State of play: case law

Public Guardian v JM

Senior Judge Denzil Lush clearly sets out the circumstances in which the court can revoke and cancel the registration of a lasting power of attorney (LPA). In this case, he also looked at the difference between the standard of proof required in the Court of Protection and the criminal courts.

DP was born in 1925. In August 2011, she made a will leaving 80 per cent of her house sale proceeds and residuary estate to her gardener, JM, whom she had known since 2006.

Two months later, she made a property and affairs LPA appointing JM as sole attorney. There were no replacement attorneys, no restrictions, conditions, guidance or fee provisions. Her signature was witnessed by an accountant and as there was no one to be notified of the registration, two friends acted as certificate providers. Less than four months later, the LPA was registered.

Concerns were raised to the Office of the Public Guardian (OPG) about DP from two separate sources which, Lush SJ said, was unusual. The first was from a social worker regarding DP’s welfare after being discharged from hospital into JM’s care. The second came from Aviva after JM repeatedly tried to cash in DP’s bond and pay the proceeds to himself.

A senior investigations officer at the OPG found a number of examples of inappropriate behaviour. In 2013, JM sold DP’s house for £165,000 and the sale proceeds were paid into a high-interest account in his name. It was only when the OPG was investigating that the account was transferred into DP’s name.

In November 2012, JM gifted £38,000 from DP’s funds to himself. JM was unable to explain a banker’s draft of £1,500, which was drawn in June 2012. He was unable to account for cash withdrawals totalling £8,520 from March 2012 to March 2013. He claimed that he had spent £10,300.70 on improvements to DP’s house prior to sale but had no receipts.

It transpired that he paid £7,300 of this to himself as a salary for house clearance and a further £1,040 was his salary for gardening. In July 2012, he used DP’s funds to pay for a Motability vehicle followed by £55 per week for the hire and petrol. JM claimed the vehicle was necessary to take DP on trips to the hospital, and to enable him to visit her and the property.

Lush SJ said that the court can revoke an LPA if “the attorney has contravened his authority; or the attorney has not acted in the donor’s best interests; and the donor lacks capacity to revoke the LPA”.

After finding that DP lacked the capacity to revoke the LPA, the senior judge went on to decide that JM had contravened his authority and not acted in DP’s best interests. He said that JM should have applied to the court for authority for the gift of £38,000. He had contravened his authority by paying himself a salary because it was more than his out-of-pocket expenses and he had failed to keep proper accounts and records, which was a breach of his fiduciary duty.

The police had investigated the case and decided not to prosecute for theft or fraud by abuse of position. Lush SJ explained that in the criminal courts proof “beyond reasonable doubt” is required whereas in the Court of Protection the standard of proof is lower and is “on the balance of probabilities”. The fact that he had not been prosecuted did not mean he had acted impeccably as an attorney.

Practitioners need to advise clients about the importance of good record-keeping when acting as an attorney or deputy. And if they want to make anything other than a small gift or pay themselves a salary, they must obtain permission from the court first.

In cases where the person making
the LPA lacks capacity to revoke it, the court can revoke it and cancel registration if, on the balance of probabilities, the attorney has exceeded their authority or is not acting in the person’s best interest.

Pullan v Wilson

Questions concerning the reasonableness of remuneration charged to a number of family trustees by a professional trustee were raised in this case.

The defendant, an accountant and tax adviser, was a trustee of ten family trusts, eight of which had interests in a number of family companies with a total net value of about £100m. He was also a non-executive director of three of the family companies.

The defendant charged an hourly rate of £400 for his professional services, and £250 for his assistants. The claimant, one of the beneficiaries of the trusts, challenged the fees charged, on the basis that they were excessive and surpassed proper and reasonable remuneration to which the defendant was entitled.

A joint expert was appointed and established that the fees charged by the defendant were excessive and that a more suitable hourly rate should have been £275 and £160 for his assistants. The expert also determined that a 7.5 per cent discount (£207,000) should be applied to the fees in light of excessive trust administration. Sections 28 and 29 of the Trustee Act 2000 allow a professional trustee to charge for acting as a trustee.

The court found that, when determining the reasonable rate that a professional trustee may charge, the nature and value of the services had to be considered. The question was whether the fees exceeded the proper and reasonable remuneration a professional trustee is entitled to, and therefore whether the defendant had to account for unreasonable or excessive fees.

Although the hourly rates were not set out in the initial engagement letter, the court accepted that they had been agreed when the defendant was appointed. Moreover, the claimant’s failure to contest the rates charged had amounted to acquiescence.

Against this background, £400 for the defendant and £200 for his assistants were found to be reasonable hourly rates, and in agreement with the joint expert, the discount of 7.5 per cent was to be applied for excessive administration.

Regarding fees charged in relation to company-related work, the court found there was no element of double recovery and any remuneration the defendant received from his work for the companies related to his work for acting as a trustee. Therefore, the discount was not applied.

National Westminster Bank Plc v Lucas

The National Westminster Bank was appointed as the sole executor of Jimmy Savile’s will and bequeathed the residue of his estate to trustees of the Jimmy Savile Charitable Trust. A year after Savile’s death, many people came forward with personal injury claims against the estate following allegations of serial
sex offences.

The parties sought approval for a fast and efficient mechanism to deal with the claims. The time frame for bringing them was 12 months from when the scheme was first advertised and after this date the estate would be distributed.

The court had to decide whether the scheme should be authorised, whether the executor should be replaced by an alternative professional executor on the basis of the breakdown of the relationship with the trustees, and whether the legal expenses incurred by the executor when administering the estate and dealing with the personal injury claims, should be validated under section 284 of the Insolvency Act 1986.

It authorised the executor to operate the scheme negotiated with the majority of the personal injury claimants. It was appropriate for the executor to operate the scheme with a view to securing fair scrutiny of the claims and their settlement without exhausting the trust funds.

It would not be suitable for the court to remove the executor unless there was a real risk that it would not act fairly or in a proper manner.

The executor had negotiated the scheme in a responsible way and had paid its own expenses and, as such, had not raised grounds for its removal by the court.

Finally, the expenses incurred in the ordinary course of administration were undoubtedly proper and it was appropriate to grant a full validation order.

Re X, Y and Z

Deputies are often faced with difficult decisions about paying for the care of children on behalf of parents that lack capacity. This case usefully sets out the factors to consider and how to make full-time care arrangements for children who cannot live with a parent that lacks capacity.

P, 36, was involved in a road traffic accident that left her with complete paraplegia and a severe head injury. She has three children aged 15, 13 and 12. After the death of P’s mother and deterioration in the situation at home, it was decided that the children should live elsewhere with S, who was employed as a full-time nanny.

P’s deputy settled a personal injury claim in 2012, which provided a lump sum and periodical payments; £2m of the lump sum remained at the time of the hearing. The compensation included provision for the cost of childcare but no amounts were specifically ring-fenced for this purpose.

S was willing to foster the children but needed more than the fostering allowance to avoid getting into debt. The local authority and the children’s guardian supported the deputy continuing to employ S and to pay an additional sum from P’s estate.

The deputy, not being adversarial, but looking for the court’s direction, said that it was not in P’s best interests to continue to employ S and make additional payments because there was already a shortfall between the periodical payments and outgoings.

Baker J had to consider whether an employment contract was suitable or whether a non-contractual arrangement would be better and the level of payment that should be made to S.

After finding that P lacked capacity, Baker J moved on to consider P’s best interests and in particular: factors of magnetic importance; interests including those beyond self-interests; P’s wishes and feelings; all relevant circumstances; and best interests test versus substituted judgments test, where the court puts itself in place of P and asks what they would decide if they had capacity.

Baker J said that the substituted judgments test continues to have some weight when looking at P’s wishes and feelings. He quoted a passage from Morgan J’s judgement in Re G(TJ) [2010] EWHC 3005 (COP), (2010) COPLR Con Vol 403: “The balance sheet of factors which P would draw up, if he had capacity to make the decision, is a relevant factor for the court’s decision…

“However, it is absolutely clear that the ultimate test for the court is the test of best interests and not the test of substituted judgment. Nonetheless, the substituted judgment can be relevant and is not excluded from consideration.”

An employment lawyer advised the court that foster care is not a contractual arrangement but one governed by statute. If a contract of employment was put in place, it may be voidable for duress because P was forced to enter into the contract or lose S as carer for her children. Instead, the court should authorise the deputy to make discretionary ex-gratia payments to S.

Baker J concluded that making additional payments to S were in P’s best interests. The responsibilities for her children are part of her ‘interests’. Her wishes and feelings are of great importance and if she was able to make the decision herself, she would decide to pay S to care for her children and make savings in the cost of her own care to reduce the shortfall in her income and expenditure. Plus, the new arrangement will make savings overall to the estate.

He ordered that the deputy should review P’s financial position, the fostering arrangements and S’s financial circumstances on, at least, an annual basis to consider making a payment to
S and that this payment should be at least £20,000 per annum.

When faced with the unenviable position of providing for children of a mentally incapacitated parent, a deputy must consider the parent’s best interests and as part of the process what the parent may have done if they had capacity.

Deputies may take comfort from applying to the court for directions in this regard to ensure they do not overstep their authority.

Heather Viljoen is a solicitor at Michelmores

She writes regular case updates for Private Client Adviser

 

Lynsey Colman is an associate at Barlow Robbins

She writes regular case updates for Private Client Adviser

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