Gifts made by attorney with consent of donor of registered EPA
The estate of the late composer Sir Malcolm Arnold (‘Sir Malcolm’) was the subject of a recent decision at the Court of Appeal. Sir Malcolm’s two children Katherine Arnold and Robert Arnold ‘(Katherine and Robert’) disputed monetary gifts given by Sir Malcolm during his lifetime to his long term carer Anthony Day (‘Mr Day’) and the ownership of Sir Malcolm’s music manuscripts. This is an interesting case that primarily deals with gifts made with the consent of the Donor after an Enduring Power of Attorney (‘EPA’) has been registered and gives an insight into the Court’s approach to the personal autonomy of an individual who has a fluctuating mental capacity.
Sir Malcolm had been a very successful composer. He married twice and had two children Katherine and Robert by his first wife. In June 1976, Sir Malcolm separated from his second wife Isabel and sold the matrimonial home in Dublin and moved into a flat in Dun Laoghaire. The following month he sent a box of books, paintings and sculptures and the manuscripts of some of his compositions to his daughter Katherine, evidently because he did not have enough space in the new flat. Simultaneously, he sent a postcard to his son Robert stating that ‘All the books, pictures, sculptures etc are for you and Katherine to share and keep or sell if you like! Dad’.
In 1977 Sir Malcolm returned to London and lived in a flat in Hampstead. Sir Malcolm had psychiatric problems and the Court of Protection became involved. In 1979 the Court appointed a Receiver of his affairs. Anthony Day was employed initially as Sir Malcolm’s housekeeper, chauffer and then as his carer. By 1980 Sir Malcolm was no longer living at the flat but at a hospital in Northampton and it was decided that the flat should be sold. Katherine retained a lot of his effects and furniture on his behalf.
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In 1986 the Receivership came to an end as Sir Malcolm was capable of managing his own affairs. Sir Malcolm continued to employ Mr Day who he continued greatly to rely on. A bank account was opened with Barclays Bank at some point between the years 1986 and 1990 in the names of both Mr Day and Sir Malcolm. The money in the account belonged to Sir Malcolm and Mr Day was appointed as an account holder and signatory to assist Sir Malcolm in managing his financial affairs. Both men had authority to sign cheques. On 28th June 1990 Sir Malcolm executed an EPA appointing Mr Day as his Attorney. The EPA was registered at the Court of Protection on 8th February 2002. Between 2002 and 2006 Sir Malcolm made monetary gifts to Mr Day of approximately £36,000. Sir Malcolm had been receiving inheritance tax advice from his accountants and these gifts were made on the basis of this advice.
Sir Malcolm died on the 23rd September 2006. By his Will dated the 25th July 1990 Sir Malcolm gave some legacies to his former wives and bequeathed his residuary estate as to 50% equally to his children Katherine and Robert and 50% to Mr Day.
Sir Malcolm’s children Katherine and Robert contended that (1) Mr Day should account to the estate in relation to the payments made to him for £36,000 arguing that he could not in his capacity as an Attorney, under an EPA, make lifetime gifts to himself; and, alternatively in his capacity as a fiduciary of the money held in the bank account, retain the lifetime gifts as his interest conflicted with his duty. They contended that even if Sir Malcolm had given his consent to the gifts the effect of s7 (1) (c) Enduring Powers of Attorney Act 1985 (The Act) was such that after the registration of the EPA, such consent could only come from the Court and (2) they also disputed a gift of manuscripts given to Mr Day by Sir Malcolm.
Section 3 of the Act confers ‘a general authority on the Attorney to act on the Donor’s behalf in relation to all, or in relation to a specified part, of the property and affairs of the Donor, or may confer authority to do specified things on the Donor’s behalf, and in either case, may be conferred subject to restrictions and conditions.’
The EPA itself did not allow Mr Day as the Attorney to make such gifts, which was noted by the Court. Mr Day contended that he did not make the gifts under the EPA in any event, but under the authority of the bank mandate.
The key question was whether Mr Day could extricate himself from the jurisdiction of the Act, even though the EPA was registered and rely twofold on the bank mandate and Sir Malcolm’s consent.
Section 7(1) of the Act which deals with the effect of registration provides:-
‘(1) The effect of the registration of an instrument under section 6 is that-
(a) no revocation of the power by the Donor shall be valid unless and until the Court confirms the revocation under section 8(3);
(b) no disclaimer of the power shall be valid unless and until the Attorney gives notice of it to the Court;
(c) the Donor may not extend or restrict the scope of the authority conferred by the instrument and no instruction or consent given by him after registration shall, in the case of a consent, confer any right and, in the case of the instruction or consent, impose or confer any obligation or right on or create any liability of the Attorney or other person having notice of the instruction or consent
(2) Subsection (1) above applies for so long as the instrument is registered under section 6 whether or not the donor is for the time being mentally incapable.’
Katherine and Robert submitted that the effect of section 7(1)(c) of the Act is that once an EPA is registered consent can only come from the Court to authorise something to be done which is not authorised by the EPA itself. The Act excluded the possibility of an Attorney under a registered EPA doing something which s.3(5) prohibited, even if, in other circumstances, there is another mechanism which allows him to do it, with the consent of the Donor – in this case the bank mandate. Accordingly, they argued that Mr Day had no authority to make the gifts.
Lord Justice Lloyd and Lord Justice McFarlane did not accept Katherine and Robert’s interpretation of s.7 (1) (c) of the Act and held that this section of the Act was concerned with the scope and effect of the EPA. Lord Justice Lloyd stated ‘I can see no sound basis for concluding that it was intended to have a wider effect than this and to regulate any other subsisting relationship between the principal and the attorney.’ He stated ‘I would find it impossible to read this rather compressed paragraph in s7(1) as intended to have a wider effect than that of preserving the effect of the EPA once registered, so as to be immune from anything done by the Donor which might otherwise enlarge it or constrain, or limit the scope of the acts which the Attorney can lawfully or properly do under it’.
Accordingly, he ruled that Mr Day could still operate the joint account as he had done before the registration of the EPA. However, he could not use the proceeds of the bank account for himself unless Sir Malcolm gave his consent. He held that Sir Malcolm had never lost capacity to make simple and straight-forward gifts of the amounts at issue and that the gifts to Mr Day had been given with Sir Malcolm’s ‘full, free and informed consent’ and that the cheques had been signed under the bank mandate and not the EPA. On this point the appeal was dismissed by the majority.
It should be noted that Lord Justice Rix dissented on the interpretation of s.7 (1) (c) given by Lloyd, LJ and McFarlane LJ. He stated that ‘it was implicit in the whole structure of the Act that the Donor of an EPA could not, after registration create another agency or give a new power of attorney, in whatever form, at any time in the future and it followed that what was so in the future applied as well to the past so that any previous authority granted could not be maintained as if there had no system of regulation by the Court’.
On the smaller issue of the manuscripts delivered to Katherine in 1976, the judge ruled that they were a gift to Katherine and Robert and that the postcard to Robert reflected that a gift was intended and accordingly the appeal was allowed. The other manuscripts removed from Sir Malcolm’s flat in 1980 and the three manuscripts delivered by Faber Music were ruled to belong to Mr Day.
- The judgment is useful for Practitioners as it illustrates that the Court will not allow an individual to be deprived of their power to consent in relation to the management of their affairs if there are other forms of agency between the Donor and the Attorney, even after an EPA has been registered.
- A previous form of agency between the two parties is not terminated on the registration of an EPA if the Donor can still give consent.
- The case highlights that the Court places great value on an individual, even if he has fluctuating mental capacity, to give consent to acts in relation to the administration of his personal affairs.
- It is perhaps surprising that the prior forms of authority were said to be still capable of applying after the registration of the EPA but only in the event of the Donor being capable of giving consent to their use at the relevant time. This makes for practical difficulties for practitioners in deciding in hindsight whether at that time the Donor had such capacity.
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