Her Honour Judge Hazel Marshall QC by asafwewe

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									Her Honour Judge Hazel Marshall QC

1.   This is an application made by Mr Niall David Baker, as the property and affairs
     deputy of H, an 8 year old child and the protected person, for a reconsideration of
     the level of security which he was ordered to post by an Order of DJ Jackson
     made on 25th June 2008.     Having appointed Mr Baker as property and affairs
     deputy for H she directed him to


                “obtain and maintain security in the sum of £750,000 in accordance
                with the standard requirements for the giving of security.”

     Mr Baker seeks reconsideration of this order under r. 89 of the Court of Protection
     Rules 2007.     He contends that security of this level is unnecessary and excessive
     in the circumstances of the case, and causes unnecessary costs to be borne by H’s
     estate.


2.   The application raises questions about the appropriate approach of the Court of
     Protection when fixing the level of the security bonds required from deputies,
     under the new scheme of the Mental Capacity Act 2005 (“the Act”).


3.   The amounts of security ordered have become a cause of concern to professionals
     in this field, including Mr Baker who is a specialist professional deputy with some
     18 years’ experience. By an order of Senior Judge Lush made on 12th November
     2008, it was directed that this reconsideration should be referred to me. (There is
     no requirement that reconsideration must be before the judge who made the
     original order.)    Because of interest in the matter, and the absence of recorded
     authority, this application has been treated as a test case.


4.   The Official Solicitor was therefore requested, subject to his consent, to act as
     litigation friend for H for the hearing, and also to act as amicus curiae. This he
     has consented to do, having concluded that there was no conflict for him in these
     two roles. He has appeared today by Mr David Rees of Counsel. Mr Baker has
     been represented by Miss Barbara Rich of Counsel.
The facts in more detail
5.    H was born on 18th January 2001. Sadly, he suffered serious brain injury as a
      result of mismanagement of his birth. He has severe dystonic quadriplegic
      cerebral palsy and is unable to move or support himself unassisted. He has
      problems with his hearing and sight, and requires 24 hour care. He lives with and
      is cared for by his parents.


6.    A claim was made on H’s behalf against the local NHS Trust. In anticipation of
      a structured settlement, to include a very substantial lump sum payment, Mr Baker
      was appointed receiver for H by a First General Extended Order dated 6th June
      2007, made under Part VII of the Mental Health Act 1983.       This appointment
      was in standard terms at the time, and gave Mr Baker wide general powers to
      manage H’s funds, for the benefit of him, and his family and anyone else for
      whom H might be expected to provide, but subject to a long list of excepted acts
      for which express authority from the court would be needed.


7.    By a letter of 13th June 2007, the Court of Protection exercised its then power to
      set security, and did so in the sum of £15,000. This could be provided at an
      annual premium of £47.50.


8.    When the Mental Capacity Act 2004 came into effect on 1st October 2007, Mr
      Baker’s appointment was automatically converted to that of deputy, with the same
      powers as under the former receivership (see Schedule 5 Para 1 of the Act).


9.    On 27th November 2007, there was a settlement under which H received a lump
      sum of £1,211,714 and annual periodical payments commencing at £25,000, rising
      to £32,000 at age 11 and £85,000 at age 18.


10.   By an application made in May 2008, Mr Baker sought a formal deputyship order
      to replace the existing order, and permission to apply £819,274 out of H’s capital
      to purchase a property to be held in the names of his parents as Trustees. This
      was to secure an appropriate house for H, with subsequent arrangements to be
      made to replace at least part of H’s capital when the then family house could be
      sold. This is the application which gave rise to the order under review.
11.   On 25th June 2008, DJ Jackson made an order without a hearing appointing Mr
      Baker as deputy. The main terms of the order provided


         “2(a) The court confers general authority on the deputy to take possession or
         control of the property and affairs of [H] and to exercise the same powers of
         management and investment as he has as the beneficial owner, subject to the
         terms and conditions set out in this order.”

      Paragraph 2(b) provided a similar authority to the deputy as before, to provide for
      the needs of other persons connected with H if H might have been reasonably
      expected to do so. Paragraph 2(c) expressly authorised the making on H’s behalf
      of reasonable gifts to charity or persons such as relatives. Paragraphs 2(d) and
      (e) authorised the purchase of the new house.


12.   The house purchase was completed in the names of H’s parents as Trustees on 2nd
      September 2008, A Deed of Trust confirming that the property was held on a
      bare trust for H was executed by them on 20th August 2008, and the usual
      restriction on dispositions by one of two joint owners without an order of the
      court, and a further restriction on any disposition during H’s life without an order
      of the Court of Protection, were each placed on the register of title.


13.   Returning to the Order of 25th June 2008, paragraph 6 provided that


         “The deputy is required forthwith to obtain and maintain security in the sum of
         £750,000 in accordance with the standard requirements as to the giving of
         security.”

14.   The annual premium for Mr Baker to post security of £750,000 under the standard
      MasterBond scheme is £1,875.00 pa.       Comparison with the previous premium of
      £47.50, in respect of £15,000 security, immediately illustrates why this issue has
      been causing concern amongst the profession.


15.   In the present case this is more acute because the damages settlement agreed on
      behalf of H had included an estimate for the anticipated costs of providing
      security under the new regime, but this was only £765 pa, which would provide
      security of £300,000.


16.   Mr Baker makes two main points. The first is the general one that the level of
      security ordered is way above the amount of the funds to which he has effective
      access – some £445,000 of capital, and only £25,000 a year of income. The
      second is that, as a solicitor and partner in the large specialist firm of Irwin
      Mitchell, he has professional indemnity cover set at many times the value of H’s
      whole estate (in fact £105M per claim) and he also has 18 years of experience in
      this field, holding many professional receiverships and deputyships, and has never
      had any claim made against him.      All these points show, he submits that security
      of £750,000 is excessive, unnecessary and wasteful.


17.   In addition, to show how this problem is more widespread, he has referred to two
      cases involving lay deputies who have been ordered to give security of the whole
      value of the estate (respectively £750,000 and £1M) when the deputyship orders
      under which they operate restrict their access to funds of £60,000 in any one year.


This hearing
18.   This hearing is not an appeal, but a reconsideration of the Order of DJ Jackson,
      under Rule 89 of the Court of Protection Rules 2007 (“CoPR 2007”).          It is
      therefore a hearing at which the matter is considered afresh.      There is no
      presumption in favour of the order initially made, and the applicant does not have
      to demonstrate that the District Judge erred in any way when making the order, as
      would be necessary on an appeal.


19.   I am not, therefore, concerned with the District Judge’s reasons for making the
      order which she did. Having said that, it is only common sense that on any
      reconsideration it may be useful to know the reasons why the judge made the
      initial order. This is not because the decision carries weight in itself, but because
      the reasons for it may draw attention to matters which ought to be taken into
      account at the reconsideration hearing, just as they were taken into account
      originally.    The result may be different because either argument, or the
      production of further factual material at the reconsideration, brings about a
      different conclusion. However, it must be emphasised that the hearing is an
      entirely fresh one, and the point is simply that all relevant material which is
      available should be before the court.


20.   In fact, in this case, there is nothing on the file to show how or why the District
      Judge arrived at the figure of £750,000, although it appears from a draft order that
      she was initially minded to order £500,000, but then changed her mind and
      increased the sum. There is therefore no assistance or information to be derived
      from her decision, and I can, and do, approach this matter entirely anew.

21.   To do so, I shall first look at the law and something of the history and past
      practice in this field, so as to show how the present situation has come about,
      before turning to the evidence.   Because this is seen as a test case, the parties
      have very helpfully sought to provide me with as much general information as
      possible. Mr Baker has made two witness statements         Mr Clive Lissaman,
      senior manager of Legal & Protection Services with HSBC Insurance Brokers
      Limited, has made a very full statement explaining the standard scheme for
      providing security bonds for deputies, which has been set up in consultation with
      the Office of the Public Guardian (“OPG”). Mr Andrew Darby of the Solicitors’
      Regulatory Authority has given a witness statement explaining the terms and
      features of compulsory solicitors’ professional indemnity insurance, and how
      these operate in the case of a solicitor deputy such as Mr Baker. Their evidence
      has been of very great assistance. After referring to it I shall consider the general
      risk considerations relevant to fixing an appropriate level of security, and suggest
      how these might be approached in practice. Finally, I shall consider how, in my
      judgment, these apply in the case of H.


The present law
22.   Section 16 of the Act contains the general powers of the Court of Protection to
      appoint a deputy to take decisions on behalf of a mentally incapacitated person
      (“P”) in respect of his property and affairs (see s. 16(2)(b)). Sub-sections 16(5)
      and (6), and s. 18 of the Act confirm the very great breadth of the Court’s
      discretion to confer any such powers and impose any such duties on the deputy as
      it thinks necessary or expedient in the particular case, and to do so on terms of its
      own devising, with or without an application to that effect.


23.   By s. 16(3) this general power is made subject to the terms of the Act and
      expressly to the general principles of s. 1 of the Act, and the overarching
      requirement that every decision being made “for or on behalf of” P must be made
      “in his best interests” (see s. 1(5)). Guidance as to this is set out in s. 4 of the
      Act; I do not need to recite these well known provisions.


24.   Section 19 deals with the basic terms for a deputy’s appointment. Section 19(8)
      makes clear that the court may give a deputy power to take possession of all or
      any part of P’s property, and to exercise all, or any particular, powers in respect of
      it, including any investment powers which the court may determine. Section 20,
      however, lays down some fundamental restrictions. Apart from general points
      reinforcing the principles of the Act in ss. 1 and 4, it is specifically provided that a
      deputy may not be given power to make a settlement or a will for P, or to exercise
      a power conferred on P: see s. 20(4).     Otherwise, however, the deputy can be
      given all the powers of a beneficial owner, in respect of P’s entire estate.


25.   Section 19(9) deals with the giving of security. Under it, the court may require a
      deputy

          “(a) to give to the Public Guardian such security as the court thinks fit for
          the due discharge of his functions….”

      By s.58 of the Act the receiving of such security is one of the functions of the
      Public Guardian.


26.   Rule 200 of the CoPR 2007 lays down more detail as to the time and manner of
      giving of security.   Confirming the court’s general discretion, it provides (see r.
      200 (4) and (5)) that that the usual means of giving security is by way of a bond
      endorsed by an authorised insurance company or deposit taker, as provided in
      Regulations 33(2)(a) and 34 of the snappily entitled Lasting Powers of Attorney,
      Enduring Powers of Attorney and Public Guardian Regulations 2007 (“the PG
      Regulations 2007”). However, the court is able to direct that security be given in
      some other manner: see r. 33(2)(b).


27.   There is no further direction or guidance as to assessing an appropriate level of
      security anywhere in the Act, the Code of Practice made under s 41 of the Act, the
      CoPR 2007 or the PG Regulations 2007.          Since there is no requirement for an
      attorney to give security, there is no analogy from that field to provide assistance.
      The level of security to be fixed is therefore entirely at large, in the discretion of
      the judge of the Court of Protection.


Previous practice
28.   The position was similar under the Mental Health Act 1983. Section 107 (1) of
      that Act, and rules 56 and 57 of the Court of Protection Rules 2001, made
      provision for the giving of security by receivers. The security was simply to be
      such “as the court may approve” (see r. 56(a)). Whilst r. 57 gave more examples
      of acceptable forms of security than does r. 32(2) (a) of the PG Regulations 2007,
      it was to similar effect. Thus again, the level of security was totally in the court’s
      discretion.   However, a customary body of practice had developed over time,
      and it is the changes from this with regard to levels of security ordered under the
      new Act which have brought about current disquiet. Without going into great
      detail, it is therefore worth noting the main points which have caused the apparent
      sea-change.


29.   As a matter of context, the general philosophy of the new Act regarding the
      management of the affairs of a person lacking capacity is emphatically that of
      “empowerment with safeguards”.        To achieve this, it has been enacted that
      capacity is to be viewed as decision-specific, and it has been sought to devise a
      system which maximises the rights of P to take decisions for himself where he can
      by facilitating his ability to do so, and having due respect for his likely wishes
      where he cannot, always subject to the overriding requirement that any decision
      made on his behalf must be made in his best interests.        Three consequences of
      this change of philosophy have had effect on the requirement to give security.
30.     First, under the previous practice, receivership orders were largely standardised.
        Forms such as the Extended First General Order (such as that made in this case on
        6th June 2007) had been devised and refined over the years. The new philosophy
        suggests, however, that a far more individual approach is appropriate and that
        orders should be individually crafted to the situation. This will apply also to the
        consequent assessment of appropriate security.


31.     Second, the former jurisdiction to appoint a receiver in respect of the property of P
        started from a different standpoint, as the change of name to “deputy” indicates.
        The appointment of a receiver was an equitable remedy, devised to protect assets
        from jeopardy by empowering a responsible person to take control of them, and it
        is easy to see how this remedy came to be used in order to assist a mentally
        incapacitated person. As the law developed, a receiver’s powers were
        systematically extended for convenience, to enable him to take particular actions,
        or even to have full scale management powers. However, reflecting the way in
        which a receiver’s powers had built up from a narrow origin, orders frequently did
        not give the receiver access to P’s capital, but only to income drawn down from a
        fund held with the Court Funds Office.

32.     By contrast the current philosophy of the Act is one of enablement and of
        conferring power on the property and affairs deputy to act on P’s behalf (in
        accordance with the principles of the Act and the Code of Practice) where P
        cannot do so through lack of capacity 1 . Limitations are imposed for safeguards.
        Although, therefore, some orders under the two regimes may be similar in effect,
        it has become far more common than before for deputyship orders to place P’s


 1
      S. 16 (4) of the Act may appear to be at odds with this approach, referring, as it does to the

 “principles that
          (a) a decision by the court is to be preferred to the appointment of a deputy to make a
          decision, and that
          (b) the powers conferred on a deputy should be as limited in scope and duration as is
          reasonably practicable in the circumstances.”

 However, this is enacted in relation to the decision whether to appoint a deputy at all, and it appears to
 be aimed at the context of individual major “life decisions” on behalf of P, especially regarding health
 and welfare matters. It certainly sits somewhat awkwardly with the property and affairs deputyship
 jurisdiction, especially in relation to persons with a broad lack of capacity, through (for example), brain
 damage. However, the terms of s 18 make it clear that the exercise of very broad decision-making
 powers by a property and affairs deputy is readily contemplated.
      capital assets and resources under the control of the deputy. This change of
      emphasis in the two roles, and the greater shift of control and responsibility from
      the court to the deputy, has had the practical effect of both increasing the scope for
      default by a deputy and increasing awareness of this possibility.


33.   Third, one aim of the new Act was to recognise modern principles of human rights
      legislation, and therefore that all decisions impacting on P’s basic human right to
      run his affairs for himself ought to be taken by a fully judicial process. Under the
      old practice, the level of security was fixed by the Master of the Court of Protection,
      but this function was very often delegated to nominated Officers, as permitted under
      the previous constitution of the court.    It was sometimes done simply by letter.
      The results of this practice were understood and were fairly predictable, but it was
      informal and unstructured. Under the Act, the power to fix security became vested
      in the nominated judges of the Court of Protection, and in particular, the new
      District Judges. Thus the decision-making power passed to a new group of people,
      with a different background, applying a process of judicial evaluation, in the context
      of an entirely new philosophy under the Act.


34.   Under the old system, it had at one time not been considered necessary for a
      professional receiver to give security at all. Later, security was required, but set at
      relatively modest levels, because of the existence of professional indemnity insurance.
      The 12th Edition of Heywood & Massey on Court of Protection Practice - the last hard
      back edition (subsequently converted to loose-leaf) before the changes brought in by
      the Act - noted at page 50 that the amount of the “penalty”, as the bond sum was
      then called, was usually


          “such sum as will, with a reasonable margin, cover the gross amount passing
          through the hands of the receiver in the course of any year or, where the Master
          permits the receiver to account biennially, any two years”

      and that this would be adjusted appropriately where the receiver was authorised to
      carry on a business.       Because of the new approach of the Act, the learned authors
      did not think it appropriate to repeat this passage, or indeed to make any comments
      about appropriate security levels, in the latest edition of the work, written in April
      2008. They observed only that
         “There is currently some lack of consistency between cases in the amount of
         security being ordered by the court. It varies between about three times P’s
         annual care costs and about two thirds of the capital value of P’s estate. It is to
         be hoped that a standard practice will be adopted in the near future. Where a
         professional is appointed to act as a deputy, the existence of his professional
         indemnity cover may reduce the level of security required by the court.”


The evidence – available default protection
(a)   The standard security bond
35.   To facilitate the provision of security bonds, the Public Guardian has made an
      arrangement with HSBC Insurance Brokers Ltd (“HSBC”). A similar scheme
      operated before the 2005 Act came into force, but this was periodically reviewed.
      The present scheme was put into place as part of such a review but with special
      regard to the expected demand under the new Act. I am told that the aggregate
      requirement for security has exceeded expectations.


36.   HSBC administers the scheme, although the bonds are provided by Norwich Union,
      now Aviva. Aviva lays off some of its very high value risk (over £750,000) with
      reinsurers. Virtually all the security ordered in connection with the Public
      Guardian’s functions is provided under the scheme, although I believe it is possible
      that arrangements with other bond providers may be negotiated in the future.


37.   Mr Lissaman explains the workings of the bond in his evidence. It is not an ordinary
      form of insurance, but operates like a commercial “first demand” bond.         In other
      words, the premium buys a promise from a recognised bank or insurance company
      to pay up to the stated value of the bond upon a demand made in that respect in
      accordance with its terms, which usually require merely certification by the claimant
      that the conditions for payment have fallen in. In the case of a bond under this
      scheme, the promise is to pay the amount of any loss identified by the Public
      Guardian and certified by the court, up to the amount of the bond.


38.   A bond is thus a very powerful protective instrument. The money is paid over
      almost immediately upon a loss being discovered, and without argument. The
      scheme provides for payment of forfeited bonds within two weeks.        Any argument
      takes place between the bond provider and any party from whom it may have a right
      of recoupment, such as the defaulting deputy. The expense of taking action and the
      risk of non-recoupment are borne by the bond provider.


39.   The arrangements negotiated between HSBC and the Public Guardian have
      particular features and advantages. Because the bond is of almost universal
      application, its terms are standardised and this simplifies administration for both the
      OPG and the broker, thus saving costs.      Because of the bulk provision of bonds,
      the insurer can take a homogeneous view of risk, and the premiums charged in
      respect of lay and professional deputies are identical up to £1M, which is the limit of
      provision for a lay deputy.   Bonds of less than £500,000 are issued more or less
      routinely by HSBC, increasing speed and efficiency. Above that value, a proposal has
      to be put to Aviva, but bonds are normally issued within 48 hours of receipt of the
      form. Once given, the bond cannot be withdrawn without the permission of the
      court, so that P’s interests are protected even if the premiums are not paid.
      Premiums are adjusted only annually, and if the Court exercises its power to increase
      the security level at any time during the year, the premiums are notified to the deputy
      but not actually adjusted until the next review. At present the cover remains live for
      at least 7 years after the death of P without further premium, but this may be subject
      to review.


40.   Mr Lissaman’s evidence gives an idea of the scale of the scheme, which has been in
      operation since 1988. In May 2009 there were some 21,300 “live” bonds in place,
      and a further 25,600 historic bonds not yet discharged.    The total security being
      provided by the currently “live” bonds under the scheme was £1.502bn (but I
      emphasise that this is the aggregate amount of security, and not of the value of the
      estates in question).


41.   Roughly 6000 bonds per year are being issued and on average they remain live for
      4½ years.     Approximately 27% of all bonds are provided to professional deputies.
      There are some 1,900 solicitor appointments, from about 800 firms, but these firms
      range from sole practitioners to large firms, therefore with a far greater aggregation
      of risk in the latter. The largest such firm is in fact Mr Baker’s, which, in May 2009,
      had taken out 529 bonds to a total of £40.9M security. The default level since 1988
      has been only 180 bonds, with total claims of £2,139,000. Thus the total default is
      very small as a percentage of the security protection.   Of all the defaults, only 3 have
      been in estates managed by a solicitor.


42.   Despite the apparent difference in risk profile there is a uniform premium rate for
      bonds provided to lay and professional deputies up to £1M, as mentioned above.
      Since 2007, typical rates have been as follows. The start rate is 0.5% (£25 premium
      pa for a £5,000 bond) with the rate reducing to 0.25% at £40,000 (£100 pa) and
      continuing at that rate, - ie £25 pa for each £10,000 - up to £150,000 (£375 pa).
      Above that, rates gradually reduce, again, to 0.2% pa for a bond of £250,000 (£500
      pa) or above. Thus a £500,000 bond requires a £1,000 pa premium and a £1M
      bond, £2,000 pa.    This is the limit of a bond for a lay deputy, but a professional
      deputy can obtain greater cover at the continuing rate of 0.2% of the bond value.
      Although numbers of bonds taken out under the Act did not (I am told) exceed
      Aviva’s predictions, the aggregate of values did, as mentioned, and the rates above
      may be subject to review.


43.   The differences which have taken place following the introduction of the Act are
      illustrated by some statistics for the year ending 1st October 2007, when the Act came
      into force, and the following year, ending 1st October 2008.    There was a 10%
      increase in the number of live bonds in force (18,045 to 19,808) but the total security
      provided by these bonds rose by 99%, from £580,700 to £1,155,800. The number
      of new bonds issued year on year rose by only 4%, but the amount of security
      provided by these new bonds rose by 184% from roughly £179,500 to £509,300.
      The maximum security bond required in y/e 1st October 2007 was £500,000, but in
      y/e 1st October 2008 it was £3M, and the number of bonds exceeding £500,000 rose
      from nil to 121.   The ratio of professional to lay deputies, however, remained
      constant at 28%:72%


(b)   Professional indemnity insurance
44.   Another source of protection for P is, though, the availability of any insurance
      covering the deputy’s default, and this is, of course, the main difference between
      the professional and lay deputy. With the solicitor being the typical professional
      deputy, the terms of solicitors’ compulsory indemnity insurance are of particular
      relevance, and Mr Andrew Darby’s evidence has explained the general parameters
      of this.


45.   All solicitors in private practice in England and Wales are obliged to have
      professional indemnity insurance to minimum standards. These are laid down by
      statutory instrument and are presently contained in the Solicitors’ Insurance
      Indemnity Rules 2008.       These rules cover solicitors in “private legal practice”
      which effectively means: as a sole practitioner, or partner, or employee of a firm.
      The definition of “firm” includes a Limited Liability Partnership (which is
      effectively a company), but not a local authority.


46.   The Minimum Terms and Conditions (“Minimum Conditions”) required of such
      insurance, a copy of which Mr Darby has produced, are, first, that the sum insured
      in respect of any “one claim” (excluding defence costs) must be at least £2M or
      £3M for an LLP (see para 2.1). However, the policy may permissibly aggregate
      into one claim all claims arising from any one act or omission, any one series of
      related acts or omissions, the same act or omission in a series of related
      transactions, or similar acts or omissions in a series of related transactions (para
      2.5.) A firm may take greater insurance than the compulsory minimum sum, but
      need only meet the Minimum Conditions in respect of that compulsory minimum
      (“the compulsory layer”).     Although it is not obligatory for the lowest layer of a
      firm’s insurance to be the compulsory layer on the Minimum Conditions, if any
      lower layer of insurance then does not respond on a claim, the compulsory layer
      must do so.


47.   The definition of “private legal practice” includes acting under any personal
      appointment such as (expressly) a trustee or attorney (para 8.2). The insurance
      policy may exclude the insurers’ liability to indemnify any individual where
      liability arises from fraud or dishonesty perpetrated or condoned by him, but it
      must nonetheless indemnify all other individual persons insured, and no
      dishonesty may be imputed to a company or an LLP unless committed or
      condoned by all directors of the company or members of the LLP (para 6.8).
      Thus in a multi-partner firm the other partners remain insured unless they all
      participated in the wrongdoing.
48.   There is no limit on the amount of excess which may be agreed between the
      insured and the insurer, but the policy must provide for the insurer to meet the
      excess in favour of a Claimant, if the insured fails to do so. There is an
      “Assigned Risks Pool” Policy which provides cover meeting the Minimum
      Conditions where a firm is unable to obtain cover in the market, or in respect of
      claims against uninsured firms.      Where liability is not covered by the insurance
      because (say) of the dishonesty of a sole practitioner, then a Claimant may apply
      to the Solicitors’ Compensation Fund, which is managed by the SRA under the
      Solicitors Compensation Fund Rules 2009.        This fund is discretionary in nature
      and its objects are to replace client money which has been misappropriated by a
      solicitor or his staff, or is not accounted for. There is a limit on grants from the
      fund of £2M (rule 6) but this may be waived under rule 23.


49.   As the policy pays out on claims made during the period of the policy and not
      when the default took place (para 1.1) it is obligatory that the policy extend to the
      prior practice of every person covered (para 1.4), and also to the subsequent
      practice where there is a change of constitution of the firm (a split, merger or
      acquisition) during the policy year (para 1.6). The policy must provide run off
      cover for 6 years where a practice ceases without a successor (para 5.1).


50.   In practice, many firms, I am told, take insurance meeting the Minimum
      Conditions in an amount which well exceeds the compulsory minimum, because
      the Minimum Conditions are the industry standard. As an example, in the present
      case Mr Baker’s firm has been carrying professional indemnity insurance cover,
      all on the Minimum Terms and Conditions, up to £105M per claim, and this
      includes cover for fiduciary appointments, such as Mr Baker’s appointments as a
      deputy.


General approach to setting security
51.   Fixing the level of security under s 19(9) of the Act is a decision which is
      specifically to be taken by the court.   It may be questioned (as Mr Rees
      suggested) whether, since it is really part of the procedure of appointing a deputy,
      the act of fixing any security is really an
          “act done or decision made for or on behalf of a person who lacks capacity”


      within the meaning of s 1(5) of the Act, at all so as to bring the “best interests”
      guidance in s 4 directly into play. I agree that it seems artificial to treat it as
      such.    However, in the end this probably makes little difference, because
      guidance under s 4 is likely to have little practical impact for this decision.


52.   First, it is highly unlikely that P, who, by definition, does not have capacity to
      manage his affairs in some significant respects, will have either any views or any
      meaningful wishes on such a technical matter. Second, although the court would
      theoretically bear in mind s. 4(7)(b), which directs that others such as P’s carers
      should be consulted if “practicable or appropriate”, it is again very unlikely that
      such persons could make any contribution. Third, whilst s. 4(6)(c) enjoins the
      court to consider the “other factors” that P would be likely to consider if he were
      able to make his own decision, this really amounts to the same exercise as the
      court’s itself considering what would appear to be in P’s best interests, since that
      is presumably what P himself would do, if he could.        In short, whilst s. 4 cannot
      be just ignored, the practical result is that the court will simply make an objective
      assessment of the level of security which it “thinks fit” to require in P’s best
      interests in all the circumstances.


53.   The approach of a sensible person is therefore very material. A sensible person
      would consider all the factors relevant to the risk and the possible consequences
      (likelihood and severity of impact) on P of the deputy’s negligence or default, in
      the circumstances of the particular case.    A sensible person would want a
      sensible economic structure taking these into account, and would want to keep a
      level-headed balance, being neither riskily under-protected nor nervously over-
      protected.

The exercise
54.   One must first recall the purpose of the requirement for security. It is to protect P
      and his resources from the consequences of negligence or default (such as
      misappropriation) by the deputy. It is therefore, the real and realistic degree and
      quantum of risk to P, in the particular circumstances, which must provide the
      starting point for fixing an appropriate level of security.       Simply taking the
      value of P’s estate without further examination, or even taking that value and
      applying some arbitrary fraction, is simplistic and incorrect.


55.   Both counsel are agreed that the following factors will fall to be considered.       I have
      put them in the order which I find most appropriate for discussion, as will appear.
      As a general check list they are


      (1)   The value and vulnerability of the assets which are under the control of
            the deputy.

      (2)   How long it might be before a default or loss is discovered.

      (3)   The availability and extent of any other remedy or resource available to P
            in the event of a default or loss.

      (4)   P’s immediate needs in the event of a default or loss.

      (5)   The cost to P of ordering security, and the possibilities and cost of
            increasing his protection in any other way

      (6)   The gravity of the consequences of loss or default for P, in his
            circumstances

      (7)   The status, experience and record of the particular deputy.


56.   However, these factors cannot be considered in isolation, or even in simple sequence,
      because their effects and impact overlap. For example, the level of security fixed
      affects the costs of obtaining it, but must also relate to the size of the estate at risk.
      If, therefore, the costs of obtaining security appear to impose an unreasonable
      burden on P’s estate, it may be possible to mitigate this by reconsidering the terms of
      the deputyship order, and restricting the assets effectively under the deputy’s control.

57.   On the other hand, if the deputyship is closely constrained by the terms of the order,
      so as to reduce the need for security and save costs in that direction, this may make it
      more likely that individual applications to the court will be needed later, thereby
      increasing expenditure on court fees and costs, which could eliminate the apparent
      saving in premiums. A typical court application fee is now £400 and a fee for a
      hearing is £500. The medium range premium for security is £25 per annum per
      additional £10,000 of cover.

58.   Similarly the availability of professional indemnity insurance which would cover a
      “total default” situation, (ie where the deputy decamped with the whole estate) would
      entirely alter the real risk to P.

59.   The whole issue of the appropriate level of security must therefore be considered in
      the round, if possible together with any aspects of the deputyship order which can
      sensibly be tailored to minimise the risks whilst not causing serious practical
      disadvantages.

60.   The following observations about the particular factors mentioned above are non-
      exhaustive but are intended to indicate the kind of detail and consideration which
      may be relevant, and as to which it may therefore be helpful to put evidence before
      the court.   The first four factors relate directly to the quantum of the potential loss
      or damage to P through negligence or default by his deputy. The latter three, whilst
      relevant and even important considerations, are extraneous.

(1)   Value and vulnerability of estate under deputy’s control

61.   The value which should be a starting point for fixing appropriate security is not
      necessarily, nor even probably, the value of the entire estate of P. It is the value of
      P’s assets or funds which are realistically vulnerable to a default by the deputy.

62.   First, as with the old receivership orders, the deputyship order may contain
      restrictions on how far the deputy in fact has access to P’s capital, thus reducing this
      value. Second, their nature is highly material. Illiquid assets such as real property
      are far less vulnerable than liquid ones, such as shares and, of course, cash. It may
      be that certain assets either are, or can be rendered, so illiquid that they can be
      effectively left out of account.

63.   The obvious example is a house, especially if used as a home for P. Restrictions on
      the register of title can be entered, (the Chief Land Registrar will agree to register a
      restriction subject to approval of the actual wording proposed), thus preventing any
      effective disposition through a dealing with the legal title. Whilst it is not possible
      to prevent a purported dealing with the beneficial title off the register in this way
      (because the Land Registry is simply not concerned with beneficial interests as such)
      the possibility of any such wrongful dealing being effective in practice will be pretty
      remote, now that mortgages by deposit of title deeds are a thing of the past, and even
      that can be mitigated to a degree - and probably to no practical disadvantage - by
      inserting a restriction in the deputyship order expressly excluding the deputy’s power
      to deal with any beneficial interest of P in property which is P’s home without order
      of the Court.

64.   Cash and investments are of course the most vulnerable assets if under the deputy’s
      control. Again, though, it may be possible in a particular case to limit the deputy’s
      access to such funds or assets, although the corresponding disadvantage of making it
      cumbersome or expensive to carry out beneficial transactions efficiently, and the
      possible consequence of incurring the time and cost of applications to the court,
      must be taken into account

65.   The above assessment will therefore provide a basic starting point. For reasons
      appearing below, it will then be appropriate to bear in mind the distinction between
      capital assets and income when reviewing the quantum of risk to P for which security
      needs to be given.

(2)   Discovery of a default

66.   The longer it is before any loss or misconduct comes to the attention of the Court or
      the OPG so that action will be taken, the greater the risk to P because of the increase
      in what might be called the “default opportunity quotient”.

67.   The alarm may be raised by third parties.    How likely this is to happen quickly will
      vary according to the case, and can probably only be assessed as a matter of general
      impression.     For example, the first point at which an embezzlement of P’s assets
      may come to light (a fraudulent deputy is likely to take steps to cover his tracks) is
      when third parties do not receive payment for P’s care arrangements, and get
      sufficiently concerned to raise the issue with the authorities or the OPG. This could
      take several months, during which a systematic fraud might have been taking place.

68.   There are two other features of the scheme of the Act, apart from the security bond,
      which are aimed at protecting P, and which will affect the assessment of this aspect
      of P’s risk. These are reporting, and supervision.
69.   Under s 19(9) (b) of the Act, the Court may require a deputy

          “to submit to the Public Guardian such reports at such times or at such intervals
          as the court may direct.”

      The reporting obligations imposed by the court will depend on its view of what is
      appropriate in the circumstances. Factors will include whether there is likely to be a
      lot of financial activity on behalf of P (certainly in the early stages of a deputyship
      whilst P’s life-style situation is being established), the desirability of imposing the
      discipline of preparing reports on the deputy, the court’s perception of how a lay
      deputy in particular may be likely to behave and, in the case of a professional deputy,
      any extra costs which will fall on the estate if reports are required very frequently.

70.   It is, I understand, commonplace to require annual reports, but the court may direct
      that the deputy need not actually file these with the OPG unless required to do so.

71.   As to supervision of deputies, this is one of the functions of the Public Guardian (see
      s. 58(1)(c) of the Act). The OPG therefore sets a level of supervision for each
      deputy. There are currently four levels, one more having been created when the first
      year’s operational experience of the Act suggested that it was required. These are
      Type I (Highest), Type IIA (Intermediate), Type II (Lower) and Type III (Minimal).
      However, all but the last come at a price. There is no fee for Type III (Minimal
      supervision, which generally applies to estates worth less than £16,000) but the
      annual fees for the other levels of supervision rise from £175 (Type II – Lower), to
      £350 (Type IIA – Intermediate) to £800 (Type I - Highest).

72.   I will not set out the parameters of supervision regimes here, but the higher levels of
      supervision obviously involve more contact with, visiting and checking up on the
      deputy and his actions. Type I supervision clearly reduces the risk to P, but,
      conversely, the higher levels of supervision are only fixed in cases where a greater risk
      is perceived – typically a large value estate, a lay deputy, and perhaps such matters as
      family tensions.     It is also the case that the OPG monitors supervision on the basis
      of random sampling, and does not carry out comprehensive checks in every case.

73.   Since it is the function of the OPG and not the Court, to set supervision levels, and it
      does so only after the deputyship order has been made, it is not possible for the court
      to order any particular supervision level in conjunction with setting security.
      However, the court might think it appropriate to fix an amount for security on an
      express assumption that a particular supervision level was set, with a review if this did
      not turn out to be the case, or it might perhaps order security at different levels
      according to the supervision level which was directed.

74.   The division of these interrelated functions regarding P’s protection between the
      Court and the OPG has been the subject of comment. It is understandable that
      levels of supervision are set by the OPG, because general support for deputies, and
      the resources for their supervision, are provided by or through that Office.
      However, the inter-relationship of these three aspects of P’s protection, and how far
      they work harmoniously and efficiently in practice might usefully be the subject of
      review in the future.

75.   The above factors will suggest how long it may take for a default to come to light,
      and thus feed into the assessment of what a “worst case” loss scenario for P might
      entail. The standard practice under receivership was that the reporting frequency
      was regarded as a fair measure of the default opportunity for the receiver, and it
      therefore became usual to set the security at a sum equal to the amount of funds
      which would pass through the receiver’s hands in providing for P’s needs during that
      period. Then, of course, this was usually confined to the drawing of income.          The
      old practice thus illustrates a reasonable approach to assessing appropriate security,
      but the exercise now needs to be more sophisticated in the context of the new
      deputyship regime.


(3)   The availability and extent of any other remedy available to P in the event of a
      default or loss

76.   Between them, the above two factors will give a basic measure of the real risk to P.
      The next point is whether that measure is reduced because of any other recourse
      which there may be for P. The obvious such recourse is a claim on any insurance
      held by the deputy and this is therefore very significant in the common case of a
      professional deputy, and in particular a solicitor. It may conceivably be relevant to a
      lay deputy, but even extended household insurance policies do not usually cover
      trustee liability.
77.   I have described the compulsory Minimum Conditions of professional indemnity
      insurance for solicitors above. Insurance which complies with those Minimum
      Conditions will in principle cover any loss caused by the negligence or default of a
      solicitor deputy. However, there are some details which the court will still wish to
      check.


78.   The availability of insurance cover in an amount per claim which exceeds the value of
      such part(s) of P’s estate as may come into the hands of the deputy virtually
      eliminates the risk of substantial loss to P in the end, right up to what has been
      described as the “total default” situation. It leaves only two weak points. These are
      the costs of, and the length of time for, obtaining the insurance payment.      The
      former means that P needs provision for the likely expense of negotiating or
      pursuing the insurance claim. The latter means that he needs enough money to
      provide for his needs during the period until the claim is settled – which may of
      course be two or three years in a difficult case.   Thus, in a case where adequate
      professional indemnity insurance is in place, the level of the security bond can be set
      by reference to these two matters and certain other considerations of P’s urgent and
      immediate needs. This is considered under (4) below.


79.   As to whether adequate insurance cover is in place, the first point to consider is
      obviously the level of cover under the relevant policy, and the court will need to
      know this.    In the case of a solicitor, the minimum amount per claim stipulated
      under the Minimum Conditions (£2m/£3m) means that this is unlikely to appear to
      be a problem, except in very exceptional cases. However, it must be borne in mind
      where the deputy, or other members of his firm, hold several deputyships, that the
      total level of cover could be applied to aggregated claims, as explained above, and the
      court will wish to consider how far, realistically, this might prejudice P individually, in
      the event of a wider default.   Where deputyships are undertaken by a Trust
      Corporation that is even more likely to lead to an aggregation of assets in the hands
      of a single entity.


80.   However, the right of an insurer under the Minimum Conditions to aggregate
      incidents into “one claim” does not mean that the court must be satisfied that the
      amount of a deputy’s professional indemnity insurance exceeds the total value of
      all the trust assets under his (or his firm’s) control, on a “just in case” basis. The
      realistic likelihood of a situation arising in which such possible aggregation could
      occur in practice must be evaluated. In many situations this will appear to be
      sufficiently small that it can be reasonably disregarded


81.   The perception of the real risk of any such aggregation will depend mainly on the
      nature of the deputy’s practice. A deputy who is a sole practitioner is likely to pose
      a greater risk than a deputy who is a member of a large firm where there are likely to
      be internal controls on individuals, arising from the firms’ procedures.   The
      involvement of more than one individual in financial transactions (eg dual signatures
      on cheques) has been shown greatly to reduce the odds of defalcations in practice,
      and so the internal processes of a large firm, if they give rise to such involvement,
      may be viewed as a significant safeguard. Thus, where there is an aggregation of
      deputyships, it may well be helpful for the court to be given evidence of risk
      management controls within the deputy’s firm. Indeed, it might be appropriate, in
      some cases, to ask the court to consider appointing two deputies from a firm, able to
      act jointly or severally, but only jointly in a matter where the amount involved
      exceeded a specified sum (see s. 19(4) of the Act).


82.   Another factor not to be overlooked is the possibility of change in the future.
      Because claims are dealt with under the policy in force when the claim is made, and
      not when the default may have occurred, if the level of security is to be fixed in
      reliance on the amount of professional indemnity insurance cover held by the deputy,
      the court is likely to require the deputy to lodge a copy of his insurance policy with
      the OPG to verify that level, and to reconfirm this on renewal of the insurance
      policy, or as a possible alternative, to undertake to notify the OPG immediately in the
      event that the amount of cover is subsequently reduced.      For reasons already given,
      the court may also wish to have information about any other pertinent matters, such
      as the number and general value of deputyships held by the deputy or his/her firm.


83.   The above observations relate particularly to solicitors, but the same principles can
      be applied to other deputies. A lay deputy is unlikely to have personal insurance
      which would cover “the discharge of his functions” as a deputy, but it is not
      impossible. More likely is the case of a professional other than a solicitor, such as
      perhaps an accountant, who may have professional indemnity insurance, but on
      terms which are not as extensive as those of the solicitors’ Minimum Terms and
      Conditions.    In any such case, the court will need evidence of the terms of the
      particular policy, if it is sought to pray this in aid in order to reduce the amount of
      security which ought to be given to protect P, and the important terms to be
      considered will be those corresponding to the terms which I have described above
      from the evidence of Mr Darby.


(4)   Consequences to P: in particular immediate consequences of default or loss

84.   As already mentioned, the great practical advantage of the security bond scheme is
      the speed of payment.     It provides immediate relief from loss to P, and so where
      there is insurance which will eventually restore the loss in full, the practical course
      will be to set security at the sum which would be needed, on a suitably generous
      assessment (to allow for unforeseen matters and a margin for error), to tide P over in
      the default situation until the insurance payment makes good the full loss.

85.   The amount required will therefore have to take account the following immediate
      matters. First it would need to cover any likely shortfall in funds available to meet
      the recurrent everyday expenditure for required for P’s needs over the probable
      period of negotiation with the insurer, until payment.     Where P is in receipt of
      continuing periodic payments from an outside source such an allowance may not be
      necessary, but where his everyday needs are met out of the income from assets which
      might be the subject of defalcation, this will be important.

86.   Next, it must allow for any “one off” requirements which P might have during this
      period, the obvious example being the costs of conducting negotiations with the
      insurer.

87.   Lastly, an allowance may be appropriate to cater for any liabilities of P which may
      have gone unpaid because of the default, before its discovery, as already mentioned
      under (2) above.

88.   A sensible margin for error or unforeseen circumstances should also be considered.
      The size of this would depend on how serious would be the consequences for P if
      this interim funding became tight.
89.   Where there is no insurance, the assessment will of course have to start from the
      amount of the assets/income perceived to be at risk, with all the other factors which
      I am mentioning being taken into account appropriately in conjunction with that
      assessment..



(5) The cost to P of ordering security, and the possibilities and cost of increasing
    protection by any other means

90.   Once the impact on P of a total default by the deputy has been assessed as above, it
      is appropriate to consider the costs of ordering that level of security. However, I
      would not expect this factor alone to affect what would otherwise seem to be
      appropriate security, except in an extreme case, or at the margins of a decision, or
      where (say) a damages settlement has been reached on the basis of an assumed cost
      of the provision of security by a deputy being factored into the settlement sum.

91.   This last type of case is particularly anxious, because any extra over the amount
      budgeted which has to be paid out for security in practice will have to be diverted
      from what it was intended for. In such a case, therefore, it might be appropriate for
      the court, (always subject to the considerations of P’s best interests) to try to enable
      the prediction to be made good. It may be possible to do this by, for example,
      limiting, or further limiting, the assets in the deputy’s hands, so as to reduce risk to
      level within budget.

92.   This may in fact be an appropriate course to consider in any case, in order to try to
      make a properly economical use of P’s funds. As already mentioned, though, other
      potential financial consequences of such an adjustment need to borne in mind. I
      have already referred to a comparison of the costs of purchasing additional bond
      cover as compared with the possible costs and fees of applications to the court
      which might be made necessary by restricting the deputy’s access to assets so as
      to reduce the vulnerable assets. I have also referred to both reporting and
      supervision as aspects of a deputyship which might influence the appropriate level of
      security. The court is able to adjust reporting requirements (see s. 19(9) (b) of the
      Act) so as to increase protection for P, but would bear in mind any additional costs
      to P’s estate.   It cannot, however, control the supervision regime or the costs to be
      incurred to P’s estate there.
93.   Similar considerations apply to devising risk reducing terms within the deputyship
      order. The crucial importance of a property which is P’s home may well suggest
      giving the deputy limited powers in respect of such property, and bolstering this
      with appropriate restrictions on any relevant title register as already mentioned.
      However, for the practical reason of the costs and fees involved if the court’s
      approval of specific transactions is made necessary, it may be appropriate to be
      more flexible with regard to investment property which the deputy may be
      empowered to manage, even if this suggests the need for a higher level of security.
      Directing the joint registration of title to assets such as shares or real property
      with another independent person may provide a cost effective alternative means of
      reducing risk, and hence the cost of appropriate security. Mr Darby refers in his
      evidence to some 46 cases where the Court of Protection has sought to reduce risk
      by directing property to be held in the joint names of a lay deputy and a solicitor.



(6)   The gravity of consequent loss to P

94.   This is a general factor which may influence whether it is appropriate to take a more
      cautious or a more relaxed view of the appropriate amount of security. In essence it
      is a general view of how far P can “ill afford” any contemplated loss in his particular
      circumstances.    It may be reasonable to review this as to both capital and income.

95.   For example, it may be that the total amount of the estate “at risk” with the deputy is
      much more than actually needed for P’s own needs.         This is unlikely to apply
      where the estate consists of damages which P has received for a personal injury
      claim, but in the case of age-related dementia, where a deputy may take over a
      lifetime’s accumulated assets which are more than enough to provide suitably for P
      himself, it might justify the court fixing a lower level of security, on the ground that
      the expense of fully securing an obvious surplus is disproportionate.

96.   Similarly, the position of an adult entirely dependent on his own assets and resources
      is obviously more vulnerable in practice than that of a child who will naturally receive
      support from his parents. If, therefore, the main concern in setting the level of
      security is the immediate needs of P to tide him over until an insurance claim is paid,
      this cushion in such a case may justify keeping the security to the lower end of a
      possible range, in order to save additional premiums.
97.   However, whilst it is right to acknowledge that this factor (ie how serious a loss
      would be for P in practice) may properly be considered within an overall
      consideration of P’s best interests in a sensible and cost-effective level of security, it
      seems to me that it is likely to be a “shading” factor, and would probably only have
      an independent effect in exceptional cases.

(7)   The status of the deputy

98.   I have placed this point last deliberately. It was, not unnaturally, the first and the
      central point advanced by counsel in this case, but it seems to me that it should
      logically come last, because it is entirely different from the other factors already
      mentioned.    Those all relate to financial effects on P, such as the possible quantum
      of default, the opportunity for it, or the restoration of his loss, whereas this one goes
      only to a general perception of the likelihood of there ever being any default or
      negligence in practice.    However, the impact on P of any default is just the same
      whatever the status or apparent unimpeachability of the defaulting deputy, and it
      would be no comfort to P or his family to be told that P was only covered for a
      fraction of his real loss because it had been thought that, say because the deputy was
      a professional or appeared to be particularly respectable, he or she was only
      fractionally likely to commit a default.

99.   The status and reputation of the deputy either influence the position at the outset, by
      affecting the court’s view of whether the candidate is a suitable deputy in the first
      place (a point which does not arise in this case because that has already been
      decided), or it goes, in itself, only to the perceived likelihood of any default occurring.
      The only practical aspect of what looks like “status” which affects the amount of
      possible loss to P is the fact that a deputy of apparent good status is likely to be a
      professional with insurance. That practical point ought to be taken into account for
      its own independent value, as discussed above.

100. In insurance terms, the status of the deputy would go to the level of premium, and
      not the amount of cover.      A deputy who was an apparently low risk would be likely
      to be able to obtain cover for a lower premium than a deputy of more questionable
      or unknown provenance.        This consideration does not arise with regard to security
      bonds provided under the arrangements made between the Public Guardian and
      HSBC because, as a matter of policy, the terms of the scheme have been agreed on
     the basis of uniform premium rates for all deputies, whatever their status. This
     policy has obvious general benefits for the overall scheme for managing the affairs of
     incapacitated persons under the Act by making security more accessible for lay
     deputies, but it does not benefit any individual person whose affairs are managed by
     a professional deputy. It is simply a fixed parameter in his case.

101. As a result, the obvious risk comparison between lay and professional deputies can
     only be given any practical effect by adjusting the amount of security fixed. It is
     important to recognise, therefore, that this goes only to the perceived cost-benefit of
     buying a greater or lesser amount of security, and does not go to the protection of P.
     A good deal of care therefore needs to be taken over this factor, and its superficial
     force must be rigorously examined. The court will need to be confident as to why it
     is tempted to “think fit” to reduce the financial level of protection afforded to P
     below what would otherwise seem a realistic assessment of his financial risk, simply
     because of apparent personal attributes of reliability, integrity, (or whatever) of the
     individual deputy.

102. I have laboured this point precisely because it is such an obviously attractive one for
     the experienced professional deputy to advance. I emphasise that in my judgment
     its place is either at the very beginning, or at the very end, of a structured exercise in
     fixing the appropriate level of security, and not vaguely in the middle of it. Once it
     has been decided that the deputy is a suitable person to be deputy, then in my
     judgment the right logical course is to assess an appropriate level of security in the
     light of the other matters considered above, and only then, as part of a final
     overview, to ask whether it would be right to reduce the otherwise appropriate sum
     because the likelihood of a default appears remote in practice.

103. The test would then, in my judgment, be whether a sensible person, having already
     made a dispassionate assessment of the amount of security needed to protect P,
     would nonetheless conclude that the likelihood of its ever being necessary to call for
     this sum was sufficiently small in practice that it would not be in P’s best interests to expend
     the money necessary to provide it , and that it would therefore be appropriate to accept and
     fix a lower figure. I observe, and acknowledge, that this consideration could
     conceivably produce the result that security might be thought unnecessary at all;
     section 19(9) (a) of the Act is permissive, and not mandatory.          However, where a
     sensible person would think it “better safe than sorry”, the court too would be
     inclined to err on the side of caution. The key point, in my judgment, is that this
     consideration must be a cost-benefit value judgment.

104. Matters which might affect such a decision are, for example, the length of experience
     and the unblemished record of a professional deputy, and his membership of a
     specialist firm, which might be a large firm or a smaller niche firm.       I have already
     observed that the internal procedures and cross involvement of other members of a
     large or specialist firm could be seen as a factor tending to reduce risk, generally. A
     high status deputy may still be dealing with a relatively small estate, where even the
     costs of a relatively modest amount of security might be money which could be
     thought better spent otherwise on P. In some cases the circumstances might
     suggest that it was only the risk of negligent aberration, rather than of major wilful
     default or fraud, which sensibly needed to be fully covered.

105. Finally, I should mention that there was some discussion at the hearing about
     whether it was possible to categorise deputies into bands of greater or lesser status.
     Counsel agreed that deputies were reasonably divided into three general classes,
     namely lay deputies, professional deputies other than specialists (being those who
     undertook no more than one or two deputyships), and specialist deputies who would
     hold many deputyships and almost certainly be solicitors and belong either to very
     large partnership practices, or niche specialist firms. On reflection, I consider that
     whilst that may be a useful tool for illustrating the range of potential deputies (apart,
     of course, from local authority deputies) I do not think guidance about the approach
     to security can or should be laid down on the basis of such categorisations. “Status”
     as a factor must be taken into account, if at all, on the basis of the court’s assessment
     of the all the relativities of cost, risk, and benefit in the individual case, as set out
     above.


Summary of general guidance
106. In final summary, then, I set out below what is, in my judgment, a properly
     structured general approach to considering the setting of security and its interplay
     with the terms of appointment of a deputy. It largely follows the order of the
     factors which I have set out above. I do so with grateful acknowledgment to the
     argument of Mr Rees as amicus curiae, on whose submissions it is based. It can be
     taken as a useful executive summary guide, whilst bearing in mind that it is only a
guide and the individual circumstances of each case may well suggest other material
points.


(1) If the Court has real doubts about whether a deputy can be trusted with P’s
   assets, then it must consider not appointing him as a deputy.      Alternatively (if
   this will largely allay such doubts) the court can and should consider imposing
   limits on the funds under the deputy’s control and, in particular, should consider
   whether the general words of the order appointing the deputy should be
   narrowed to prevent his having any authority to deal with any property occupied
   by P as his home, (or any interest of P therein) without further order of the court.


(2) The court should then consider the amount of funds that are to be placed in the
   deputy’s hands or under his control, and envisage the costs and/or loss to P if
   there were to be a total default by the deputy.

(3) The court should then consider whether the deputy carries professional
   indemnity insurance which would be effective to replace P’s assets in his hands in
   the event of such a total default. This will include reviewing such matters as the
   level of aggregation of assets in the hands of a single deputy relative to his
   insurance.

(4) In the absence of adequate insurance cover then the starting point will be the
   value of the assets in or passing through the deputy’s hands. This consideration
   may lead back to a review of the terms of the deputyship order with a view to
   limiting the value of the vulnerable assets.

(5) Where the deputy apparently has adequate and effective professional indemnity
   insurance, then the court

   (i)     should require him to deposit a copy of this with the OPG and inform
   the OPG/the court immediately if its level is reduced, and

   (ii)    should aim to set a level of security which will provide adequate resources
   to meet P’s immediate expenditure needs for a period related to the time it may
   take to settle the insurance claim (perhaps up to 2-3 years), the costs of making
         such a claim, and an allowance in case immediate debts of P may have been left
         unpaid, applying a suitable margin for error.

     (5) Having formed the above provisional view as to the appropriate level of security,
         the court should finally consider the level of premium and whether this would
         cause P undue financial hardship, or would otherwise in all the circumstances
         (including the apparent status of the deputy) appear to be an unjustifiable or
         wasteful use of P’s resources, when balanced against the benefit of having that
         security. Special circumstances (eg husband/wife deputyships, or lay deputies
         of obvious stature, or situations in which the real risk would appear to be merely
         negligence rather than total default) may mitigate this, but must provide some
         real justification for taking the view that such a level of security is not reasonably
         necessary.    The court will then decide whether it is in P’s best interests to
         maintain the level of security originally assessed, or to reduce it to any extent.


This case
107. I will now apply the above principles to the evidence in this particular case.


108. On behalf of Mr Baker, Miss Rich submitted that in the light particularly of (i) Mr
     Baker’s experience and obvious record of probity as a deputy, (ii) his more than
     adequate insurance cover under the solicitors’ Minimum Terms and Conditions,
     backed up with Mr Darby’s evidence regarding cover even for uninsured losses,
     and (iii) the level of liquid funds in his hands, maintaining security at £750,000
     was unnecessary and the costs of doing so was clearly unjustified and not in H’s
     best interests.


109. That cost was £1,875 a year, whilst H’s damages claim had been settled on an
     estimated cost of £765 a year, which was in turn based on a (generous) prediction
     that security of £300,000 would be ordered.         Thus, £1,100 of money attributed to
     other heads of damage to H was going to have to be used to pay for the security
     bond. In fact she submitted that even £300,000 was unnecessarily generous, and
     the appropriate provision was either (i) the same as under the previous
     receivership ie £15,000, or (ii) a sum representing about 18 months’ of future
     expenditure on H’s behalf, which, on the evidence was approximately £75,000.
     Alternatively, the court should consider limiting the amount of expenditure which
     Mr Baker could make under the deputyship order to (say) £100,000 per annum –
     which would appear to be more than enough to enable H’s needs to be met for a
     reasonable future period – and limit the security to 18 months’ expenditure at this
     level, ie (say) £150,000.


110. Mr Rees, here acting for H, put a more cautious view. He acknowledged that Mr
     Baker was an obviously proper choice as a deputy. The free assets in his hands
     were currently £445,000, but he suggested that Mr Baker did have power to deal
     with the beneficial interest in the house which was worth about £855,000, and that
     the evidence showed that H’s parents were intending eventually to buy out part of
     H’s interest in the house. However, Mr Baker’s firm carries such substantial
     solicitors’ professional indemnity insurance, albeit that it also has the largest
     aggregation of deputyships in England and Wales, that insurance cover at any
     level in this case would not (he submitted) be an issue.


111. He therefore submitted that an appropriate level of security would be related to
     H’s annual expenditure (approximately £50,000) and that (say) three years’ worth
     of this, coupled with a sum to allow for claiming against Mr Baker’s firm’s
     insurers, would adequately protect H. He therefore proposed the sum of
     £200,000 (premium £460 pa) to be reviewed when H was 11 and again at 18, in
     order to consider likely rises in the expenditure. He also suggested that it might
     be appropriate to require Mr Baker to lodge a copy of his insurance policy with
     the OPG and certify annually that it was kept up, and that there should be a
     restriction on Mr Baker’s right as deputy to deal with H’s beneficial interest in the
     house without a court order.


112. With the assistance of these submissions, I approach the matter as follows.


113. Paying due regard to the “best interests” guidance in s 4 of the Act, I find that
     there is nothing of any assistance there. H is a child of 8 who could have no views
     on this subject, and his parents have not expressed any views either, although they
     have presumably supported Mr Baker’s making this application.
114. H’s estate consists of approximately £1.25M in capital assets and the benefit of
     the structured periodic payments to be made during his lifetime.


115. The risk in respect of the former is defalcations, or possibly negligent investment
     by the deputy. However, at present only some £445,000 of this capital is in the
     form of free assets under Mr Baker’s actual control - I am not sure in what form
     exactly, although H’s cash is, I understand paid into and held upon Special
     Account with the Court Funds Office from which Mr Baker draws and maintains a
     deputyship account.


116. The balance of the capital – about £820,000 – has been spent on the house which
     has been purchased for H’s benefit.      This is at present in the names of his
     parents as trustees. (This was in anticipation of the arrangement referred to
     below, which has not yet materialised.) Two restrictions on the register of title
     prevent any disposition by a sole trustee, or during the lifetime of H, without an
     order of the court/Court of Protection. A Deed of Trust has been executed
     confirming that H’s parents hold the property on a bare trust for him, and it
     includes provision that no new trustee may be appointed during H’s life without
     the consent of the Court of Protection. This is no doubt kept in appropriate
     custody.     The house is, therefore, completely outside the effects of any potential
     default by Mr Baker, apart from the remote possibility that he might try to deal
     fraudulently with H’s beneficial interest, and succeed in convincing a third party
     to participate in such a transaction. That can sufficiently, in my judgment, be
     dealt with by imposing a restriction in the deputyship order, such as Mr Rees
     suggested.


117. It is contemplated that when market conditions improve and H’s parents are able
     to sell the former family house at a reasonable price (it is presently being rented
     out) then they will realise equity of about £360,000 in the house, and with the
     addition of a mortgage, they will put about £500,000 into the new house, thus
     freeing up an equivalent amount of H’s capital to be put out to investment for him.
     This would, therefore, add to the funds under Mr Baker’s then control. However,
     in the light of what I find below with regard to Mr Baker’s insurance policy, this
     will not be material to my decision.
118. With regard to the remainder of the estate, this consists of the annual payments of
     (currently) £25,000 being made to H, which provide funds which Mr Baker draws
     and pays to his parents for his care.   These annual payments are currently more
     than used up by H’s needs. The monthly budget for his needs, agreed with his
     parents in February 2009, was about £4,000 including therapies (£48,000 pa), and
     may well have risen. It is also likely to increase in the more medium term, as H’s
     parents currently do a great deal for him, in the interests of saving/accumulating
     his money. There is an annual management budget of about £6,700 excluding the
     fee for any security bond.   Annual expenditure therefore starts at about £55,000.


119. With regard to other security measures, Mr Baker is obliged to make reports for
     the Office of the Public Guardian annually, but is only obliged to file these if
     requested. His level of supervision was anticipated to be Type II (Lower), no
     doubt on the basis of the combined considerations of his great experience as a
     reliable receiver/deputy, but the relatively substantial estate. In those
     circumstances it seems to me that even if Mr Baker were minded to engineer a
     “total default” situation, taking steps to hide this from H’s parents in the
     meantime, it is nonetheless reasonable to expect that this default would be
     discovered within a maximum of two years.


120. However, Mr Baker has, through his firm very substantial professional indemnity
     insurance cover, which is all (I am informed) on the Minimum Terms and
     Conditions. It would therefore cover any nature of default or actual negligence by
     him in the course of this deputyship. That cover is currently set at £105M. His
     firm has an aggregate value of security for deputyships at £40.9M. Although there
     is no information as to the total value of what I might call “vulnerable assets”
     within the trust estates under either Mr Baker’s or his firm’s control, I am satisfied
     that any risk to H of there being a level of default which might enable a sufficient
     aggregation of claims by the insurers to reduce any recovery for H individually is
     so remote that it can safely be disregarded.

121. To update the position, I should add that Mr Baker has explained in further
     evidence that his firm was to become a Limited Liability Partnership, with effect
     from 1st May 2009, and would also set up a Trust Corporation, with the intention
     that this should take all new deputyships, and that existing deputyships (such as
     that for H) should be transferred gradually to it. The Act permits the appointment
     of Trust Corporations as deputies. This reason is, I am told, principally to avoid
     problems where only one person is able to sign documents in deputyship
     transactions. A new bond will be put in place and security level set as and when
     a current deputy is replaced by the Trust Corporation.      I am satisfied that the
     proposed change in arrangements will not result in any detriment to H because
     there will be no change without a further order where the court could review the
     position if necessary.


122. I conclude, therefore, that even a total default by Mr Baker would in practice be
     fully covered by insurance, so that the real risk to H is enormously reduced.
     All that is therefore necessary is, in my judgment, that Mr Baker be required
     annually to lodge a copy of the current insurance policy covering this deputyship
     with the Court of Protection, including a certificate of the amount of cover held,
     with a term that he must seek the court’s confirmation (or otherwise) as to the
     level of security if that cover should at any time fall below £50M (ie roughly 50%
     of what is currently considered appropriate by his firm).    I fix this figure on the
     basis that if such a change occurs, it will suggest that something major must have
     happened which means that the Court might wish to review the position.


123. Since insurance would thus eventually cover H’s losses entirely, his real need is
     for security sufficient to provide for his immediate needs likely to arise on default,
     prior to payment under the policy.


124. H is not entirely dependent on the income from the assets in Mr Baker’s hands (ie
     assets at theoretical risk) for his everyday needs, because he receives the annual
     payments under his settlement. These would continue. His budget of monthly
     expenditure comes to about £48,000 a year, leaving a shortfall of £23.000
     Assuming also a continued need to pay management costs of £7,000 pa, this
     produces a round £30,000 per year needed in the short term. Treating this as
     needed for say 2½ years, and adding a margin for possible increase would suggest
     that a sum of £90,000 - £120,000 would be adequate to meet his needs in the
     interim, and comfort can be derived from the fact that H, unlike an adult, is not
     entirely dependent on his own assets but would has the additional cushion of
     assistance from his parents.     A further allowance is then appropriate to cater for
     “one off” possibilities, such as (a) possible liabilities left unpaid at the time of any
     default (unlikely to be large, since H’s ongoing expenditure would be likely to
     have been kept up, to avoid suspicions) and (b) additional costs of possible
     negotiation with insurers. Overall, this suggests to me that a figure of £150,000 -
     £200,000 would be adequate to protect H on a realistic and sensible basis in all the
     circumstances of this case.


125. Turning to a review of the costs implications, security at this level will command
     a fee of only £375-£460 a year. This is within H’s budgeted expenditure and is
     not apparently disproportionate to his assets.


126. I therefore finally consider whether it is reasonable to reduce the level of cover
     any further, having regard to a general overall impression of whether the balance
     of the expense of such security against the reality of the apparent risk of default or
     loss suggests that it is in H’s best interests that the security level be reduced and
     the costs saved.


127. I conclude that it does not. The ultimate decision is a broad assessment of what
     appears to me, in all the circumstances to be “fit” as a level of security in this
     case. Whilst Mr Baker’s probity and reliability are not in doubt, nevertheless,
     security has been budgeted for, and purchasing security of the order I have
     indicated is not disproportionate to H’s situation and provides safety.      I will,
     however, take the middle of the range which I have found, whereas with a less
     apparently rock solid deputy, I might have taken the upper end of the range out of
     caution. Although I considered ordering security at the bottom end of the range,
     this reaches the point where I do not find the further saving in premiums, a modest
     £45 per year, to be sufficient justification for doing so.


Conclusion
128. I shall therefore fix security at £175,000.    I will also direct that this level of
     security should be reviewed in conjunction with the first application to the court
     which it may be necessary to make after H reaches 11 years old, or in 5 years’
     time, whichever is the earlier.   I will also make the other modifications to the
     deputyship Order which I have mentioned above, ie with regard to Mr Baker’s
     submission of copies of his relevant insurance policy and certificate of cover, and
     so forth, and expressly limiting Mr Baker’s authority to deal with H’s beneficial
     interest in the house. However, this latter restriction will be framed so as to allow
     Mr Baker to effect the proposed transaction with regard to H’s parents purchasing
     a share of the beneficial interest in the house and releasing more capital to be
     invested for H on terms which he considers appropriate in H’s best interests,
     subject only to his reporting to the OPG as to the actual transaction, and lodging
     copies of the relevant documentation. This is aimed at reducing unnecessary
     costs. I will hear counsel on the appropriate form of order.


129. Finally, I would like to record two matters of the court’s thanks. First I am
     extremely grateful to both counsel, Miss Rich and Mr Rees, for their well
     considered and helpful arguments in this matter. Many, if not most, of the
     comments made above are derived directly from their respective submissions,
     even though not noted as such.      Second, because this has been seen as a test case
     which will hopefully be of benefit for the deputyship system generally, I am told
     that the solicitors involved, and the professional witnesses (Mr Baker, Mr Darby
     and Mr Lissaman) have provided their time and their expertise on a pro bono
     basis.   I wish to express the court’s gratitude on behalf of itself, and (I am sure)
     H and his family, and all others for whom this judgment may save expense. It is
     a gesture which is in the best tradition of the English legal system.




                                                        HH Judge Hazel Marshall QC
                                                        15th October 2009

								
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