The very hotly awaited decision of Her Honour Judge Hilder in the case of PW [2024] EWCOP 16 is now to hand.

This case concerned the appointment of an investment manager (IM) where there is a financial relationship between the Deputy and the IM.

PW received an award of damages in 2017 of £1.85m plus annual periodical payments following a clinical negligence event in 2005. A financial Deputy was appointed in 2017 and the Deputy appointed an in-house IM.

Initially there was an investment of £600,000 with the IM. Total investment return was £49,255 or equivalent to 3% pa. Total charges for 2019 were equal to 1.89% including 0.59% in IM fees and 0.08% in IM transaction costs.

The question of whether there was a conflict of interest arising from the appointment of the in-house IM was raised by the Official Solicitor during the course of an application for a statutory Will. An Order was made in June 2020 requiring the Deputy to seek retrospective authority for that appointment. Issues arose concerning the funding of independent representation for PW in respect of the application.

Evidence confirms PW lacks capacity to manage her property and affairs, lacks testamentary capacity and has no prospect of regaining capacity.

The judgment provides a very good summary of the position of a Deputy in relation to acting as an agent, fiduciary and in relation to the rules against self-dealing and also conflicts of interest.

S19(6) of the Mental Capacity Act 2005 confirms the Deputy acts as agent for P.

The decision in Bray v Ford (1986) and restated in Boardman v Phipps (1967) confirms a person acting in a fiduciary position is not entitled to make a profit from their position or put themselves in a position of conflict of interest.

A celebrated speech of Lord Crawnworth LC in Aberdeen Railway v Blaikie 136 confirms:

“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 self-dealing rule confirms that where a fiduciary enters into a transaction where their duty conflicts with their interests, that transaction is capable of being set aside.

It is the position of the Court that only the Court can ratify those transactions where P lacks capacity.

The questions before the Court included:

• Did the appointment of the IM in this case require ratification by the Court?
• Is the answer to this question affected by any other factors including the processes the Deputy
  took in selection the IM?
• If the appointment does require ratification, can that only be achieved by a Court application?
• Should the appointment of the connected IM be ratified in this instance?
• Would a ‘reasonable man’ looking at all the relevant facts and circumstances think there was a real sensible possibility of a conflict of interest.

It is clear the Deputy had a fairly detailed selection process for IMs, whether that IM was their own in-house firm or not. It was their position that this process meant no actual conflict of interest arose. That process included:

• A panel of investment advisors,
• An investment executive committee who decided the inclusion of firms on their IM panel,
• All IM firms specialise in this work,
• A ‘beauty parade’ is arranged which the family can attend,
• Family member views sought,
• Family members informed as to the connection between the IM and the Deputy,
• Assessment of all IM bids by a set criteria / scorecard
• Best interest decisions then made.

The Deputy in this case is appointed for approximately 990 clients and in the region of 37% of those clients appoint the in-house IM. That is a significant annual income for the Deputy firm arising from the appointment of their in-house IM.

The position of the Official Solicitor was clear and compelling, namely:

• The conflict of interest rule applies in this case,
• The COP may ratify the decision but it shouldn’t.
• There is no good reason for a Deputy to appoint an IM in which they have an interest.
• There would be no conflict of interest if there was no financial benefit to the deputy firm.

The judgment of Her Honour Judge Hilder confirms there is a clear conflict of interest in the appointment of the in-house IM by the Deputy in this case and that the processes the Deputy took in the appointment of the IM could not extinguish that conflict.

As to whether the appointment in this instance should be ratified by the Court, that issue still needs to be decided and further evidence is required. The question of what is in PW’s best interests will need to be considered and that could include whether PW has a potential claim against the IM in respect of the investment management fees already paid.

As to whether approval from the Court is sufficient as a one-off application going forward, the position of the Official Solicitor is that the approach taken in the case of Re ACC should be distinguished. In that case the question of the Court approving the Deputy appointing their own firm related to a one-off transaction (a house purchase for example). In this case, fees are paid to the IM every year they manage P’s investment portfolio. The Court would therefore be expected to potentially ratify a lifelong conflict of interest.

Of course, the process of seeking ratification of the appointment involves cost to P in respect of the Court application. That can of course be avoided entirely by never appointing a connected IM. The position of the Official Solicitor, supported by the Public Guardian, is that can be avoided entirely by never appointed a connected IM.

It is therefore absolutely clear:

1. Appointing an investment manager where there is a financial connection or benefit to the
   Deputy / their firm is a clear conflict of interest,
2. That conflict can’t be avoided by the application of a beauty parade, scorecard approach etc,
3. Court approval is required where the Deputy wants to appoint an in-house or connected
   investment manager.

As to current cases where an in-house or connected investment manager has already been appointed, it is still a watch this space as to whether those appointments will be ratified by the Court and what the position is in respect of any charges paid to the investment manager to date.

Stacey Bryant

Chair Professional Deputies Forum

19.03.2024