Appointment of Investment Advisors by a Property and Affairs Deputy

If you are a property and affairs Deputy, you will undoubtedly be aware of the case that came back before the Court yesterday for further consideration. Whilst this case concerns the appointment of an ‘in-house’ investment advisor by the Deputy, the principles clearly have a far wider impact.?

The primary principle the Court had to consider was one of conflicts of interest. ?A Deputy acts as agent of P (their ‘client’). ?The relationship is that of a fiduciary. ?Essentially, this is a position of trust where your interests as a Deputy should not conflict with those of P.?

The question as to whether the appointment by the Deputy of an ‘in-house’ investment advisor amounted to a conflict of interest first came before the Court in January 2024 (Irwin Mitchell Trust Corporation v PW & Anor [2024] EWCOP 16 (19 March 2024) (bailii.org)). ?Her Honour Judge Hilder held the appointment by the Deputy of their in-house investment advisor amounted to an actual conflict of interest given the financial gain to the Deputy firm.?

The issue before the Court yesterday was whether that appointment should be ratified. ?Whilst that judgment is now awaited, it is clear a number of issues arise.?

The Court needs to consider whether to:?

1. Retrospectively ratify the breach and essentially approve the appointment of the in-house investment manager, and?
2. Prospectively ratify all?future breaches that would inevitably arise by the continued and ongoing appointment by the Deputy of the in-house investment manager.?

In the event the Court will not provide retrospective ratification:?

1. It will not be possible for both the Deputy and investment manager to remain in place. ?A decision must then be made as to whether it’s in P’s best interests to remain with the Deputy and move the investment portfolio to another investment manager or for there to be a change of Deputy.?
2. There also needs to be a consideration of any claim P may have against the Deputy for investment management fees paid to date. ?Inevitably, consideration also needs to be given as to the prospects of those claims succeeding and the costs of them being pursued.?

How any potential claims against the Deputy are to be calculated is one that involved considerable discussion before the Court. Terms such as gross and net revenue and gross and net profits were discussed. ?This is not simply a case of lawyers being pedantic. ?The financial implications for those firms involved could be significant when you consider the PW case alone involves a firm with 271 Deputy appointments where the in-house investment manager was also instructed. ??

Providing retrospective ratification will require the Court to also then consider:?

1. Whether it?will impose terms / obligations on the continuing appointment of the investment manager by the connected Deputy.?Should those terms not be accepted by the Deputy or investment manager that would trigger the need to again consider whether it is in P’s best interests for either a new Deputy or a new investment manager to be appointed.?
2. What steps should be taken to address the question of the ongoing conflict of interest from the continuing appointment of the Deputy and the connected investment manager.?A couple of proposals were put before the Court to consider including the appointment of an independent third party at the cost of the Deputy. ?Their role would be to assess the ongoing performance of the investment portfolio and the continued?appointment of the investment manager. ?Issues as to whether that amounted to a delegation of duties by the Deputy were raised.?

The position of both the Office of the Public Guardian and the Official Solicitor is?clear. ?There should be no ratification. ?Steps should be taken to ensure there is no conflict of interest either by the appointment of a new Deputy or a new investment manager. ?This avoids the need to appoint an independent third party together with all the complications that could arise from that appointment. Separately, consideration would need to be given on a case by case basis in relation to any potential claims arising. ?Ultimately those claims are for the Chancery Division and not the Court of Protection.?

Whilst a decision on these issues is awaited, it is absolutely clear that any appointment by a Deputy where there is a benefit to them amounts to a conflict of interest. Arguably there is nothing new in this approach given it was very much the focus of?the decision in Re ACC [2020]. ?The role of a fiduciary and the position of trust that involves is one the Court must protect.?