Most personal injury practitioners will have acted for a variety of vulnerable clients. This article examines the risks involved in paying out damages awards to vulnerable clients.
Vulnerable clients include clients with:
- a head injury,
- a learning disability,
- mental illness,
- confusion or memory problems,
- and clients who are children.
Children and those who clearly lack capacity will already have a litigation friend.
Other vulnerable clients may have sufficient capacity to give instructions on the conduct of the claim and any settlement offers. However, they may not have sufficient capacity to manage a large sum on money in their own best interests.
The SRA is particularly concerned about the way that solicitors deal with vulnerable clients as this is an area where mistakes can easily be made with disastrous consequences for the clients.
Mental Capacity Act 2005
The Mental Capacity Act 2005 (MCA) applies to people over the age of 16 who lack mental capacity and the Act sets out the rules for safeguarding their interests.
Under the Act, there is an assumption that every client has capacity unless there is evidence to the contrary. The test for capacity is not a blunt “all or nothing” condition but is issue specific.
Therefore even if you have established that the client does have sufficient capacity to give instructions during the claim, it is important to reassess whether the client has sufficient capacity to manage the damages award when the case settles.
If you have any concerns on this issue then it is advisable to request a formal capacity assessment. It may be that the client can manage his own finances with support and should therefore consider appointing an attorney or setting up a PI trust.
What can go wrong?
A client with a severe head injury may be vulnerable to financial exploitation. They may be persuaded to lend money, make gifts or invest in speculative ventures.
In the unreported case of DP, the client sustained a serious head injury in a road accident and recovered damages of £200,000. The client was disinhibited due to his injury and boasted loudly to other drinkers in his local pub about the amount of money he had been awarded. A number of people persuaded the client to “invest” his money with them. Within six months of the settlement, the client had spent the entire award.
Unfortunately on some occasions, family members cannot be relied upon to act in the client’s best interests.
In the Court of Protection case of Re S and S (2010), the parents of an adult daughter with cerebral palsy were appointed as her deputies and then squandered most of their daughter’s £2.6 million settlement on houses, cars, cosmetic surgery and holidays.
Safeguarding the vulnerable client
If there is any risk that the client may not be able to manage the damages award in their own best interests then the first step is to obtain a formal assessment of capacity.
This could be carried out be a treating medical practitioner or an independent medical expert who specialises in capacity assessments.
It is important to clarify in the letter of instruction all relevant issues such as the size of the award, any specific expenditure that the compensation is intended to cover, the skills needed to manage the money such as an understanding of investments and any vulnerability to financial abuse. The instruction letter should also refer to the relevant provisions of the MCA and the MCA code of practice.
Powers of attorney
If the client has sufficient capacity to appoint an attorney then they can appoint someone to manage their finances for them under a general or Lasting Power of Attorney.
A general power of attorney comes to an end if the client loses capacity in the future.
A Lasting Power of Attorney remains valid even if the client loses capacity in the future.
The client may choose to appoint a family member or a professional attorney. The client can agree with the attorney to what extent they must be consulted and involved in decision making.
Instead of appointing an attorney, the client could set up a PI trust. This would assist a client who would struggle to manage the money on their own as they would have the assistance of a co trustee.
A PI trust also safeguards the compensation against means testing for benefits or local authority funding (such as supported living or a care home). Means tested benefits include income support, Employment Support Allowance and Universal Credit. Therefore it is very important to give advice about PI trusts to any client who is receiving benefits or who may receive benefits in the future.
Other advantages of a PI trust are:
- Ring fencing the damages award in divorce proceedings so that the compensation cannot be included in any ancillary relief settlement, and
- Safeguarding the compensation in the event of any future loss of mental capacity.
If the client does not have sufficient capacity to appoint an attorney, then the only option is to apply to the Court of Protection to appoint a deputy for property and finance. An application for a deputyship order must include evidence from a medical practitioner confirming that the client lacks sufficient mental capacity to manage their own finances.
The deputy can be a family member or a professional, or a combination of both acting jointly.
Deputies are supervised by the Office of the Public Guardian (OPG) and must keep accounts and file an annual report with the OPG.
The process of appointing a deputy takes about 6 months.
When a severely disabled child is awarded a large sum of compensation, the decision as to whether to appoint a deputy or set up a PI trust depends on whether the child will have capacity at the age of 18. If the child will not have capacity at the age of 18, a deputy must be appointed.
If the relevant expert advises that the child will have capacity to manage their own finances at the age of 18 then a request can be made at the settlement approval hearing for the damages award to be invested in a PI trust. The court will usually require a professional trustee to be appointed with the parents.
If the child will not have capacity to manage their own finances at the age of 18 then a decision must be made as to who should be appointed as deputy for the child.
Often the parents are keen to act as deputies in order to save the costs of a professional deputy. However there are a number of complicated issues to deal with when the settlement money comes in and many parents would benefit from acting jointly with a professional deputy during this period.
The role of deputy is usually onerous. There is a requirement to keep detailed records and accounts and also to ensure that the money is invested so as to achieve the best possible return.
There is also a need for careful budgeting so as to ensure that the compensation lasts for the duration of the injured person’s life.
This is particularly relevant when the damages award is used for the purchase of a property. Detailed calculations must be carried out in order to work out how much can be spent on the purchase and adaptations and how much capital must be retained to cover future expenditure such as therapies and equipment. This is made more complicated because the damages award will not include the full value of the property but only the amount allowed under the rule in Roberts v Johnstone. If too much capital is spent on purchasing a property and adapting it, then there may be insufficient capital left to pay for care, equipment and household running costs in the future.
Parent and child conflict of interest
In addition there is the potential for a conflict of interest to arise between the parents and the child. This is partly because they are living together and it is often difficult to disentangle the finances of the parents and those of the child. The deputy has a duty to keep the client’s finances completely separate from their own personal finances.
After the claim has settled, the parents are entitled to gratuitous care payments to compensate them for the care they provide over and above the care that the child would have needed if not disabled. An obvious conflict of interest arises if the parent is left to work out the amount due to themselves.
Also after the case has settled, the deputy will agree a personal allowance to be paid to the parents to cover all additional expenses due to the disability which are not covered by DLA. Again a conflict of interest arises if the parent is left to calculate the amount due.
For these reasons it often makes sense for a professional deputy to be involved for a few years after the case settles in order to agree how the compensation will be used, set up appropriate investments and decide on the payments to the parents. Once the difficult decisions have been made, it may be appropriate for the parents to deal with the deputyship matters on their own in subsequent years.
There are a number of possible pitfalls when acting for vulnerable clients and particular care should be taken to ensure that the client does have sufficient capacity to handle the damages award before any money is sent out.
If you have concerns about capacity then it is very important to obtain a formal capacity assessment.
The client may have capacity to appoint an attorney to assist them. Alternatively they may have capacity to set up a PI trust.
Attorneys, trustees and deputies all have a duty to act in the client’s best interests. However, very careful consideration should be given as to who should be appointed as attorney, trustee or deputy to ensure that the client’s compensation is protected.
This article first appeared in PI Focus.