Judge: Senior Judge Lush
Citation: CoP Case 12228697
Summary: This important decision concerns the duties of attorneys as regards the management of P’s monies. It arose upon an application by the Public Guardian to revoke an LPA and direct him to cancel its registration in light of his concerns as to the conduct of the sole attorney, the niece of P. His investigations had revealed that (inter alia) a very substantial sum (nearly £90,000) of P’s monies had been put by the niece into a reptile breeding venture and she had taken nearly £45,000 of P’s capital for her own personal benefit.
The niece did not oppose the application; she did not attend the hearing. The application was granted, and in so doing SJ Lush took the opportunity in the judgment to set out the responsibilities of attorney acting under a LPA when investing the donor’s funds. At the outset, he noted (at paragraph 20) that there were “two common misconceptions when it comes to investments. The first is that attorneys acting under an LPA can do whatever they like with the donors’ funds. And the second is that attorneys can do whatever the donors could – or would – have done personally, if they had the capacity to manage their property and financial affairs.”
Neither of these propositions are correct, however, both because of the fiduciary relationship between attorney and donor and because of the obligation of the attorney to act in the best interests of donor upon the donor’s incapacity.
Senior Judge Lush noted that, before the MCA 2005 came into force on 1 October 2007, both the Court of Protection and the antecedents of the Office of the Public Guardian were actively involved in the investment of patients’ funds. There was a discrete Investments Branch, which issued in-house guidance for staff, Investing for Patients. That guidance included a range of investment codes suitable for both short-term and long-term investments.
Senior Judge Lush took the opportunity in this judgment in essence to update that guidance to reflect current circumstances, limiting himself solely to short-term investment codes (P in this case being aged 81 ½ and short-term investment codes being generally more appropriate where an individual has a life expectancy of five years or less).
In particular, he noted (paragraph 36) that “[g]enerally speaking, attorneys acting under an LPA should ensure that any investment products or services they acquire on a donor’s behalf are provided by individuals or firms who are regulated by the Financial Services Authority. One of the advantages of this course of action is that the donor’s investments will be covered by the Financial Services Compensation Scheme (‘FSCS’), in which eligible deposits are protected up to a maximum of £85,000.”
Senior Judge Lush then set out his proposal for a rewritten version of the short-term investment codes recommended in Investing for Patients (technical reasons prevent its reproduction here).
“38. Investing for Patients suggested a few other factors that may need to be considered, such as:
(a) whether any major items of expenditure are anticipated or should be planned for;
(b) whether any gifts or payments to dependants are likely to be made. This will usually involve an application to the Court of Protection for authorisation to make gifts in excess of the limits imposed by section 12 of the Mental Capacity Act in order to reduce the impact of Inheritance Tax;
(c) the type of return required. For example, whether a high income is needed from the investments, or whether the capital can be left to grow, or whether a mixture of the two would be more appropriate;
(d) risk: whether absolute safety is required for the investment or whether some risk is acceptable in exchange for the possibility of getting a better return; and
(e) whether there is an existing portfolio and, if so, the tax and cost considerations that may affect decisions about whether to change it and how quickly.
39. The guidance also considered the interests of beneficiaries under the patient’s will or intestacy, which included asking the following questions:
(a) whether it is likely that the investments will be sold when the patient dies, or whether the beneficiaries of the patient’s estate are likely to want the investments as they then stand; and
(b) whether there are any provisions in the patient’s will which affect the composition of the investments, such as a specific bequest of an investment or the creation of a trust in which income and capital go to different beneficiaries.
40. In this respect, Investing for Patients concluded that, ‘it will probably only be worthwhile to consider in depth the interests of those who will benefit on death if the following conditions all apply:
(a) the capital available for investment is over £100,000;
(b) there is no reason to believe that the patient’s state of health is life-threatening; and
(c) the capital, when invested, will adequately satisfy the patient’s current and future income and capital requirements.’
41. Until such time as the Office of the Public Guardian issues its own guidance to attorneys and deputies on the investment of funds, I would suggest that, as they have fiduciary obligations that are similar to those of trustees, attorneys should comply with the provisions of the Trustee Act as regards the standard investment criteria and the requirement to obtain and consider proper advice. I would also recommend that attorneys and their financial advisers have regard to the criteria that were historically approved by the court and the antecedents of the OPG in Investing for Patients, albeit with some allowance for updating, as suggested in paragraph 37 above.”
Senior Judge Lush concluded his analysis of the general obligations imposed upon attorneys in this regard with three further points:
a. attorneys should keep the donor’s money and property separate from their own or anyone else’s: Mental Capacity Act Code of Practice, paragraph 7.68. This applies to investments and, wherever possible, all investments should be made in the donor’s name. If, for any reason, it is not possible to register the investment in the donor’s name, the attorney should execute a declaration of trust or some other formal record acknowledging the donor’s beneficial interest in the asset;
b. subject to a sensible de minimis exception, where the potential infringement is so minor that it would be disproportionate to make a formal application to the court, an application must be made to the court for an order under s. 23 of the Mental Capacity Act 2005 in any of the following cases: (a) gifts that exceed the limited scope of the authority conferred on attorneys by s.12 of the Mental Capacity Act; (b) loans to the attorney or to members of the attorney’s family; (c) any investment in the attorney’s own business; (d) sales or purchases at an undervalue; and (e) any other transactions in which there is a conflict between the interests of the donor and the interests of the attorney;
c. attorneys should be aware of the law regarding their role and responsibilities. Ignorance is no excuse. At paragraph 44, Senior Judge Lush noted that he was “not suggesting that attorneys should be able to pass an examination on the provisions of the Mental Capacity Act 2005, but they should at least be familiar with the ‘information you must read’ on the LPA itself and the provisions of the Mental Capacity Act 2005 Code of Practice. Section 42(4)(a) of the Act expressly stipulates that it is the duty of an attorney acting under an LPA to have regard to the code.” He noted in this regard the explicit nature of the declaration at Part C of the LPA form to be signed by the attorney, setting out the nature of the understanding of the role and responsibilities to be undertaken by the attorney.
On the facts of the case, Senior Judge Lush had little difficulty in finding that the niece had contravened her authority and acted in a way that was not in P’s best interests. He therefore revoked the LPA and directed the cancellation of its registration.