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[1996] UKSSCSC CIS_529_1994 (16 August 1996)

R(IS) 11/98

Judge K. Machin QC CIS/529/1994

Mr. R. A. Saunders

Mr. W. M. Walker QC

Severe disability premium - rent paid to parents - whether claimant had no non-dependants living with her - whether rent paid on a "commercial basis"

The claimant, who suffered from Down's syndrome, resided with her parents. She paid her parents £25 per week for her accommodation. The tribunal concluded that the payments made by the claimant for the period from 9 October 1989 to 30 September 1990 were not made on a commercial basis. The claimant appealed to the Commissioner.

Held, allowing the appeal, that:

the tribunal had erred in law by failing to consider fully the meaning of the words "commercial basis". In particular, the guidance from Commissioners' decisions, CIS/195/1991, R(IS)17/94 and CIS/754/1991 had not been followed;

the question of whether an arrangement could be said to be on a commercial basis had to be determined on the facts of each case;

approving what was said by the Commissioner in CIS/195/1991, what had to be considered was whether the arrangement was of a kind which might have been entered by a lodger and, in a family situation, it should not be presumed that a commercial arrangement was impossible, only that it was unlikely;

intention to make a profit was not an essential element in determining the existence or otherwise of a commercial basis nor was it crucial to establish what action the parents would take in the event of default in making the payments. However, both of these factors were relevant in determining whether there was a liability to make payments for the purposes of sub-paragraph 13(2)(da) of Schedule 2 to the Income Support (General) Regulations 1987;

the contention in the adjudication officer's submission that the value of care provided by the parents should be taken into account in determining the adequacy of the payments was expressly rejected having regard to the provision of sub-paragraph (da) that liability to make the payments was in respect only of occupation of the dwelling.

DECISION OF A TRIBUNAL OF SOCIAL SECURITY COMMISSIONERS

This is an appeal by the claimant against the decision of the Derby social security appeal tribunal given on 11 February 1994. The tribunal decided that for the period 9 October 1989 to 30 September 1990 the claimant's applicable amount of income support should include a severe disability premium but that there was no entitlement to the premium for the period 1 October 1990 to 10 November 1991. The premium has been paid for the first of those two periods and entitlement for that period is not in issue.

To qualify for the premium a claimant must establish, among other things, that he or she is a "severely disabled person" as in effect defined by paragraph 13(2) of Schedule 2 to the Income Support (General) Regulations 1987. Paragraph 13(2)(a)(ii) requires that the claimant should have "no non-dependants aged 18 or over residing with him". "Non-dependant" is defined by regulation 3. The definition has been amended five times as shown in the appendix to this decision. Essentially, as paragraph (1) of regulation 3 shows, a "non-dependant" is "any person except someone to whom paragraph (2) applies who normally resides with a claimant". Paragraph (2) then describes the circumstances in which such a person is not a "non-dependant" notwithstanding that that person normally resides with the claimant. It is the paragraph (2) list that has suffered the several amendments as shown in the appendix.

The claimant in this case is in her early 30s. She has Downs syndrome and has for some years been in receipt of an attendance allowance and a severe disablement allowance. She has also, since March 1986, been in receipt of supplementary benefit and then, since 11 April 1988, income support. She lives in her parents' home. For the period 11 April 1988 to 8 October 1989 the premium was awarded following a request for a review in November 1989. That was on the basis that the claimant, having satisfied all other conditions, was not disentitled by the fact that she and her parents normally resided together because the parents were excluded from being non-dependants by sub-paragraph (c) on the paragraph (2) list. From
9 October 1989 sub-paragraph (c) was, as shown by the appendix, amended in such a way that the parents could no longer be excluded from being non-dependants by reference to that sub-paragraph. It was then contended for the claimant that the parents were to be excluded by reference to sub-paragraph (d) which, as then in force, read:

"(d) any person who is liable to make payments to the claimant or the claimant's partner or to whom or to whose partner the claimant or the claimant's partner is liable to make payments, in respect of his occupation of the dwelling;"

A social security appeal tribunal decided that the "arrangement" (to use a neutral word) whereby the claimant paid £25 per week to her parents satisfied the words in sub-paragraph (d) "any person ... to whom ... the claimant ... is liable to make payments, in respect of [her] occupation of the dwelling" and that therefore the claimant continued to be entitled to the premium until 1 October 1990 when the provision was further amended. From that date the liability to make payments was required to be "on a commercial basis". The tribunal decided that those words were not satisfied. The claimant appealed to the Commissioner. The Commissioner's decision, CIS/754/1991 remitted the case to another tribunal to determine entitlement in accordance with the principles explained by the Commissioner for the periods
9 October 1989 to 30 September 1990 and 1 October 1990 to 10 November 1991 (the paragraph (2) list having been further amended as from that last date so as in effect to exclude "close relatives" from that list of exceptions). That new tribunal, the Derby social security appeal tribunal, then gave the decision to which reference is made in paragraph 1 and which is the subject of this appeal.

This present case concerns entitlement for the period 1 October 1990 to
10 November 1991 and, in particular, whether the parents are excluded from being non-dependants by reason of sub-paragraph 2(da) which reads:

"(da) any person to whom or to whose partner the claimant or the claimant's partner is liable to make payments on a commercial basis in respect of the occupation of the dwelling;"

What falls to be determined is the meaning of the words "on a commercial basis" in the context of that provision.

The tribunal, having decided that, in relation to the period 9 October 1989 to
30 September 1990, the claimant was "liable to make payments in respect of [her] occupation of the dwelling" so that sub-paragraph 2(d) (as then in force) was satisfied went on to say, with regard to sub-paragraph (da) and, in particular, with regard to "on a commercial basis" that:

"This tribunal therefore appreciates that it will in certain cases be relevant to compare the amount paid by the appellant to her parents with commercial rents in respect of accommodation and the tribunal appreciates that this is the purport of the evidence provided helpfully by Mr. Key to the tribunal today.

However, the tribunal considers that the comparison of amount paid with commercial rents is only one of the factors to be taken into account in deciding whether a particular payment is made "on a commercial basis".

In [the claimant's] case, the tribunal cannot distinguish it from the Scarborough type of case and continues to find it difficult to accept that the relationship between [the claimant's parents] on the one hand and [the claimant] on the other hand can be said to be on a commercial basis. The tribunal is influenced to some degree in this case by the evidence today of [the claimant's father] who has clearly shown that although the contribution from [the claimant] is helpful in connection with the family financial circumstances, those contributions were not essential to the family circumstances and lack of them would not have created any great financial difficulties.

It seems to the tribunal that one of the basic elements in a commercial basis is not only the arrangement (in for example, a contract between a house owner and lodger) under which the lodger makes an agreed payment for accommodation but also a sanction in the event of the lodger failing to make the contractual payments. The tribunal considers that in a commercial transaction of such a type non-payments by the lodger would lead to the owner requiring the lodger to leave.

In the case of [the claimant], the tribunal simply cannot envisage circumstances in which [the claimant's parents] would require [the claimant] to leave the family home.

For the above reasons the tribunal has concluded that the payments made by [the claimant], from her benefit, to [the claimant's parents] were not paid 'on a commercial basis'."

Before us Ms. Lieven for the claimant and Ms. Perez for the adjudication officer both agreed, though for different reasons, that the tribunal's decision, in relation to "commercial basis" was erroneous in law. By the time the case came before us those reasons had to some extent changed. Ms. Lieven's case was that the tribunal were wrong to conclude (a) that as the payments made by the claimant to her parents were not financially essential to them and (b) that as the parents were unlikely to require the claimant to leave the family home if the payments were not made, the liability to make the payments could not be said to be on a commercial basis. Ms. Perez contended that the tribunal's findings of fact were insufficient because they had guessed rather than found facts as to what sanctions would actually have been imposed had the weekly payments not been made.

The meaning of "on a commercial basis" in sub-paragraph (da) has been considered three times previously. In CIS/195/1991 (Scarborough) the Commissioner said (paragraph 5):

"I cannot see that 'on a commercial basis' has any very precise or any technical meaning. The Shorter Oxford Dictionary defines 'commercial'" as meaning 1. 'engaged in commerce, trade', 2. 'of or relating to commerce or trade' and 3. 'viewed as a matter of profit or loss' and it seems to me that what one has to consider, on the facts of each case, is whether it is the sort of arrangement that might perhaps have been entered into by those concerned had they e.g. taken in a lodger. It is in my view possible but unlikely that an arrangement between close family members would ever be likely to be properly described as being on a commercial basis and perhaps even less likely in the case of a mentally and physically handicapped person living within his own family. At all events it seems to me to be entirely a matter of fact ..."

That approach was approved by a tribunal of Commissioners in CSIS/40/1992 in which the Commissioners said (paragraphs 32 and 33 of the appendix to their decision):

"32. As a preliminary we should first deal with arguments before us as to the nature of the liability now being referred to. Mrs. Davis argued that it was governed by the words 'on a commercial basis'. A counter argument was advanced for the claimants and supported by the amicus suggesting that the words 'on a commercial basis' primarily described the quality of the payments. We prefer the view that those words, added after earlier tribunal decisions, were designed to affect the whole concept of the liability to make payments. In short it imported to that concept something of arms length test: i.e. what might be arranged with a paying lodger. A similar conclusion was reached in England in the case of Scarborough.

Thus it will be necessary at this stage for the adjudicating authority to take account of any payments actually made and then consider whether or not that is broadly in line with what a lodger might be expected to pay for the accommodation and facilities offered. We suspect that in many cases local knowledge will provide 'an answer but if so in any particular case we must caution that such knowledge must be exposed to the parties before the end of the hearing so that the claimant and those acting for him in particular may have an opportunity to respond thereto by comment or further evidence."

And in CIS/754/1991 (this claimant's first case on appeal to the Commissioner) the same approach to the meaning of "on a commercial basis" was followed. We would add that the general principles set out in the tribunal of Commissioners' decision in Scotland and in Scarborough (which was approved by the tribunal) have not been the subject of any appeal by the adjudication officer. The principles set out have been followed and applied by social security appeal tribunals since those decisions.

It is not in dispute that "on a commercial basis" is not a technical expression; whether or not any particular arrangement in a case of this kind can be said to be "on a commercial basis" has to be determined on the facts of the case. There was however an issue between the parties as to what factors might or should be taken into account, in particular whether or not the parents (to take the typical case) made or intended to make a profit, whether or not the parents were dependant financially on the payments, whether or not the parents would take any action if the payments were not made, whether or not it was appropriate in considering the adequacy of the payments to take account of the value of the care provided by the parents for their severely disabled son or daughter.

We have come to the conclusion that it is not helpful to say more than was said by the Commissioner in CIS/195/1991 (para. 5):

" ... what one has to consider is whether it is the sort of arrangement that might perhaps have been entered into by those concerned had they e.g. taken in a lodger. It is in my view possible but unlikely that an arrangement between close family members would ever be likely to be properly described as being on a commercial basis and perhaps even less likely in the case of a mentally and physically handicapped person living within his own family".

We approve that passage from the Commissioner's decision in that case. We would add only that tribunals should not start with a presumption that in the family situation in question a commercial basis is impossible or even improbable; it is, as the Commissioner said, unlikely. We should also add that we have come to our conclusion without recourse to the point made by Ms. Lieven that the amendment (with effect from 11 November 1991) to exclude close relatives pre-supposes that previously it must have been accepted that an arrangement between close relatives could be entered into on a commercial basis.

In paragraph 7 we referred to a number of matters which Ms. Perez had contended were relevant to "commercial basis". We disagree with her contentions. We do not think that profit is a necessary element of "commercial basis" at least in the context of this provision. In saying that we take account of the fact that there are charities and other organisations operating in the social services field which could be said to carry out their activities on a commercial basis even though they have no intent to make a profit and we see no reason to take a different view in relation to a family situation. Of course, using the lodger test, it is appropriate and indeed necessary to take account of what a lodger might be expected to pay for the accommodation and facilities provided. And, in any event, Ms. Lieven pointed out, in a sense in the family situation the payments are a profit, the accommodation in question would, apart from the payments, presumably produce no income.

In CIS/754/1991 (para. 10) it was said that " ... in a case where the parents depend on the financial contribution, because they are themselves in poor circumstances, possibly on income support, it may be easier to infer an intention to create legal relations than in a case where the parties are well off and do not need the money". That of course was said in relation to the question whether or not, in the circumstances of the case, there was a liability to make payments for the purposes of sub-paragraph 2(d) before the amendment to add commercial basis. We have no quarrel with the suggestion in that passage in that context. But in our view it does not follow, as Ms. Perez contended, that the financial resources of the parents are relevant to whether or not the arrangement in question could be said to be on a commercial basis.

Nor do we think it is crucial to establish what, if any, action the parents would take in the event of default in making the agreed payments. As was said in CIS/754/1991, the essential matters for determining whether or not the arrangement in question showed a liability to make payments are:

"(a) there must be an obligation to make payments derived from a recognised source of law e.g. contract;

(b) the obligation to make the payments must be in respect of the occupation of the premises and not e.g. for food and clothing;

(c) the power to bring the licence to an end must be referable to a breach of the condition to make the payment under the contractual licence and not to some other matter."

Those factors of course remain relevant to the question of liability to make payments which continues to be the first matter for consideration in relation to sub-paragraph (2)(da). Once such a liability is established, on the basis of those factors, in our view it is not relevant to consider whether the parents would in fact take action against a son or daughter in default.

The adjudication officer in written submissions had contended that in considering the adequacy of the payments having regard to what a lodger might be expected to pay account should be taken of the value to be placed on the care by the parents of their severely disabled son or daughter. He had invited comparison with "charges for residential care and nursing homes." We reject that contention and, in any event, though she would not expressly say so, Ms. Perez appeared to abandon it at the hearing. Sub-paragraph (2)(da) (and all its predecessors) refers to liability to make payments in respect of the occupation of the dwelling. That means in our view that it is the accommodation that has to be considered including of course any facilities, such as a bathroom or the use of a kitchen, that are provided.

We reiterate that whether an arrangement can be said to be on a commercial basis is a question of fact and that the proper considerations are those suggested by the Commissioner in CIS/754/1991 to which we have referred above. The tribunal whose decision is the subject of this appeal were, for the reasons to which we have referred, wrong to conclude that the arrangement in this case was not on a commercial basis because the payments made were not essential to the family's financial viability and they were also wrong to see as crucial the fact that, as they thought, the parents would not require their daughter to leave the family home if she did not continue to make her payments. We accordingly allow this appeal and set aside the tribunal's decision. As the issue is one of fact, and having regard to a further factual issue to which we refer below, it is our view that the case must be remitted to a new tribunal who must of course make the necessary findings of fact and reach a conclusion having regard to the matters mentioned above.

The further issue is this. A non-dependent, as we have said, is a person who "normally resides" with a claimant except someone on the regulation 3(2) list. Regulation 3(4) provides that "(a) a person resides with another only if they share any accommodation except a bathroom, a lavatory, or a communal area ...". Apparently, to an extent which has yet to be demonstrated, the claimant in this case has her own separate accommodation within the family home and Ms. Lieven would wish to contend that she and her parents do therefore not "normally reside" with each other in the regulation 3(4) sense. That contention was, we think, not made to the tribunal. They certainly did not deal with it and we have not heard argument on it. If the contention succeeds before the new tribunal then, of course, there will be no issue as to whether the claimant satisfies paragraph 13(2)(a)(ii) of Schedule 2 and she will not be disentitled to the premium by reason of anything in regulation 3.

The original claim in this appeal was made in 1990. This is the second occasion that it has been the subject matter of an appeal to the Commissioners. The Commissioners express the very strong encouragement to all those who will be involved on the remission of this appeal that these proceedings should be brought to a final conclusion. The Independent Tribunal Service should list this matter as quickly as properly possible.

Date: 16 August 1996 (signed) Judge K. Machin

Chief Commissioner

(signed) Mr. R. A. Sanders

Commissioner

(signed) Mr. W. M. Walker

Commissioner

Appendix

The wordings of regulation 3 of the Income Support (General) Regulations 1987 during the period 11 April 1988 to 11 November 1991.

From 11 April 1988:

"Definition of non-dependant

- (1) In these Regulations, "non-dependant" means any person except someone to whom paragraph (2) applies, who normally resides with a claimant.

(2) This paragraph applies to-

(a) any member of the claimant's family:

(b) a child or young person who is living with the claimant but who is not a member of his household by virtue of regulation 16 (membership of the same household):

(c) a person who jointly occupies the claimant's dwelling;

(d) subject to paragraph (3), any person who is liable to make payments in respect of his occupation of the dwelling to the claimant or the claimant's partner;

(e) ... [not relevant] ...

(3) ..."

From 10 April 1989:

"Definition of non-dependant

- (1) In these Regulations, "non-dependant" means any person, except someone to whom paragraph (2) applies, who normally resides with a claimant.

(2) This paragraph applies to-

(a) any member of the claimant's family;

(b) a child or young person who is living with the claimant but who is not a member of his household by virtue of regulation 16 (membership of the same household);

(c) a person who jointly occupies the claimant's dwelling;

(d) subject to paragraph (3), any person who is liable to make payments to the claimant or the claimant's partner or to whom or to whose partner the claimant or the claimant's partner is liable to make payments, in respect of his occupation of the dwelling:

(e) ... [not relevant] ...

(3) ..."

From 9 October 1989:

"Definition of non-dependant

- (1) In these Regulations, "non-dependant" means any person, except someone to whom paragraph (2) applies, who normally resides with a claimant.

(2) This paragraph applies to-

(a) any member of the claimant's family;

(b) a child or young person who is living with the claimant but who is not a member of his household by virtue of regulation 16 (membership of the same household);

(c) a person who jointly occupies the claimant's dwelling and either is a co-owner of that dwelling with the claimant or his partner (whether or not there are other co-owners) or is liable with the claimant or his partner to make payments in respect of his occupation of the dwelling;

(d) any person who is liable to make payments to the claimant or the claimant's partner or to whom or to whose partner the claimant or the claimant's partner is liable to make payments, in respect of his occupation of the dwelling:

(e) ... [not relevant] ...

(3) ..."

From 1 October 1990:

"Definition of non-dependant

- (1) In these Regulations, "non-dependant" means any person, except someone to whom paragraph (2) applies, who normally resides with a claimant.

(2) This paragraph applies to-

(a) any member of the claimant's family:

(b) a child or young person who is living with the claimant but who is not a member of his household by virtue of regulation 16 (membership of the same household);

(c) a person who jointly occupies the claimant's dwelling and either is a co-owner of that dwelling with the claimant or his partner (whether or not there are other co-owners) or is liable with the claimant or his partner to make payments in respect of his occupation of the dwelling;

(d) any person who is liable to make payments on a commercial basis to the claimant or the claimant's partner in respect of the occupation of the dwelling;

(da) any person to whom or to whose partner the claimant or the claimant's partner is liable to make payments on a commercial basis in respect of the occupation of the dwelling;

(db) any other member of the household of the person to whom or to whose partner the claimant or the claimant's partner is liable to make payments on a commercial basis in respect of the occupation of the dwelling;

(e) ... [not relevant ...

(3) ..."

From 11 November 1991:

"Definition of non-dependant

- (1) In these Regulations, "non-dependant" means any person, except someone to whom paragraph (2), (2A) or (2B) applies, who normally resides with a claimant.

(2) This paragraph applies to-

(a) any member of the claimant's family;

(b) a child or young person who is living with the claimant but who is not a member of his household by virtue of Regulation 16 (circumstances in which a person is to be treated as being or not being a member of the household):

(c) a person who lives with the claimant in order to care for him or for the claimant's partner and who is engaged for that purpose by a charitable or voluntary body (other than a public or local authority) which makes a charge to the claimant or the claimant's partner for the care provided by that person;

(d) the partner of a person to whom sub-paragraph (c) applies.

(2A) This paragraph applies to a person, other than a close relative of the claimant or the claimant's partner-

(a) who is liable to make payments on a commercial basis to the claimant or the claimant's partner in respect of his occupation of the claimant's dwelling;

(b) to whom the claimant or the claimant's partner is liable to make payments on a commercial basis in respect of his occupation of that person's dwelling;

(c) who is a member of the household of a person to whom sub-paragraph (a) or (b) applies.

(2B) Subject to paragraph 2(C), this paragraph applies to-

(a) a person who jointly occupies the claimant's dwelling and who is either-

(i) a co-owner of that dwelling with the claimant or the claimant's partner (whether or not there are other co-owners); or

(ii) jointly liable with the claimant or the claimant's partner to make payments to a landlord in respect of his occupation of that dwelling;

(b) a partner of a person to whom sub-paragraph (a) applies.

(2C) Where a person is a close relative of the claimant or the claimant's partner, paragraph (2B) shall apply to him only if the claimant's, or the claimant's partner's, co-ownership, or joint liability to make payments to a landlord in respect of his occupation, of the dwelling arose either before
11 April 1988, or, if later, on or before the date upon which the claimant or the claimant's partner first occupied the dwelling in question.

(3) ..."

From 2 December 1994:

"or with whom a claimant normally resides" added at the end of sub-paragraph (1).