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Smith v. Chief Adjudication Officer [1994] UKSSCSC RIS_21_1995 (11 October 1994)

R(IS) 21/95

(Smith v. Chief Adjudication Officer)

CA (Sir Thomas Bingham MR, Simon Brown and Roch LJJ)
11.10.94

Remunerative work - whether enterprise allowance constituted payment for work - whether preparatory work done in the course of setting up a business is work done in expectation of payment

The claimant claimed income support on grounds of unemployment in January 1991. He was a member of an unmarried couple. His partner had set up a business in June 1990 as an agent for pop musicians, a type of work of which she had no previous experience. She received payments of enterprise allowance, which was a weekly allowance paid by the Manpower Services Commission for a period of 52 weeks to persons previously unemployed who had started a new business. One of the conditions of the scheme was that applicants must commit themselves to working full-time in the business. To get the business going, the claimant's partner had first to recruit musicians who wished to be represented by her and then to obtain engagements for them, so there was considerable delay before she earned any commission on performances. By June 1991 she had earned no more than £200 from the business. The adjudication officer disallowed the claim but that decision was reversed by a social security appeal tribunal. The adjudication officer appealed to a Commissioner. The Commissioner held that:

(a) the claimant's partner was engaged in work for not less than 24 hours per week;

(b) payment was being made for the work in the form of the enterprise allowance;

(c) if it were necessary to decide the point, the work was being done in expectation of payment in the form of earnings from the business; and

(d) accordingly the claimant's partner was engaged in "remunerative work" as defined in regulation 5(1) of the Income Support (General) Regulations 1987 and so the claimant was excluded from entitlement to income support by section 20(3)(c) of the Social Security Act 1986.

The claimant appealed to the Court of Appeal.

Held, allowing the appeal, that:

a payment of enterprise allowance was not a payment for work for the purpose of regulation 5(1) of the Income Support (General) Regulations 1987. The enterprise allowance scheme was not intended to provide recompense for the work done in the course of the business but rather was maintenance for the recipient during the period that the business was being launched. The Court declined to consider authorities concerning the effect of payments of enterprise allowance on entitlement to family credit as these depended on the interpretation of different regulations;

the claimant's partner was not, up to the date of the appeal tribunal hearing, doing work in expectation of payment. In considering this issue, it had to be born in mind that any business activity may involve spending time on work of a speculative nature e.g. attempting to obtain business or solicit custom, which if unsuccessful, will not attract any payment. A distinction had to be drawn between a business which was:

(a) in the course of being set up, in which case work of a speculative nature should be regarded as merely preparatory for subsequent work for which there will be a realistic expectation of payment and so not taken into consideration for the purpose of regulation 5(1); and

(b) established and "up and running", in which case work of a speculative nature should be regarded as ancillary to work for which payment was being made and so taken into consideration for the purpose of regulation 5(1);

No precise test could be laid down whereby this distinction should be made. But in this case the tribunal had clearly decided that, as at the date of hearing, the business was still in the course of being set up. There was no reason to overturn that conclusion.

The Court quashed the Commissioner's decision and restored the decision of the tribunal that the claimant was entitled to income support.

DECISION OF THE COURT OF APPEAL

Mr. M. Westgate (instructed by Messrs. Carlos Dabezies, London W10) appeared on behalf of the Appellant.

Mr. J. Latter (instructed by the Solicitor for the Department of Social Security) appeared on behalf of the Respondent.

THE MASTER OF THE ROLLS: This is an appeal by Mr. Kevin Smith against a decision of the social security Commissioner, given on 20 April 1993. The issue in the appeal concerns Mr. Smith's entitlement to income support for a period beginning on 9 January 1991, when he first applied for that payment. It is common ground that Mr. Smith satisfies all the conditions for payment of income support, except one. That one condition is to be found in what was section 20(3)(c) of the Social Security Act 1986 which provides:

"A person in Great Britain is entitled to income support if-

. . . .

(c) he is not engaged in remunerative work and, if he is a member of a married or unmarried couple, the other member is not so engaged."

At the relevant time Mr. Smith was a carpenter, aged 20, who was unemployed and so not engaged in remunerative work. He was not a married man, but he was a member of an unmarried couple. The question is whether his unmarried partner was engaged in remunerative work.

Section 20(12)(c) of the 1986 Act authorised the making of regulations to make provision as to what is, or is not, to be treated as remunerative work. Such regulations were made, namely the Income Support (General) Regulations 1987. Regulation 5(1) of those regulations provides:

"Subject to the following provisions of this regulation, for the purposes of section 20(3)(c) of the Act (conditions of entitlement to income support), remunerative work is work in which a person is engaged, or, where his hours of work fluctuate, he is engaged on average, for not less than 24 hours a week being work for which payment is made or which is done in expectation of payment."

Mr. Smith's partner was a Miss Susan Hussey who was aged 27. There are two features of Miss Hussey's position which are relevant to this appeal. The first, and I shall refer to the facts in more detail in a moment, is that she was trying to establish herself as an agent for a number of pop groups. The second feature of her position which is important is that she was, at the relevant time, in receipt of an enterprise allowance to help her get established. The expression "enterprise allowance" calls for some explanation.

Section 2(1) of the Employment and Training Act 1973 reads:

"The Secretary of State shall make such arrangements as he considers appropriate for the purpose of assisting persons to ... obtain and retain employment suitable for their ages and capacities."

Under the power contained in that Act a scheme was promulgated which has been called the "Enterprise Allowance Scheme". We have been provided with a memo from the Manpower Services Commission which describes the scheme. That memo explains in paragraph 6 that the scheme:

"Helps those unemployed people who want to start a business but who may be deterred from doing so because-

(a) they will lose their unemployment or supplementary benefit as soon as they set up in business; and

(b) it takes some time for the business to become established and start to make a profit."

Paragraph 7 explains that the scheme is designed to overcome these problems by paying an allowance of £40 per week for a maximum of 52 weeks to unemployed people who are in receipt of benefit and who wish to start a business. Paragraph 8 suggests that the scheme helps generate new independent businesses that otherwise would not have been set up. In paragraph 10 of the memo the conditions of eligibility for payment of enterprise allowance are set out. One of the conditions which applicants must meet is that they should agree to work full-time in the business. So here we have an outline of an obviously beneficial social initiative to try and remove unemployed people from the dole queue and give them the means to launch a business of their own from which they may, in due course, hope to make earnings and so relieve themselves of the need to rely on State assistance.

It is convenient at this stage, I think, to turn to the findings of fact made in this case by the SSAT in its decision of 9 July 1991. The findings begin on page 16 of the bundle before us and I think that I should quote them in full. The tribunal found the following facts:

"1. The claimant is a young man aged 20 who lives in privately rented accommodation with his partner Miss Susan Hussey. She is aged 27.

They have no savings. They receive housing benefit but have to meet themselves £35 per week of their rent.

The claimant is unemployed.

Miss Hussey wanted to set up in business as an agent/manager for pop musicians. For this purpose she obtained an enterprise allowance on 25 June 1990 for one year. She worked from home in setting up the business.

When Miss Hussey began her business in June 1990, she had no contacts with any musicians for the purpose of acting as agent or manager. It was therefore necessary for her to seek out and build up a clientele. From June 1990, she advertised in shops and newspapers for musicians to act for, she listened to tapes of bands, she sought out those bands whose music she liked on tape, she made many telephone calls to try to obtain musicians to act for and photocopied material about her business.

In September 1990 she arranged to try to get engagements for and to advertise a particular band called the Silver Hearts and entered into an arrangement with them in November 1990 that she would take 20% of their earnings. However the bass player in the Silver Hearts band then left the band and the band performed no concerts until March 1991.

Despite putting in many hours of work to build up contacts for the business and despite entering into the arrangement with the Silver Hearts band in November 1990 and acting for a second band, the Mother Machine, from March 1991, Miss Hussey earned no more than £200 in the year running from June 1990. A factor in that situation is the effect of the recession which resulted in an absence of bookings for bands at the beginning of 1991.

The tribunal accept that in the pop music business it takes a long time to build up contacts as an agent or manager; that someone new to the business will not expect to receive any payment until much ground work has been done to build up contacts but that in the long term there is money to be made from working as an agent/manager for pop musicians provided one is prepared to work at building up contacts without payment for some considerable time. The tribunal accept that because of the hard work by Miss Hussey in building up contacts, she is now about to be in a position when she can expect payment for her services.

The tribunal find that in the period June 1990 to 9 July 1991 Miss Hussey and the claimant have been living on bank loans together with Miss Hussey's enterprise allowance, which ended at the end of June 1991.

The tribunal decided that Mr. Smith was entitled to income support from 9 January 1991 and accordingly allowed his appeal against the adjudication officer's decision that Mr. Smith was not entitled to income support. The tribunal's reasons for reaching that decision are again important and I quote them.

"1. The claimant himself is unemployed.

His partner, Miss Hussey, in respect of the period June 1990 to 9 July 1991 is to be treated as not engaged in remunerative work and as falling outside regulation 5(1) of the Income Support (General) Regulations 1987.

The reasons for so treating Miss Hussey are that having regard to the nature of business as an agent/manager for pop musicians, a novice to the business, like Miss Hussey, has to expend a long period of time building up contacts in the pop music world before any payment can be expected. In the period June 1990 to 9 July 1991 Miss Hussey worked for many hours to building musical contacts without, in the main, expecting any payment for her work which she did in the hope of acting in the future as an agent/manager for which she would receive payment.

Although in the period June 1990 to 9 July 1991 Miss Hussey did receive some payment for her work, that payment consisting of £200 only was so small an amount in relation to the hours she was putting in, as to justify disregarding that payment in the period in question under the principle of de minimis non curat lex.

In regard to the dicta of the Commissioner in R(FIS) 1/83 paragraph 7 quoted by the adjudication officer in para 6.5(3) of the submissions, the tribunal take the view that as that case concerned a different set of regulations, namely, the Family Income Supplements (General) Regulations 1980, regulation 5, the wording of which differs significantly from that of regulation 5(1) of the Income Support (General) Regulations 1987 the tribunal were not bound to apply to this appeal the words from para. 7 of R(FIS) 1/83 relied on by the adjudication officer. The tribunal also take the view that the enterprise allowance paid to Miss Hussey for the year from 25 June 1990 was not payment made for work within regulation 5(1) of the 1987 Regulations, but instead payment made to enable Miss Hussey to set up in business.

In the result the condition of entitlement to income support in section 20(3)(c) of the Social Security Act 1986 that neither the claimant nor his partner is engaged in remunerative work is satisfied in respect of the period June 1990 to 9 July 1991."

The factual findings that the tribunal made concerning Miss Hussey's expectation appear to be fully justified by the evidence which Miss Hussey gave as recorded by the chairman. It is unnecessary to cite the whole or even a large part of that evidence, but I do draw attention to various disjointed sentences. I quote:

"I work very hard with little, or no money in return in the hope I will build up a business ... I knew I could not do it (the business) without an enterprise allowance. You have to do a lot of work for nothing till one day all is going well ... I knew that most of time to begin with I would not earn anything but I did it (the work) for the future … In June 1990 (when I went on the EA) I had no bands - I had to advertise for bands - one then had to talk to them and seek work from them ... At the beginning of this year there were no gigs and no one was booking bands. Now things are picking up. So in a couple of months I would expect to earn some money ... Up to now I had no real expectation of payment."

From that decision there was an appeal to Mr. Sanders as social security Commissioner. The case that was put to the Commissioner, as recorded by him in his judgment, was that the tribunal had been wrong to decide that Miss Hussey had not, at the material time, been engaged in remunerative work because she worked more than 24 hours a week in her business and either that was work done in expectation of payment, or it was work for which payment was made, namely the payment of enterprise allowance. There were, therefore, two distinct grounds which were the subject of argument, one relating to the expectation of payment and one to the role of enterprise allowance as payment. It seems that the main argument before the Commissioner related to the second ground, that enterprise allowance was payment and it is plain from his decision that the Commissioner was influenced by a comparison with the Family Credit Regulations and previous decisions which had been reached on this point.

In the course of his judgment he said, having referred to the two sets of regulations and their possible interrelationship:

"I have not been convinced that there is a satisfactory answer to that particular question but on balance I have come to the conclusion that the circumstances in which enterprise allowance is paid are more appropriately referable to family credit than to income support. Thus I conclude, consistently with what was said in CSIS/6/1989 and CSFC/4/1991, that enterprise allowance is in effect payment for work and that therefore the claimant's partner was at the material time engaged in "remunerative work". This means of course that the adjudication officer's appeal succeeds and the claimant is not entitled to income support in respect of the claim in question."

He then, however, went on to deal with the other rather subsidiary point about which he said this:

"I should perhaps add that, had it been necessary to decide the point, I would have come to the conclusion that, quite apart from the enterprise allowance issue, the work done by the claimant's partner was in the circumstances done in expectation of payment as her receipt of £200 during the period in question showed. It seems to me that this is a very different case from that for example of the full-time writer who hopes one day to sell a book in that here I should have taken the view that there was a realistic expectation of payment as distinct from a mere hope: see CIS/270/1991 (to be reported as R(IS) 1/93) and CFC/3/1989."

He went on to indicate that the appeal must succeed.

Against the Commissioner's decision, Glidewell LJ gave leave to appeal and, therefore, the matter now comes before this court.

On behalf of Mr. Smith, Mr. Westgate raises two questions. The first is whether enterprise allowance is capable of being payment for work within the meaning of regulation 5(1). The second is whether or not Miss Hussey was engaged in work done for payment or in expectation of payment.

I turn, therefore, to the first of these arguments relating to enterprise allowance. The first of Mr. Westgate's arguments on that point essentially rests on the language of regulation 37 of the Income Support (General) Regulations 1987, which provides in paragraph 1 as follows:

"Subject to paragraph (2), 'earnings' in the case of employment as a self-employed earner, means the gross receipts of the employment and shall include any allowance paid under section 2 of the Employment and Training Act 1973 to the claimant for the purpose of assisting him in carrying on his business."

The significance of that provision is this. If the decision of the social security Commissioner is right and the receipt of enterprise allowance excludes Mr. Smith from receiving income support, then that is a bar. If, on the other hand, Mr. Smith is prima facie entitled, it is, nonetheless, the case that Miss Hussey's earnings and enterprise allowance would be taken into account in deciding the amount of income support payable. Here, in regulation 37, it is provided that in calculating the earnings to be taken into account, earnings shall include any payment made by way of enterprise allowance. If, Mr. Westgate asks, the very receipt of enterprise allowance is to have the result that the recipient is treated, for the purposes of section 20(3)(c), as being engaged in remunerative work, then how could it ever be necessary to take account of enterprise allowance in calculating earnings? Mr. Westgate points out that if the receipt of enterprise allowance is itself a conclusive indicator of remunerative employment, then the stage of calculation envisaged by regulation 37 can never be reached. He accordingly submits that an applicant must be capable of being regarded as not in remunerative work for the purposes of 20(3)(c), but yet be capable of receiving enterprise allowance, which falls to be taken into account for the purposes of regulation 37.

To that submission the Chief Adjudication Officer gives two answers. The first is that an applicant could be regarded as not in remunerative work but, nevertheless, in receipt of enterprise allowance if he was working for less than 24 hours a week, it being a requirement of regulation 5(1) that a person regarded as being in remunerative employment should work for 24 hours or more. Accordingly, he submits that there is a category of people who would be working less than 24 hours and so would not satisfy regulation 5(1), but might nevertheless be in receipt of enterprise allowance. In answer to that submission, or that answer, described by the social security Commissioner as "fanciful", Mr. Westgate points out, as I have already recited, that it is a condition of receipt of enterprise allowance that the recipient should agree to work full-time in the business and it can scarcely be supposed that this regulation could be designed to take account of someone who I was in receipt of enterprise allowance, but not fulfilling the necessary conditions. I share the view of the social security Commissioner in regarding that answer as completely unpersuasive.

The second answer which the Chief Adjudication Officer gives through Counsel, is to draw attention to regulation 6 of the Income Support (General) Regulations, in which certain categories of people are listed, who are not to be treated as engaged in remunerative work. It is accordingly suggested that by virtue of regulation 6 a person may be necessarily treated as not in remunerative work, but may nevertheless be in receipt of enterprise allowance. In that way, he says, there is a class of persons upon whom regulation 37 could bite. Mr. Westgate, for Mr. Smith, points out that persons are only to be treated as not engaged in remunerative work in so far as they fall into one of those categories, and that they could have other employment in relation to which they could receive enterprise allowance. To my mind, however, a much more convincing ground for dismissing the answer which is suggested on behalf of the Chief Adjudication Officer, is that the categories of person listed in regulation 6 do not at all suggest the classes of person to whom enterprise allowance would, in any probable situation, be paid. One need only, for example, look at 6(a), which governs a person who is mentally or physically disabled and whose earning capacity is, by reason of that disability, reduced to 75% or less of what he would, but for that disability, be reasonably expected to earn. The social security Commissioner regarded this answer as also fanciful and I would agree with him. I find no indication of any kind that the draftsman, or legislator, envisaged anyone covered by regulation 6 as being a likely recipient of enterprise allowance.

Mr. Westgate does, however, go on to make a more general point, to the effect that enterprise allowance is simply not paid for work done. He refers to various of the materials that I have already mentioned, in particular the memo from the Manpower Services Commission, and urges that it is essentially money that is spent by the State to launch people into business, to get them going, to help them establish themselves, to set them up, and not money which is paid for work done. Mr. Westgate has elaborated on that submission in his skeleton argument, paragraph 12, and points out that the payment is to assist and maintain the recipient in establishing and carrying on the business, rather than as compensation for the work carried on in the course of the business. He suggests that this is recognised by regulation 37, by the terms of the scheme, and by the finding of the tribunal, that the object of the allowance was to enable Miss Hussey to set up in business. He suggests that the recipient of an enterprise allowance must agree to work full-time in the business, but it is the agreement, and not the work, which is the precondition for eligibility. The payments are made at a flat rate over the course of the year and are not referable to any week's work or whether any work was carried out in that week. In answer to that, the Chief Adjudication Officer submits that an enterprise allowance is paid for work, in as much as an applicant must agree to work full-time before any payment is made and that in all the circumstances it is realistic to regard the enterprise allowance as paid for the work which the recipient does. In some measure this point, I think, really turns on one's impression of the enterprise allowance scheme and the purposes for which it was established. One must, of course, bear in mind the language of regulation 5(1). For my part, however, I do not regard the enterprise allowance as one that can fairly be regarded as a payment made for work, but essentially, as the explanatory literature makes clear, a payment made to enable people to try and set themselves up, launch themselves and establish themselves in business.

Differing, therefore, from the social security Commissioner, I would hold that receipt of an enterprise allowance does not disqualify a recipient from income support, by placing him outside the confines of section 20(3)(c).

Mr. Westgate and Mr. Latter, for the Chief Adjudication Officer, did draw our attention, as indeed the social security Commissioner had done, to a number of authorities on family credit and its predecessor. There is undoubtedly a degree of common language between the regulations relating to family credit and those relating to income support and it would certainly be unsatisfactory if those common expressions came to have different meanings within the context of the two forms of payment. Nonetheless, it seems to me dangerous to approach the matter as if an applicant must fall within one benefit or the other, since there is no reason why that is so and there are various significant differences between the two benefits. I think, therefore, with respect to the Commissioner in this case, and other Commissioners in other cases who have taken a similar approach, that it is safer to concentrate one's attention very closely on the language in issue so far as income support is concerned and not to attempt what may be a somewhat uncomfortable reconciliation with other regulations dealing with a different benefit.

The second issue, therefore arises, and it is whether Miss Hussey was in remunerative employment, apart from the enterprise allowance. That, of course, takes one back to regulation 5(1) and the question whether she was doing work for which payment was made or which was done in expectation of payment. Mr. Westgate says that she was not, for the most part, engaged in work for which payment was made, or which was done in expectation of payment, and he relies very heavily on the findings of the tribunal. There is, he said, no evidence whatever to support a different conclusion. He draws attention to the conclusion of the Commissioner in another case (R(IS) 1/93, para.11), in which it was said that "expectation" in this context must mean a realistic expectation and he suggests that Miss Hussey had no realistic expectation of being paid for the great bulk of the work that she was doing and certainly cannot have had a realistic expectation of being paid for anything approaching the number of hours that she was working. Evidence of this, he says, is to be found in the very meagre sum that she actually succeeded in obtaining during her year of work. For the Chief Adjudication Officer, Mr. Latter submits that Miss Hussey was doing work for which, to some extent, payment was made and which was done in expectation of payment, in the sense that all the work that she was doing was being done in the expectation that one day she would be paid for it. He urges that a longer view must be taken than merely to ask whether every act performed, or every telephone call made is itself to be paid for and would, I think, draw an analogy between the sowing of seed and the reaping of the harvest. I can, for my part, readily accept that very difficult questions could arise on the borderline as to whether work was done in expectation of payment or not. In any established business a businessman may well do a number of things in order to try and attract business or solicit custom, for which in the event of his failing to do so, he will not realistically expect to be paid. On the other hand, there will be other work which he does, for which he certainly will expect to be paid and to render his bill. This is not, I think, a field in which it is possible to draw any line of principle, or indeed to formulate any test which would yield a clear and decisive answer as to whether the conditions of regulation 5(1) are satisfied or not. I am, however, bound to say that on the facts of this case it does not seem to me that the case falls near the borderline. The evidence appears very clear that Miss Hussey was doing a great deal of work to try and establish herself in business. Once the business was established, once it was up and running, once she had a business to conduct, then it would be reasonable to infer that what she was doing was done for payment, or in the expectation of payment, but until that stage had been reached, when she was still seeking to obtain work, seeking to solicit custom, trying to get herself known in the market, trying to set herself up and establish herself, then it would seem to me that the work which she was doing was not done, either for payment, or in the expectation of payment. As I say, it does not appear to me that this case is near the borderline and I find it impossible, in the light of the evidence which was given, to see grounds for dislodging the conclusion to which the tribunal came, which was, on the facts properly found, in my view a correct one. I would accordingly, for my part, allow the appeal and make such consequential orders as may be appropriate.

LORD JUSTICE SIMON BROWN: I agree and would add a word or two only on the second part of the argument.

They are the question of whether, enterprise allowance aside, the appellant's partner, Miss Hussey, was carrying on remunerative work within the meaning of regulation 5(1). The essence of Mr. Latter's argument, as I understood it, was this. All that Miss Hussey did, she did in the expectation of payment in this sense that her efforts were all directed, ultimately, to the end of building up her business, obtaining contracts, and thus receiving payments. It is, submits Mr. Latter, artificial to seek to divide up the business into those hours at work which produced profitable contracts and those that did not. The business, he submits, once up and running, must be looked at as a whole.

I readily follow this submission and recognise that in many businesses much of the work done will indeed be purely speculative in nature and without a realistic prospect of it ever producing any payment. A nice question may well arise as to when the point is reached at which the bulk of the work done, work exceeding 24 hours per week, ceases to be merely preparatory to work for which there is a realistic expectation of future payment, ceases, that is, to be essentially an investment to build up goodwill, and becomes instead work, including, of course, ancillary work, for which, in a more direct and immediate sense, payment is made or realistically to be expected. Until that point is passed, the business cannot properly be regarded as up and running; rather, it is being set up.

It is by reference to this approach that, having regard to the tribunal's clear findings of fact, I would reject Mr. Latter's argument. The tribunal, clearly alive to the distinction between work for which payment could be expected, and that for which no such expectation arose, and alive also to the length of time it takes to set up a business such as that upon which Miss Hussey was embarking, clearly concluded, on the facts, that the business had not, by the date of the hearing on 9 July 1991, been in any real sense set up. That, at least, is how I would interpret their decision. That being so, in my judgment, the point had not been reached at which the non remunerative work could properly be regarded as ancillary to the very limited work for which actual payment could realistically be expected. I too, therefore, would allow this appeal.

LORD JUSTICE ROCH: I agree with both judgments.

Order: Appeal allowed with costs. Commissioner's decision quashed. The appeal tribunal's decision reinstated to the effect that Mr. Smith was entitled to income support from 9 January 1991 until 9 July 1991. Order for Legal Aid Taxation.