IMPORTANT NOTICE
This judgment is covered by the terms of an order made on 13th July 2020 pursuant to Rule 4.2(2)(b) of the Court of Protection Rules 2017. It may be published on condition that the anonymity of the incapacitated person and members of his family must be strictly preserved. Failure to comply with that condition may warrant punishment as a contempt of court.
MENTAL CAPACITY ACT 2005
First Avenue House 42-49 High Holborn
London WCIV 6NP
Before:
SENIOR JUDGE LUSH
Re MWS
Between:
IRWIN MITCHELL TRUST CORPORATION Applicant
- and -
THE PUBLIC GUARDIAN Respondent
John Dickinson, instructed by Irwin Mitchell, for the applicant
Abid Mahmood, instructed by the Public Guardian, for the respondent
Hearing date: 2 October 2015
JUDGMENT
Crown Copyright ©
Senior Judge Lush:
Although these proceedings nominally relate to MWS, this is a wider application by Irwin Mitchell Trust Corporation for an order relating to the circumstances in which it may appoint an associated company to manage the investments of clients for whom it acts as a deputy for property and affairs.
It is not an application in respect of which I am required to give permission for this judgment to be published on the BAILII website, and this decision is not intended for publication to anyone other than the parties and their staff.
The facts
MWS was born in 198* and lives in *shire. He suffered a traumatic brain injury in a road traffic accident in 200*.
Irwin Mitchell LLP, Solicitors, acted for him in his personal injury claim, which settled out of court for £2,500,000, and on 5 March 2013 the Irwin Mitchell Trust Corporation ('IMTC') was appointed as his deputy for property and affairs.
The application
In addition to having their own trust corporation, Irwin Mitchell LLP Solicitors also have an inhouse financial planning company, Irwin Mitchell Investment Management ('IMAM'), and on 1 May 2015 1MTC applied for the following orders:
An order authorising 1MTC to appoint IMAM as independent financial adviser having received an independent verification as to the suitability of their requirements.
An order giving general authority for Irwin Mitchell LLP to adopt the same procedure of external verification of written tenders in matters where 1MTC or named Irwin Mitchell LLP partners are appointed as deputy and there is no family input into the appointment of the most suitable financial adviser based on those recommendations.
An order joining the Public Guardian as a party to the proceedings.
The Public Guardian has a statutory duty to supervise deputies appointed by the Court of
Protection: Mental Capacity Act 2005, section 58(1)(c). In July 2015 the Office of the Public Guardian ('OPG') published Deputy standards: Professional deputies, which set out what is expected of professional and public authority deputies and provided a checklist of actions and conduct that every professional deputy should follow.
Michael Knott's witness statement
The application was accompanied by a witness statement made on 28 April 2015 by Michael Knott, who is both a partner in Irwin Mitchell LLP Solicitors and a director of IMTC. He said that:
"There is a vast range of investment managers in the market offering different investment styles and services at varying levels of charges, and not all specialise in personal injury awards. When obtaining advice as a deputy, it is this firm's practice to follow a beauty parade style process to compare advice and services between a small number of different firms before procuring investment management services.
As part of the beauty parade process, we encourage clients and/or suitable members of their family to participate in the process so far as they are able and willing to do so. However, there are occasions and circumstances where this will not be possible.
On this occasion and in view of the circumstances of MWS, consideration was given as to whether holding a beauty parade was in MWS's best interests. A key consideration is costs. When holding a beauty parade, it is usual for the deputy and/or the fee earner with day to day conduct of the deputyship to attend the meetings with each of the proposers. This can take several hours. In addition, there is preparation time both before and after the meetings in order to consider and review the proposers' reports and recommendations.
Where P and/or their family are able to take an active role, this process is valuable in giving them, the opportunity to be involved and contribute to decisions where possible. However, as this is not the case with MWS, it was not considered appropriate to incur the level of costs associated with going through a full beauty parade process.
Rather than undertaking a beauty parade in this case, I obtained a report from Enhance Wealth Consultancy Limited, a leading provider of investment oversight services to the fiduciary sector. The purpose of the report is to provide independent verification as to whether there is any reason why Enhance would disagree with 1MTC' s choice of IMAM as an investment solution and provider. In this case Enhance were asked to compare two recommendations. There would usually be three but in this case I was able to discount one based on high costs before proceeding to external verification.
Enhance conclude that the solution presented by IMAM is at an acceptable cost; the financial planning structures are effective and appear to be well researched; the investment management process is comprehensive and the overall solution is suitable to meet the objectives (in so far as they are currently known) of MWS. An element of flexibility is built into the proposals in consideration of potential changes to future requirements,
Consequently, Enhance see no reason to object to the appointment of IMAM as financial planner and investment manager for MWS's funds managed under the deputyship.
On the basis of MWS's circumstances and the finding in the report of Enhance, I ask the court to give directions to allow the deputy to proceed with the recommendation of IMAM without the need to obtain any other recommendations for the investment of MW S 's funds.”
Court orders
On 8 May 2015 1 made an order joining the Public Guardian as a party, setting out a timetable for the filing of evidence, and listing the matter for hearing, and on 22 July 2015 1 made a further order revising the timetable and listing the matter for hearing on Friday 2 October 2015.
Christopher Rowe's witness statement
Christopher Rowe is an executive case manager at the OPG's office in Nottingham, where the team responsible for supervising deputies in based. On 15 July 2015 he made a witness statement, in which he said as follows:
The Public Guardian's position is that, in cases where 1MTC or Irwin Mitchell LLP partners are the court-appointed deputy, there is likely to be a conflict of interests if IMAM is selected as the client's investment solution.
The Public Guardian's view is that the proposals set out in [Michael Knott's witness statement] do go some way to manage this conflict of interests.
The use of an independent firm with experience of investment oversight in the fiduciary sector is of benefit in reducing these concerns where IMAM is appointed, but conflict of interest concerns will remain throughout their appointment.
Paragraph 2 of the Enhance report dated 8 April 2015 sets out that "The purpose of this report is to provide independent verification as to whether there is any reason Enhance would disagree with IMTC's choice of investment solution and provider."
The Public Guardian's concern is that the brief given to Enhance and the question they are asked to answer do not manage the conflict of interests.
The Public Guardian's view is that conflict of interest arises where the 1M deputy or 1MTC choose IMAM as their preferred provider before asking Enhance to provide independent verification.
Enhance give their opinion on each proposal and, in the example given in Appendix 3 of the Enhance Proposal document dated March 2014, they include the opinion that "we feel the proposals all have certain merits."
The Public Guardian's view is that the conflict of interest could be reduced if the question for Enhance to answer is "which of the proposals do they recommend the deputy chooses for the client?"
[Michael Knott states] that Enhance were asked to compare only two recommendations as the deputy discounted one based on high costs.
The Public Guardian's position is that this reduces any benefit gained by independent verification/recommendation if the deputy is already discounting the potential recommendations prior to the independent review.
The Public Guardian's view is that all proposals should be assessed by Enhance.
[Michael Knott] refers to costs and the Public Guardian is satisfied that the proposal has been considered in terms of its cost effectiveness to the client in this case.
[Michael Knott] refers to using independent verification "where there is no family involvement." Whilst the Public Guardian would support involving the family where appropriate, he does not feel that it is clear why this independent verification should not still happen to support the decision-making when the client and family are also involved.
The Public Guardian's position is that there is a conflict of interest if the 1M deputy is discussing with the family the investment proposals including the reliance on the deputy to highlight the pros and cons of the IMAM option.
Christopher Rowe summarised the Public Guardian's views as follows:
The Public Guardian's position is that the proposal set out in [Michael Knott's witness statement] should be encouraged but there needs to be a change in the brief to Enhance (or any other independent external verifier company used) to include their recommendation rather than 'rubber-stamping' the deputy's decision to pick IMAM.
The Public Guardian's view is that the conflict of interest could be reduced if the question for Enhance to answer follows the principles of the MCA, for example:
which proposal do they recommend the deputy chooses for the client?
which proposal is in the client's best interests?
in considering the client's past and present wishes and feelings, which is the best proposal?
The Public Guardian's view is that Irwin Mitchell LLP ('1M LLP') should be asked to answer the questions detailed below:
Is there a pool of external independent financial advisers or companies that 1M LLP use in the tender process?
How big is this pool?
How is the pool selected?
What due diligence is undertaken and who does this, as a conflict of interest could result in excluding direct rivals to IMAM?
In the case before the court (MWS) how were the two external advisers selected?
Appendix 3 of Enhance Proposal document dated March 2014 details an example where invites to tender total 5 (including IMAM). How does 1M LLP decide how many invites to tender to issue on a case?
If IMAM is deemed to have given poor or negligent advice, even with external verification, will the 1M deputy be prepared to take action and potentially seek compensation from IMAM?
Is the deputy bound by the decision made, i.e. if it's in the best interests of the client for IMAM not to be appointed and the choice is for another, will the deputy be in a position to make that choice?
Christopher Rowe concluded his witness statement with the following submissions and orders sought:
The Public Guardian submits that in the case of MWS the appointment of IMAM, subject to the court's approval and answers of the questions posed in this statement, appears to be in MWS's best interests.
The Public Guardian submits that a general authority given by the court would bring about concerns that the decision would result in a continuous use of IMAM without the review of each individual client's best interests.
The Public Guardian seeks an order directing the applicant 1MTC to answer the questions and concerns raised in [this witness statement].
The Public Guardian seeks a further order confirming that no general authority will be given to IMAM and that due to the potential conflict of interests each appointment must be reviewed in isolation by the court.
This order would ensure that the decision to appoint IMAM is made in each client's best interests.
Abid Mahmood's skeleton argument
The Public Guardian instructed Abid Mahmood, a barrister at No 5 Chambers, to represent him at the hearing on 2 October 2015, and in his skeleton argument, from paragraph 5 onwards, Mr Mahmood said as follows:
The real issue in this case concerns the broad permission that is sought by the applicant to have the freedom to act in all cases it chooses to without having to revert to the court for an order.
The Public Guardian does not agree to such a course of action being taken.
As the court will be well aware, the role of the Public Guardian is a statutory one pursuant to sections 57 and 58 of the Mental Capacity Act 2005.
8, The following observations are made.
Firstly, in so far as the proposed costs of management of the portfolio and the like are concerned there will be an annual charge of 20,356 per annum to manage E 1.6 million (the settlement figure is larger) plus a transaction fee of per item. There would also be an offshore fee.
P 's life expectancy is to age 85. The annual fees would therefore be a large amount of the income generated from the investments for some years to come.
Secondly, the applicant has used an organisation called 'Enhance Group' to suggest that its proposals are reasonable. That cannot properly be said to be an independent expert report.
12. [One of the exhibits] to the applicant's witness statement shows that Enhance Group also prepared a document in March 2014 headed "Investment Support and Monitoring for Irwin Mitchell LLP". There appears to be a retainer or fee for Enhance to support Irwin Mitchell's applications. It is said in the heading of the document, "The purpose of this proposal document is to demonstrate how Enhance Group Limited can support Irwin Mitchell LLP in fulfilling their responsibility with regard to investment related matters."
Thirdly, the overall concern and difficulty that is envisaged is one of conflict of interests, sub-conscious or bias in the approach and self-supporting internal approvals.
The 'dummy' report attached to the March 2014 document refers to the following: "IMAM has prepared a detailed, very well presented and technical proposal, which involved investing the lump sum in a low/medium risk portfolio seeking a balance of growth and income."
Thereafter, the actual report in this case uses similar wording, "IMAM has prepared a detailed, very well presented and technical proposal, which involved investing the lump sum in their Balanced Income strategy."
This may just be a coincidence, but the court will appreciate the Public Guardian's concerns about real checks having to be made and the effect of conflicts of interest preventing proper and detailed anxious scrutiny. There does appear to be 'rubber stamping'.
It would appear that the directors of the applicant and other Irwin Mitchell subsidiaries have similar persons.
Enhance Group is being paid to approve Irwin Mitchell's reports.
Mr Mahmood then quoted Christopher Rowe's witness statement, as set out in paragraphs 9 and 10 above, and then went on to add from paragraph 22 onwards in his skeleton argument:
It is therefore submitted on behalf of the Public Guardian that an accurate approach is more likely to be achieved by a deputy and investor who is impartial or disinterested in the outcome and has no personal interest. There also has to be public confidence in the approach being adopted. Even if the applicant might be scrupulously impartial, the appearance of bias can itself call into question the legitimacy of the approach and indeed, with respect, to this court which is being asked to lend its authority to the approach.
It would appear that there is a direct pecuniary interest of the applicant which itself can be traced to Irwin Mitchell LLP Solicitors because P is their client and (some) directors of Irwin Mitchell are also directors of the applicant.
There is a real possibility that the conflict of interest which arises in this case will affect the outcome. It is accepted that it is not the intention of the applicant, but a fair minded observer looking at the proposal of the applicant would not only feel uncomfortable about the arrangement, but would be concerned about its impartiality.
In the premises, the court is invited to refuse the applicant's application for the general authority that it seeks.
Discussion
Irwin Mitchell LLP is a national firm of solicitors, which handles approximately one in eight of all the claims for personal injury and clinical negligence where the management of the claimants' damages awards and other financial affairs fall within the jurisdiction of the Court of Protection.
The regulatory body responsible for policing the professional conduct of solicitors in England and Wales is the Solicitors Regulation Authority ('SRA'). It is unequivocal about conflicts of interest. Chapter 3 of the SRA Handbook tells solicitors: "You can never act where there is a conflict, or a significant risk of conflict, between you and your client."
I would be hesitant to state quite so forcefully that someone cannot be appointed as a deputy, or that a deputy who has already been appointed cannot continue to act, if there is a conflict, or significant risk of conflict, between his or her interests and the interests of the person who lacks capacity ('P').
The Mental Capacity Act 2005 does not specifically mention conflicts of interests, but the Code of Practice to the Act does. Chapter 8 of the Code is headed "What is the role of the Court of Protection and court-appointed deputies?" and paragraphs 8.54 to 8.68 set out the duties of any deputy. Paragraph 8.58 defines and discusses the deputy's fiduciary duty. It says that:
"A fiduciary duty means deputies must not take advantage of their position, Nor should they put themselves in a position where their personal interests conflict with their duties. For example, deputies should not buy property that they are selling for the person they have been appointed to represent. They should not accept a third party commission in any transactions. Deputies must not allow anything else to influence their duties. They cannot use their position for any personal benefit, whether or not it is at the person's expense.'
The United Nations Convention on the Rights of Persons with a Disability ('CRPD') also refers to conflicts of interest, albeit fleetingly in Article 12.4, which provides that:
"States Parties shall ensure that all measures that relate to the exercise of legal capacity provide for appropriate and effective safeguards to prevent abuse in accordance with international human rights law. Such safeguards shall ensure that measures relating to the exercise of legal capacity respect the rights, will and preferences of the person, are free of conflict of interest and undue influence, are proportional and tailored to the person's circumstances, apply for the shortest time possible and are subject to regular review by a competent, independent and impartial authority or judicial body. The safeguards shall be proportional to the degree to which such measures affect the person's rights and interests."
1 discussed Article 12.4 of the CRPD recently in Re JW [2015] EWCOP 82, and suggested at paragraph 31 that:
"Conflicts of interest are ubiquitous in any mental capacity jurisdiction and it would be unrealistic, if not impossible, to eradicate them entirely. I am not sure that the CRPD expects us to do that, anyway. It simply requires States Parties to "ensure that all measures that relate to the exercise of legal capacity provide for appropriate and effective safeguards to prevent abuse in accordance with international human rights law
I went on to state at paragraph 44 of Re JW that:
"Although it is not expressly stated in the Mental Capacity Act 2005, one of the principal functions of the court is to manage conflicts of interest to ensure that any act done or any decision made on behalf of a person who lacks capacity is done or made in their best interests."
By the same token, although managing conflicts of interest is not expressly stated as one of the responsibilities of the Public Guardian in the list of his functions set out in section 58(1) of the MCA, it is an integral part of his role in "supervising deputies appointed by the court" (section 58(1)(c)). Paragraph 8.69 of the Code of Practice says that:
"The OPG is responsible for supervising and supporting deputies. But it must also protect people lacking capacity from possible abuse or exploitation."
In short, both the Court of Protection and the OPG are prepared to allow 1MTC to instruct IMAM to manage P 's investments provided they are satisfied that it is in P 's best interests 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 1MTC acts as a deputy.
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.
In all other cases, I would suggest that 1MTC has three options:
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 six months from the date of this judgment, then the following options would apply.
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.
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 an 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.
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.