LPAs under the microscope

01 May 2013 Alex Ruck Keene

LPAs under the microscope

Alex Ruck Keene considers two important recent judgments addressing lasting powers of attorney.

Two important recent judgments of Senior Judge Lush have addressed the scope of the duties imposed on attorneys acting under a lasting power of attorney (LPA) in the management of the incapacitated donor’s property and affairs. These judgments also considered the basis on which the Court of Protection will intervene to secure the interests of a donor if the Office of the Public Guardian (OPG) raises concerns about the conduct of the attorney(s).

These are discussed below.

The facts of this case – a successful application by the OPG for revocation of an LPA – are striking (including the investment by the attorney of nearly GBP90,000 of the donor’s money in a risky reptile-breeding venture), but are of less significance than the general guidance that Senior Judge Lush gave on the responsibilities of any attorney acting under an LPA when investing the donor’s funds.

Senior Judge Lush started by noting (at paragraph 20) that: ‘There are 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.’ As Senior Judge Lush noted, however, attorneys are constrained both by their fiduciary relationship with the donor and by their obligation under s1(5) of the Mental Capacity Act (MCA 2005) to act in the best interests of the incapacitated donor.

Fleshing out these two points in the course of his detailed judgment, Senior Judge Lush set the following guidelines for the proper investment of the donor’s money:

  • Although it does not expressly apply to them, attorneys should comply with the requirement in s5 of the Trustee Act 2000 to obtain and consider proper advice about the way in which, having regard to the standard investment criteria (i.e. suitability and the need for diversification), they should exercise their power to invest or review investments.
  • Attorneys and their financial advisors should have regard to the criteria in Investing for Patients, the guidance followed by the antecedents to the OPG and the Court of Protection before MCA 2005 came into force. The table below shows Senior Judge Lush’s suggested updates to the investment strategies contained in that guidance to be followed for adults with an anticipated life expectancy of five years or less (which would encompass most of those aged 80 or above).
  • Generally, 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 that are regulated by the Financial Services Authority, not least because the donor’s investments will be covered by the Financial Services Compensation Scheme.

Senior Judge Lush also took the opportunity to give more general guidance on the approach that attorneys should take to the exercise of their powers, including the following:

  • Attorneys should keep the donor’s money and property separate from their own or anyone else’s.
  • 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.
  • Subject to a sensible de minimis exception, an application must be made to the Court of Protection for authorisation in any of the following cases:
  • gifts that exceed the limited scope of the authority conferred on attorneys by s12 MCA 2005
  • loans to the attorney or to members of the attorney’s family
  • any investment in the attorney’s own business
  • sales or purchases at an undervalue; and
  • any other transactions in which there is a conflict between the interests of the donor and the interests of the attorney.
  • Attorneys should be aware of the law regarding their role and responsibilities, and (at a minimum) be familiar with the ‘information you must read’ on the LPA itself and the provisions of the MCA 2005 Code of Practice.

Table: Updated short-term investment strategies as recommended in Re Buckley

Investment code Approximate value Investment requirement Usual investment strategy
ST1 GBP0–GBP85,000 Available quickly – safe Cash deposit that provides a competitive rate when compared with base rates and National Savings and Investments (NS&I) returns
ST2 Over GBP85,000 All or part available quickly – little risk acceptable Cash deposits with different financial institutions, including NS&I, which stay below the Financial Services Compensation Scheme (FSCS) limits and/or a gilt portfolio to provide returns that compare favourably with base rates
ST3 Cash with an existing portfolio Aim to make all or part available quickly – reducing risk commensurate with P’s requirements Depending on the nature of the portfolio, a liquidation process should be adopted using the annual capital gains tax allowance. The cash funds should be retained in cash deposits with different financial institutions, including NS&I, that stay within the FSCS limits and/or a gilt portfolio to provide returns that compare favourably with base rates

Perhaps surprisingly, given that donors have been able to make LPAs for more than five years, this is the first publicly available case in which the Court of Protection has examined, in detail, the basis on which it can revoke an LPA as a result of misconduct of the attorney.1

In outline, the matter came before the Court because the OPG, having been stymied in its investigation into the attorney’s apparent mismanagement of the donor’s affairs, sought the Court’s assistance in securing the interests of the donor. This was the only option open to the OPG, given that it has no enforcement powers of its own.

Senior Judge Lush made clear that the Court of Protection can only exercise its supervisory powers under s23(3)(b) MCA 2005 to require the attorney to provide accounts and records where the donor lacks the capacity to take such steps. Similarly, the Court can only exercise its powers under s22(4) MCA 2005 to revoke an LPA where the donor lacks the requisite capacity. Evidence will therefore be required of the lack of capacity in the relevant domains before the Court’s jurisdiction is engaged.

Although this is not set out expressly in s22(4) MCA 2005, Senior Judge Lush proceeded on the basis that the Court, in deciding whether to revoke an LPA on the basis of the misconduct of the attorney, is making ‘a decision for or on behalf’ of the donor, such that it is required (by s1(5) MCA 2005) to act in their best interests. This means the Court needs to consider the checklist in s4 MCA 2005, even if (as Senior Judge Lush noted) it is not necessarily easy to apply each of the requirements in deciding whether to revoke an LPA.

In this case (as in most cases), ‘The factor of magnetic importance in determining what is in [the donor’s] best interests is that her property and financial affairs should be managed competently, honestly and for her benefit’(paragraph 60).But Senior Judge Lush noted that even if the Court is satisfied that the attorney is not conducting themselves appropriately, the effect of s1(6) MCA 2005 is that it cannot simply revoke the LPA without considering the least restrictive way to achieve the goal of managing the donor’s affairs competently, honestly and for her benefit. In Re Harcourt (as in many cases), that was by the appointment of a deputy.

Finally, Senior Judge Lush confirmed that, while the revocation by the Court of an LPA that a donor executed when they had capacity and in which they chose a family member to be their attorney is, prima facie, an interference with their right under article 8(1) of the European Convention on Human Rights to respect for their private and family life, a revocation that has been found to be in the donor’s best interests will represent a justified interference with that right.

Comment

The decision in Re Buckley emphasises (if emphasis is needed) that even enthusiastic amateurism is unacceptable when it comes to the management of the donor’s property and affairs, and that attorneys must take proper steps to equip themselves with the expertise they need to discharge their investment powers. By the same token, it is a judgment that those holding themselves out as experts in the provision of financial advice to attorneys must be aware of, to secure themselves against criticism if they are questioned about the investment strategies adopted.

The decision in Re Harcourt amplifies the statutory framework established for the protection of the interests of the donor. While the LPA scheme ‘is based on trust and envisages minimal intervention by public authorities’ (Re Harcourt at paragraph 39), this decision makes clear the steps that will be taken where that trust has been broken.

Taken together, therefore, these two decisions represent essential reading for those advising attorneys and are important steps to securing – so far as possible – that such attorneys are put on notice that their task is (rightly) an onerous one.

  • 1In Re J [2011] COPLR Con Vol 717, HHJ Marshall QC addressed these issues more shortly on an application for revocation on the basis of alleged misconduct of the attorney. The (largely) analogous position of the removal of deputies was examined in Re Rodman [2012] EWHC 347 (Ch); [2012] COPLR 433. Neither case was considered in Re Harcourt, but both are consistent with it

Authors

Alex Ruck Keene

CPD Reflective Learning