Analysis
The claimant (a trust corporation) was appointed as deputy for property and financial affairs for the first defendant. The claimant instructed IMAM (an investment manager) to invest the first defendant’s funds. IMAM was part of the same corporate group as the claimant (IMAM was wholly owned by IMHL, and IMHL wholly owned IMLLP which wholly owned the claimant).
During a statutory will application, the Official Solicitor expressed concern about the appointment of IMAM. The court directed the claimant to apply for retrospective authority to instruct IMAM.
The claimant’s evidence was that it maintained a panel of investment advisers for consideration, that three to four firms on the panel were selected to take part in a beauty parade, and that family members (where available) were permitted to attend the beauty parade and to veto the appointment of IMAM without any attempt to persuade them. Where there was no objection from a family member, the shortlist would typically include IMAM. Where family members took part, the connection between IMAM would be explained and it would be made clear that IMAM would be kept at arm’s length during the tendering process. Each firm in the parade would be invited to prepare a proposal. If there were no family members involved, the proposals were considered on paper. If a family member was involved there would be an attended event. The assessment was by set criteria and the decision made on a bestinterests basis with family members’ views taken into account.
In the first defendant’s case, her husband was told of IMAM’s connection to the claimant, did not object to IMAM being considered, and was present at an attended beauty parade. Three other firms took part as well. IMAM’s proposal included a statement that ‘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 first defendant’s husband’s views were taken into account.
Witness evidence from other panel deputies indicated that none of them supported instructing a related investment manager.
In a previous case (Re MWS [2015]), the claimant had applied for authority to appoint IMAM as ‘independent financial advisor’ for MWS and for an order giving general authority where the claimant or named Irwin Mitchell partners were appointed as deputy and there was no family input. The Office of the Public Guardian (OPG) had agreed to the appointment for MWS but opposed any general authority. Senior Judge Lush’s judgment permitted IMAM to be appointed in MWS’s case. However, in other cases, Judge Lush suggested that the claimant had three options:
- (a) it could work with the Law Society and OPG to negotiate a protocol on connected investment companies, advisers and thirdparty verifiers;
- (b) it could follow SRA guidance and recuse itself; or
- (c) it could let the Court of Protection manage the conflicts by applying for authority in each case.
Following the judgment in Re MWS, lawyers from Irwin Mitchell entered an email exchange with Judge Lush. In those emails, Judge Lush confirmed that his judgment related only to situations where there was no one other than the deputy to be consulted pursuant to s4(7) Mental Capacity Act 2005. The claimant’s evidence was that it was in light of this exchange that it had developed its approach in a way which distinguished between cases which did have a family member able to participate and cases which did not. The OPG’s evidence was that (while it now supported the Official Solicitor’s position) historically it had accepted that a beauty parade mitigated the risk of a conflict of interest, though there was at least one case where a deputy had stepped down due to a personal relationship with the investment manager.
Held (finding that the claimant required court ratification to appoint IMAM and adjourning the application for ratification):
Did the appointment by the claimant of IMAM as investment manager for the first defendant require ratification?
The appointment would only be a breach of the selfdealing rule (and thus require ratification on the first defendant’s behalf by the court) if a reasonable person looking at the facts and circumstances would think that there was a real sensible possibility of a conflict of interest (Boardman v Phipps [1967] referred to).
The court did not apply foreign case law cited for the proposition that a fiduciary’s group members could be appointed as investment advisers without a reasonable person considering that there was a sensible possibility of conflict (Jones v AMP Perpetual Trustee Company NZ Ltd [1994] not followed; HSBC (HK) Ltd v Secretary of State for Justice (2001) distinguished).
In the present case, the conflict of interest came down to the claimant being financially better off if IMAM was appointed. The claimant’s processes did not remove that financial gain. It was not sustainable to argue that the first defendant’s and the claimant’s interests aligned because it was in the first defendant’s interests for IMAM to be appointed: the claimant was still making an appointment from which it benefited.
The claimant’s processes did not mean that a reasonable person would not consider there was a sensible possibility of conflict:
- (1) Family members’ views were relevant in coming to a bestinterests decision, but they were an insubstantial safeguard against conflicts of interests. Family members might have no experience of managing large sums; the explanation of the connection between IMAM and the claimant was given only orally and by someone already in a position of trust who was able to guide the conversation as they chose; and the IMAM proposal would be presented with a familiar graphic style with express reference to its close relationship to the Irwin Mitchell law firm.
- (2) The frequency with which IMAM was invited to take part in beauty parades was likely to give it an advantage in knowing how to pitch its presentation. The claimant had changed its scoring system to a grid spreadsheet, but it was unclear how this substantively addressed the problem of unequal familiarity.
- (3) The claimant’s scorecard system was subject to subjective interpretation and human error to a degree capable of changing who came out with the highest score.
The claimant’s argument that it was not in Ps’ best interests to reduce the field of potential deputies was inconsistent with the fact that the number of investment managers on its panel significantly exceeded the number of investment managers invited to take part in its beauty parades.
Taking into account all of the evidence, the court held that there was a very clear, not remotely fanciful, actual conflict of interest and that the claimant’s processes were not capable of extinguishing it.
Had the appointment been ratified?
The judgment in Re MWS was unequivocal that there was a conflict of interest in the claimant appointing IMAM, and in rejecting the claimant’s request for a general authority. The email exchange with Judge Lush was not capable of establishing a binding authority. In any case it could not be interpreted as purporting to do so. Judge Lush’s email did no more than confirm the factual basis of the case decided; it did not say that any particular process was acceptable where a family member or relevant third party was involved.
The OPG not having intervened on this point did not confer ratification or override the underlying conflict.
There was therefore no effective ratification of the appointment of IMAM.
Should the court subsequently ratify the appointment?
If the appointment was ratified, it would still be necessary to review regularly whether to continue the appointment. Those reviews would themselves be subject to a conflict of interest which would require ratification. This would generate costs which would be a material disadvantage to any protected person for whom the claimant was appointed deputy in considering IMAM as investment adviser. However, given that the parties had agreed that the claimant and the OPG should share the costs (thus far) in the litigation, this issue might potentially not arise in the first defendant’s case.
The court did not have sufficient evidence to ratify the appointment. The parties were invited to reach agreement on further directions if the claimant wished to pursue this part of its application.
JUDGMENT HHJ HILDER: The numbers in square brackets and italic typeface refer to pages of the hearing bundle. A. The issue [1] Irwin Mitchell Trust Corporation (IMTC) is appointed as property and affairs deputy for PW. In that capacity, IMTC appointed Irwin Mitchell Asset Management (IMAM) to manage the investment of PW’s funds. The issue …Continue reading "Irwin Mitchell Trust Corporation v PW & anr [2024] WTLR 943"