Alex RKIn Irwin Mitchell Trust Corporation v PW & Anor [2024] EWCOP 16, Irwin Mitchell Trust Corporation (“IMTC”) had been appointed as property and affairs deputy for a woman, PW. In that capacity, IMTC appointed Irwin Mitchell Asset Management (“IMAM”) to manage the investment of PW’s funds. The issue for determination by HHJ Hilder was whether the appointment of IMAM by IMTC as PW’s deputy breached the rules against conflict of interest.
The Mental Capacity Act 2005 (“the Act”) provides at section 19(6) that “A deputy is to be treated as P’s agent in relation to anything done or decided by him within the scope of his appointment and in accordance with this Part.”
As HHJ Hilder noted at paragraph 17: “[i]ncontrovertibly, the relationship between a deputy and the person for whom the deputy is appointed is a fiduciary one,” continuing:
18. The basic proposition about the position of a fiduciary in a position of conflict was set out by Lord Herschell in the House of Lords in Bray v Ford [1896] AC 44 at 51 – 52:
“It is an inflexible rule of a Court of equity that a person in a fiduciary position…. is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that, human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than by duty, and thus prejudicing those whom he was bound to protect. It has, therefore, been deemed expedient to lay down this positive rule. But I am satisfied that it might be departed from in many cases, without any breach of morality, without any wrong being inflicted, and without any consciousness of wrong-doing. Indeed it is obvious that it might sometimes be to the advantage of the beneficiaries that their trustees should act for them professionally rather than a stranger, even though the trustee were paid for his services.”
[….]
20. The consequence of this rule, and the underlying rationale for it, is that transactions entered into where the fiduciary’s duty conflicts with their interests are capable of being set aside as of right by their principal. This is ‘the self-dealing rule.’
21. Conversely, the law of agency generally provides that an act of an agent may rank as the act of the principal if the principal ratifies it, either prospectively or retrospectively, presupposing that that the principal could validly have done the act at the time it was done and the relevant act was voidable rather than void. Where the principal lacks capacity to make decisions about their property and affairs, only the Court of Protection may grant such ratification. Its jurisdiction for doing so, as articulated by Lieven J in Riddle v. Public Guardian [2021] ECOP 38 at 30-34, is found in the conjunction of sections 15(c) and 19(4) of the Mental Capacity Act 2005.
This meant that the primary question which HHJ Hilder had to determine was whether the conflict of interest rule applies to the appointment by IMTC as deputy of IMAM as asset manager for PW’s funds: ie “would a reasonable man looking at the relevant facts and circumstances of this particular case think there was a real sensible possibility of conflict?” (paragraph 26).
Having reviewed the evidence advanced as to the processes adopted by IMTC, HHJ Hilder noted that:
61. The Court of Protection is no stranger to conflicts of interest. It has been said that they are ubiquitous to mental capacity jurisdictions – see Senior Judge Lush in Re JW; GGW v. East Sussex County Council [2015] EWCOP 82 as cited by me in Re ACC [2020] COPLR 424 at 40. [see also in related vein OH v Craven [2016] EWHC 3146 (QB)]
62. The conflict of interest in question in this matter comes down to IMTC being financially better off if IMAM is appointed. IMTC accepts this as a “theoretical potential”. IMTC’s argument is that such potential is extinguished to the point of no “real sensible possibility” because of procedures it has adopted. Yet nowhere in the development of those processes or in these proceedings has IMTC ever denied either that the decision to appoint IMAM is made by IMTC in its fiduciary role (with all the duties which that implies) or that, even with full implementation of those processes, IMTC is better off if IMAM is appointed. At a most basic level, those two concessions amount to recognition of the existence of a conflict of interest: one plus one makes two.
63. The processes which IMTC has adopted when considering the appointment of IMAM do not target the substance of the self-dealing rule: that is, they do not remove the financial gain to IMTC. Such processes could have been adopted, for example by agreeing to waive any fee to IMAM where the instruction comes from IMTC as deputy. Then there would be no financial advantage to IMTC in the instruction of IMAM, no interest to be in conflict with the interests of the person for whom IMTC acts. Of course, I recognise that the Irwin Mitchell group would be likely to reject this approach as lacking commercial sense but that merely reinforces the existence of IMTC’s interest in the appointment of IMAM.
64. If the processes adopted do not remove the benefit to IMTC, how can they be said to reduce the situation to no ‘real sensible possibility’ of conflict? The answer to this question must lie in interpreting IMTC’s case along these lines: that its processes ensure that its client ends up with the best financial adviser, and therefore there is no ‘conflict’ of interest when IMAM is appointed because its own interests and the interests of the person for whom it acts as deputy are aligned. Unfortunately, in my judgment this viewpoint cannot be sustained. It is laden with value judgments of the very type which Lord Hershell identified as underlying the rule against self-dealing. The fiduciary is still making the appointment, from which it still benefits.
65. Does it matter, if investment management fees have to be paid somewhere? In my view it does matter. That fees will fall to be paid at all does not extinguish the risk which Lord Hershell identified. More particularly, I am not persuaded by IMTC’s assertion that total exclusion of IMAM from consideration would be contrary to PW’s best interests because of the limited size of the field of potential investment managers. There are more specialist firms on IMTC’s panel than are ever invited to a beauty parade – 10 on the panel; 3 or 4 in the parade. Mathematically, excluding one from the 10 still leaves more than twice the number needed to run the usual type of beauty parade. Since IMTC must be of the view that a choice from 3 or 4 candidates is sufficient, its argument of detriment by reducing the field to 9 lacks credibility.
66. IMAM is only included in IMTC’s process for selecting an investment adviser where there is a family member who does not object. It must follow that the inclusion of the family member is considered by IMTC to be key to reducing the theoretical risk to the level of no ‘real, sensible possibility.’ What basis is there for placing such weight on family participation? I agree with the Official Solicitor that IMTC appears to be treating the family member as conferring some sort of ratification, when the family member can do no such thing. The family member is not the principal in the fiduciary relationship. Only the Court can stand in the shoes of the principal for the purposes of ratification. Taking into account the views of family engaged in caring for the person for whom IMTC acts or otherwise interested in their welfare is the right thing to do pursuant to section 4(7) of the Mental Capacity Act but, as I have already noted (at paragraph 42(a) above), it is necessary to be cautious about the effective scrutiny which a family member in reality brings to bear on the question of conflict of interest. I am not persuaded that it does anything to reduce a ‘theoretical potential’ conflict of interest to a non-existent one.
In conclusion, therefore:
67. Taking into account all the evidence in respect of IMTC processes, in my judgment there remained a very clear, not remotely fanciful, actual conflict of interest in IMTC appointing IMAM to manage PW’s funds. IMTC’s processes were not capable of extinguishing, and did not extinguish, that conflict.
A second question was whether the appointment of IMAM had been pre-authorised by the Court of Protection, in particular in communications from former Senior Judge Lush in the aftermath of a decision, Re MWS. HHJ Hilder was clearly somewhat uncomfortable about the communications, noting that “such informal communications, without input or even awareness of the other parties to proceedings, are not capable of establishing any binding authority. That they took place at all is probably best put down to a lingering cultural hangover from a time when the Court of Protection was an Office of the Supreme Court, as opposed to the independent court of record which it is now” (paragraph 79). In any event, she found, they did not amount to such authorisation.
HHJ Hilder was not in a position to decide whether she should retrospectively authorise the appointment of IMAM in PW’s case, but she provided the opportunity for stock to be taken and further evidence filed before reaching a final determination.
Her conclusion was pithy:
93. In my judgment the appointment by IMTC of IMAM to manage the assets of PW clearly conflicts with the rule against self-dealing. There is actual conflict of interest in that the Irwin Mitchell group gains financially. There is nothing in Re MWS or subsequent e-mail communications which can reasonably be understood as approval of appointment of IMAM if it follows a beauty parade in which a family member of a protected person participates. The processes adopted by IMTC do not and could not extinguish that conflict. In my view, that these proceedings have been necessary at all is a paradigm example of Lord Herschell’s wise recognition of the tendency of human nature to be swayed by interest rather than duty.
