Court of Protection Case Round Up – May 2014
In the case of X, Y and Z (by their Children’s Guardian) and a case heard at the same time and concerning the same family, A Local Authority and SA involved a difficult decision about the way in which a personal injury award for a woman should be administered and the extent to which those funds should be used to care for her children. There was likely to be a shortfall in the funds which meant that the needs of the mother and the children could not be fully met by the award. Because the two issues were so much interlinked, the care proceedings relating to the children and the Court of Protection proceedings relating to the mother’s affairs were heard together.
P was 36 at the time of Judgment and had three children. Her husband and the father of the children had been seriously physically violent to her on a number of occasions. The couple divorced and the husband served a jail sentence.
While all this was going on however, the mother had been involved in an accident in a car driven by her sister. Her sister and the two other occupants of the car were killed. The mother survived but sustained very serious injuries including a spinal fracture which left her completely paraplegic. She also received other injuries including a severe head injury. This affected her personality and meant her behaviour was very challenging.
At the time of the accident the children were aged 4, 2 and 9 months. They had already been fostered while their mother was hospitalised because of an assault by their father. For a number of years after the accident, the mother’s mother, the maternal grandmother, looked after the children with some assistance from outside carers. Unfortunately the grandmother died in 2008. Since that point the children had been looked after by a team of nannies employed by the mother. One nanny in particular, S, lived in the family home with the children during the week, with other nannies taking over at weekends. The children had become very attached to S, who had been doing an excellent job.
A deputy was appointed for the mother in 2009 and a personal injury claim was settled in 2012. She received £4.25m as a lump sum as well as periodical payments for care of £175,000 per annum to age 60 and £215,000 per annum thereafter, to be increased in line with inflation. As is the usual way, the lump sum was reduced by the interim payments and at the time of the Court hearing the remaining lump sum was slightly less than £2m. The lump sum element of the award had included compensation for the cost of employing nannies to look after the children up to the date of settlement in the sum of approximately £508,000 and a capitalised future payment for the employment of nannies of approximately £400,000. The terms of the settlement did not provide though that this money should be ring-fenced for childcare expenses rather than being used for anything else.
The cost of employing nannies has been roughly as anticipated but the mother’s care costs have been significantly greater. That meant that the amount of the annual periodical payment did not cover her care and instead she had to resort to the capital lump sum to fund her care package. Her annual expenditure at the time of the hearing was £476,000. Compare that to the periodic payment of £175,000 and it is easy to see that it would not take too long for the capital to be exhausted if spending continued at that rate.
If the mother was no longer financially responsible for looking after the children she would save £93,000 per year. However, it appeared that even if that amount was saved, the lump sum would still be exhausted within ten years. The mother’s life expectancy had not been significantly affected as a result of the accident.
The mother’s challenging behaviour had been affecting the children more and more. Social Services were involved and were trying to provide support to the nanny S and the other carers. The children were however becoming very wary of their mother because her challenging behaviour meant that they would not really know how she would be from one interaction to the next. S seemed to be a constant and comforting presence.
The local authority recognised that none of this was P’s fault but rather the result of her brain injury but reluctantly concluded that the children had to be moved away from their mother. They therefore applied for care orders. The Court was satisfied that the mother could not meet the children’s needs or provide them with “an adequate and consistent level of care” and “as a result the children had shown disturbances and behaviours consistent with having suffered psychological harm”. Unfortunately there were no members of the extended family available to look after the children. All the professionals agreed that the best outcome for the children would be that they would live in a house close to their mother and be cared for by S but would continue in contact with their mother. It was agreed that this would be done by way of a care order placing the children with S as foster carer. S felt unable to take on this rather extended role, including moving into a house obtained through a housing association with the support of the local authority, without a payment in excess of that available for fostered children by the local authority. The Judge found this perfectly understandable. She had her own financial commitments and would have been left in a very difficult position when the children reached adulthood as she had essentially given up her employment as a nanny and would have been unable to make provision for her retirement. The only other available source of funds was from P’s compensation award. The approximate sum sought by S was £20,000 per annum, which would cost the estate of P £27,500 once all the costs were added. That had to be weighed up against the considerable savings that the mother would make if the children moved out of her property as of course the costs of employing nannies were rather in excess of that.
P’s deputy considered these payments might not be in P’s best interests given that there was a shortfall between P’s income and expenditure. There were also some potential issues about S being employed under a contract of employment. The Judge was very clear that the deputy was not being adversarial in mentioning these points but had wanted to bring them to the attention of the Court so that the Court could make a best interests decision. Everybody agreed that P lacked capacity to make this decision.
The Court considered the provisions of the Mental Capacity Act and the factors it had to take into account under Section 4(6). The Court noted the specific provisions under the Mental Health Act allowing a Judge to “do or secure the doing of all such things as appear necessary or expedient … (b) for the maintenance or other benefit of members of the patient’s family …” and “the reimbursement out of the property of the patient, with or without interest, of money applied by any person … for the maintenance or other benefit of the patient or other members of his family”. These specific provisions are not repeated in the Mental Capacity Act but nobody suggested that the Section 16 and 18 powers of the Mental Capacity Act would not extend to allowing these things to happen. The Court does of course need to be satisfied that the payments are in P’s best interests.
The Court considered the case law on best interests, including Re M: ITW v Z [2009] EWHC 2525 (Fam) and Re P (Statutory Will) [2009] EWHC 163 (Ch) [2010] Ch 33
There was discussion of the effects on the mother of knowing that her children were being looked after by foster carers other than S, which is something the mother apparently wanted to avoid at all costs. It was also argued that the mother’s expenditure would have to be reduced anyway and that the proposal to employ S at a cost of £27,500 a year for the next six years would have only marginal effect on the ability of the funds to meet the mother’s needs. Indeed, if her children had remained at home, the cost of care would be in the region of £93,000 per year.
However, it was also argued that whilst the mother had said that she wanted S to continue to look after the children, there was no evidence that she had had explained to her or understood the effect on the shortfall in her assets. That ultimately impacted on her own care needs.
The Judge concluded “without hesitation” that the proposed payments to S from the mother’s estate were in the mother’s best interests. The Court had the power to make such an Order under the Mental Capacity Act despite the fact that the express provision had not been carried over from the Mental Health Act. He noted that “where a parent loses mental capacity at a time when she is still responsible for her children, those responsibilities are part of her “interests” which have to be addressed by those making decisions on her behalf, and payments to meet the reasonable needs of those children are manifestly capable of being described as in her “best interests”.”
The property and affairs deputy was authorised to make payments to S from the mother’s funds at any time when S is engaged in caring for one or more of the children pursuant to any fostering arrangement made between the local authority and S and following the making of any care order in favour of the local authority in relation to the children. The deputy had to have regard to all of the relevant circumstances and the statutory best interests test when considering making these payments. The deputy was to consider making payments to S in the sum of £20,000 per year net, £27,500 per year gross, subject to S’s personal financial circumstances. S was to be responsible for dealing with reporting assessing and paying tax and National Insurance and had to provide the deputy with information of any change in financial circumstances promptly on request. The professional deputy could take into account payments that S received from any other source ie; anything beyond the current fostering arrangement or the rental of her property, with the intention that S would not receive any more than £20,000 per year in excess of the fostering payments or property rental.
If S is unable to act as foster carer for the children for longer than six weeks in any year, the professional deputy could consider reducing the payment pro rata. Importantly, the professional deputy is able to review or stop payments provided reasonable notice is given. The professional deputy is also entitled to be kept up to date by the local authority about the success of the fostering arrangement and could receive minutes of meetings related to that.
The costs of all parties were payable from the mother’s estate.
Ultimately, this was a decision which was very helpful in the interaction of a parent’s financial interests with the interests of the children, in the context of the parent’s overall best interests. It was not an easy situation (cases where the numbers do not add up never are) but the Judge reached a pragmatic and sensible decision.
The case of AK involved an application for a gift from the estate of an injured child. Ultimately, the Court approved the loan arrangement rather than a gift but very creatively linked to this smaller gifts to help the parents in repaying the loan. Readers may remember the JDS case which involved an application to make gifts for Inheritance Tax planning purposes from the estate of an injured young man. The context of this case was, as the Judge put it, “quite different”.
AK is an 11 year old boy who was injured because of a prolonged period of hypoxia at birth. His life expectancy was uncertain but was felt to be in the region of 15 years ie; 4 years from the date of the hearing.
At the time of the hearing, AK was spending less than he was receiving as income from a periodic payment because of the large amount of care his mother was providing. It was clear that AK did not have capacity and, as the Judge pointed out, the Court of Protection had jurisdiction under Section 18(3) to look after the affairs of AK. A professional deputy was already in place.
AK had capital at the time of the hearing of £1,311,156. His annual income from the periodic payment was £159,366.20 and his annual expenditure was £64,002.49. Some agency care was in place and the Judge did point out that AK’s mother may not be able to continue to provide the care as she was at the moment and that costs could therefore increase. It was also possible that AK could live longer than anticipated.
The family spent four months of the year in Pakistan and it was accepted that this was beneficial for AK, both socially, medically as his respiratory problems improved, and financially as family carers were able to provide care rather than commercial carers being involved.
The deputy perceived practical difficulties in contributing to the purchase of a property in Pakistan, verifying what had been spent etc and also pointed out the family’s concern that measures the deputy might need to take would draw more attention to the property than would otherwise be the case. For that reason, the deputy asked the Court to gift£150,000 to AK’s parents.
The Official Solicitor took the view that there were probably other ways to achieve the same objective without a gift being made but did accept that if it was not practicable to find another way after the deputy had investigated further, then the gift should be made. The Official Solicitor said that “such a gift ought only, however, to be made on the condition that the deputy must be satisfied that it has been used by AK’s parents within some period for the construction or adaptation of a building appropriate for AK to live in. It would not be necessary for AK’s parents to produce translated receipts for every item of expenditure in order to satisfy the deputy, and it should be open to the deputy to discuss with AK’s parents what sort of evidence will satisfy her and will amount to a reasonable compromise between the requirement for proof and the cost and difficulty of providing that proof. Certification by an accountant, for example, might be sufficient. The deputy should negotiate a reasonable period for the construction or adaptation of the house and there should be provision for that period to be extended by agreement between the parties”.
The Judge went through the section for best interests checklist and stated that:
“As is often the case when somebody is profoundly disabled and has lacked capacity from birth, the application of the best interests checklist in section 4 is not always conclusive, because of its strong emphasis on supported decision-making and sustained judgment.
In AK’s case, the outcome is as follows:
(a) he will never have capacity to make a decision of this kind (section 4(3));
(b) it is neither practicable nor possible to encourage or enable him to participate in the decision making process (section 4(4));
(c) there are no past wishes and feelings to consider (section 4(6));
(d) because he never has had the capacity to make a decision of this kind there is no relevant written statement made by him when he had capacity (section 4(6));
(e) he is unable to express any present wishes and feelings about the matter (section 4(6)); and
(f) as regards the views of others as to what would be in his best interests and, in particular, as to the matters mentioned in section 4(6), the court has taken into account the views of AK’s parents and his professional deputy, Ms Lomas, who has considerable experience of managing the estates of people with cerebral palsy and acquired brain injury (section 4(7)(a) and (c)).”
The Judge applied a balance-sheet approach. He felt that the advantages were:
(a) AK currently benefits from travelling to Pakistan and spending several months there each year with his extended family
(b) He has respiratory problems and enjoys better health there than in Britain, particularly during the winter
(c) Care can be provided more cost-effectively in Pakistan
(d) At present he stays in accommodation which is not really suitable for someone with his specific needs
(e) It will enable his parents to provide accommodation which is specifically adapted to his needs in terms of wheelchair accessibility, a lift or stair-lift, hoists, specially adapted toilet and bathroom fittings, sensory equipment, and so on
and that the disadvantages were:
(a) He will have £150,000 less in capital
(b) There are currently no architect’s plans and no costings for the construction of the house or for its specific adaptations
(c) There is no guarantee that the gift of £150,000 will actually be used by his parents to build and adapt a property for his use
He also mentioned a number of reasons to exercise caution and prudence in relation to the gift and mentioned a few scenarios which could occur:
(a) Either of AK’s parents could predecease him or become physically incapable of looking after him as a result of accident or illness. In these circumstances, there would be a significant increase in the costs of his care.
(b) His parents could separate or divorce, and in these circumstances it may be necessary to resort to his funds to purchase an additional property in Essex and adapt it to meet his needs.
(c) Political circumstances in Pakistan may deter the family from travelling there.
(d) His condition could deteriorate and he may no longer be capable of making the journey to Pakistan
(e) His condition could deteriorate and he may require a more extensive and expensive care regime then he currently requires.
(f) AK may outlive Dr Newton’s expectations, and need every penny he can get.
However, on balance the Judge felt that if AK was only going to live to 15, ie; another four years, time was of the essence and the work should be carried out without further delay. Obtaining an up to date assessment of life expectancy, detailed adaptation costings and legal advice on the acquisition of a beneficial interest of land in Pakistan by a minor would delay things.
The Decision
As mentioned above, the Judge, Denzil Lush, who heard both this case and JDS, distinguished the two cases. In the JDS case the motivation was very much Inheritance Tax planning which was not a purpose for which the award was intended. The Judge highlighted that in this case, “the purpose of the application is to provide suitably adapted accommodation for AK’s use and enjoyment, which is both a recognised head of damages and a proper use of his funds”.
On balance, the Judge decided that it was in AK’s best interests to allow the transaction to proceed by way of an interest free loan of £150,000 to the parents. The Judge preferred the loan option because he felt that the capital would remain part of AK’s estate and it was more likely that his parents would comply with the purpose for which the loan was intended.
The loan would be repayable over ten years at £15,000 per year. Creatively, with one eye to the Inheritance Tax position although the Judge made it clear that this was not a consideration in the application or his decision, he authorised the deputy to make annual gifts of £15,000 to AK’s parents provided there was sufficient surplus income and said that he believed that the gifts would fall within the normal expenditure out of income exemption contained in Section 21 of the Inheritance Tax Act 1984. The Judge also pointed out that the proposed adaptations to the property were likely to reduce its value rather than increase it.
