Should funds from a Personal Injury Award be managed through a Deputyship or a PI Trust?

 In Elderly/Vulnerable Client, Trusts

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Deputyship or Personal Injury Trust? – Watt v ABC [2016] EWCOP 2532

PI Awards managed by Deputyship or PI TrustWatt v ABC [2016] EWCOP 2532 revisits the subject of whether a mentally incapacitated person’s damages for a personal injury should be managed through a Deputyship or a Personal Injury Trust. In reaching his judgment, Charles J considered HHJ Marshall’s analysis in SM V HM [2012] COPLR 187, often cited as the authority that favours a Deputyship over a Trust. Additionally, Charles J gives cogent guidance to the approach the Court should now take when considering how future awards for damages should be held giving particular attention to section 4 of the Mental Capacity Act 2005 (‘MCA 2005’) and the principle of ‘best interests’.

The facts

On the 12 May 2012, ABC was injured in a car accident. He was 25 years old. Medical opinion was divided in relation to ABC’s capacity to manage his property and affairs. This was demonstrated by the following points:-

  • in January 2015 ABC executed a Revocable Personal Injury Settlement to receive interim payments of damages to preserve his entitlement to DWP benefits, indicating that ABC had capacity to make the decision to do so and;
  • a few months later on the 24th June 2015 Ursula Watt, a Solicitor and Professional Deputy, was appointed by an authorised officer of the Court of Protection as ABC’s Deputy for Property and Affairs, indicating that ABC did not have capacity to manage his financial affairs

It was accepted by all parties to the proceedings that ABC lacked the capacity to litigate and accordingly personal injury proceedings were initiated by DEF, as ABC’s litigation friend.

On the 10th February 2016, ABC was awarded approximately £1.5 million in damages and Charles J approved the settlement in proceedings in the Queen’s Bench Division. The Queen’s Bench proceedings were listed before Charles, J as issues had been raised about ABC’s capacity to litigate and his capacity to make decisions about the management of his property. An application was made to the Court of Protection and it concerned whether the damages awarded should be paid to and administered by ABC’s Deputy or should be held on trust.

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Charles, J considered in detail the evidence in relation to ABC’s capacity and considered statements from family members and his case manager. It became apparent that ABC was very fixated with money and wanted to sell his current property in order to purchase ‘a few buy to let properties’. There were real concerns that ABC was very vulnerable and easily influenced. He also had a fraught relationship with his personal injury solicitor and could be angry and aggressive at times

The core issue in the view of Charles, J was whether ABC’s damages should be managed by a Deputy or a Trustee and this was inextricably linked with ABC’s capacity and future prognosis. On the evidence presented to him, Charles, J considered that ABC could potentially recover capacity to manage his property and affairs but may make unwise choices and remain vulnerable and easily influenced. In the event that a Deputy was appointed and ABC recovered capacity, the appointment would end and ABC could be left in a vulnerable position. An Irrevocable Personal Injury Trust could potentially give more flexibility and an umbrella of protection.

Charles, J suggested that it may be in ABC’s best interests to have the damages award settled on irrevocable trusts and he directed the parties to produce an analysis of the advantages and disadvantages of both structures carefully factoring in costs and taxation implications.

The law

Section 18(1)(h) Mental Capacity Act 2005 (“MCA 2005”) gives the Court power in relation to P’s property and affairs and extends in particular to  ‘the settlement of any of P’s property, whether for P’s benefit or for the benefit of others’. Accordingly, the Court of Protection can authorise the creation of a Personal Injury Trust to manage a damages award on behalf of a mentally incapacitated person.

Section 16 (2) (b) MCA 2005 allows the Court to appoint a Deputy if a person ‘P’ lacks capacity in relation to matter or matters concerning a} health and welfare b) property and affairs.

Section 4 MCA 2005 sets out the principles of ‘best interests’, the core of the MCA 2005.

SM V HM [2012] COPLR 187 (‘HM’) was considered carefully as the case is often cited as the authority that favours a Deputyship over a Trust. In HM, HHJ Marshall had to consider as a point of principle whether it is ever, and if so in what circumstances, appropriate for the Court to authorise a Trust for a mentally incapacitated person’s assets rather than a Deputyship. HHJ Marshall’s approach was that there is a strong presumption in favour of appointing a Deputy rather than a Trustee.

The decision

Charles J confirmed that the appointment of the Deputy was in ABC’s best interests particularly as he had a very good relationship with his current Deputy. He concluded after considering all of the evidence, that ABC with support would be capable of making decisions about his income but not his capital.

Charles J identified two areas of risk for ABC.

  1. The Breakdown Risk – Charles J noted that ABC had difficulty with accepting professional help and advice, his fraught relationship with his personal injury solicitor being indicative of this. He stated that there was a serious risk of a breakdown in ABC’s relationship with his professional advisors if they did not agree to his wishes and choices and if he was left to make his own decisions, ‘he would lose significant parts of his capital and so be left in a difficult if not a disastrous situation.’
  2. The Vulnerability Risk – He viewed ABC to be very vulnerable to exploitation as he was very easily influenced and this would be the case even if he regained mental capacity.

Charles, J expressed concern that given the issue of ABC’s capacity being so complex, the matter should have been referred to a judge first rather than an authorised officer of the Court in relation to making a Deputyship Order.

Charles J then considered HHJ Marshall’s judgment in SM v HM [2012] COPLR 187 and determined that the case had been misinterpreted. He stated that ‘SM v HM is not an authority for the approach taken before me which was effectively that there is a strong presumption in favour of the appointment of a deputy which must be, and only rarely will be, displaced if the COP is to order that P’s property should be held on trust’ and ‘if and to the extent SM v HM is authority for the existence of a presumption or a starting point that must be displaced I do not agree with it’.

He considered that the Court should make the decision after considering all the factors and what was in ‘P’s’ best interests.

Charles, J made a summary of points that should be considered in future cases:-

1) The management regime for a substantial award of damages should be considered as soon as is practicable. 

(2) This will involve a careful consideration of what the claimant (P) has and does not have the capacity to do and of his or her likely capacity and/or vulnerability in the future. This is relevant to both jurisdictional and best interest issues. 

(3) It will also involve the identification of all relevant competing factors and should not proceed on the basis that there is a strong presumption that the COP would appoint a deputy and would not make an order that a trust be created of the award. Rather, it would balance the factors that favour the use of the statutory scheme relating to deputies (that often found the appointment of a deputy in P’s best interests) against the relevant competing factors in that case.  

(4) It will also involve the identification of the terms and effects (including taxation) and the costs of those rival possibilities. 

(5) Care should be taken to ensure that applications that are not straightforward are not decided by case officers in the COP but are put before judges of the COP. 

(6) The possibility of listing case management hearings or the final hearing of QB proceedings before a judge who is also nominated as a COP judge should be considered. However, the potential for conflict between the respective roles of the judge in the two courts (e.g. one arising from a consideration of without prejudice communication in respect of the QB proceedings concerning its settlement that is not agreed or not approved by the COP judge) and the respective jurisdictions of the two courts need to be carefully considered. 

Practice points

  1. This case can be considered as an authoritative guidance to the approach the Court should now take when considering how future awards of damages for an incapacitated person should be managed.
  2. The status of HM as an authority has now changed and the presumption in favour of a deputyship as a starting point has been rebutted.
  3. The judgment of Charles, J was fact specific, case sensitive and made in the best interests of ABC.
  4. It will be interesting to see the ratio of future cases that establish Trusts to Deputyships.

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