England and Wales Court of Protection Decisions

COURT OF PROTECTION

		First Avenue House 42-49 High Holborn, London WC1V 6NP
		20 March 2014

Senior Judge Lush:

Children's estates

1. This is an application for a gift to be made from the damages award of an eleven-year-old boy.
2. Generally speaking, the Mental Capacity Act 2005 applies only to persons aged 16 and over: section 2(5).
3. However, section 18(3), which follows the convention in the Act of referring to a person who lacks capacity to make a particular decision at a particular time as 'P', provides that:

"The powers under section 16 … relating to P's property and affairs may be exercised even though P has not reached 16, if the court considers it likely that P will still lack capacity to make decisions in respect of that matter when he reaches 18."

4. The purpose of section 18(3) is to enable the Court of Protection to appoint a deputy who can take a long-term view where a child has been awarded substantial compensation for personal injury or clinical negligence and it is unlikely that the child will have the capacity to manage the award when they attain adulthood.

The facts

5. AK was born in October 2002 and lives in Essex with his parents and older sister.
6. His father is a self-employed taxi driver and his mother is his primary carer.
7. He has cerebral palsy as a result of a prolonged period of hypoxia at the time of his birth.
8. Acting by his mother as his litigation friend, he sued the local NHS Trust for clinical negligence.
9. On 2009 a High Court judge approved settlement of the claim on the basis that AK would receive a lump sum payment of £1,050,000 plus the following index-linked periodical payments:

(a) £140,000 a year until 15 December 2010;

(b) £155,000 a year thereafter until 15 December 2015;

(c) £175,000 a year thereafter until 15 December 2020; and

(d) £200,000 a year thereafter for the rest of his life.

10. These damages were calculated on the basis that it is unlikely that AK will live beyond the age of 15.
11. In a report dated 3 April 2006 Dr Richard Newton, a consultant paediatric neurologist, said:

"AK is in the group with severe motor and cognitive disability and normal birth weight and is probably somewhere between those with no disability will survive into their 30s, whereas half those with a visual disability die by the time they are 15 years or so. It can be seen from these data how dependent the predications are on the level of visual function and I would suggest as a means of attaining a more accurate prediction an expert assessment is made of AK's vision as time goes by.

For the moment we have to look at the predictions of Pharoah and Hutton which should give AK a mean life expectancy to the age of about 15 years and Strauss and Shavelle to the age of about 10 years. Given AK's overall state of nourishment and general state of health I would suggest the 15 year prediction is more accurate. However, I would strongly recommend that a further assessment is made in 4 or 5 years time."

12. No further medical evidence has been obtained and, although it is unlikely that AK's condition has improved dramatically, it is regrettable that there is not an up-to-date assessment of life expectancy.
13. His estate consists of:

	£
The family home in Essex	777,000
An investment portfolio	322,000
Deputyship account	212,156
	£1,311,156

14. At present his annual income is £159,366.20 and his annual expenditure is £64,002.49, which leaves him with surplus income of £95,363.71 a year.
15. The reason why he has so much surplus income is that currently his care is provided mostly by AK's mother gratuitously or at a much lower cost than envisaged when the claim was settled. This situation could change.

The application

16. On 6 February 2009 the Court of Protection made an order appointing Julia Lomas of Irwin Mitchell Solicitors as AK's deputy for property and affairs.
17. On 4 November 2013 Ms Lomas applied to the court for the following order:

"I am asking the court to make an order gifting AK's parents £150,000 towards the building of a property in Pakistan suitably adapted for AK's complex needs."

18. The application was accompanied by a witness statement, in which Ms Lomas, having recited many of the facts set out above, commented as follows:

"AK and his family are Pakistani. They retain the majority of their family in Pakistan and have recently visited for approximately 4 months. Both his mother and father have purchased land in Pakistan with the intention of building a family home near to their extended family. They have requested £150,000 as a contribution to the property being built so it is suitably adapted for AK. This would require making all of the rooms wheelchair accessible and providing lifts and/or hoists so AK can reach the first floor.

I feel a gift towards this property is a more practical approach given the difficulty of obtaining receipts for all the works to be carried out in Pakistan. In addition, these receipts and invoices would need to be translated from Urdu to English, which is a further expense.

I am concerned that obtaining receipts and/or invoices for every piece of expenditure in relation to this property whilst in Pakistan is unrealistic. It is not a custom shared with the UK and both his parents fear it will bring unnecessary attention to the property.

AK benefits from the climate in Pakistan. Given his tendency for respiratory conditions to develop when in damp climates, he remained in good health whilst in Pakistan and was more comfortable with the temperature, his family and his surroundings.

Furthermore, allowing for this property to be built and suitable for AK will have long term financial benefits. It is anticipated that the family will spend approximately 6 months per year at the property in Pakistan. This means the current expenditure on agency care will decrease dramatically as there are more family members available in Pakistan to supplement the care. In addition, if privately funded care is needed this is much cheaper than in the UK. His mother used a private carer for a brief period when recently in Pakistan with AK and was very pleased with the quality of care. Ultimately, AK will be spending less annually and accumulating a larger overall surplus of assets.

As this property will be in the name of AK's parents, he will inherit this property as a beneficiary under the terms of their will should they die. This serves as further benefit to the initial gift of £150,000 being made for the production of the proposed property.

Lastly, AK was estimated a life expectancy which does not greatly exceed 20 years of age. Considering this property allows for AK to experience a better quality of life with his family, which is affordable, I submit this is in his best interests."

19. In accordance with the court's usual procedure in any application for a substantial lifetime gift, I made an order joining AK as a party to the proceedings and invited the Official Solicitor to act as his litigation friend. I also set down a timetable for the filing of evidence and listed the matter for an attended hearing.

The Official Solicitor's position statement

20. The Official Solicitor instructed Justin Holmes of counsel to advise him on this application and, in a position statement filed a few days before the hearing, Mr Holmes said as follows:

"The Official Solicitor is not satisfied that the deputy has properly considered all of the ways in which AK might contribute to the purchase or adaptation of a home for himself and his family in Pakistan by way of an investment for AK, rather than simply a gift to AK's parents. It might be possible (for example) for AK to purchase either the relevant land or an interest in that land, and thus provide funds for the construction of the property whilst ensuring that AK is left with a valuable asset. If that is possible and reasonably practicable, the Official Solicitor's view is that that is how AK should contribute to the construction or adaptation of the house.

If the purchase of an interest in land or part of it is not possible or reasonably practicable, then a gift should be authorised. 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 Official Solicitor considers that the deputy should, before making any gift, obtain from AK's parents detailed and costed proposals for the work to be undertaken and how that work is to be funded, and to consider that evidence when deciding what sum up to a maximum of £150,000 AK should give."

21. The hearing took place on Wednesday, 12 March 2014, and was attended by Julia Lomas and Justin Holmes.

The law relating to gifts

22. Paragraph 2(c) of the order appointing Ms Lomas as AK's deputy provides that:

"The deputy may (without obtaining any further authority from the court) dispose of money or property of AK by way of gift to any charity to which he made or might have been expected to make gifts and on customary occasions to persons who are related to or connected with him, provided that the value of each such gift is not unreasonable having regard to all the circumstances and, in particular, the size of his estate."

23. This is a standard clause in most deputyship orders, and the intention is that deputies for property and affairs should have the same powers to make gifts as attorneys acting under a Lasting Power of Attorney or Enduring Power of Attorney.
24. Any gift outside those parameters has to be approved by the Court of Protection, and section 18(1)(b) of the Mental Capacity Act 2005 confers on the court the power to make orders regarding "the sale, exchange, charging, gift or other disposition of P's property."
25. Section 1(5) of the Act states as a general principle that "an act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done, or made, in his best interests."
26. 'Best interests' is not defined in the Act, but section 4 provides a checklist of the factors that anyone doing the act or making the decision must consider when deciding what is in P's best interests.
27. As is often the case when someone 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 substituted judgment.
28. 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)).

29. In order to establish whether the proposed gift to his parents is in AK's best interests, it may be helpful to apply a 'balance-sheet' approach, setting out the advantages and disadvantages of the proposal.
30. The advantages are as follows:

(a) AK currently benefits from travelling to Pakistan and spending several months there each year there 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.

31. The disadvantages, as Mr Holmes pointed out in his position statement, are as follows:

(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.

32. It is also important to exercise caution and prudence when applying AK's funds, because we cannot predict with any certainty what may happen over the next few years. For example:

(a) Either of AK's parents could predecease him or become physically incapable of looking after him as a result of an 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 than he currently requires.

(f) AK may outlive Dr Newton's expectations, and need every penny he can get.

33. On the other hand, if AK's life expectancy is only 15, as Dr Newton originally predicted, then time is of the essence and it is essential that these works are carried out without further delay, and this includes avoiding any delay caused by obtaining:

(a) an up-to-date assessment of his life expectancy;

(b) detailed costings of the adaptations; and

(c) legal advice on the acquisition of a beneficial interest in land in Pakistan by or on behalf of a minor.

Decision

34. This case is quite different from Re JDS: KGS v JDS [2012] EWHC 302 COP, in which I dismissed an application for a gift to the parents of a young man who had been awarded damages for clinical negligence on the basis that reducing the amount of inheritance tax payable on his death was not a purpose for which the award was intended.
35. 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.
36. I have decided that it is in AK's best interests to allow the transaction to proceed by way of an interest free loan of £150,000 to his parents rather than as an outright gift.
37. In my view, a loan is preferable to an outright gift because:

(a) AK will retain the capital as part of his estate; and

(b) it is more likely to ensure that his parents comply with the purpose for which the loan is intended.

38. The loan shall be repayable over ten years at a rate of £15,000 a year and I leave it to Julia Lomas to draw up an appropriate loan agreement, on which AK's parents should be advised to obtain independent legal advice.
39. Until further order I also authorise the deputy to make annual gifts of £15,000 to AK's parents, if there is sufficient income surplus to his requirements in each accounting period, to assist them in repaying this loan.
40. Although inheritance tax saving was neither a consideration in the application nor in my decision, I anticipate that the annual gifts of £15,000 will fall within with the normal expenditure out of income exemption contained in section 21 of the Inheritance Tax Act 1984 on the basis that they:

(a) form part of AK's normal expenditure;

(b) are made out of his income; and

(c) leave him with enough income to maintain his usual standard of living.

41. The potential complexities of the laws in Pakistan relating to the acquisition of a beneficial interest in land on his behalf are, in any event, outweighed by the fact that the proposed adaptations are likely to diminish, rather than enhance, the resale value of the property.
42. I accept Ms Lomas's concerns about the practicalities of obtaining evidence relating to the expenditure on the adaptations and I leave it to her to satisfy herself that the building works are actually being carried out.