78.

I can see no rational explanation in the Decision for the suggestion that an “expert” opinion on capacity was necessary, as at early September 2020. However, in due course, the Claimant did consult an expert. On 13 October 2020 she spoke to the IP’s psychiatrist, Dr Dannhauser. He advised that while the IP clearly had some mental health issues (anxiety, depression, and ADHD), and he was by that point concerned about her “turning” psychotic, she had not in fact shown “any psychosis” in or around mid-September, and that it was still the case, as at 13 October, that she could “parent well”. This was not sufficient, according to the Defendant (§1.8), because Dr Dannhauser’s 9 October 2020 letter had confirmed that “there was an issue of mental health and if there wasn’t, I am not sure why at that point [the IP] was taking amphetamines and was seeing a psychiatrist if a mental health condition was not present”. This passage of the Decision is in my view a clear example of the errors in logic or reasoning which are described in the cases about irrationality (see at §71 above). The logic is, with respect, difficult to follow. The evidence before the Defendant had made it clear that the IP was taking amphetamines for her ADHD. More fundamentally, the Defendant’s focus in this passage is on the wrong issue (i.e. whether or not the IP had “an issue of mental health” or “a mental health condition” when she instructed the Claimant).” (original emphasis)

Reading the ombudsman’s decision letter fairly and as a whole, in the context of the Law Society’s Guidance, I do not consider that there was any irrationality of any kind in her reasoning and decision. I must respectfully disagree with the judge. I consider that the ombudsman was entitled to reach the conclusions she did on the materials before her and that she gave legally adequate reasoning. AKLL has not submitted that, if the challenge based on “process irrationality” failed, the ombudsman’s decision nevertheless fell outside the range of reasonable decisions to which an ombudsman could have come. I would simply add that although another ombudsman might have come to different conclusions on one or more aspects of complaint 1, that simply reflects the nature of the evaluative judgment which a decision-maker in the position of an ombudsman is called upon to perform.

I reject the judge’s criticisms of the ombudsman in [74] of his judgment. He did not read the relevant parts of the decision as a whole. As I have explained, the ombudsman examined whether, from September 2020 onwards, AKLL ought to have considered not only whether CXV lacked mental capacity but also whether she was a “vulnerable client” with mental health problems. This was in the context of a person who, viewed objectively, suffered from paranoid psychosis involving a complex delusional system and lacked litigation capacity from August 2020 onwards. In addition, CXV was facing complex and costly litigation where she needed to be able to understand the issues involved in order to make decisions and give instructions. The ombudsman rightly had regard to the Law Society’s Guidance that a solicitor should consider whether a vulnerable client requires support, for example from family members, even if she does not lack litigation capacity and require a litigation friend.

At the outset of her consideration of complaint 1, the ombudsman directed herself to the relevant guidance on “vulnerable clients” as well as those lacking mental capacity. She made it plain that these were alternatives. Having clearly explained at the outset the approach she was taking, there was no need for the ombudsman to keep repeating herself in the decision letter. She had said that she was considering mental capacity and also the broader context of vulnerability through mental health issues. This in turn was related to the potential need for family support and the adequacy of the service provided by AKLL. The ombudsman’s decision contains no language conflating the two and no indication that she misunderstood the law relating to mental incapacity. Indeed, when responding to representations from AKLL, the ombudsman referred accurately in her final decision letter to key legal principles on capacity.

Paragraph [74] of the judgment quoted just a few words from para.1.14 of the decision referring to CXV’s mental health issues from 8 September 2020. On the basis of that brief extract, the judge said that the ombudsman failed to address and explain whether those issues had consequences so as to require a reasonable solicitor to have doubts about CXV’s capacity and, if so, why. But the judge neither read para.1.14 as a whole (see [59]-[60] above), nor in the context of the reasoning which preceded and followed it as set out above. In my judgment there was no irrationality in the few words which the judge took from the decision.

The judge then criticised the ombudsman at [75] for placing reliance upon three particular matters to justify her view that AKLL should have done more to assess incapacity from the outset, on the basis that none of those matters in themselves indicated incapacity. But the ombudsman did not suggest that they did. The three points in question appeared in paras.1.3.1 to 1.3.3 of the decision where the ombudsman simply said that those were indications of mental health issues and that CXV should have been considered vulnerable (see [51] above). These matters were relevant, for example, to the possible need for family support. Furthermore, the ombudsman did not rely upon those matters alone. She was concerned about the period running from the inception of the instruction. The judge’s criticisms of the ombudsman’s reasoning were unjustified.

The judge’s approach in [75] was selective. He failed to take into account other material parts of para.1.3 of the decision. For example, he criticised the ombudsman for ignoring the fact that the suggestion that CXV was suffering from psychosis by 8 September 2020 had come from the husband. He added that it was not reasonable to rely on that suggestion as if it had come from a medical professional. But in fact paras.1.3.1 and 1.3.3 of the decision acknowledged that the point had been made by the husband, along with his suggestion that the amphetamine medication was the cause. The judge also made no reference to para.1.3.4 of the decision which referred to Ms Khan’s letter to CXV of 19 November 2020 in which she said that she had thought that CXV lacked capacity at certain points. Moreover, in her letter to the ombudsman dated 23 October 2023 Ms Khan said that it was apparent to her before 18 October 2020 that on some days CXV was paranoid and delusional.

The judge’s third area of criticism related to four points which he regarded as “obviously material considerations” with which the ombudsman had failed to grapple [76]. In summary, those points were:

It is trite law that a decision-maker is not to be taken as having failed to take a relevant consideration into account merely because he did not mention it in his reasoned decision. A decision-maker does not have to refer to every relevant consideration upon which parties have relied. Instead, the court normally looks to see whether there is a positive indication in the reasoning that a relevant consideration was actually disregarded. So it was wrong here for the judge simply to say that there was “no evidence” that the ombudsman had had regard to the four points.

In any event, a decision-maker does not fail to have regard to a relevant consideration unless he was obliged to take it into account. Such an obligation arises if either the scheme mandates that the consideration be taken into account (which was not the case here) or if the consideration is so “obviously material” that it would be irrational for any decision-maker to disregard it. It is therefore insufficient that the consideration is one which many people, or even the court itself, would have taken into account if they had had to make the decision (R (Friends of the Earth Limited) v Heathrow Airport Limited [2020] UKSC 52; [2021] PTSR 190 at [116]-[120]).

The judge treated the four points taken together, rather than in isolation, as obviously material considerations which had to be explicitly addressed in the reasoning. I respectfully disagree with the judge, certainly in the circumstances of this case.

Here, there was clear uncontroverted evidence that CXV was suffering from paranoid psychosis with a complex delusional system from August 2020 onwards. Given that undisputed fact, the key question for the ombudsman was whether from September 2020 AKLL failed to provide a reasonable level of service for CXV in that it did not appreciate and/or act upon indications which cast doubt on her capacity or, more broadly, pointed to CXV as a “vulnerable client” with mental health issues needing support, for example from family members. The ombudsman answered that question in the affirmative on the basis of clear findings which cannot be impugned. In doing so she was entitled to rely upon points which Ms Khan had accepted, as summarised above. For example, she observed the paranoid and delusional behaviour of her client.

Bearing in mind that context, points (1), (3) and (4) simply formed part of the background facts of this case which were obvious from the attendance notes and obvious to the parties. The judge’s point (2) was merely a generalised point about clients in divorce proceedings. Plainly the ombudsman took these matters into account, but her express reasoning rightly focused on those case-specific matters which went directly to the issue identified in [85] above, which the ombudsman had to resolve and did resolve. There was no legal requirement for the four points to be addressed by additional reasoning in the ombudsman’s decision on complaint 1. Put another way, and using the language of Cooke J in CREEDNZ Inc. v Governor General [1981] 1 NZLR 172, 183 (approved in the Heathrow case), these points were not so obviously material to the decision that “anything short of direct consideration of them by the [ombudsman]… would not be in accordance with the intention of the Act”.

The approach taken by the judge in [76] was again selective and illustrates the risks of the court stepping beyond the proper bounds of judicial review and becoming drawn into factual issues and merits which were for the ombudsman. Take for example points (3) and (4). They did not stand in isolation. It is plain from the attendance notes that social services, the police, the relevant school and CXV’s psychiatrist met on 9 September 2020 to address the allegations that the husband had sexually abused his young daughter. The social worker for one considered that there was no truth in the allegations. CXV wanted her husband to be prosecuted for the abuse, but the police had said they would not investigate further. Not surprisingly, Ms Khan advised CXV that if she pursued her allegations and they were found to be unsubstantiated, there was a real risk that CXV might lose care of her children. Then there were also the other allegations that CXV made against her husband and the reaction of independent participants to them (see e.g. Dr Dannhauser in his letter of 9 October 2020 on the allegation of chemical poisoning). In her decision letter, the ombudsman did not have to go into all these matters which were well-known to the parties. Rightly, her reasoning concentrated instead on the central issue which she had to resolve (see [85] above) and the material which she found helpful for that task, including Ms Khan’s concerns about CXV’s paranoid and delusional behaviour.

The statement in [76] of the judgment that the ombudsman failed to grapple with the four points (1) to (4) would normally be regarded as a criticism of the legal adequacy of the reasons given, not an irrationality challenge. Even so, it is necessary to keep firmly in mind the nature of the statutory scheme. The ombudsman was not exercising a judicial role in a court. Her duty to give reasons did not require her to meet the standards required of a judgment (contrast English v Emery Reimbold & Strick Limited [2002] EWCA Civ 605; [2002] 1 WLR 2409 and Fage UK Limited v Chobani UK Limited [2014] EWCA Civ 5; [2014] ETMR 26 at [115]). Instead, she was giving reasons for her decision in accordance with an inquisitorial, non-adversarial scheme for the resolution of complaints about legal services “quickly and with minimum formality by an independent person”. The judge’s approach in [76] would impose an excessive and unnecessary burden on ombudsmen to give reasons, which would be incompatible with the terms and purposes of the statutory scheme. His criticisms departed from the approach which a court should adopt in judicial review (South Bucks District Council v Porter (No. 2) [2004] UKHL 33; [2004] 1 WLR 1953 at [24]-[36]). Amongst other things, the court should read a decision letter of this kind in a “straightforward down-to-earth” way which avoids excessive legalism.

I disagree with the judge’s fourth criticism in [77]. It is self-evident from the ombudsman’s decision read fairly and as a whole why she considered that the service provided by Ms Khan during the relevant period was not adequate or reasonable. In addition, in her revised provisional and final decisions the ombudsman explained why she considered that Ms Khan’s discussion with a KC on 20 November 2020 did not alter that conclusion. There was no requirement for her to say any more in order for her decision to be lawful.

Paragraph [78] of the judgment criticises the ombudsman’s view that an assessment of CXV’s capacity or vulnerability was necessary in early September 2020. But on a fair reading, the decision made it clear that the ombudsman was concerned about a failure to take action, including obtaining an assessment, from 8 September 2020 onwards.

I see no flaw in para.1.8 of the decision letter. The main thrust of the passage criticised was that it referred to Dr Dannhauser’s letter of 9 October 2020 as having identified mental health issues, but that was undoubtedly correct. The judge then considered that the ombudsman’s fundamental error had been to conflate mental health issues with mental incapacity. I have already rejected that criticism when discussing [77] of the judgment. In my view there was no lack of logic in the ombudsman’s reasoning. The judge did not read the decision fairly and as a whole.

For these reasons I would uphold ground 1 of the appeal. Because [74]-[78] of the judgment formed the sole basis upon which the judge allowed the claim for judicial review and made the quashing order and a partial award of costs, the appeal must be allowed. The remaining grounds may be considered briefly.

This adds little or nothing to ground 1 of the appeal. As I have explained, the ombudsman did not purport to apply solely the legal concept of capacity. She addressed, as she was entitled to do, the broader concept of a “vulnerable client” and her need for support on that basis. My reasoning under ground 1 also explains why I would reject any implicit criticism by the judge that the ombudsman’s decision should have considered mental capacity rather than mental health issues.

If the court should uphold ground 1 of the appeal, this ground becomes academic. But for completeness I would add that if ground 1 had no merit, I see no error of logic in the judgment at [99] and would therefore reject ground 3. AKLL’s success in the High Court on its challenge to the ombudsman’s conclusion on complaint 1 meant that the award of compensation of £15,692.60 consequential upon that conclusion had to be quashed. The ombudsman did not award that compensation on any other, freestanding basis.

If this court upholds ground 1 of the appeal, the judge’s costs order must be set aside and, subject to any submissions to the contrary, the appellant would be entitled to costs here and below. However, I consider that ground 4 would have failed in any event.

The judge decided that AKLL had succeeded, but only on part of ground 5. If there had been no other factor to take into account the judge would have ordered the ombudsman to pay 60% of AKLL’s costs [104(iii)]. However, the order also needed to reflect the court’s disapproval of AKLL’s failure to file relevant evidence in the High Court at the appropriate time, resulting in the adjournment of the substantive hearing on 6 March 2025 to 12 May 2025 (see [37]-[42] and [104(iv)]). The judge rejected AKLL’s application for an order that it be paid all of its costs for the judicial review, identifying costs which would be irrecoverable by AKLL in any event [104(v)]. He said that the fair and proportionate outcome would be for AKLL to receive 40% of its costs, assessed on the standard basis at £19,036 including VAT [104(vi)].

The ombudsman submitted that it was entitled to an order that AKLL pay her costs of its application which was refused by the judge on 11 March 2025 plus her costs thrown away by the adjournment. It is said that the judge failed to address those matters and to deal with the set off sought by the ombudsman.

But the ombudsman submitted to the judge that there should be no order as to costs and both sides strongly argued that if there were to be an order for costs, then costs should be assessed summarily. In effect, the appellant was saying that on a summary assessment the amount of costs she was entitled to be paid was broadly equivalent to AKLL’s entitlement to costs for its success in obtaining a quashing order on the basis of part of one ground. The judge disagreed when he decided that the ombudsman should pay AKLL costs in the sum of £19,036. That was a matter of evaluative judgment. The appellant has not shown that the judge was wrong on that issue.

But for the reasons previously given I would set aside the judge’s quashing order and his order for costs.

I agree.

I also agree.