England and Wales Court of Protection Decisions

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Cite as: [2011] EWHC B30 (COP), [2011] EWCOP B30

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This judgment was handed down in private, but the judge hereby gives leave for it to be reported.

The judgment is being distributed on the strict understanding that in any report no person other than the advocates or the solicitors instructing them (and other persons identified by name in the judgment itself) may be identified by name or location and that in particular the anonymity of the parties must be strictly preserved.

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

(signed) HH Judge Hazel Marshall QC

		Neutral Citation Number: [2011] EWCOP B30
		Case No 11875043/01

IN THE COURT OF PROTECTION
HER HONOUR JUDGE HAZEL MARSHALL QC
IN THE MATTER OF HM

4th November 2011

B e f o r e :

HER HONOUR JUDGE HAZEL MARSHALL QC
____________________

	SM	Applicant
	v
	HM (by the Official Solicitor as her litigation friend)	Respondent

____________________

Mr Simon Heapy of Linder Myers LLP (solicitors) for the Appellant
Mr David Rees, Counsel (instructed by the Official Solicitor) for the Respondent.
____________________

HTML VERSION OF JUDGMENT
____________________

HER HONOUR JUDGE HAZEL MARSHALL QC

Introduction

This is a reconsideration under Rule 89 of the Court of Protection Rules 2007 of an order of DJ Ashton made on 10th September 2010, which raises an apparently controversial point about the administration of the affairs of persons who lack capacity under the Mental Capacity Act 2005 ("the 2005 Act"). The issue is whether it is ever, and if so in what circumstances, appropriate for the Court (ie the Court of Protection) to authorise the creation of a trust – in particular a personal injury trust - of P's assets as the means of administering those assets for him, rather than appointing a deputy for him under s 16 of the 2005 Act.

DJ Ashton refused to authorise the creation of such a settlement in the present case. The reconsideration has been referred to me to enable the above point of principle to be fully argued and a guiding judgment obtained. Various people have given their time and services pro bono, as mentioned below, to enable this to be done, and I express my gratitude, as well, I am sure, as that of the parties, for their generosity and professionalism in so doing.

The person whose affairs are the subject of the application in this matter (a status usually abbreviated to "P") is HM. She was born on 3rd April 2004 and is thus now 7 years old. She suffers from cerebral palsy as a consequence of injuries sustained during her birth. From the medical evidence filed, it appears that she is likely to lack capacity upon attaining the age of 18. It is agreed, therefore, that the Court of Protection has jurisdiction over her property and affairs notwithstanding her minority (see the 2005 Act, s.18(3)).

Proceedings were brought on HM's behalf against the relevant NHS Trust for damages. They were compromised by an order of Swift J on 15th July 2010. The terms approved by Swift J provided for a lump sum payment to HM of £450,000 (gross) and periodical payments of £25,000 pa during her minority, and thereafter £50,000pa. This compromise figure represented a very significant discount on the total of HM's potential claim for damages or loss, as quantified by her advisers. However, it was also their assessment that HM's claim stood far less than a 50% chance of success. The opinion of leading counsel was therefore taken as to whether the compromise offer could be recommended. He advised that it could and should be accepted. His opinion is part of the evidence in this application.

The structured settlement offer did not expressly include any element for the costs of administering a deputyship on HM's behalf, However, the evidence shows that leading counsel referred to the proposal to set up a personal injury trust, (intended to take the form of a bare trust with administrative powers) to administer the damages award for HM, with the trustees being SM (HM's mother, and the present applicant) and Mr Andrew Cusworth, (a partner of Linder Myers LLP, the solicitors who have been acting for HM). The view was recorded that this could save between £1,000 and £2,000 pa as compared with the costs of a deputyship.

The order of Swift J recites

"AND UPON the Court being informed that it is the intention that the damages and periodical payments payable to the claimant should be managed by a Personal Injury trust …..("the Trust") and UPON THE UNDERTAKING of the Claimant's solicitors to make the necessary application to the Court of Protection for the permission of that Court to set up the Trust and thereafter deal with the damages and periodical payments by means of the Trust …."

SM therefore applied to the Court of Protection for authority to set up the proposed trust to receive HM's damages and periodical payments. The application came before DJ Ashton on paper on 10th September 2010. He refused the application on the grounds that he was not satisfied that it would be in HM's best interests for her personal injury damages to be administered otherwise than through the Court of Protection. In practice this would mean a deputyship order.

DJ Ashton did not provide a written decision but set out reasons for the refusal in his order. They are sufficiently succinct for me to quote them in full:

"(1) The jurisdiction of the Court of Protection has been established by statute specifically for managing and administering the financial affairs of persons who lack mental capacity to do so for themselves;

(2) The procedures of the Court of Protection and role of the Public Guardian are for the benefit of the incapacitated person and provide safeguards that Parliament has deemed necessary;

(3) There would not necessarily be a significant reduction in overall costs in the event of a Personal Injury Trust and the involvement of the Court of Protection would be required in any event upon a change of trustees;

(4) Any overall financial savings that may be achieved would not justify a departure from the statutory jurisdiction;

(5) There would be less supervision and diminished protection if [HM']s funds were placed in a personal injury trust;

(6) Any future intervention would potentially involve a Chancery Court as well as the Court of Protection and would in consequence be more protracted and expensive;

(7) The principal benefit of a personal injury trust, namely ring-fencing from means-testing, is likely to be available if the fund is retained in the Court of Protection."

SM thereupon sought reconsideration of the decision pursuant to rule 89 of the Court of Protection Rules 2007. On 21st October 2010, DJ Ashton made two further orders by which he directed (1) that SM's solicitors should have authority to receive and invest HM's damages and periodical payments pending further order (effectively acting as interim deputies); and (2) that the order of 10th September 2010 refusing permission to set up the personal injury trust should be reconsidered at Circuit Judge level, and that this reconsideration should be referred to me.

In view of the general public interest in the point at issue, I was concerned to ensure that the case could be fully argued. On 22nd December 2010 I made directions inviting the Official Solicitor's involvement to support the approach taken by DJ Ashton against the challenge being made by SM.

For obvious reasons, legal costs are a very significant matter in this case, where HM's damages are already only a part of the assessed full costs of her needs, and it would clearly not be in her best interests for her money to be spent simply in order to run a test case. It was therefore, at one point, not certain that the reconsideration could even proceed. However, at a subsequent telephone directions hearing on 25th February 2011 the Official Solicitor appeared. Whilst he respectfully declined my earlier invitation to "support" the general approach taken by DJ Ashton, he did agree, given the wider considerations raised by the application, to be appointed as HM's litigation friend and to arrange representation for her without charge, for the purpose of the application. He also said, through counsel, that he envisaged providing the court with material which could be of assistance with regard to the wider considerations raised by the decision. This he has done, and the matter has come before me on that basis.

The hearing, evidence and argument

On this reconsideration hearing, the Applicant, SM has been represented by Mr Simon Heapy of Linder Myers LLP, who is a solicitor in their specialist Court of Protection department, and who advised the creation of a personal injury trust as the appropriate way forward for HM in the circumstances. Mr Heapy filed two witness statements and a skeleton argument in support of the reversal of DJ Ashton's order. He also filed a witness statement from SM herself. All this evidence was, of course, focused principally on the facts and considerations of this particular case.

The Official Solicitor, on behalf of HM, instructed Mr David Rees of counsel, who presented a comprehensive argument at both a general and a specific level. He also adduced statements from four witnesses, three being solicitors all of whom have considerable experience of deputyships and personal injury trusts. These were Ms Lynne Bradey of Wrigleys Solicitors LLP, Mr Niall Baker of Irwin Mitchell LLP and Mr Martin Terrell of Thomson Snell & Passmore. The fourth statement was from Mr Mark Quilter, a Specialist Investment Manager of Charles Stanley Group Plc who has wide experience in the investment of assets by both deputies and trustees.

Whilst there was no objection from Mr Heapy to my admitting this evidence, Mr Rees was rightly concerned to show me that it was properly admissible. He emphasised that it was not being produced as "Expert Evidence" (there was no direction for this) but rather as evidence of fact, namely the first hand experience of the practical problems or advantages that can arise with deputyships and personal injury trusts, as recorded by the four deponents. He referred me to Rule 95 of the Court of Protection Rules 2007, and in particular Paragraph 95 (d) which allows the Court to "admit such evidence as it thinks fit" and submitted that this was of a much wider ambit than the rules of evidence in civil cases.

I accept that submission by Mr Rees, although I think that in fact this evidence is admissible under the general rules of evidence in any event. It is introduced to inform the court of what actually happens and to give examples of the current practice and experience of certain professionals in the field. As such, it is evidence of fact observed by them. It is also material which is, in my judgment, useful, and therefore relevant, in assisting the court about making the kind of "best interests" assessment which is required in this case. Insofar as any witness might stray beyond recounting fact into expressing opinion, I am satisfied that their expertise in general qualifies them to express such opinions – short of course, of an opinion on the very issue before the court for decision - and such evidence would therefore be admissible in any event, under s 3 of the Civil Evidence Act 1972.

These witnesses have very kindly provided extremely useful statements about their experience and therefore inevitably their views about the relative merits and demerits of administering assets for P through either a personal injury trust or a deputyship. They have each done so without charge and I am grateful for the insight and assistance they have provided. I will deal with the tenor of their evidence later.

As mentioned, Mr Rees provided a comprehensive skeleton argument ranging over general considerations as well as this particular application. Mr Heapy, on whom it technically fell to open the matter, said immediately that there was really no dispute between him and Mr Rees, on points of general principle and as to what matters were or might be of relevance. In the end, the difference between him and Mr Rees was really a matter of judgment or impression as to the weight to be attributed to particular matters, and therefore the end result of applying agreed principles to the particular facts of HM's case.

I have found it generally convenient to follow the structure of Mr Rees's argument in this judgment, because of its broader ambit, but this is not to belittle Mr Heapy's robust and able argument on behalf of his client, to which I also pay tribute. Once again, I understand that he has represented her without additional charge in the interests of saving costs, and he has done so both with a sense of proportion, and very effectively.

The issues

Mr Rees identified the issues raised by this application as follows:

(1) Is some form of structure required to manage HM's property and affairs?

(2) If so, is it open to the Court to authorise the settlement of her assets as an alternative to a deputyship?

(3) If it is, what principles should it apply, and what factors is it likely to wish to weigh up, when deciding whether to do so?

(4) Should the settlement of HM's personal injury award be authorised in the present case?

The law

Mr Rees first referred to what is now an entirely incontrovertible starting point in cases under the 2005 Act. This is that the basic principles to be applied in deciding the above issues can be identified from ss 1 and 16 of the 2005 Act, and are the following:

(1) Any act done or decision made on HM's behalf must be done or made in her best interests (s.1(5));

(2) Before the act is done, or decision made, regard must be had to whether the purpose for which it is needed can be as effectively achieved in a way that is less restrictive of the person's rights and freedom of action(s.1(6)); and

(3) In deciding whether it is in HM's best interests to appoint a deputy the court must have regard to the principle that

(a) a decision by the court is to be preferred to the appointment of a Deputy to make a decision; and

(b) the powers conferred on a deputy should be as limited in scope and duration as is reasonably practicable in the circumstances (section 16(4)).

Guidance on the approach to applying these principles is then to be found in s.4 of the 2005 Act.

Issue 1 Is a management structure required?

The first issue is therefore whether some form of management structure (whether a trust or a deputyship) is required at all. Mr Rees submitted, and Mr Heapy agrees, that it plainly is, not least because of the size of the sums in question. In a case where P lacks capacity but is the recipient of a substantial personal injury award, it is clear that, notwithstanding the terms of s 16(4) of the 2005 Act, it will not be in P's best interests for decisions about the day to day management of his or her finances to be taken by the court. This is cumbersome, slow and expensive, and some form of management structure will inevitably be required.

The doubts which I previously expressed in Baker v H [2010] 1 WLR 1103 (para 32) as to the literal effect of s.16(4) of the 2005 Act apparently being at odds with this approach have been echoed and tacitly endorsed by Baker J in G v E [2011] WTLR 199 (para 59). It therefore now appears to be recognised that s.16 (4) will carry greatest weight where major health and welfare decisions need to be taken. Day to day decisions about property and affairs will usually require the appointment of a deputy, as a matter of practicality.

Both parties agree, (and it accords with common sense) that some form of management structure for HM's damages settlement, operable outside the Court, is required in her best interests.

Issue 2 Can a settlement be used as an alternative to a deputyship?

This is a point of law. Both parties are agreed that as a matter of law it can. Sub-s.18(1)(h) of the 2005 Act permits the court to authorise the settlement of P's property whether for P's benefit or the benefit of others. It is therefore clear that the court has the necessary power, and nothing else on the face of the 2005 Act prevents the Court from authorising the settlement of P's property as an alternative to a deputyship, so long as it considers this to be in P's best interests.

Mr Rees observed that making such a power available appears to have been the intention of the draftsman of the 2005 Act, citing the discussion at paragraph 8.34 of the 1995 report of the Law Commission: "Mental Incapacity", which was the origin of many of the principles ultimately embodied in the 2005 Act. The terms of that paragraph are worth quoting as they foreshadow some of the considerations which could be relevant here:

"...The Court of Protection already has ... power to make a settlement of the patient's property. We mentioned in our consultation paper that it is not common for the Court of Protection to make settlements for the benefit of the patient himself or herself, and expressed the provisional view that there would be little advantage in providing any new power for a trust (for the benefit of a person without capacity) to be set up. A number of our expert consultees, however, argued that such a trust might sometimes be the best solution for the person concerned, and we are persuaded that the court should certainly have this option available to it. It is likely to be attractive only where substantial assets are involved or perhaps where issues of tax planning are important. It may be necessary for a financial manager [sc. a deputy] to be appointed at the same time as property is ordered to be settled. Alternatively, the making of the settlement may mean that there is no need for anyone to hold management powers and responsibilities." (Emphasis added).

The Law Commission's recommendation was therefore that such a power should be available to the Court of Protection, and this eventually became enacted as s.18(1)(h) of the 2005 Act, and thus the availability of a settlement as a general proposition is non-controversial. It is worth noting that the underlying view appears to have been that it would be an exceptional case, and that size and tax planning would be the impetus for taking this course. I remind myself however, that this view was expressed in the circumstances of 1995.

The crucial general question is now, therefore, the next one.

Issue 3 What principles should the Court apply, and what factors are likely to be relevant, in deciding whether (or not) to authorise a settlement?

As mentioned, it is trite law that the overriding principle is that such a decision must be justified on the grounds that it is in P's best interests (see s. 1(5) of the 2005 Act). It is equally well-rehearsed that the guidance in s.4 of the 2005 Act must be observed. However, apart from a direction to consider "all the relevant circumstances" (s 4(2)), and the inferential emphasis in the section on giving weight to P's actual or likely wishes (a matter which may not play much part, though, in considering the best method of financial administration of significant funds for a person, especially a child, who lacks capacity) that guidance relates more to direction as to how to gather the material on which to make the decision than to listing relevant considerations.

It cannot, therefore, be over-emphasised that any actual decision is completely fact sensitive to the individual case, and that the weight of superficially similar factors may be very different in different cases. This was emphasised by Munby J in Re M; ITW v Z [2011] 1 WLR 344, although he also noted that on the facts of any individual case one or more factors might be of "magnetic importance". This last point is readily understandable, but only illustrates that on occasions some particular factor may be of such obvious weight regarding P's apparent "best interests" that it outweighs any factors which might otherwise seem to point in a different direction. It is therefore really just an example of how the balancing exercise may operate at its limit, and, as such, it only underlines the individuality of every decision

With that said, though, it is again common ground between the parties that deputyship should be taken to be the norm for the due administration of P's assets, and that authorisation of a settlement must therefore be justified as a departure from this norm. That agreement is tantamount to a concession that it must "normally" be in P's best interests for his assets to be administered under the deputyship regime, and I ought therefore to consider whether such a concession is correct. This may not be quite as obvious as it seems, because the provision by statute of a particular scheme may mean no more than that Parliament thinks that this should be one option, available to citizens, amongst others. I am satisfied, though, that it is a proper concession, for the reasons below, but in my judgment it must also be kept in perspective.

The deputyship regime was devised and enacted, after consultation and careful consideration, to make generally available a mechanism for the management of the assets of persons lacking capacity to whom the state owes a duty of protection. It was therefore, naturally, intended to do this to best effect as a general proposition. It was devised in the light of both experience, and the modern guiding principle about mental incapacity, which emphasises proper and appropriate respect for the autonomy and the wishes of persons lacking capacity. The jurisdiction of the old Court of Protection to appoint a receiver to manage the property of a person lacking capacity, although latterly codified under the Mental Health Act 1983 was rather a blunt instrument, which had developed reactively and incrementally out of the Crown's parens patriae jurisdiction, and was focused on the management of property rather than directly on the well-being of P.

The 2005 Act brought a new approach and now provided a statutory scheme especially tailored to the administration of the affairs (not, of course, confined to property) of people lacking capacity, under the title of "deputyship". Providing for the general case, the scheme makes available elaborate and broad powers which can be conferred on a deputy (thus giving maximum flexibility to fit individual cases) whilst also providing safeguards to protect P. The advantages of deputyship for P are clear. The powers of a deputy can be controlled by the court to fit the individual case, and coupled with robust safeguards for P's interests, in particular appropriate provision of security and an organised system of supervision and of reporting to the Office of the Public Guardian.

Parliament has thus devised deputyship for the very purpose of operating in P's best interests, as a general proposition. It did not, however, enact that it was the only possible mechanism. Apart from the fact that it left open the possibility of a private settlement being authorised (as mentioned above), this is apparent also from the fact that the administration of P's affairs by a validly appointed Attorney under an Enduring, or Lasting, Power of Attorney takes precedence over deputyship, absent any unfitness or misbehaviour by the Attorney. This is notwithstanding that the protections for P (controls and security) are lower, and it shows the application of the principle of proper respect for the wishes of P, expressed by the appointment he has made. Parliament has, in short, provided a scheme which is designed to operate in what generally is P's best interests, but it has not ruled out alternatives, and has instead enacted that the ultimate test is: what is in P's best interests in the individual case?

In my judgment, this leads to the conclusion that deputyship is properly treated as the normal arrangement, and as the benchmark against which to compare any other proposed method of administering P's assets and it is therefore the starting point in any case where P has not himself appointed an attorney.. The point though is that this is only a starting point. Deputyship is a means to an end, and not an end in itself. The end is doing what is best in P's interests, not promoting the use of the statutory scheme, however highly it may be regarded. Deputyship will therefore certainly be the usual course where some formal scheme for managing P's assets is needed at all. However, if the court is satisfied that P's best interests are better served, in the particular case, by the authorisation of a settlement rather than the appointment of a deputy, that will prevail. The key is that the test is a relative one, namely, in all the particular circumstances, are P's best interests better served by taking that course?

Given that deputyship has been constructed with obvious care and thought to provide a scheme which will protect P's best interests, the court will therefore need to be satisfied that there is a clear and significant advantage to P in the particular case if it is to depart from that and to authorise the settlement proposed. This will need to be proved by clear and cogent evidence, and the burden of so proving will be on the applicant.

It follows that insofar as any factors are claimed to be a disadvantage of deputyship as compared with trust, then the first question must be whether such a concern can be adequately addressed by framing a deputyship order in suitable terms. Only if using deputyship cannot provide some sufficiently important advantage which can be provided by the proposed settlement will the latter be justifiable.

Material evidence

Before identifying relevant considerations, I will summarise the evidence from the professionals indicating their different experiences and perceptions.

Miss Bradey

Ms Bradey is a solicitor of 8 years' experience in both Court of Protection work and trusts for vulnerable people, in a niche private client practice. She is also a lecturer and is co-author of Coldrick on Personal Injury Trusts. I think it fair to say that she is passionately of the view that a personal injury trust is preferable to deputyship, based on her experience. She gave the key benefits of trusts as being reduced delays and maximum flexibility, the use of both professional expertise and family knowledge and skill-sets to maximum advantage, and the financial checks and balances of interaction between professional and family trustees. She also emphasised the value for the family of a feeling of release from the court process after harrowing litigation. She did not see the financial protections of the deputyship system as being of any material value other than in extreme cases (and did not consider HM's case to be such). She recognised the usefulness of extraneous limits on powers in enabling a deputy to resist irresponsible demands by P or his family without personal confrontation, but felt that the benefits of a trust for family dynamics were very great; deputyship was seen as an imposed solution, rather than a co-operative one. She felt that trustees could act more quickly than a deputy especially where a release of funds was needed, or in applications to the court, and she said that average court disbursements in a year could be £1000 for a deputy. She reported that her firm's files showed average second year costs of an active deputyship matter to be about £12,200 plus VAT, (apart from the above costs) whilst the comparative annual administration costs of a personal injury trust were £6-8000 plus VAT.

Mr Baker

Mr Baker has 20 years' post qualification experience, specialising in Court of Protection work in a large specialist firm and acts as both deputy and a trustee of personal injury settlements. He was far more inclined to favour deputyship over a trust. His experience was that the roles of professional trustee and deputy were now very similar since the broadening of powers usually conferred on deputies, under the 2005 Act; both dealt with holding funds, suitable investment, agreeing expenditure, purchasing property if appropriate, tax matters and administration. He emphasised the constraint that trustees' powers are limited to the ambit of the trust; they would not have authority to deal with any other funds coming to P, such as benefits, local authority or NHS payments or inheritances, nor to deal with P's personal tax affairs. Nor, unlike a deputy, could they invest in a (tax efficient) ISA for P. Mr Baker cited the lack of supervision and in particular the possibility of uncontrolled and unchallenged expenditure, as a disadvantage of a trust, as well as the potential for conflict in decision making. He saw the deputy's duty to report and to account to the OPG, the OPG's power to seek information and ultimately apply to the Court of Protection in cases of concern, the routine visits of Court of Protection Visitors, and the standard practice of a deputy's costs being subject to assessment by the Senior Court Costs Office, as robust financial safeguards for P in the case of deputyship. He thought that administration costs were broadly similar in practice, apart from the costs of supervision and security for deputies. His comparison was about £7,300 pa for a deputy and £5,100 for a trustee, excluding costs of court applications, which he again thought likely to be similar. His view was that the groundswell for creating trusts had arisen about 10 years ago, when the administration of the Court of Protection simply was not providing an acceptably efficient service, but his view was also that this no longer applied.

Mr Terrell

Mr Terrell is likewise a solicitor specialising in Court of Protection work, for over 17 years, and a very experienced receiver/deputy, with a little experience of administering trusts for incapacitated persons. He too was strongly in favour of deputyship over a trust in the general case. He noted the drawback that a family member as deputy might be dependent on, or have a conflict of interest with P, and that the advantages of appointing a professional deputy were the added layer of protection in involving a professional, lower security and supervision costs, the likelihood of the court being willing to confer wider powers, reduced potential for conflict and the assessment process for controlling costs. He thought that the usual reasons for proposing a trust were the ability to involve family members, the perceived ability to save costs through reduced court applications and the absence of security and supervision fees and of the cost of providing the OPG with accounts, and the avoidance of a feeling of state intrusion in what was often a very sensitive situation. He perceived a rather negative attitude to deputyship, which he felt might well be the product of "collective memory" of frustrations in the past. He thought that the increase in powers now given to deputies had reduced court applications, and that the perception of trusts requiring less court involvement was exaggerated. Whilst supervision and security costs were greater, these were good value for P's protection. He saw the most compelling argument in favour of a trust as being that it was less impersonal than deputyship, but thought that this could be addressed by appointing joint deputies and an appropriately skilled professional deputy. Amongst many disadvantages in the trust structure which he listed, the main ones were: lack of accountability over costs, lack of certainty (and hence complications especially if problems arose or circumstances changed), not controlling all P's assets, and potential adverse tax consequences. He saw these overall as counterbalancing the disadvantages of deputyship, leading him to prefer the latter. His view was that only some very prominent factor in any individual case should justify resorting to a trust. He cited two such cases from his experience, (each, notably depending on the effects of deputyship on P's carer, in the one case practical, and in the other psychological.) He suggested two further situations which might favour trust over deputyship, the first being where it was necessary to avoid the possible effects of intestacy on the death of an incapacitated child. The second was where there might be fears of financial abuse if P regained capacity (thus terminating the deputy's power to act), although he acknowledged, rightly, that this would raise other, wider, issues.

Mr Quilter

Mr Quilter is a specialist manager with Charles Stanley Group plc, with wide experience of giving investment advice and running accounts for both deputies and personal injury settlement trustees, lay and professional, over 20 years. His evidence was that, at least in his company's practice, there was no difference with regard to investment management charges whether funds were held by a deputy or a trustee, but that other institutions might well charge normal private client rates to trusts, which could well be higher. Deputyship might keep fees down because the adviser or broker would need to deal only with one person. His experience was that the degree of family involvement, if desired, could be very similar in practice in each case. He thought that after the new scheme under the 2005 Act had bedded down, not only had the administration of the Court of Protection speeded up, but the wider forms of deputyship orders reduced the need for further court applications.

Mr Heapy

Mr Heapy made two witness statements in support of this application in addition to SM's statement. He said that the main driving force behind this application for a settlement to be authorised was, indeed, costs savings, and in particular the fact that HM's damages claim had had to be compromised at such a low percentage of her real care needs, so that even a small economy in costs would be a significant benefit to her. He did not give detailed evidence as to the likely figures of costs savings in his first witness statement, but did so in a second witness statement, for the purpose of these proceedings. I will consider this evidence later.

Potentially material factors

What then, should be the approach, and what are the pertinent factors when considering whether it is in P's best interests that the court should exercise its power to settle P's assets rather than simply appoint a deputy? Leaving aside the possibility of some particular factor of magnetic importance, this must involve a comparison of the features of deputyship and of a settlement generally, and their effect and impact in any particular case. I would suggest that they fall under the following useful headings, namely

Fundamental considerations

Statutory directions

Protection of P and his assets

Expenditure considerations

Administrative considerations

Indirect benefits/drawbacks

As well as making general observations, Mr Rees very helpfully provided a list of suggested particular points which the court might need to consider and Mr Heapy commented on the most pertinent of these in his skeleton argument and a position statement . From all this I have distilled the non-exhaustive list below. The order of this is related to the above headings and is emphatically not any suggested order of importance. The list comprises

(i) possible limits of deputyship as against a trust;

(ii) the totality of P's affairs;

(iii) possibility of joint office;

(iv) availability and willingness of a suitable trustee or trustees;

(v) the less restrictive option for P

(vi) the views of P's carers and those interested in P's welfare;

(vii) relevance and impact of different duties of trustees and deputies;

(viii) the degree of supervision applied to each;

(ix) the degree of protection each affords to P;

(x) tax considerations;

(xi) means-tested benefits considerations;

(xii) comparative cost and expense;

(xiii) availability of budget sums;

(xiv) costs oversight and control;

(xv) administrative efficiency;

(xvi) investment powers;

(xvii) continued court involvement and

(xviii) family involvement.

Not only are these not listed in any suggested order of importance, but they can also overlap, eg, supervision is obviously one aspect of protection for P, and further involvement of the court has cost and expense implications. All such points will need to be considered, although I again emphasise that their weight, and that of any others, will be individual to the case.

(a) Fundamental considerations

It is convenient to begin by noting one or two factors which Mr Rees suggested might be seen among those which were either basic points or factors which might be suggested to have "magnetic importance" as mentioned above.

(i) Limits of the deputyship regime compared to settlement

The first arises from the consequences of P being a minor. Section 18(2) of the 2005 Act forbids the execution of a statutory will for a child. However, in some situations, it may be thought not to be in P's best interests for the rules of distribution on intestacy to apply if P dies before attaining majority. One such instance could be where P has been abused or abandoned by an absent parent. In that case, the only way of preventing such parent from succeeding to a share of P's assets would be to settle them so as to provide otherwise in the event of P's dying before age 18.

Of course, P is not going to know, or be directly concerned in what happens to the residue of his or her assets after death, and in deciding whether or not it is in P's best interests to fix this through a settlement, the decision-maker must be careful not to allow his own moral judgment to affect what should be a dispassionate view of what is in P's best interests, currently. Even an instinctive feeling that "I am sure that P would want that" needs to be critically examined. However, English law is quite astute to see indirect benefits when approving arrangements for those under disability. It can recognise these in, for example, a benefit to P in the attitude of others which a particular course of action is likely to promote. This may therefore provide a reason for sanctioning a settlement in such circumstances.

A second possible example could be where P is an adult, who might possibly regain relevant capacity, thus terminating a deputy's power to make decisions: (see s.20(1) of the 2005 Act) but where he might be perceived then to be vulnerable to financial abuse. As Mr Terrell notes (and I agree) providing an appropriate level of protection for P in this kind of case, without being unduly restrictive, is a very difficult balance. Indeed, the whole issue of appropriate protection for vulnerable people who do not lack the relevant capacity is an extremely difficult one and outside the scope of consideration here. This point does, though, indicate concerns which may be material.

If either of the above factors were of particular importance to P's best interests, then that would, in my judgment, be a strong factor in favour of the principle of authorising a settlement rather than appointing a deputy, although it would never remove the need to consider any counter-argument from other factors.

(ii) Ability to deal with totality of P's affairs;

This point is also one of administrative efficiency, but it seems to me to arise at a fundamental level. The two options of settlement or deputyship should be seen as mutually exclusive. It is difficult to envisage circumstances where it would be in P's best interests for part of his property to be settled for his benefit and part retained to be dealt with by a deputy.

A property and affairs deputy, once appointed, can and does take control of all of P's assets in principle, subject to any limitations contained in the deputyship order. This provides simplicity, clarity, and a ready means of handling future events.

A settlement applies only to the assets placed within it, and this may result in complexity or duplication, or increase in administration and therefore costs. The administration of P's affairs outside the trust is still going to have to be dealt with. If P were to inherit a significant sum of money, this could not be dealt with by trustees without being added to the trust. The receipt of any benefits or similar payments, and possibly the completion of P's own tax returns, if the trust is other than a bare trust, would also be outside the trustees' remit. In any event, the trustees of the settlement could not take over management of benefits. Whilst it might be possible to arrange for these to be paid to a family member as an appointee for P, that would take them outside the scope of any protection afforded to P by either a security bond or professional indemnity insurance.

The desirability of simplicity in the administration of P's affairs with consequent containment of costs may well be a forceful initial point in favour of a deputyship.

(iii) Possibility of joint office

A factor which often seems to be suggested as an advantage of settlement over deputyship is the fact that there will be more than one trustee, widening the skills available to manage P's affairs. However, where this is seen as an advantage, it may well be possible to provide it under a deputyship by the appointment of joint deputies.

Formerly, the courts did not readily appoint joint receivers, but under the new regime of the 2005 Act, the court has been more receptive to the idea of joint deputies (see eg Re P [2010] EWHC 1592 (Hedley J)). The opportunity for formally involving someone close to P in administering his affairs directly under the deputyship regime is now greater than before, and there are increasing instances of the appointment of a lay deputy who will generally deal with personal and everyday matters with regard to P, jointly with a professional deputy who deals with formal administration and management, This does not of course prevent possible disagreement or conflict between them, and the suitability of appointing joint deputies will certainly depend on there being an appropriate family member willing to take up such a joint role, but in appropriate cases it can prove to be a very practical course.

This consideration is therefore unlikely to amount to a sufficiently significant point in favour of a settlement, so long as appointing joint deputies can achieve the same practical result, and it very often will.

(iv) Availability of suitable family member as trustee

The availability of a member of P's family who is able, willing and suitable to act as trustee at all must be a virtual pre-condition to the proposal of a trust rather than a deputyship.

The appointment solely of professionals as trustees rather than deputies would, in itself, carry no apparent advantage over deputyship, and has the disadvantage of the reduced control over trustees which exists (see below) even without any likelihood of misfeasance. In the case of a trust for competent adults, the beneficiaries can, and in all likelihood will, monitor the fees and conduct of trustees and, if necessary, ask questions or apply to the court. In the case of a beneficiary lacking capacity, that safeguard is absent. That is why such protection is provided by the scheme of deputyship itself. It is therefore difficult to see how there could be any sufficient justification for foregoing this protection unless there were, at least, a competent lay trustee able to provide that kind of scrutiny. However, I put this more as a pre-condition for considering authorising a settlement at all in the first place, because on its own it would seem to confer no greater advantage for P than can be achieved by appointing joint deputies.

(b) Statutory considerations

(v) Which is the less restrictive option for P?

It is a statutory requirement to consider this point (see s.1(6) of the 2005 Act). However, as regards the decision whether P's affairs should be administered through a deputy or through a trust, it seems to me to become almost entirely theoretical.

In fact, Mr Rees and Mr Heapy were each able to argue that his preferred solution was the less restrictive. In favour of deputyship, Mr Rees argued that because a deputy acts directly under the authority of the Court of Protection and draws his authority from a court order, deputyship is the less restrictive of P's rights and freedom of action because all decisions made on his behalf would necessarily respect these, under the principles of the 2005 Act. The trustees of a settlement, in contrast, would draw their authority from the terms of the instrument, and whilst it was possible to frame these in such a way as still to give the court a suitable degree of control over the trustees, this did not detract from the fundamental fact that by settling P's assets the court would be handing these to a third party to manage, outside the safeguards of deputyship applied by the 2005 Act. This, he submitted, made a settlement the more restrictive option for P.

He further submitted that to make a settlement on irrevocable terms – a course which he submitted elsewhere (see below) could probably never be justified as being in P's best interests as a matter of principle - would plainly be more restrictive than appointing a deputy. I accept this, although it seems to me to illustrate that it is the individual terms of any proposed scheme, whether a deputyship order or an instrument of trust, which need to be considered.

Mr Heapy argued first (and practically) that where P is unable to make decisions, both courses are, in reality, equally restrictive of P insofar as they are restrictive at all. His argument that a trust was in fact less restrictive in this case rested mainly on the fact that if a deputy were appointed, and if, when HM reached 18, she did in fact have capacity to manage her own funds, it would be necessary to apply to the court for the deputy's discharge, whereas if those funds were settled appropriately, no such application would be necessary; the trustees could simply transfer the property out of the trust, or, more likely (in order to retain protection for any benefits by keeping the trust alive – see below) HM would simply appoint herself trustee. I accept this, but it seems to me to be a very small point in the overall picture.

These arguments therefore seem to me to be theoretical points rather than practical ones and largely demonstrate that broad pronouncements of principle do not provide much assistance where they are focused on the different nature of deputyship and trusts. At best they could only give a possible steer, and in this instance they do not seem to me to do so. It is the effect of the detail of any proposal which is ultimately material, and this is properly approached by considering individual points and weighing up their combined effect overall.

(vi) The views of P's carers and those interested in P's welfare.

This is, again, a statutorily required consideration: see s.4(7)(b) of the 2005 Act. However, assessing the weight to be given to any such views must be done in context. As an obvious example, the home-help is hardly likely to have worthwhile views on whether P's assets should be administered by a trustee or a deputy.

It is more than likely that, as in this case, it is a potential candidate as trustee under a proposed settlement who will be expressing views in favour of creating it, and of this being in P's best interests. The court will therefore have to consider the weight to be given to any such expressed opinion very carefully, especially if any potential conflict of interest may come into play.

The ultimate aim is to decide what is in P's best interests, and in this regard there seem to me to be three reasons for the statute's directing the enquiries laid down in s.4(7).

First this is expressly a means of trying to ascertain P's own likely wishes, as part of the general principle of ensuring respect for P's right to autonomy so far as practical. In the case of a child and a decision of this nature, that is unlikely to be a factor of much weight.

Second, it is a means of obtaining evidence which may directly assist in forming a view of what is in P's best interests. This is because the persons in question will themselves have deeper and broader knowledge of P and of circumstances on which to base their own expressed view, such that this can be of some assistance.

Third, and more subtly, there is the indirect consideration that since those concerned with caring for P are likely to be involved in operating the regime fixed for P and making it work to P's best advantage, it is sensible, if only as a matter of psychology, to consult them, and assess the possible impact their views may have for P in practical terms.

(c) Protections of P and his assets

(vii) The differences between trustees and deputies (duties)

The point here is the underlying difference in the respective functions of trustees and deputies, even though, at a practical level, they have the same general objective. A deputy has the duty of acting in P's best interests directly imposed upon him under the statute. Trustees of a settlement, by contrast, have a fiduciary duty to manage the trust assets properly in accordance with the terms and objects of the trust. Their discretions will usually be exercisable for the "benefit" of the stipulated beneficiary (ie P), but this is not directly equivalent to a duty to act in P's best interests. Acting for P's "benefit" is arguably a wider concept, and may well be less clear cut.

Once again, considered at the level of general principle this point may not appear likely to have great, let alone decisive, impact on the question under consideration, but it ought not to be overlooked. However, in any particular case it would seem likely that it could be dealt with by suitably tight drafting of the trust in question, if it were material.

Both trustees and deputies are under a duty to keep accounts. Deputies can and will be obliged to produce these for the OPG or the Court. In the case of a trust, the duty will be enforced only if someone is prompted to take the point, but, again, this duty can be written into a trust deed if appropriate. The costs of preparing accounts would seem to be comparable for both.

(viii) Supervision

This is again a protection point for P, and in principle a very important one. A deputy is subject to supervision by the OPG under its statutory obligation (s.58 of the 2005 Act). A deputy may also be subject to a report by a Court of Protection Visitor. Trustees, on the other hand, are subject to supervision only by each other on a day to day basis. Although they are ultimately subject to the jurisdiction of the High Court, any supervision by that court depends on the matter being brought to its attention.

Quality and extent of supervision are, of course, hugely important, and once again this may need to be considered according to the particular circumstances. It is the OPG, and not the Court of Protection, which assesses the required level of supervision, and whilst supervision of a deputy is required by law, it is naturally only as good as the resources which are devoted to it. It must be a matter of regret that recent imperatives to cut administrative expenses may result in the amount of supervisory contact being reduced.

As between trustees, the efficacy of the internal supervision, ie trustees monitoring each other, will depend on the quality and personality of the individual trustees and the dynamics between them. A strong and articulate lay trustee may well have a forceful effect in "supervising" a professional trustee.

In the final event, P can be protected by the Court of Protection in either case, in that that court can remove the deputy pursuant to s.16(8) of the 2005 Act, and provided that the power to remove a trustee is vested in P by the trust instrument (as it should be in a well-drawn instrument) the court will also be able to exercise that power on P's behalf under a trust. Again, if the power of revocation remains vested in P, the court can, ultimately, revoke the settlement.

The tests for removal of a deputy and removal of a trustee are not identical. The court can remove a deputy if (in short) he behaves, or is likely to behave, in a way which contravenes his authority or is not in P's best interests (s16(8)). The power of a court to remove a trustee is exercisable for the benefit of the beneficiaries and the competent administration of the trust on their behalf, (and can therefore be invoked in appropriate cases of loss of confidence) whether under the power usually inserted in a trust instrument or under the court's inherent power. There is unlikely to be any practical difference in the case of a trust but these points reinforce the need to preserve such powers as basic safeguards. They ought always to be included in a way which retains the control of the court (here, the Court of Protection) in any proposed trust.

This ultimate safeguard is therefore effectively the same for each form of administration, and it would not in practice necessarily require the additional intervention of the Chancery Division of the High Court (or the County Court in the unlikely event that there were a trust of a fund falling below the equity jurisdiction limit, currently £30,000).

Thus, in my judgment, the automatic supervision provided by the deputyship regime is a good reason to prefer deputyship over trust. In any event, it would not be appropriate to authorise any proposed trust which did not retain ultimate powers of supervision and control in the hands of the Court of Protection (power to appoint and remove trustees and power to revoke), as such a transfer of control away from the court could never, in my judgment, be in P's best interests.

(ix) The degree of protection afforded to P;

This falls into two distinct parts. The first is the extraneous protection which P may have under either regime; the second is the internal protection give to P by limitations either written into a deputyship order, or imposed by restrictive drafting in the provisions of the trust instrument itself.

(a) Extraneous protections

A solicitor who acts either as a professional deputy or as trustee will carry professional indemnity insurance covering his activities in this respect, as a professional requirement. This will protect P against both negligent and deliberate default (short perhaps of actual fraud) by that professional. The position of other professionals is not as clear as that of solicitors, and a lay deputy or trustee is most unlikely to carry indemnity insurance - although default by a lay trustee or deputy may well give rise to a cause of action (for example for negligent supervision) against a professional co-trustee or co-deputy.

A deputy appointed by the court will be required to put in place a security bond in accordance with relevant Regulations. A bond is payable on demand, and, except in unusual cases, the level of security will be fixed by the Court so as to provide P either with sufficient funds to remedy any potential loss suffered by default in itself, or to provide enough immediate funds to cover the time needed to process an insurance claim.

This is a valuable safeguard for P in the deputyship context. It is not normally available under a trust, although one can envisage the possibility of writing such a requirement into a trust deed if necessary and if an insurer could be found who would be willing to cover such a risk. However, simply making a settlement provide the equivalent of a deputyship order does not justify authorising the settlement rather than deputyship, as there must be some sufficiently worthwhile advantage to P to justify departing from the normal regime.

The strongly entrenched financial protection for P provided by deputyship is therefore, once again, a very strong reason to prefer deputyship over trust.

(b) Internal protections

"Internal" protection for P is provided by the terms under which either a deputy or a trustee is appointed.

It is now commonplace for advantage to be taken of the flexibility of the powers which can be conferred on deputies under the 2005 Act (ss 16(5) and 18)) and of the Court's ability to limit the assets over which a deputy is given powers, so as to minimise the risk to P of default or negligence in any particular case: see Baker v H 2010 1 WLR 1103 at [61]-[63]. The price of such restrictions is the greater possible need for applications to the court for further authority at a later date. However, the best balance between flexibility and risk will be assessed by the court when formulating an appropriate deputyship order.

With regard to a trust, similar limitations to those which can be imposed through a deputyship order can be created. The protections afforded to P by the terms of the proposed trust deed will therefore be a very material point.

Some aspects have already been touched on. Mr Rees submitted, (and I accept) that the bare minimum for a trust to start to qualify as an acceptable alternative to deputyship should be the following:

(1) The trust should either be a bare trust, or one which provides for the accumulation of income (so as to satisfy s.89 of the Inheritance Tax Act 1984) where appropriate, and it should not permit any other person to benefit from the trust property during P's lifetime. Using P's assets to benefit others would raise other, and separate, issues.

(2) The trust should be revocable, so as to enable the Court of Protection to preserve ultimate control over the trustees, and enable P to recover his property if he regains capacity. The power of revocation should be expressed to be vested in P as this will enable the Court of Protection to exercise it on his behalf under s.18(1)(j) of the 2005 Act (although tax implications might need to be considered in the case of a s.89 trust).

(3) The composition of the trusteeship should be carefully considered. The court would probably take the view that there should at all times be a professional trustee, because of the protections this gives P against possible family abuse and through professional indemnity insurance against default. To safeguard this, restrictions on the powers of surviving trustees pending a replacement of a deceased professional trustee might well be appropriate. Equally, there may well also be a case for ensuring that there was always a lay trustee, as a means of promoting costs control (see below).

(4) The trust should provide that on P's death the capital reverts to his estate or is subject to an overriding testamentary power of appointment exercisable by P, so as to ensure appropriate future disposition.

(5) S.31 of the Trustee Act 1925 should be excluded, to ensure that it is indeed a bare trust.

(6) Whilst it may be apparently useful to provide for an extended power of advancement (cf s.32 of the Trustee Act 1925), and this is a power often incorporated into bare personal injury trusts, this should be carefully considered (although tax considerations may prevent its extension in the case of a s.89 trust). The danger of such an extended power is that it could be used to resettle trust property onto other trusts, unless circumscribed, eg by making the power exercisable only with P's consent, which would, in effect, mean that of the Court of Protection.

The effect of these restrictions will, once again, reduce the distinctions between trust and deputyship, in particular by subjecting both to similar Court of Protection control. Once again, therefore, whilst this may be a minimum requirement to remove disadvantages as against deputyship, including such terms would not suffice on its own; more would be required in order to show that there was a sufficiently worthwhile advantage to P, rather than merely no apparent disadvantage.

(d) Financial considerations

(x) Tax considerations.

Obviously this could be an extremely important consideration in any particular case, and possibly even a "magnetic" one, but detailed tax consideration is outside the scope of general guidance. Neither the creation of a bare trust nor the appointment of a deputy should make any difference to the tax treatment of P's assets. However, the creation of a more sophisticated trust could do so upon creation and during its continuance (eg, a decennial charge to Inheritance Tax can arise with certain types of trust) and could give rise to further tax charges if it should need to be dismantled.

One possible form of trust which might be contemplated would be a Disabled Persons' Trust, formulated to take advantage of the Inheritance Tax treatment given by ss 89, 89A and 89B of the Inheritance Tax Act 1984 to trusts for disabled persons (which include persons who suffer from a mental disorder according to the definition in the Mental Health Act 1983). The provisions and effects of such a trust on all aspects of taxation are complicated and can only be considered in regard to individual circumstances. This is, therefore, noted simply as an illustrative possibility.

Both deputies and trustees are obliged to file tax returns. Where there is a settlement other than a bare trust, and P has other sources of income outside it, then it may be necessary to file two returns, at additional expense. This will not arise in a deputyship case, as the deputy will be the only party controlling all P's property and affairs.

The strength of advantages and disadvantages of tax and related considerations for P will therefore be individual to each case.

(xi) Means-tested benefits considerations;

A reason often put forward for creating a personal injury trust for P is that it will avoid P's personal injury damages being taken into account in the assessment of means- tested benefits. However, this view appears to be misplaced.

Under the Income Support (General) Regulations 1987 Sch 10, the following capital is disregarded for the purposes of assessing entitlement to means-tested benefits:

(1) Paragraph 12: "Where the funds of a trust are derived from a payment in consequence of any personal injury to the claimant ... the value of the trust fund and the value of the right to receive any payment under that trust."

(2) Paragraph 44: "Any sum of capital [derived from an award of damages for a personal injury to the claimant]

(a) which is administered on behalf of a person by the High Court or County Court under rule 21.11(1) of the Civil Procedure Rules 1998 or by the Court of Protection; [or]

(b) which can only be disposed of by order or direction of any such court."

It is thus clear that property held either within a personal injury trust (Paragraph 12) or in the Court Funds Office or under the direct control of the Court of Protection (Paragraph 44) is disregarded for the purposes of calculating means-tested benefits. However, it has sometimes been suggested that property held by a deputy under a wide form deputyship order does not fall within these disregards, so that, for example, (see Miss Bradey's evidence) care needs to be taken to keep funds under the deputy's control below any exemption limit.

Both Mr Rees and Mr Heapy submit that this contention is not correct, and that capital under a deputy's control remains "administered" by the Court of Protection because the deputy's powers derive solely from an order of that court, and in any event the capital can only be disposed of by an order of the court. I think that this view would be correct, although I am not called upon to decide the point in this case. Even if the general point that the capital was still "administered" by the Court through a deputyship order could not be treated as clear without full argument, so long as the deputyship order contained the usual safeguard that any disposal of capital required a court order, that would appear to me to bring the case within Paragraph 44. The remedy here, therefore, lies in appropriate drafting of the deputyship order.

This point is, I think, sometimes urged as "playing safe". However, it does not seem to me that this is needed, and therefore, on the face of it, this is not a point which provides any sufficiently compelling reason for authorising a trust rather than appointing a deputy.

(xii) Comparative cost and expense

This is probably the most common reason for seeking a settlement rather than a deputyship.

I am here dealing with the general position, and not HM's particular case. Mr Rees submits that the conclusions which can be drawn from the evidence are that the contention that settlements produce a clear costs saving as against deputyship is not as strong as is often suggested. He submits that the evidence shows the following:

(1) Similar initial costs will be incurred by an applicant in applying for the appointment of a deputy, or the authorisation of a settlement;

(2) However, the Official Solicitor will usually be invited to represent P on the latter application (but not on the former) and so the initial cost of an application for a trust may actually be more expensive, even with the fee for the appointment of a deputy (currently £100) taken into account;

(3) On the other hand, the use of a deputyship will also result in an annual supervision fee payable to the OPG (formerly up to £800 pa, but since 1^st October 2011, evened out at £320 in anything but "minimal" cases (£35) which the present case is not going to be) and an annual security bond premium, according to the amount of cover. A settlement will avoid these costs – although of course at the cost of removing the protection afforded to P;

(4) Aside from these disbursements, the overall cost of running a deputyship and a settlement may not be very different. Where the deputy has been given wide powers within the order appointing him, the need for (and costs of) future applications to the court will be similar under either a deputyship or a trust.