denotes premium content | Jan 9 2009 Feature
posted 8 Jul 2000 in Volume 5 Issue 5
Financial abuse of elderly
patients
Prevention & recovery Part one
By Dirik
Jackson
The extent to which elderly people are deprived of their property by
relatives, carers, attorneys, advisers and others who are in a position to take
advantage of any physical or mental incapacity to which they may be subject is
impossible to gauge with any precision, but practitioners who are regularly
involved in handling the financial affairs of elderly clients can be in no doubt
that this form of abuse presents a serious problem. With reference to enduring
powers of attorney the Master of the Court of Protection has estimated that
financial abuse occurs in about 10 to 15 per cent of the cases where powers have
been registered and more often even than that with unregistered
powers.
Apart
from relatives and home carers, nursing home proprietors and staff are often
involved in these cases, but members of more august professions are by no means
immune from temptation. A Norfolk solicitor was jailed recently for offences
arising out of his activities as attorney under enduring powers given to him by
clients. In another appalling case decided by the Master in January 2000 a
millionaire appointed her accountant and investment adviser to be her attorney
under an EPA in order that he could conduct some litigation for her. The Master
thought the power should have been registered almost as soon as it was given. In
fact the accountant did not apply for registration and after the litigation was
over he proceeded for almost two years to bill the client for what were
described in his invoices as taxation and investment services at a rate of
between £2000 and £3000 per month. It turned out that even before the giving of
the power he had procured the client to make him a gift of £250,000, and that
over 61/2 years he had received personally and via his firm a total of over
£586,000.
The
purpose of this two-part article is to bring together the sources of law to
which practitioners need to have regard when advising in cases of this kind or
in cases where there is reason to anticipate financial abuse. I will not be
looking at the substantive causes of action which will underlie the claim
against the alleged wrongdoer but at the procedures which are available to
obtain relief in circumstances where the victim is normally unable to take the
necessary action himself.
As a result of the introduction of enduring powers of attorney (EPAs) we
now have two recognised régimes for the handling of the affairs of persons under
disability. They are receivership under the authority of the Court of Protection
and conduct of the person’s affairs by the donee or donees of an EPA. So the
problem of protection from fraud and financial abuse of a person under
disability can arise in three possible situation:
In the first part of the article I
shall consider the first two types of situation, and in the second part (to be
included in the next issue of Elderly Client Adviser) I shall cover the third
type.
The
person under disability with no receiver and no registered EPA
Usual
facts
I am
looking here at the case of a person under disability whose affairs have not
been brought under either of the legally recognised régimes for handling them.
The person has been persuaded or deceived into allowing someone else – for
instance a relative or a carer – to sign on his behalf in relation to financial
assets. The wrongdoer has made use of that authority to siphon monies and/or
other assets out of the person’s name and into accounts in his name or accounts
in other names which he controls. In some cases this may have been achieved by
persuading the person to sign something by undue influence or in circumstances
where the person was misled or was incapable of understanding what he was
signing. In others it may have been achieved by mis-using a power of attorney
(whether or not an enduring power).
An EPA in existence?
When a case of this kind
arises it is likely to be brought to the legal adviser by a relative, friend or
carer of the person under disability. It is possible that the person who
discovers what has been going on is the person whom the victim has appointed to
be his attorney under an EPA, though that is likely to be an exceptional
scenario. The honest donee of an EPA is likely to be close enough to the donor
to have realised that he no longer has capacity to manage his affairs and to
have taken control himself by registering the power and thus preventing others
from wrongful activity. But whoever initiates investigation in a case of this
kind, the first thing to be looked into is whether there is an EPA in existence
which names as attorney someone other than the suspected wrongdoer. That will be
an important factor to be taken into account in deciding how to try and protect
the estate of the person under disability.
Attorneys under EPAs are given certain
powers to act before registration. By section 1(1)(a) of the Enduring Powers of
Attorney Act 1985 (the EPAA) an EPA is not revoked by the mental incapacity of
the donor. Subsection 1(b) says that when the donor becomes incapable the donee
may not do anything under the EPA until the instrument is registered by the
Court of Protection except that he may act as provided in subsection (2) or as
directed by the Court under section 5. Section 1(2) says that, where the
attorney has made an application for registration of the EPA, he can do certain
things “until the application has been initially determined”. The phrase is
somewhat obscure. There is nothing in the EPAA which appears to envisage that a
decision either to register or not to register an EPA could be followed by
further consideration of the application to register the power. However the
Court of Protection (Enduring Powers of Attorney) Rules allow the Public Trustee
to register a power without consideration by the Court and also allow the Court
to deal with an application without a hearing, and in each case a party
aggrieved by the decision can apply for a review. One can only assume that the
reference to an initial determination in section 1(2) means that the power to
act under that subsection lasts only until there is a first decision either to
register or not to register and does not continue after that decision even
though there is an application to review it or for that matter an appeal from a
decision of the Court after a hearing.
Immediate powers under an
EPA
Section
1(2) permits an attorney to take action to prevent loss to the estate. Of course
when one is dealing with a power of attorney one must always consider what is
the extent of the authority the particular power gives. Most often an EPA gives
a general power of attorney: the attorney is authorised to do anything for the
donor which he could do himself. In that case there may be a number of things
the attorney can do to prevent loss to the donor’s estate. They may include
giving notices to appropriate parties of the existence of the EPA and of the
fact that the supposed wrongdoer is not acting with the lawful authority of the
donor and issuing demands to stop dealings with property belonging to or derived
from the donor. There seems no reason why starting litigation should be excluded
if that is necessary to prevent loss to the donor’s estate.
It is important however to focus on
the words “preventing loss”. They seem to require that one must draw a
distinction between “preventing loss” to the estate and making recoveries for
the estate of property which has already been lost to it. In other words, in a
case in which there are proper grounds for seeking injunctive relief to prevent
dealings with the donor’s estate or dissipation of property derived from the
donor but held by someone else, the power conferred by section 1(2) is
available. However, it appears not to be available for action where the purpose
is to effect recovery of property for the donor. Presumably the intention is
that such action shall be taken by the attorney when he has registered the EPA
or else with specific authority from the Court of Protection under section 5
which is discussed below.
Another constraint on acting under section 1(2) is that the attorney has
to wait until after he has applied for registration of the EPA. Before he can
apply for registration he has to give notices to the appropriate close relatives
of the donor and to the donor himself (see Schedule 1 to the EPAA) or apply for
leave to be dispensed from the requirement to give notices (see paragraph 3(2)
of Schedule 1). If those requirements are going to hold up the application to
register the EPA, then the attorney who wants to take immediate action in the
donor’s interests may have to apply to the Court of Protection under section
5.
Action by
attorney under the authority of the Court of Protection
If, before registration of an EPA, the
attorney wants to do something which he cannot do or may not be able to do under
section 1(2)(b), the appropriate course is to act under section 5 of the Act. In
specified circumstances section 5 enables the Court to exercise the powers which
would be available to it under section 8(2) in relation to a power which has
been registered. The circumstances are as follows:
The powers under section 8(2) are
disparate, but they include:
(i) The management or disposal by the attorney of the property and affairs
of the donor
(ii) The expenses of the attorney
So in a case where there is an EPA in
existence it is open for someone, who could be the named attorney or a different
party who has taken the initiative in bringing the matter before the Court of
Protection, to ask for an order directing the attorney to take specific steps to
get the estate under control, for example by giving notices, making demands or
starting litigation against third parties. Clearly if one were acting for
someone other than the attorney named in the EPA one would only ask for a
direction of that kind if one were confident that the attorney would act
vigorously under the authority of that order. If that were not certain it would
be preferable to follow the receivership route which is discussed below.
The procedure for
seeking relief under section 5 is straightforward. Under rule 9(1) of the Court
of Protection (Enduring Powers of Attorney) Rules the mode of application for an
order under section 5 can be simply a letter to the Court, and under rule 11(2)
and (6) the Court can make a decision without a hearing if it thinks
appropriate.
Procedures where there is no EPA
I turn to the case of a person under
disability who has not made an EPA or where the EPA is of no use, e.g. because
the attorney named in it has died or is unwilling or unable to act. In such a
case it is normally necessary to have resort to the powers conferred on the
Court of Protection by Part VII of the Mental Health Act 1983. The general
functions of the Court are set out in section 95(1). Where the provisions of
Part VII speak of the judge they mean not only a judge of the Chancery Division
but also the Master of the Court of Protection and in some situations the Public
Trustee (see section 94). Section 96 contains a detailed list of things the
Court of Protection can order to be done for a patient and includes the conduct
of legal proceedings in the patient’s name. Section 99 contains the power to
appoint a receiver for a patient. By section 99(2) a receiver shall do things
which the judge orders or directs him to do and may do things which the judge
authorises him to do. Thus a receiver does not have any general discretion to go
and do things which he thinks would be for the patient’s benefit but which he
has not either been ordered or authorised to do.
As far as emergency action is
concerned, there are two alternative situations to be considered. Section 94(2)
states that the functions of the judge under Part VII can be exercised when
medical evidence satisfies him that the patient is, by reason of mental
disorder, incapable of managing his affairs. So, if there is a need to get the
Court of Protection to act urgently and a doctor has been able to see the
patient and provide evidence that he is incapable of managing his affairs, the
jurisdiction for the Court to exercise its powers under Part VII is established.
If that medical evidence is not available but nevertheless there is a need to
take emergency action, reliance can be placed in the alternative on section 98,
where, as with section 5 of the EPAA, the Court only has to find that a state of
affairs may exist, not that it does – in this instance that the person in
question may be incapable of managing his affairs. If that can be shown and the
Court is satisfied that it is necessary to make immediate provision for any of
the matters mentioned in section 95, it can make any necessary orders without
waiting for the medical evidence which establishes that the person is indeed
mentally incapable.
If a case for immediate action is made out, what can the Court of
Protection do? The answer is to be found in the Court of Protection Rules 1994.
Since, ex hypothesi, there is no-one appointed by the patient to act, the Court
has to direct action and to nominate someone to take it on behalf of the
patient. Under rule 44(1)(a) the Court can issue a certificate or direction
telling a named person to do something or authorising him to do something. A
certificate or direction can also be issued by the Public Trustee where
appropriate, but rule 6 excludes the conduct of legal proceedings in the name of
the patient from his functions. So if there is a need to take proceedings
against a third party the application for a direction under rule 44(1)(a) will
be made to the Master. Alternatively under rule 44(1)(b) the Court – and only
the Court – can appoint an interim receiver for the patient, who will remain in
office until the Court makes some other order. As I have pointed out, a receiver
has to be told the scope of his authority in the order appointing him, so in
practice an application to appoint an interim receiver needs to have appended to
it the draft of an order spelling out what the applicant wants the interim
receiver to do.
As regards mode of application, rule 8(1) of the Court of Protection
Rules allows applications by letter and rule 8(4) enables the Court to dispense
with the need for any application in writing “on grounds of urgency”. Rule 7
provides for the Court to act without holding a hearing and at the instance of
any person interested.
Of course where the only way of protecting the patient’s estate is to
take proceedings against the wrongdoer, an application to the Court of
Protection does not itself give any protection at all. A successful application
to the Court of Protection merely clothes someone with an authority given under
statutory provisions to go and take other proceedings against the wrongdoer.
However swiftly the Court of Protection acts, there is bound to be some time lag
as compared with what could be achieved if that step in the activity is missed
out. So in a case of extreme urgency, one might wish to go straight to the High
Court and issue proceedings in the name of the person under disability.
Emergency proceedings
in the civil court
Proceedings in the civil court on behalf of another person are taken by
what is now called a litigation friend. The rules about litigation friends are
in Part 21 of the Civil Procedure Rules. Para. 21.1(2)(b) contains a definition
of the word “patient” for the purposes of Part 21. It means in effect a person
who is incapable of managing his affairs. So one cannot safely start proceedings
as a litigation friend without firm evidence that the person in whose name the
proceedings are to be brought is actually incapable in that sense.
There are two ways of
giving someone the status of a litigation friend. One is to apply for an order
appointing a person to that position. However the effect of para. 21.3(2)(b)
seems to be that, until a patient has a litigation friend, one cannot do
anything in proceedings in which the patient is the claimant except issue and
serve the claim form and apply for an order appointing the next friend. So it
seems that, in order to seek an interim remedy such as an injunction against the
wrongdoer, one would have to have make two successive applications – the first
to appoint the litigation friend and, once the friend is appointed, the second
for the injunction. That may take too long in a case of emergency. The other
option does not involve a court order. By this alternative route someone takes
the position of litigation friend simply by filing what is called a certificate
of suitability in form N235. This is a form where the maker certifies various
things about himself, namely:
The last
of those points should be particularly noted by a person intending to be a
litigation friend.
In a case where it has been decided to start proceedings where there was
no EPA in existence and to do so without seeking an authority from the Court of
Protection it will obviously be sensible to remedy that omission as soon as
convenient to do so. Assuming the Court of Protection approves the action which
has been taken and the continuation of the proceedings, that gives the
litigation friend the assurance at an early stage that he will indeed be
indemnified out of the estate of the person under disability for the costs he is
expending in taking the proceedings. Otherwise if the proceedings against the
third party were to fail, the litigation friend might find himself facing an
argument about whether he should be reimbursed out of the estate of the person
under disability for the costs he had spent in the unsuccessful
litigation.
Investigation by the Court of Protection
The Court of Protection Rules make
specific provision for the case where at the time when a receiver is first
appointed there are suspicions that a person under disability has been subjected
to financial abuse but no clear proof. By rule 71 the Court can make inquiries
or direct the making of inquiries as to dealings with the person’s property
before the commencement of proceedings in the Court of Protection and as to the
mental capacity of the person at the time of such dealings. In that connection
it is convenient to note the Court’s powers of summoning witnesses under rule
50. In any proceedings under the rules – which must include a rule 71 inquiry –
the Court can issue a witness summons requiring a person to attend before it or
produce documents to it. If a summons is disobeyed enforcement proceedings can
be taken under rule 49. If a person under suspicion of wrongdoing fails to
comply with a witness summons that may in itself suggest that proceedings should
be taken against him.
The Court of Protection’s approach to authorising
proceedings
How will the Court of Protection approach an application to take
proceedings on behalf of a patient against a third party? This was one of the
issues at the centre of a contested receivership in the case of Re M (1996)
unreported. In that case the patient had adult children by his first marriage
and had remarried with a wife much younger than himself. The person suspected of
misappropriation was the wife and the person seeking to protect the patient’s
estate was his son. The son obtained an ex parte order appointing himself
interim receiver of the patient’s estate on the strength of evidence about
apparently suspicious movements of money out of an account in the name of the
patient and the wife. He also obtained authority to bring proceedings against
the wife to recover property from her. When the son used this authority to issue
High Court proceedings the wife responded by applying in the Court of Protection
for the son to be replaced as receiver and for an order that the son or his
replacement as receiver should be directed to discontinue the High Court action.
The wife succeeded on both those applications.
The crux of Parker J.’s approach to
deciding the case was the importance of distinguishing between the interests of
the patient in the widest sense and the interests of other members of his
family. In giving judgment he referred to several passages from earlier
authorities in which judges had considered the significance of what is now
section 95(1) of the Mental Health Act and in particular the word “benefit” in
the phrase “other benefit of the patient”. The most pertinent remarks in the
context of a situation in which the court is considering the authorisation of
proceedings are those of Ungoed-Thomas J. in Re W(EEM) [1971] Ch. 123. He said:
“It seems clear to me that the word is not restricted to material benefit but
that it is of wide significance comprehending whatever would be beneficial in
any respect, material or otherwise.”
Later he dealt specifically with the
issue of bringing proceedings – in this case divorce proceedings: “The
conduct of legal proceedings, and in particular of divorce, may involve far more
than the management, protection and administration of property, which may indeed
form an insignificant aspect of the proceedings. Nor does it seem to me
conceivable that the court, in considering legal proceedings, should consider
that merely as an aspect of administering the patient’s property: otherwise
aspects of such proceedings of no property significance would not receive their
proper consideration. Nor ... is the court’s protection of the patient’s affairs
limited to her financial affairs. There is no such limitation to “affairs” in
the Act [viz. in section 95(1)].”
Of course proceedings for divorce are
fundamentally different in their nature from proceedings to recover property.
But in terms of whether it is for the patient’s benefit to take either type of
proceedings against his spouse there may be little or no difference. If
proceedings in the name of a patient are contemplated against a person to whom
he is married, or with whom he is currently living or on whom he currently
relies for day-to-day care, then a new range of considerations enters into the
question of whether proceedings against that person are for the patient’s
benefit. Those considerations are quite separate from the purely financial
advantage of recovering property. They involve looking at the whole scope of the
relationship between the patient and the proposed defendant and striking a
balance between the benefit of recovering property for the patient’s estate and
the damaging effects of the conflict which the legal proceedings represent on
the personal relationship between the patient and the defendant. The principle
laid down by Parker J. is that in a case where there is a family relationship
between the patient and the alleged wrongdoer (or a continuing family-like
relationship – for instance where people of the opposite sex or the same sex
have lived together for some time prior to the patient’s incapacity), the Court
will be cautious about authorising proceedings and will need to be satisfied
that the adverse effects of a relationship of plaintiff and defendant in the
hostile proceedings on the way in which the patient and the defendant live
together on a day-to-day basis will not outweigh the benefit of recovering
property for the patient. The situation will usually be different if the
day-to-day relationship between the patient and the wrongdoer has ceased. In
such a case the court will be likely to authorise proceedings so long as the
patient can afford them and there is evidence that they will be productive in
the sense that they will succeed and that the defendant has assets worth going
after.
Application for a statutory will
In a case where the person under
disability has got into the clutches of an out-and-out rogue a point to which to
give urgent consideration is the question of the person’s will. If there is any
possibility that the rogue has induced the person to make a will in his favour,
it may be appropriate to make an application for a statutory will. If as
sometimes happens, the involvement of the rogue comes to light because the
person deteriorates suddenly and is close to death, an application on an
emergency basis can be arranged at very short notice (cf. Re Davey [1981] 1
W.L.R. 164).
The misbehaving receiver
Cases of receivers who abuse their
position for financial gain will be relatively rare for a number of reasons.
Receivership is a procedure ordered and supervised by the Court of Protection
and the Public Trustee. When application is made for the first appointment of a
receiver the Court requires information about the receiver, in particular his
relationship to the patient and his occupation, and the nomination of a referee.
He will normally be required to give security in the form of a bond, so there is
a financially powerful party who will be able to come after him if he
misbehaves. The order appointing him will usually allow him to deal only with
income, not capital, and he will be required to account annually to the Court or
the Public Trustee. Finally he is not permitted to make gifts except on the
authority of the Court. Thus there is a series of constraints in place which do
not apply to attorneys under general powers.
If despite all this a receiver does
misbehave, then he can be removed on an ordinary application to the Court of
Protection. If there are grounds for proceedings against the receiver the
applicant will seek an order under section 96(1)(i) that the replacement
receiver be directed to take the appropriate proceedings. In that context what I
said earlier about the Court of Protection’s attitude to authorising proceedings
will apply.
Dirik Jackson, Barrister, 11 New Square.
