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You are here: BAILII >> Databases >> England and Wales Court of Protection Decisions >> Irwin Mitchell Trust Corporation v PW & Anor [2024] EWCOP 16 (19 March 2024) URL: http://www.bailii.org/ew/cases/EWCOP/2024/16.html Cite as: [2024] EWCOP 16 |
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MENTAL CAPACITY ACT 2005
42-49 High Holborn, London, WC1V 6NP |
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B e f o r e :
____________________
IRWIN MITCHELL TRUST CORPORATION |
Applicant |
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- and - |
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(1) PW (by her litigation friend the Official Solicitor) (2) THE PUBLIC GUARDIAN |
Respondents |
____________________
Mr. R. Dew (instructed by the Official Solicitor) for the First Respondent
Ms. M. Lloyd (instructed by the Public Guardian) for the Second Respondent
Hearing: 24th & 25th January 2024
____________________
Crown Copyright ©
A. THE ISSUE
B. THE CONTEXT
The Irwin Mitchell group
a. assets under management (ie by IMAM) are more than £1 billion [259, 314];
b. the explanation of business model [276], under the heading "How we generate sustainable growth", includes a pictogram which refers to "Maximis[ing] cross-sell capabilities" and states that "Our range of legal and financial services provides us with the opportunity to offer existing clients additional complementary services and products, thereby increasing lifetime value. In addition, through our existing client relationships, brand strength and referral network, we are able to retain and generate new business and client engagement."
The Office of the Public Guardian
C. MATTERS CONSIDERED
a. for the Applicant:
i. a skeleton argument dated 17th January 2024;
ii. a statement by Julia Lomas dated 14th October 2020 [32];
iii. statements by Lucinda Nicol dated 4th December 2023 [391] and 3rd January 2024 [413];
b. for the First Respondent:
i. a position statement dated 19th January 2024;
c. for the Second Respondent:
i. a skeleton argument dated 19th January 2024;
ii. a statement by Adam Lawson dated 27th November 2023 [239].
D. THE FACTUAL BACKGROUND
"11. It appears to the Court that:
a. in order to determine the conflict application the Court needs the benefit of argument independent of both the Deputy and the supervising authority;
b. the wider importance of resolving the conflict application (for the integrity and supervision of the deputyship system as a whole) and the relative modesty of [PW]'s estate require that the costs of the process should not fall, even initially, on the protected person;
c. the costs of the Official Solicitor acting as litigation friend for [PW] could be met by agreement between IMTC and the Public Guardian jointly; …"
E. THE FUNDAMENTAL PROPOSITIONS
"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 and in accordance with this Part."
Incontrovertibly, the relationship between a deputy and the person for whom the deputy is appointed is a fiduciary one.
"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 those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing. Indeed it is obvious that it might sometimes be to the advantage of the beneficiaries that their trustees should act for them professionally rather than a stranger, even though the trustee were paid for his services."
"Rules of equity have to be applied to such a great diversity of circumstances that they can be stated only in the most general terms and applied with particular attention to the exact circumstances of each case. The relevant rule for the decision of this case is the fundamental rule of equity that a person in a fiduciary capacity must not make a profit out of his trust which is part of a wider rule that a trustee must not place himself in a position where his duty and his interest may conflict. I believe the rule is best stated in Bray v. Ford by Lord Herschell, who plainly recognised its limitations:
[then sets out the passage quoted above]
It is perhaps stated most highly against trustees or directors in the celebrated speech of Lord Cranworth LC in Aberdeen Railway v. Blaikie 136 where he said:
'And it is a rule of universal application, that no one, having 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.'
The phrase "possibly may conflict" requires consideration. In my view it means that the reasonable man looking at the relevant facts and circumstances of the particular case would think that there was a real sensible possibility of conflict; not that you could imagine some situation arising which might, in some conceivable possibility in events not contemplated as real sensible possibilities by any reasonable person, result in conflict."
F. THE QUESTION(S) FOR DETERMINATION
(1) Does the appointment by the Deputy of IMAM as investment manager for [PW] require ratification by the Court?
(2) Is the answer to (1) affected by:
(a) the guidance provided to the Deputy by the Senior Judge of the Court of Protection as to the applicability of his decision in Re MWS;
(b) the process adopted by the Deputy in selecting an investment adviser for [PW] including (i) a process of tendering and (ii) the involvement of family members in that process;
(c) the approach of the Public Guardian to the supervision of the appointment of investment advisers; and
(d) the approach taken by property and affairs deputies generally to the selection and appointment of investment advisers?
(3) If the answer to (1) is affected by the process referred to at (2)(b), then:
(a) what information must be disclosed to the family members; and
(b) what process must be followed?
(4) If the appointment of IMAM does require ratification:
(a) are there any circumstances (and, if so, what circumstances) where an appointment of IMAM as investment manager can be made by the Deputy without such appointment requiring ratification? or
(b) is the only permissible means of the Deputy appointing IMAM to apply to the court for prospective approval? and
(c) should the appointment of IMAM be ratified here:
i. having regard to the matters set out at question (2)? or
ii. what additional process should there be to consider whether to give such ratification?
(5) If the appointment of IMAM is not to be ratified, what further consequential directions need to be given in respect of the consequences of that decision in relation to (a) [PW] and (b) other cases?
(6) Is there any further guidance that the court can provide as to the steps that should be taken by (a) the Deputy and (b) other deputies for property and affairs when appointing investment managers?
a. firstly, that the engagement of IMAM in this case should be treated as having been already "authorised" by Senior Judge Lush in a judgment now published as Re MWS [2015] EWCOP 94 and subsequent communications; or
b. in the alternative, that the conflict of interest rule does not apply on the facts of this case.
The ordering of these two alternatives strikes me as logically surprising. The argument in reliance on Re MWS rests on the basis that there was something for Senior Judge Lush to "authorise" - ie acceptance of an actual conflict of interest. Accordingly, whilst acknowledging that IMTC chooses to prioritise its arguments as it does, I shall consider the alternative argument first.
a. the conflict of interest rule applies in this matter;
b. accepting (by the time of oral submissions) that the Court of Protection may ratify what would otherwise be a breach of the self-dealing rule, this Court has not already done so, and should not do so, in this case.
G. "REAL SENSIBLE POSSIBILITY OF CONFLICT": RELEVANT LAW
a. Jones v. AMP Perpetual Trustee Company NZ Ltd [1994] 1 NZLR 690 – New Zealand:
A corporate trustee invested in an insurance contract arranged by its parent company under fees which were paid to the parent company. The court declined to impose any accountability on the trust company in respect of the fees.
Thomas J held that the question of whether there has been a breach of the underlying principle is to a large extent a question of fact and degree; and in the circumstances no conflict arose between the personal interests of the trust company and the interests of the beneficiaries. Two factors were of particular importance to the conclusion:
"The first…is the fact that AMP was a pre-eminent life insurance company with a comparatively attractive investment record. Perpetual, as the trustee, was not placed in the position of having to figuratively detach itself from AMP in order to question its relationship with that company. It could at one and the same time direct the business to its parent and yet serve the best interests of the trust. Secondly, I do not believe that Perpetual was motivated, or even influenced, in its decision by the thought that AMP would benefit or profit by the receipt of the fees as contended by Mr. Dugdale. Once the decision had been made to invest the fund in a life insurance policy, the equivalent fees would be payable to any company which Perpetual selected to take the policy. The essential point is that the placement of the business with its holding company did not create a conflict of the kind which impaired Perpetual's ability to serve the best interests of the beneficiaries."
In the alternative, Thomas J also held that, if a conflict of interest had arisen, he would excuse the trustee of liability.
b. HSBC (HK) Ltd v. Secretary of State for Justice (2001) 3 ITELR 763 – Hong Kong:
The trustee of a charitable trust sought a discretion to entrust the fund's management to financial and market specialists. The Secretary of State opposed the application, asking the court to impose a condition that the trustee could not employ the services of any wholly owned subsidiary of its parent company to manage or advise on the fund's investments. Hartmann J held that there was no real and sensible possibility of conflict arising.
The judge accepted a number of points made by the trustee applicant, including that it had in the past employed consultants outside its own business group, had always sought to advance the best interests of the trust fund, had always dealt at arm's length with third parties (including the group's own asset management company) in this regard, and had a global reputation which it would seek to guard. Ultimately, the conclusion at 773d was that:
'What must be remembered, of course, is that the trustees have not said that they will necessarily stay 'within the Group'. That is a matter to be decided by reference to objective criteria as and when the need arises. But if a decision is made to do so, I see no reason to frustrate that decision simply because the trustees have a range of other choices open to them. The trustees have the responsibility of deciding which investment managers will best serve the fund and decisions in that regard are tempered by commercial experience. Choice per se takes the matter no further. The art, I would suggest, is identifying the right choice. That is a matter for the trustees and it is one which all the evidence suggests they will deal with in the full knowledge of their obligations in law (and morality) as trustees.
a. In the Perpetual case, the two factors said to save the day do not in my judgment stand up to testing against Lord Herschell's exposition of the rule. I am not assessing the merits of IMAM but 'human nature being what it is,' neither pre-eminence nor success of the linked business is any guarantor of unconflicted motivation in the fiduciary. Indeed they may just encourage complacency, so that the fiduciary fails to consider the alternatives properly. The rule is founded in practical expediency and applies even though it may be breached without disadvantage to the beneficiary.
And the second factor is a finding of fact in the particular case. Mr. Rees in oral submissions reminded me that the witness evidence of Ms. Lomas and Ms. Nicol went unchallenged, so it is not open to me "to attack the bona fides of the decision to appoint IMAM." Maybe so, but I am at this stage considering whether there is a 'real sensible possibility of conflict', not whether the conflict was in fact operative.
Equally, that fees would have to be paid to someone for the service secured goes to the question of (dis)advantage to the beneficiary, not to the existence of conflict.
I agree with Mr. Dew that the factors spelled out by Thomas J in this New Zealand case would not, on English authorities, mean there was no real sensible possibility of conflict of interest.
b. In the HSBC(HK) case, the application was for a prospective authorisation that might include the linked company. The decision rejected any requirement of a condition to exclude that possibility. That context is significantly different to the one presently before me, where IMTC may not always appoint IMAM but the whole point of the litigation is that they wish to do so.
Mr. Dew argues that the reasoning of the HSBC decision is poor and would not be followed in England. It would not be appropriate perhaps for me to put it so boldly but I bear in mind that this decision was taken 23 years ago, in a specific context and when experience of delegated investment powers was less developed. The judgment (at page 373) turned the question of conflict of interest into concern about being "in danger of setting down a legal principle which may be expressed as follows: 'if a trustee is a wholly-owned subsidiary in a corporate group, it will not be able to seek the services of another wholly-owned subsidiary within the same group even though a prudent person would acknowledge that those services are required for the protection or advancement of the trust." The reasons then given (at page 375) for avoiding that 'danger' were threefold – past use of consultants outside the group, acceptance that the trustees in the past always sought to advance the best interests of the fund and dealt with others at arm's length, and the global reputation of HSBC. In my judgment, it is far from apparent why the reasonable person should be assured by those 'reasons' that no real and sensible possibility of conflict arises.
It would appear (from page 376) that the weight of the evidence in the case before Hartmann J was that the trustees would not be likely to wish to instruct other companies within the HSBC group: "If I may reduce his submission to a colloquialism, it was that 'there are many fish' in the sea'. The trustees accept that there are numerous other investment managers, he said, so why would the need arise to stay 'within the group'? That is the context in which Hartmann J saw 'no reason to frustrate their decision simply because the trustees have a range of other choices available to them'. The context explains the 'simply because' rather differently to how it may otherwise be read; and it is a different context to the decision which I am called upon to make.
The determination on the facts of the particular case before Hartmann J is different to a finding that a conflict does not arise at all in the circumstances which I am considering.
H. "REAL SENSIBLE POSSIBILITY OF CONFLICT": PROCESS
The Applicant's position
a. the appointment of an investment manager for the funds of a protected person generally and for PW specifically is a 'best interests' decision;
b. the relationship between the deputy and the protected person for whom it acts is a fiduciary one; and
c. IMAM is a linked entity to itself and this gives rise to "a potential conflict of interest" [Julia Lomas, 38] or "a theoretical potential for a conflict of interest" [ps, para 31].
a. General features of IMTC's process for selecting an investment adviser:
IMTC maintains a "panel" of investment advisers for consideration on behalf of any person for whom it acts as deputy. Inclusion on that panel is a matter kept under review by an "investment executive committee" of IMTC [43, 398] which consists of 4 directors of IMTC [42]. All the companies on the panel have specialist teams that deal either exclusively or largely with Court of Protection clients and it is a strict requirement that they do not have any entry charge fees nor any exit fees applicable to the portfolio [396].
In any given case, "three or four" firms on the panel will be selected to take part in a "beauty parade" [41, 396] - four for cases involving assets over £10 million, otherwise three [43]. If the protected person has a family member available to participate in the beauty parade, then their view will be sought about including IMAM in the beauty parade. If the family member is unwilling for IMAM to be included, it will not be [39], without any attempt to persuade them [41]. If the family member raises no objection "[t]he shortlist would typically include IMAM…" [43]
If a family member is participating in a beauty parade which includes IMAM, it will be explained to them who IMAM is, how IMAM is connected to Irwin Mitchell Trust Corporation, and that IMAM will be kept at arm's length during the tendering process [41]. That explanation is typically given "by the fee-earner with conduct of the matter or any IMTC director", at the post-settlement meeting [41].
Each of the firms selected to take part in the beauty parade is given the same instructions and invited to prepare a proposal. If there are no family members involved, the proposals are considered on paper [43, 396]. Where a family member is involved, there will be an attended event [396].
The assessment of the various bids is by set criteria. [ps para43(2)(d)]
A 'best interests' decision is then taken having regard to all relevant circumstances and the factors set out in section 4 of the Mental Capacity Act 2005. The views of P's family members are relevant matters that need to be, and are, taken into account.
There is no set review period – "rather, the performance of the portfolio and investment managers is continually reviewed" [418]. Quarterly performance reports are reviewed by a director of IMTC. The investment manager may attend the annual deputyship review; otherwise, an annual report is received or a separate financial meeting held.
b. The process actually used when selecting an investment adviser for PW:
PW's husband was told of IMAM's connection with IMTC, did not object to IMAM being considered, and was present at an attended beauty parade. Three other firms took part as well – JM Finn, Vestra Wealth and Smith & Williamson. A "scorecard" was used to assess the proposals of all 4 firms [44].
The IMAM proposal [451 – 485] includes an "introduction" which includes the following bullet points:
- "We are experts in the Personal Injury market. Currently 95% of the clients we look after are in receipt of personal injury awards. Of the 95% over three quarters are protected parties with Deputies or beneficiaries of Personal Injury Trusts.
- Irwin Mitchell are the largest law firm specialising in Personal Injury work, and will use IM Asset Management based on its own merits to cater for their client's specialised financial needs."
The views of PW's husband were taken into account as part of a 'best interest' decision.
c. Latterly adopted changes to the Applicant's process:
IMTC "became concerned that fund managers were becoming aware of the criteria required by" the score card system [44], and so in August 2018 it was replaced with a "grid" [44] and subsequently a "spreadsheet" [397].
d. Current process:
Since February 2023, following the issue of new guidance by the Office of the Public Guardian and pending outcome of these proceedings, IMAM has not been included in any beauty parade, whether or not a family member is available to participate [398].
a. 37% of IMTC's clients have funds invested with IMAM;
b. 45% have funds invested with another provider;
c. 18% have funds which are not externally invested;
d. of the 45% not invested with IMAM, "the majority (56/90) followed a beauty parade where IMAM was one of the options under consideration. The remaining 34 were cases where IMAM had been excluded from consideration."
a. excluding IMAM from consideration where the protected person has no family member or a family member who objects to IMAM's inclusion clearly eliminates the potential for conflict. The same cannot be said for taking account of family views. Such views are clearly relevant for the purposes of section 4(7) of the Mental Capacity Act but they are an insubstantial safeguard against conflict. Many family members will have no experience at all of managing the kinds of sums which are awarded in personal injury damages. The explanation of connection between IMTC and IMAM is given to them, only orally, by someone who is already known to them or at least part of the legal firm which is already known to them, who themselves is connected to the Irwin Mitchell group. That person has the advantage of framing the conversation as they choose, and the family member is already in a position of trust towards them - Mr. W as litigation friend for PW had instructed Irwin Mitchell LLP, who conducted a damages claim to successful conclusion. The IMAM proposal is then presented with familiar graphic style and express reference to its close relationship to the Irwin Mitchell law firm. Such inclusion of a family member is hardly robust oversight.
b. the frequency with which IMAM is invited to take part in the 'beauty parade' seems very likely to give IMAM an advantage in knowing how to pitch its presentation. It would be failing to learn from its own experience if it did not. Even IMTC became concerned about this, as its change from scorecard to grid to spreadsheet is explained. It is very far from clear how far those changes could substantively address the problem of unequal familiarity with the presentation process.
c. the scorecards from PW's beauty parade record overall scores of 55% for JM Finn [177], 71% for IMAM [178], 42% for Vestra [179] and 68% for Smith & Williamson [180]. However there are obvious errors or inconsistencies in the addition of the separate scores to reach that percentage:
a. for the six categories under the heading "Financial Planning",:
i. JM Finn [177] has scores of 2, -,1,2,2,2 adding up to 10%;
ii. IMAM [178] has five scores of 2, adding up to 16%;
iii. Vestra [179] has scores of 0,0,2,0,2,0 adding up to 8%;
iv. Smith & Williams [180] has five scores of 2 adding up to 22%;
b. for the four categories under the heading "Presentation":
i. JM Finn [177] has scores of 1,1,1,0 adding up to 9%;
ii. IMAM [178] has scores of 1,1,1,1, adding up to 12%;
iii. Vestra [179] has scores of -,1,-, - adding up to 1%;
iv. Smith & Williams has scores of 1,1,0,0 adding up to 2%.
However 'objective' the scoring system is intended to be, it is manifestly subject to subjective interpretation and then human error as well, to a degree capable of changing who actually comes out with the highest score.
The expert evidence
a. good practice in the selection and appointment of investment managers by fiduciaries;
b. the specific process adopted by IMTC for PW;
c. whether the appointment of IMAM as investment adviser for PW is one that may reasonably be considered to be in her best interests.
a. opines that, if the deputy is not going to use an unconnected party to assess the suitability of each investment adviser/firm, "then it would be good practice to ensure that only fully independent advisory firms form part of the panel for selection to avoid any conflicts of interest" [427];
b. notes that no "documentational (sic) evidence" has been provided as to how the four participants in PW's beauty parade were selected [429];
c. considers that the due diligence questionnaire used by IMTC is "comprehensive" [429], but:
i. he suggests that questions relating to the disclosure of commercial links and financial arrangements between firms looks like "box-ticking" [430];
ii. he notes that in any event IMTC was unable to provide the questionnaires completed by the participants in PW's beauty parade [430]; and so
iii. he is unable to comment on the use made of the information in these questionnaires [430];
d. in respect of the scorecards used in PW's beauty parade, he considers that "the content and scoring methodology appear to be diligent and robust" but the scoring "is left to the interpretation of the deputy, supported by family members", which "could create a bias which supports an outcome in the appointment IMAM" (sic) [431]. In particular:
i. the inclusion in the scoring system of the question "Do the family have a strong preference for the adviser/firm?" is particularly queried as "self-supporting in the appointment of an adviser and firm that is commercially linked";
ii. if this question was excluded, Vestra would have scored the same as IMAM [431];
iii. in the file note by Julia Lomas, it is recorded that "… it was [PW's husband] who said that he wanted IMAM to be appointed. This was extremely fortuitous since on the score card they were in fact the most highly rated" [436]
e. by analysing the data provided within each proposal for the beauty parade [432-437], Mr. Dunn concludes that the JM Finn portfolio was the most suitable for PW;
f. nonetheless, he concludes [438] that "the appointment of IMAM was a best interests decision for PW", apparently because of Mr. W's expressed view.
a. whilst expressing concern that Mr. Mann fails to recognise the importance of cost, IMTC also then criticises his alternative proposal for weighing the proposals (which has three separate columns for charges) as giving undue weight – 60% - to charges [ps paragraph 29(1) and (6)];
b. the debate [ps para 29(2)] about whether Mr. Mann's recommendation of using separate IFAs, or the Irwin Mitchell linked structure, would incur lower costs for P obfuscates the real issue as to conflict;
c. IMTC's contention [ps para 29(4)] that Mr. Mann's approach of selecting for consideration a long list of 10 to achieve a list of 6 "could exclude suitable firms" is not persuasive. His long list is exactly the same size as IMTC's current panel. In any event I am not concerned about the size of IMTC's standing panel or the number of firms invited to take part in a beauty parade (see below, paragraph 65.)
d. the suggestion that Mr. Mann largely discounts family views, even though they are a statutory factor, is belied by his ultimate conclusion that – notwithstanding JM Finn's higher score – the selection of IMAM for PW was appropriate in the light of Mr. W's expressed view.
The evidence of other deputies
a. she is a solicitor of 20 years standing and has been a panel deputy for over 10 years, with cases ranging from very low value and effectively pro bono to multi-million pound personal injury awards;
b. she generally uses three providers for 'beauty parades';
c. clients are involved as far as possible and their capacity allows;
d. family members are consulted "when appropriate";
e. she "do[es] not use any internal advisers in relation to investments. [She has] not and would not consider investment in [her] business by clients."
a. he is a solicitor, and from 1979 until 2013 he worked for the firm which became Pannone Solicitors;
b. in 2013 he set up his own firm dealing exclusively with Court of Protection and ancillary, complementary matters;
c. he is a panel deputy;
d. when he worked at Pannone Solicitors, that firm "had a small financial services team [who]….managed investments on an advisory, rather than a discretionary basis and they did not manage the funds themselves";
e. he, a fellow director or the solicitor with conduct of the matter would discuss the prospect of investing with the client and/or their family, to seek their views in general, whether circumstances require any specific consideration such as the protected party's ethical views, religious beliefs, prior attitude towards investment and tax…"
f. three or four investment managers would be invited to prepare an investment proposal;
g. if the client and/or family has no interest in the investment process, he would tend not to request a 'beauty parade' but would make a decision on the paper proposals;
h. often there is little to differentiate paper proposals and the preference of a client/family member turns on "who they preferred on the day, who was most engaging in their presentation, who came across as more approachable or perhaps most prepared or most professional…";
i. if the client and/or family expresses a preference, he is "most often guided by" that, always on the basis that he as deputy is ultimately satisfied that the preferred investment manager is in the best interest of P;
j. his firm has no commercial relationship with any investment manager who we would consider to approach, and he does not accept instructions to act as deputy in cases where those referring the case would wish to place restrictions on any future choice of investment manager.
a. he has been a solicitor since 1991;
b. where funds are set aside for longer term investment, his usual practice is to engage an independent financial adviser or investment manager;
c. it is quite common to conduct a 'beauty parade' of 2 or 3 investment advisers but in other cases, where there is no one closely involved who should be consulted, he will use his own judgment in choosing the right adviser;
d. he regards it as "important to ensure that [his] role as a fiduciary is to represent the interests of P and that there is no conflict of interest. He has not worked for a firm which offers its own investment advice but "would be concerned that in any such case the only way of avoiding a conflict of interest or potential conflict of interest is to avoid the arrangement as a matter of principle."
54. In that context, drawing from a panel of 10, as opposed to Samantha Hamilton's general use of three providers, adds nothing of substance, particularly since IMTC only in fact uses "three or four" from that panel for each beauty parade [41, 396]. As was explained to Mr. Mann [429], there is no significant filter in the selection of participants from the larger panel: "they were rotated and sometimes it would depend on their availability to attend…" It is not suggested that a wider field was deployed if IMAM was to be of the participants. Given that IMAM may be one of the firms selected from the panel but Samantha Hamilton's three cannot include a related firm because she does not have one, in any IMTC beauty parade of three, there must actually be fewer completely independent advisers invited to tender.
55. Neither am I persuaded that there is anything intrinsically more robust in IMTC "always making the choice of investment manager from a list of candidates that have been asked to provide proposals" [ps para 18(2)], in contrast to Mr. Terrell who "only holds beauty parades where family members are involved" but is otherwise "willing to use [his] own judgment in choosing the right adviser who is suited to the case." Mr. Terrell went on to explain that he "can take account of the adviser's understanding of the nature of the work and the needs and interests of the individuals who lack capacity….service levels offered and rates charged… service levels and the quality of advice and documentation." Whether in a formalised panel or from knowledge garnered in the course of wider experience, it is clear from Mr. Terrell's statement that he chooses from a range of advisers. In line with Mr. Jones' observation that there is often little to differentiate paper proposals, there seems to be very little difference to the approach taken by Mr. Terrell and the approach taken by IMTC where IMAM is not a contender; and where IMAM is a contender, Mr. Terrell's approach is more robust because it does not contemplate appointment of a linked entity.
The position of the OS for PW (supported by the Public Guardian)
"The appointment [of IMAM] involved a stark conflict of interest. The use of a connected asset management firm is not justified as being in the interests of P and there is no other good reason for Deputies to be appointing asset management firms in which they are interested. In PW's case there are doubts about the independence of the process used and nothing to show that retaining the appointment is in her best interests."
a. IMTC's deputyship fiduciary duties include the duty to appoint the investment manager who would be best for PW;
b. IMTC, Irwin Mitchell LLP and Irwin Mitchell Holdings Company Ltd are all better off if IMAM is appointed for PW than if it is not;
c. accordingly IMTC's duties conflict with its interests.
a. where IMTC was not responsible for the appointment, for example because it was made before IMTC had been appointed as deputy (and even so, the subsequent reviews would be problematic, giving rise to concern as to whether a subsequent appointment of IMTC would be in P's best interests);
b. the appointment process was conducted in a wholly independent way unconnected to IMTC (the independent expert identifies the possibility of using an external adviser but again the reviews would be problematic);
c. the Court approved the appointment.
Conclusion
a. has the appointment already been ratified, as IMTC contends?
b. if not, should it now be ratified?
I. THE ARGUMENT OF EXISTING AUTHORISATION
a. Historical development
i. Before the implementation of the Mental Capacity Act 2005, funds of protected persons were generally managed, conservatively and restrictively, by "panel brokers" authorised by the Public Guardianship Office; and court authority was required to sell investments.
ii. Since implementation of the Mental Capacity Act 2005, property and affairs deputies have been given wider powers. The standard deputyship order now includes authority to "exercise the same powers of management and investment" as the protected person has as beneficial owner. The current guidance of the Office of the Public Guardian (13th February 2023 at paragraph 4d) is that a deputy "must manage P's investments to maximise returns while minimising risks." In practice, this means that it is often necessary for a deputy to take investment advice, and it is common practice to use financial advisers and investment managers.
b. Specialist nature of investment
i. The specialist nature of the investment stems from the practical reality that funds being invested must be managed to ensure that the protected persons needs are met. As set out in Ms. Nicol's statement [396] "more traditional investment managers will tend to take higher risks with portfolios or try to undertake tax planning, which is simply not suited or appropriate for our clients." Or, as put by Hugh Jones [219]: "managing the investment of a personal injury damages award for a protected party is an entirely different prospect from managing an investment portfolio for a private client with capacity who may have acquired their wealth through employment, business interests, and inheritance or other means. For protected parties with personal injury damages awards, these funds are, in most cases, the only funds that the client will ever have. These clients will not have the opportunities to earn income from employment or business interests and these funds need to provide for their often complex needs for the rest of their lives. It therefore requires a specialist approach to investment."
ii. Accordingly, the investment of personal injury awards, such as PW's, is a specialist concern with only a relatively small number of experienced firms, shrinking as firms merge or move out of the market. In 2020 the Applicant Deputy maintained a "panel" of 12 such firms [41]; at present, that panel has only 10 firms on it [398].
iii. Given the small number of specialist firms operating, the Applicant deputy contends that excluding IMAM from consideration would not have promoted PW's best interests but would simply have denied her the opportunity to have an experienced and capable investment manager considered.
c. The decision in Re MWS and subsequent communications
i. The decision of Senior Judge Lush is now published [154], although in accordance with requirements at the time, it was not published when it was handed down. The hearing date is stated to have been 2nd October 2015; the judgment is dated 11th March 2016.
ii. Irwin Mitchell LLP acted for MWS in his personal injury claim. IMTC was appointed as property and affairs deputy for MWS. There was no family member or other closely related third party with an interest in P's welfare. IMTC obtained "an independent verification as to the suitability of their requirements" and then applied both for authority to instruct IMAM "as independent financial adviser" for MWS and for an order giving general authority to adopt the same procedure where IMTC or named Irwin Mitchell LLP partners are appointed as deputy and there is no family input.
iii. The Public Guardian was joined as a party and agreed to the appointment in the specific matter of MWS but (as IMTC acknowledges [40]) opposed any general authority in the same vein.
iv. In a succinct, ten-page judgment, Senior Judge Lush said:
"22. … both the Court of Protection and the OPG are prepared to allow IMTC to instruct IMAM to manage P's investments provided they are satisfied that it is in P's best interest and there are effective safeguards in place to prevent abuse. This means that there should be a level playing field when selecting of investment managers for persons for whom IMTC acts as deputy.
23. In MWS's case, the Public Guardian is satisfied that, notwithstanding the conflict of interests between his deputy, IMTC, and IMAM, it would be in his best interests for IMAM to manage his investments.
24. In all other cases, I would suggest that IMTC has three options:
(1) It can work with the wider profession in the form of the Law Society with the OPG by consulting on and negotiating a protocol on using connected investment companies, advisers and third party verifiers to ensure that the best interests of persons with disabilities are safeguarded from conflicts of interest. This would be my preferred option, but in the event that such a protocol could not be agreed with the OPG and the Law Society within 6 months from the date of this judgment, then the following options would apply.
(2) It can follow the Solicitors Regulation Authority's guidance and recuse itself. In terms of reputation, this would be the best course of action for the Irwin Mitchell Group to follow. There would certainly be public confidence in this approach.
(3) It can let the Court of Protection manage the conflict of interests. This means that an application would need to be made to the court in every case for permission to instruct IMAM to manage the investments of a person who lacks capacity to manage their own assets. On receiving such application, P would be joined as a party and the court would then appoint a panel deputy to act as P's litigation friend for the purpose of conducting a beauty parade or otherwise ensuring that P's interests can be properly secured. This would be an expensive option, but the choice of a suitable investment manager is a decision of such fundamental importance and its potential impact on P is so great that it warrants a rigorous procedure and the additional costs that this entails.
25. Accordingly, I dismiss IMTC's application for an order giving Irwin Mitchell LLP the general authority it seeks regarding its existing procedure for instructing external verifiers."
v. After the judgment in Re MWS, Irwin Mitchell sought further clarification from Senior Judge Lush. The full e-mail exchange is as follows:
I.Michael Knott to SJ Lush, copying in Julia Lomas, at 14.24 on 29th March 2016:
Dear Denzil,
I have now received the order in this matter. Thank you for your time in hearing this case and providing your judgment in what is clearly a complex area. The IMTC will progress with the specific case of [MWS] as directed.
In relation to the second, and wider IMTC/IMAM point we would welcome the opportunity of reviewing the judgement with you in order to obtain clarification on certain parts as we feel that, on a practical level, we need to be sure we have accurately interpreted your judgment. I note that there is no specific authority in the order for review – which we would have anticipated – and in the circumstances could you confirm how we might progress this?
Kind regards,
II. SJ Lush to Michael Knott, copying in Julia Lomas, at 10.42 on 4th April 2016
Dear Michael,
Could I come back to you on Friday 8th April or next week please.
I am speaking to the OPG Supervision Team in Nottingham on Thursday and may get a chance to speak with Alan Eccles or Sally Jones about how it would be best to take this forward.
Kind regards,
III. Michael Knott to SJ Lush, 13.52 on 11th April 2016
Dear Denzil,
Thanks for your e-mail. I understand that you have, in the meantime, spoken with Julia and have confirmed to her that it was your intention that the order and supporting judgment was intended to relate only to cases where there is no family (or relevant third party) involvement. And that you had kindly agreed to clarify this for us in writing. To that end, I look forward to hearing from you.
Kind regards,
IV. SJ Lush to Michael Knott, 13.57 on 11th April 2016
Dear Michael,
I confirm that the judgment relates only to situations in which there is no one other than the deputy to be consulted pursuant to section 4(7) of the Mental Capacity Act 2005 as to what would be in a person's best interests.
Kind regards,
vi. In the light of this exchange IMTC developed its approach to the selection of investment managers in a way which distinguished between cases which had, and did not have, a family member or similar individual available to participate [40] because IMTC "understood that it was permissible to include IMAM within a beauty parade provided that there were family members (or other suitable individuals) able to participate within that process and express views which could be taken into account under section 4(7) MCA when making the best interests decision on behalf of P." [ps para 25]
d. Subsequent acceptance by the Public Guardian
IMTC has not been secretive about its appointments of IMAM for PW (or other persons for whom it acts as deputy.) On the contrary, IMTC declared the appointment of IMAM for PW in its 2017/2018 deputy report and identified that the appointment was made after a beauty parade [73]. The OPG raised no issue then, nor at any of its audit visits.
"You must manage P's investments to maximise returns while minimising risk. You may seek professional or expert advice if P's investments are complex. However, if financial advice is provided by a member of your own firm, you must consider potential conflicts of interest as described in section 1f 'Adhering to fiduciary duties.' You must consider your fiduciary duty when managing investments and act in P's best interests. Where your own interests and the interests of P are linked, such as an investment in your business, you must apply to the court for authorisation."
a. the actual decision - that a particular single appointment of IMAM was capable of being and should be ratified - is founded on the assumption that the appointment was liable to be set aside unless ratified. Senior Judge declined to give any wider authority. Three options were set out, with a clear preference for seeking contemporary approval from the Court of Protection in each individual case [ps para 34]. IMTC chose not to adopt any of those options. It should therefore not come as a surprise that neither the OS nor the PG is willing to support a second application [ps para 35].
b. the e-mail exchange could not possibly give rise to a binding res given its informality and particularly that none of the other parties were involved. In any case, IMTC's interpretation of it is wholly misplaced: the judge's statement was only to the effect that the decision was confined to cases where there was no other person who could be consulted. He did not say and did not rule that in those cases the appointment of IMAM would be valid. [ps para 36]
Conclusion
a. the final e-mail does nothing more than confirm the factual basis of the case actually decided. There is nothing in it which can reasonably be construed as any kind of 'authorisation' or 'ratification' of a general process in any other circumstances;
b. I note the earlier references in the e-mail chain to conversations but the only evidence of the substance of such conversations (in the third e-mail) is indirect and limited to a statement of the obvious – that the judgment relates only to a situation where there is no family member or relevant third party involvement. The final e-mail does confirm this but it does not go on to say that any particular process is acceptable where there is such third party involvement. Such interpretation looks, in my judgment, like determination to understand Re MWS as narrowly as possible so as to continue with instruction of IMAM as widely as possible.
a. As far as I am aware no attempt was ever made to negotiate a protocol on using connected investment companies. We are now approximately 8 years since his judgment, and no such protocol exists.
b. Effectively IMTC's processes do "recuse itself" in circumstances equivalent to Re MWS – as set out in paragraph 38(1) above, if the protected person has no family member available to participate in the beauty parade, then IMAM will not be included in the beauty parade [39]. However it does not recuse itself where the protected person has a family member available. For the reasons I have set out at paragraphs 41(a) and 64 above, I am not satisfied that this is sufficient. It does not satisfy option 2.
c. IMTC has brought the current application only retrospectively, because a concern was raised by the Official Solicitor and District Judge Grosse so directed. Its own evidence is that there are many other cases where it has appointed IMAM without making any application to the Court for ratification. IMTC has manifestly not adopted the approach of option 3 either for PW or generally.
J. SHOULD THERE BE RATIFICATION NOW?
"The appointment of IMAM as PW's investment adviser by IMTC was an intra vires exercise of the decision-making powers conferred on IMTC by section 16 MCA 2005 and its deputyship order. It was a best interests decision made having regard to section 4 MCA and properly documents as such by IMTC. Its validity does not depend upon whether the decision is the same one that the Court itself would have made had it been taking the decision; section 4(9) MCA 2005 provides:
"In the case of an act done, or a decision made, by a person other than the court, there is sufficient compliance with this section if (having complied with the requirements of subsections (1) to (7)) he reasonably believes that what he does or decides is in the best interests of the person concerned."
There is therefore no question of the appointment of IMAM being void ab initio."
K. SUMMARY AND CONCLUSIONS
HHJ Hilder