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Conflict and “The Tendency To Be Swayed By Human Nature Rather Than Duty”

<!-- wp:paragraph --> <p><em>Irwin Mitchell Trust Corporation v PW (By Her Litigation Friend The Official Solicitor) and The Public Guardian </em>[2024] EWOP 16</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Marisa Lloyd and Lucy Evanson&nbsp;summarise and comment on the judgment on Irwin Mitchell Trust Corporation v PW (By Her Litigation Friend The Official Solicitor) and The Public Guardian [2024] EWOP 16 in which Marisa represented the Public Guardian</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Full Judgment here - <a href="https://www.bailii.org/ew/cases/EWCOP/2024/16.html" target="_blank" rel="noreferrer noopener">https://www.bailii.org/ew/cases/EWCOP/2024/16.html</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The court considered self-dealing and conflict in circumstances where Irwin Mitchell Trust Corporation (‘IMTC’) acting as deputy for PW, appointed Irwin Mitchell Asset Management (‘IMAM’) to manage the investment of PW’s funds. &nbsp;</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Factual background</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>PW suffered global cognitive impairment which resulted in a loss of capacity. After a successful claim against the treating healthcare trust, she received significant damages. IMTC was appointed as her property and affairs deputy and subsequently held a ‘beauty parade’ after which the deputy appointed IMAM as investment manager for PW.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In 2019, IMTC made an application to the Court of Protection for authority to execute a statutory will for PW. Concerns were raised by the Official Solicitor (‘OS’) about the appointment of IMAM as investment manager. IMTC was directed to make an application to seek retrospective authority to instruct IMAM. The Public Guardian was joined as a party.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Legal background</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Section 19(6) of the Mental Capacity Act 2005 (‘the MCA’) provides that, ‘<em>A deputy is to be treated as P’s agent in relation to anything done or decided by him within the scope of his appointment</em>’. HHJ Hilder noted that “<em>the relationship between a deputy and the person for whom the deputy is appointed is a fiduciary one</em>”.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The basic proposition about the position of a fiduciary in a position of conflict was set out by Lord Herschell in the House of Lords decision of <em>Bray v Ford</em> [1896] AC 44 at 51-52, ‘<em>It is an inflexible rule of a Court of equity that a person in a fiduciary position… is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing </em><em>those whom he was bound to protect.’</em></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The general principle was restated in <em>Boardman v Phipps</em> [1967] 2 AC 46 which also referred to <em>Aberdeen Railway v Blaikie</em> (1854) UKHL 1 Macq. 461 at 136 per Lord Cranworth LC who said &nbsp;‘<em>and it is a rule of universal application, that no one, having</em> <em>such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict with the interests of those whom he is bound to protect</em>.’</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>HHJ Hilder considered the law of agency stating: ‘<em>Conversely, the law of agency generally provides that an act of the agent may rank as the act of the principal if the principal ratifies it … Where the principal lacks capacity to make decisions about their property and affairs, only the Court of Protection may grant such ratification. Its jurisdiction for doing so … is found in the conjunction of sections 15(c) and 19(4) of the Mental Capacity Act 2005</em>.’</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>The Question</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>There were several questions agreed between the parties but the predominant question for HHJ Hilder to determine was whether the rule relating to conflict of interest was applicable to the appointment of IMAM by IMTC.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Decision</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>There is no English authority that directly deals with the question of whether the engagement by a fiduciary of a related investment company presents ‘<em>a real possibility of conflict of interest.’ </em>IMTC accepted that its engagement of IMAM gave rise to the ‘<em>theoretical potential’ </em>for a conflict of interest, but contended that there was<em> “no real, sensible possibility</em>” of conflict because it had adopted procedures by holding a beauty parade etc. which eliminated that potential. Counsel for the OS and PG disagreed contending that there was an actual conflict that was not mitigated by the processes followed by IMTC.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Having reviewed the evidence, HHJ Hilder held that :</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><em>61. The Court of Protection is no stranger to conflicts of interest…</em></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><em>62. The conflict of interest in question in this matter comes down to IMTC being financially better off if IMAM is appointed. IMTC accepts this as a “theoretical potential”. IMTC’s argument is that such potential is extinguished to the point of no “real sensible possibility” because of procedures it has adopted. Yet nowhere in the development of those processes or in these proceedings has IMTC ever denied either that the decision to appoint IMAM is made by IMTC in its fiduciary role… or that, even with full implementation of those processes, IMTC is better off if IMAM is appointed. At a most basic level, those two concessions amount to recognition of the existence of a conflict of interest: one plus one makes two.</em></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><em>63. The processes which IMTC has adopted when considering the appointment of IMAM do not target the substance of the self-dealing rule: that is, they do not remove the financial gain to IMTC. Such processes </em>could<em> have been adopted, for example by agreeing to waive any fee to IMAM where the instruction comes from IMTC as deputy. Then there would be no financial advantage to IMTC in the instruction of IMAM, no interest to be in conflict with the interests of the person for whom IMTC acts. Of course, I recognise that the Irwin Mitchell group would be likely to reject this approach as lacking commercial sense but that merely reinforces the existence of IMTC’s interest in the appointment of IMAM.</em></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>After further discussion of the processes adopted by IMTC, and the involvement of a family member in a beauty parade in ratifying or reducing the ‘theoretical potential’ of conflict of interest, HHJ Hilder concluded that there was a ‘<em>very clear, not remotely fanciful, actual conflict of interest in IMTC appointing IMAM to manage PW’s funds,</em>’ [67] This breached the self-dealing rule. She concluded that &nbsp;‘<em>The processes adopted by IMTC do not and could not extinguish that conflict. In my view, that these proceedings have been necessary at all is a paradigm example of Lord Herschell’s wise recognition of the tendency of human nature to be swayed by interest rather than duty.”</em> [93]</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Commentary</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The judgment confirms that there is a conflict of interest in a trust corporation instructing a connected company to act as an investment manager. The issue of conflict cannot be mitigated by conducting a beauty parade which includes the connected company. Further, the appointment cannot be ratified by a family member. &nbsp;Ratification must be carried out by the Court.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Public Guardian has already changed her guidance in the wake of <em>Re ACC </em>[2020] EWCOP. This reflects the view of the PG that, if financial advice is provided by a member of the deputy’s firm, potential conflicts of interest must be considered in the context of adhering to fiduciary duties, &nbsp;and where the deputies own interest and the interest of P are linked there must be an application to court for authorisation to instruct your own firm.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>There was insufficient evidence before the court to determine whether the appointment of IMAM was in PW’s best interests and should be ratified or whether it should be set aside. This will need to be determined in the future.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>However, there are many other cases where IMTC and other trust corporations have instructed connected companies. These cases will need to be reviewed and consideration given to the way forward. Given the need for court ratification of existing cases and prospective approval in respect of future new instructions, it may be viewed as highly unlikely that the ongoing instruction of connected companies can be justified as being in P’s best interests. In my view, it follows that &nbsp;in the absence of a successful appeal, this judgment is likely to signify the end of instructions of an asset manager from connected companies to the deputy.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Further, the judgment may also be viewed as relevant to the question of whether professional pension scheme trustees associated with firms providing other professional services can properly appoint their own firms to provide services.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p></p> <!-- /wp:paragraph -->

TA v the Public Guardian and duties of a Certificate Provider

<!-- wp:paragraph --> <p><strong>Introduction</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Judgment can be found here <a href="https://www.bailii.org/ew/cases/EWCOP/2023/63.html">TA v the Public Guardian [2023] EWCOP 63 (07 December 2023) (bailii.org)</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The case involved an appeal to Mrs Justice Lieven by P’s potential attorney (‘the Appellant’) from a decision of HHJ McCabe sitting in the Court of Protection. The Judgement is short, and therefore probably worth reading, particularly if you want to be refreshed of all the relevant statutory provisions which I have not set out in this note.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Facts</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In brief, The case arose from a challenge by the Office of the Public Guardian (‘OPG’) to the validity of Lasting Powers of Attorney instruments for both Property and Financial Affairs and Health and Welfare (‘the LPA’s’), on the basis that they did not comply with paragraph 2(1)(e) Schedule 1 of the Mental Capacity Act (‘the 2005 Act’).</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Application originally included non-compliance on two grounds. However, the only ground pursued at the first hearing was that the Certificate Provider (‘CP’) ‘<em>failed to make the requisite checks of understanding with P prior to certification</em>’.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In the 2005 Act, Schedule 1 2(1) provides that : - ‘<em>The instrument must include –</em></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><em>(e) a certificate by a person of a prescribed description that, in his opinion, at the time when the donor executes the instrument –</em></p> <!-- /wp:paragraph --> <!-- wp:list --> <ul><!-- wp:list-item --> <li><em></em><em>The donor understands the purpose of the instrument and the scope of the authority conferred under it,</em></li> <!-- /wp:list-item --> <!-- wp:list-item --> <li><em></em><em>No fraud or undue pressure is being used to induce the donor to create a lasting power of attorney, and</em></li> <!-- /wp:list-item --> <!-- wp:list-item --> <li><em></em><em>There is nothing else which would prevent a lasting power of attorney from being created by the instrument.’</em></li> <!-- /wp:list-item --></ul> <!-- /wp:list --> <!-- wp:paragraph --> <p>The PG asked the court at first instance to determine whether the CP had failed to fulfil the requisite checks of understanding (i.e. those set out in the previous paragraph) with the donor prior to the execution of the LPAs.&nbsp;</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The attorney argued that there was no requirement for the CP to carry out various checks of the donors understanding, and that how the CP satisfied themselves of matters relating to the donor prior to signing the LPAs was a matter for them. Further, that neither the Lasting Powers of Attorney, Enduring Powers of Attorney and Public Guardian Regulations 2007 (‘ the 2007 Regulations’), or the 2005 Act, prescribed particular steps that the CP would have to take to ascertain the donors understanding.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>HHJ McCabe disagreed and held that she was entitled to look for evidence from the CP that the requirements of Schedule 2 had been met. In this case, the CP had simply asked the donor whether she was happy about the LPAs, and the donor confirmed she was. The Judge held it was difficult to understand (from this information), how the CP had satisfied herself that the donor understood the scope of her authority; that there was no undue pressure or inducement; and there was nothing else to prevent the LPA being created. The LPAs were found to be invalid.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>The Appeal</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The appeal was on the basis that :-</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The statutory scheme sets out in clear terms what is required in order for an LPA to be valid, and the only requirement in para 2(1)(e) was for the provision of a certificate. There was no requirement for the CP to take any particular steps prior to signing the certificate, or for the court to ensure that the requisite opinion is formed.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>HHJ McCabe therefore wrongly concluded that “<em>this opinion is one of the requirements of the creation of an LPA</em> …” when it is wrong and there is no requirement for the opinion.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Finally, that the Judge wrongly introduced the concept that the opinion must be valid and imposed obligations on the CP.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>It was argued by the Appellant that the Judge’s approach undermined the scheme of the MCA; that there was a presumption of capacity; and that the Judge’s approach was that even though the donor had capacity, the LPA was invalid because the certificate provider failed to undertake sufficient checks.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>On behalf of the PG, I argued that it was clear that para 2(1) (e) required the CP to have formed the requisite opinion. &nbsp;This opinion must be based on something which allowed the opinion to be properly formed. The provision of a certificate is fundamental to the formal validity of the LPA. It is not simply a signature verifying capacity, but it is a signature which also goes to issues such as understanding who the attorney is, and undue influence etc.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In order to establish the validity of what the signature is verifying, the court must be able to look behind the signature and the opinion which was formed prior to signing.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Whilst the Appellant appeared to be suggesting that as long as the signature was present, the formalities were met, I submitted that the appellants submission taken at face value could result in a situation where there was no enquiry as to the basis on which the CP had formed the requisite opinion. This could result in an LPA being taken as valid when the CP had not spoken to the donor, or ascertained anything about the wishes, intentions or understanding of the donor. Such a situation would be absurd and would undermine the protection intended in Schedule 1.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Mrs Justice Lieven considered the statutory language, the overall statutory scheme and the purpose at which it was aimed. She held that the court was entitled to check that the requisite opinion had been formed by the CP and that the Judges approach at first instance was correct. The appeal was dismissed.</p> <!-- /wp:paragraph -->

When a Fatal Accident Act dependant is already a protected party

<!-- wp:paragraph --> <p>James Murphy has obtained approval of an agreed settlement sum in the High Court of Justice, Leeds District Registry, relating to an adult protected party who brought a claim as a dependant of her deceased father pursuant to the Fatal Accident Act 1976.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Court also approved payment of the sum of damages directly into a Disabled Persons Trust (DPT), rather than the typical order of payment to a Deputy / Court of Protection which is the starting point for an incapacitated dependant. The consequence of payment to a Deputy/ Court of Protection, this being an FAA claim and not a personal injury action, was the protected party was liable to lose her eligibility for means tested statutory funding, including social care provided via her local authority direct payments package (which had been in place since before her father’s death), plus any current/future means tested benefits (not relevant at present, but may be in the future).</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>A DPT was established with professional solicitor trustees, who otherwise would have been engaged under the Deputyship, with the protected party as the principal beneficiary. This proposal also had the support of the Official Solicitor.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Though the Court of Protection could order that the award be paid into a DPT rather than a Deputyship this ran the risk of being considered a decision by the protected party herself as the Court of Protection makes substituted decisions, and as such, could constitute a deprivation of capital such that the award can may be regarded as notional capital.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>This is a novel approach to the difficulties surrounding existing protected parties as dependants in FAA claims. The Court agreed it was in the dependant’s best interests for the sum to be paid into the DPT which had already been established for this purpose with her litigation friend as settlor when considering the principles of s.18 MCA 2005. The court was satisfied there was sufficient safeguards for the protected party within this Trust and it would enable the dependant to benefit from her award of substantial damages without risking her eligibility for statutory funding.</p> <!-- /wp:paragraph -->