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Court of Protection: A conflict of interests and irregular property transactions

We look at the recent case of a mother whose house was sold by her daughter without her knowledge.

JS v KB and MP (Property and Affairs Deputy for DB)

Background:

DB had been diagnosed with dementia and struggled with basic tasks and information.  She was living with her daughter (JS) and her daughter’s husband.

JS and her husband decided to sell DB’s house and buy a new property in their own names using the proceeds of sale.  As DB lacked mental capacity, they should not have been able to sell her house without a power of attorney or deputyship order, or indeed buy a new house in their own names with the proceeds of sale.  But, remarkably, the transaction went through without such authority and without DB being consulted.  JS also received DB’s benefits into her own account without authority.  The judge was keen to point out that he was satisfied JS and her husband provided DB with very good care, although the financial side of things was wholly unsatisfactory.

DB also had a son (KB), who was not happy with the situation.  The siblings’ relationship deteriorated to the point that both parties instructed solicitors and KB threatened to report his sister to the Office of the Public Guardian.  JS decided to apply to be appointed as Deputy for Property and Affairs for DB so that the position could be sorted out legally.

Following a drawn out court battle JS’s application for deputyship was rejected due to a conflict of interests and it was ordered that an independent panel deputy should be appointed instead (MP).

The irregular property transaction:

One firm of solicitors acted on both sides of the transaction and sent all relevant correspondence to the daughter as if she were the seller and the buyer.  This is most irregular: the firm acted contrary to the rules on when conveyancers can act, as well as not taking into account the Mental Capacity Act and its Code of Practice.  No legal representatives involved in the process appeared to check whether DB had been properly consulted or that JS had proper legal authority to act on her behalf.  The judge criticised the solicitors’ conduct in acting for both buyer and seller and said that failing to offer DB independent advice at the point of sale and purchase was extraordinary.  The solicitors must have known that DB’s money was being used for the purchase of a property in which she would have no stake and that her mental capacity was in doubt.

The Judge did not accept the daughter’s argument that the property was registered in her and her husband’s names as a loan from her mother as there were no documents to back this up and no proof that her mother would have the ability to appreciate or understand such an arrangement.

He also rejected JS’s astonishing assertion that DB did have capacity to consent to the property transactions, as there was clear medical evidence to the contrary.

As the panel deputy had been appointed, it remained for the judge to rule on who should pay for the costs of the case.

Costs Order:

The general rule in property and affairs cases in the Court of Protection is that the person who lacks capacity will bear the legal costs of any hearings (this differs from welfare proceedings where the general rule is that each party pays their own costs).  However, the Court has discretion to depart from the general rule, and one of the reasons for doing so is where the conduct of one or more parties has been unreasonable.

The Judge said that JS’s application for deputyship was doomed to failure because of her obvious conflict of interests. She should not have continued with the litigation to this point, particularly when she had been given legal advice that what she had done with her mother’s funds was at best highly questionable and at worst financial abuse.

JS’s brother, KB, was found to be partly at fault because he had not questioned the irregularity of his sister’s dealings soon enough.  He had effectively sat back and let things happen until they had gone too far.

In the circumstances, the Judge felt that it would be wrong for DB to bear the entire cost of the proceedings (totalling around £70,000).  However, he recognised that none of the parties were well-placed financially to pay their own legal costs or the costs of others. Both JS and KB were retired with limited funds.

JS was ordered to pay two-thirds of KB’s costs and four-fifths of the Deputy’s litigation costs on behalf of DB.  The balance was to be paid by DB.  The professional deputy was allowed to explore an equity release scheme so that JS could discharge her liability for costs by way of a loan against the equity in the property.  The Deputy was also authorised to investigate the solicitors who dealt with the conveyancing and, if necessary, bring proceedings against them for any financial loss suffered by DB.

This is another cautionary tale from the Court of Protection for family members who may be tempted to deal with their loved one’s finances informally to benefit their own interests.  Conveyancers dealing with clients who lack capacity should also be alert to the relevant issues. For advice on property and affairs matters where a relative or client lacks capacity, please contact Anthony Fairweather.