UK Social Security and Child Support Commissioners' Decisions

[1995] UKSSCSC CIS_117_1995 (01 November 1995)

R(IS) 4/96


Mr. P. L. Howell QC CIS/117/1995

1.11.95

Capital - charge on property - whether giving rise to a reversionary interest

The court order made on the claimant's divorce provided for him to transfer his entire interest in the former matrimonial home to his ex-wife in return for a charge on the property equal to 16/57ths of its value. The charge was not to be enforced until his former wife died, remarried or cohabited for a period of six months or more. His former wife was aged 46 and in good health. The adjudication officer refused his claim for income support on the ground that his capital exceeded the prescribed limit of £8,000. The social security appeal tribunal dismissed his appeal, holding that he was entitled to a share of the property which they valued at £10,385 by taking 16/57ths of its full current value less sale expenses. The claimant appealed to a social security Commissioner

Held that:

the claimant's rights under the court order did not confer on him any interest in the property but gave him a right to a money sum only. He had a secured debt payable at a future date, which was not a reversionary interest (Re Fisher [1943] Ch 377 at 328-3 followed). Thus his rights did not fall to be disregarded altogether under paragraph 5 of Schedule 10 to the Income Support (General) Regulations 1987 (paras. 12 to 14);

however the tribunal had erred in their valuation of the claimant's rights under the court order as they had not applied any discount for the fact that the debt was not payable immediately and possibly not for many years, so that its current value could not be anything like 16/57ths of the property itself (paras. 15 and 16).

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1. For the reasons given below the decision of the social security appeal tribunal given on 13 September 1994 holding that the claimant was not entitled to income support because he had a capital asset worth more than £8,000 was in my judgment erroneous in law and must be set aside. As the claimant's case has now become urgent I exercise the power under s. 23(7)(a) Social Security Administration Act 1992 to give the final decision on the case myself rather than send it back to a further tribunal to reconsider.

2. My decision is that the claimant's eventual right to receive a sum of money under the terms of a consent order made in divorce proceedings the County Court on 7 February 1992 does not count as a reversionary interest in the property now owned by his former wife, and is therefore not to be completely disregarded as an asset of his, but it is to be valued at a discount reflecting the fact that no money at all may become payable to him for many years, and his rights under the order may not be readily marketable. The question of valuation must be reconsidered by the adjudication officer but I should be surprised if the discounted value came near £8,000, so that the claimant should qualify for income support backdated to 27 May 1994. I also recommend that if there is likely to be any delay over the question of valuation he should be considered for an interim payment in view of his circumstances.

3. I held an oral hearing of this appeal at which the claimant appeared himself and the adjudication officer was represented by Mr. H. Dunlop of Counsel instructed by the Solicitor to the Department of Social Security. The appeal is supported by the adjudication officer but I had directed the oral hearing as I wished to have the benefit of argument on the correct treatment of the claimant's rights under the court order referred to above.

4. The order was a consent order made in the Divorce County Court and approved by the District Judge. It provided in paragraph 1 for the claimant to transfer to his former wife his entire interest in the former matrimonial home subject to an existing mortgage. There were various ancillary provisions about insurance policies and contents, and it was provided that the provisions of the order were in full and final settlement of all the parties' respective claims against one another on property and maintenance issues. Paragraph 2 which gives rise to the problem in the present case was in the following terms:

"That upon the transfer referred to in paragraph 1 hereof the said matrimonial home do stand charged with payment to the [claimant] of a sum equal to 16/57ths of the value of the property, such charge not to be enforced until the [former wife's] death, re-marriage or co-habitation for a period of six months or more provided always that if the [former wife] wished to and at her option she may pay to the [claimant] a sum equal to 16/57ths of the value of the said property, such sum to be arrived at by agreement and, in default of agreement, to be determined by a chartered surveyor appointed by the President for the time being of the Royal Institution of Chartered Surveyors, and upon payment of such lump sum the [claimant] will forthwith release his charge against the property."

5. This is a form of order which I understand is not infrequently made in divorce proceedings and it is easy to see its practical intent; the wife is being provided with the matrimonial home as a roof over her head for so long as she needs it, and is taking over responsibility for the mortgage. The husband is retaining some financial claim but its value is only to be realised after the wife has ceased to live in or need the property for her own sole use. It was common ground before me that the "value of the property" for the purposes of assessing the claimant's interest under paragraph 2 of the order should be taken as its net value after the discharge of the mortgage and/or sale expenses etc.

6. The claimant who is now aged 54, out of work and living in rented accommodation, claimed income support on 1 June 1994. In his claim form at page T20 he very properly disclosed that he had some interest in the property owned by his ex-wife but this would only be realised if she re-married, cohabited or sold the house. On 25 July 1994 a letter was submitted from his solicitors (pgs. T40-41) with a copy of the court order, saying that the house was worth approximately £50,000 with a mortgage of £8,000, but that bearing in mind that the claimant's former wife was only 46 it might be many years before he was entitled to any money at all; and that the current value of his rights could hardly exceed £2,000. However the adjudication officer determined on 27 July 1994 that he was not entitled to any income support because his capital exceeded the prescribed amount of £8,000, and the claimant appealed to the tribunal.

7. On 13 September 1994 the tribunal accepted the adjudication officer's submissions and held that the claimant was entitled to a 16/57th share of the property which they valued at £10,385. Accordingly, they dismissed his appeal, rejecting the claimant's contention that his right should be disregarded altogether as a "reversionary interest" under paragraph 5, Schedule 10 to the regulations, on the ground that as the property was occupied by the claimant's former wife it could only be disregarded, if at all, under Schedule 10, paragraph 4, and that although this did not in fact help the claimant, it nevertheless meant that his interest could not fall within the expression "any reversionary interest" under paragraph 5. They accordingly dismissed his appeal.

8. The claimant appeals with the leave of the chairman granted on 18 November 1994, on grounds set out in a letter from his solicitors dated 25 October 1994 at pages 56 to 57. These question the logic of the tribunal's reliance on paragraph 4 of Schedule 10, suggest that alternatively the claimant's interest is to be disregarded under para. 3 as a "sum attributable to the proceeds of sale" of premises formerly occupied by him, and rely mainly on the unqualified expression "any reversionary interest" in paragraph 5 and on the apparent lack of any discounting at all in the tribunal's valuation of whatever type of interest the claimant does possess.

9. The appeal is supported by the adjudication officer in written observations at pages 58 to 62, developed by Mr. Dunlop at the hearing. He disagrees with the claimant's ground based on paragraph 3 of Schedule 10 (proceeds of sale of the claimant's home) but agrees that paragraph 4 should have been disregarded by the tribunal as irrelevant, and that paragraph 5 ("any reversionary interest") ought to have been considered. He supports the claimant's contention that following the making of the court order he continued to have an interest in the former matrimonial home which should be treated as a "reversionary interest" within paragraph 5 of Schedule 10, so that it should be disregarded altogether for the purposes of income support.

10. At the hearing Mr. Dunlop maintained this submission be reference to what was said by Mr. Commissioner Edwards Jones in R(SB) 3/86, appendix paragraph 21, about a reversionary interest being something which does not afford any present enjoyment but carries a vested or contingent right to enjoyment in the future. This he said had not been narrowed in any way by the recent decision of the Court of Appeal in Chief Adjudication Officer v. Palfrey and Others (unrep. CA 8 February 1995) [now reported as R(IS) 26/95] where the court adopted a broader approach so as to include within "reversionary interest" the current interest of a landlord in rented property even though this would not have satisfied the test in R(SB) 3/86. Alternatively, he submitted at the hearing that if the claimant's interest by way of charge in the former matrimonial home under the court order (p. T38) was no longer to be regarded as an interest in the property since his right was really only to a money sum, the approach of the tribunal to valuation had been plainly wrong because it could not possibly be worth as much as £10,385 unless the money was immediately available, which was obviously not so. Accordingly, on any footing the tribunal's decision had to be set aside as erroneous.

11. I accept the submissions of both sides that the tribunal in this case have plainly misdirected themselves and their decision must be set aside as wrong in law. I agree with the adjudication officer that the claimant's rights under the court order of February 1992 do not fall within the wording of paragraph 3, Schedule 10 to the income support regulations, which deals with actual proceeds of sale of a claimant's former home which are still in hand and intended to be used for another purchase. I also agree that paragraph 4, dealing with premises occupied by an elderly person or by a former partner from whom the claimant is not divorced, is completely irrelevant.

12. The real issue seems to me whether the claimant's rights under this court order can fall within paragraph 5 as some form of "reversionary interest". Paying full regard to the decision of the Court of Appeal in CAO v. Palfrey that the expression "reversionary interest" in paragraph 5 has to be given an ordinary and unrestricted meaning, it does not seem to me that the claimant's rights under the court order can properly be said to fall within this category. Although they carry no immediate right to receive any money at all, and in that sense are even more "reversionary" than the landlord's rights at issue in CAO v. McDonnell considered in the judgment in Palfrey, they do not appear to me to confer on him any interest in the property at all. Under the terms of the order, the claimant had transferred his entire interest in the property to his wife and although under paragraph 2 he is given in exchange a charge by way of security over the property for the payment to him of his eventual share of the value, his right remains a right to a money sum only, and not to a share of the property itself. This is so even though the value of the property is used as the measure of the money sum to which he will eventually be entitled.

13. In my judgment, this gives the claimant a secured debt payable at a future date rather than a reversionary interest. The legal nature of his right is in my view similar to that considered by Bennett J in Re Fisher [1943] Ch. 377 at 382-8, where he was considering whether a debt payable at a future date counted as a "reversionary interest" for s. 33(l) Administration of Estates Act 1925 (the same expression, and also undefined). He said:

"The second question is one of construction of s. 33(l) of the Act, and is whether these future payments are reversionary interests . . . in my judgment, they are not. The words in my judgment mean a future interest vested in the intestate at the moment of his death in some specific property which at that moment is in the possession or enjoyment of some other person. They do not mean or include a mere promise made to a man to pay his legal personal representatives a sum or sums of money at a specified time or times after his death. The language of the section points, in my judgment, quite clearly to a specific property which at the intestate's death is in the possession of another, which property will, on the happening of an event after the intestate's death, come into the possession of his legal personal representative. A debt payable in the future is not, in my judgment, such property."

14. I consider that the same reasoning must apply to the undefined expression "reversionary interest" in Schedule 10, paragraph 5, subject to the extension made by the Court of Appeal in CAO v. Palfrey for a landlord's interest in property that is currently let. Accordingly I hold that the claimant's rights under the court order are not to be disregarded under paragraph 5 of Schedule 10.

15. However, it appears to me that Mr. Dunlop is plainly right in saying that the tribunal have apparently overlooked the most important point on the question of valuation. The present value of the claimant's rights against his former wife cannot possibly be as much as the present value of a 16/57th share in the property itself after deducting the mortgage and sale expenses. It could only approach that figure if his former wife was irrevocably committed to selling the property or to re-marrying someone else, or was in the last stages of some dreadful illness. Since in fact she is still only in her 40's and in good health, and there is no evidence of any proposal by her to re-marry or put the house up for sale, it may well be many years or even decades before the claimant has a hope of seeing any money at all. What has to be assessed is the present day commercial value of such rights as he has, taking into account all these disadvantages.

16. The basic method of apportionment adopted by the tribunal, namely to take the present day value of the property, subtract the mortgage and a notional 10% for sale expenses and then multiply by 16/57, is of course correct. However they then should have gone on and applied a discount for the fact that the resulting figure was certain not to become payable immediately and had to be discounted over as much as 40 years or more. I should have thought for my part that the contention of the claimant's solicitors that this would be very unlikely to yield a present day cash value of much more than £2,000 could reasonably be accepted by the adjudication officer, subject to confirmation that the claimant's wife remains in good health and after reference to normal actuarial tables to assess her expectation of life. The determination of the actual value to be taken into account in the income support calculation ought however in my view to be a matter for the adjudication officer himself.

1. Accordingly I allow this appeal, set aside the decision of the tribunal given on 13 September 1994 and substitute my own decision to the effect set out in paragraph 2 above.

Date: 1 November 1995 (signed) Mr. P. L. Howell QC

Commissioner