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[1996] UKSSCSC CIS_8415_1995 (20 December 1996)

R(IS) 4/00

Mr. J. P. Powell CIS/8415/1995

Housing costs - claimant jointly and severally liable with son for loan repayment - son not paying his share - whether claimant entitled to have interest on full amount of loan included in her housing costs

The claimant and her son borrowed a sum of money for home improvements. The claimant and her son agreed between themselves that each would meet one half of the repayments. However, the son had failed to pay the lender and substantial arrears had resulted. The lender had brought possession proceedings. The claimant asked for a review of her award of income support so as to include in her housing costs her son's share of the interest. The adjudication officer decided the claimant was only entitled to one half because he considered the claimant's son also to be liable for one half. The tribunal found as facts that the loan was secured by way of mortgage and that the claimant and her son were jointly and severally responsible for repayment and that the loan was for home improvements. They dismissed her appeal. The claimant appealed.

Held, allowing the appeal, that:

assuming, as had been found by the tribunal, that the claimant's liability to the lender was joint and several, then she was under an obligation to pay the whole interest. She would therefore be treated as responsible for the whole of the expenditure relating to housing costs unless paragraph 6(2) of Schedule 3 to the Income Support (General) Regulations 1987 applied. Whether paragraph 6(2) applied was a question of fact. On the facts, as the claimant's son did not meet his share, the claimant's responsibility for the whole of the interest remained unaffected. R(IS) 19/95 was considered;

although the tribunal's findings of fact that the claimant and her son were parties to a mortgage deed was not supported by documentary evidence and their finding that the claimant's liability was joint and several depended on a letter to that effect from the lender, those findings would be assumed to be correct for the purpose of the appeal.

[Note: A new Schedule 3 was substituted with effect from 2 October 1995 by the Social Security (Income Support and Claims and Payments) Amendment Regulations 1995 SI 1995 No. 1613.]

DECISION OF THE SOCIAL SECURITY COMMISSIONER

This is an appeal by the claimant, with the leave of the chairman, against the decision of the social security appeal tribunal ("the appeal tribunal") given on 16 May 1995. For the reasons set out below, that decision is erroneous in point of law and I therefore set it aside. I can, without making further findings of fact, give the decision which I consider the appeal tribunal should have given. Namely, that the claimant is and has been entitled to have carried into the assessment of her income support, by way of housing costs, the whole of the eligible interest payments payable to Lloyds Bowmaker Limited under the terms of a loan made by Lloyds Bowmaker Limited to the claimant and her son for repairs and improvements to the house which they occupy as their home.

This appeal involves the question whether the claimant, who is a widow now in her seventies and who is in receipt of income support, is entitled to receive by way of that benefit the whole of the eligible interest payments payable under the terms of a loan granted by Lloyds Bowmaker Limited ("Lloyds") or whether she is only entitled to one half of such payments.

On 22 November 1994, the adjudication officer decided that she was only entitled to one half. Her appeal against that decision was unanimously dismissed by the appeal tribunal on 16 May 1995. They made the following findings of fact:

"The appellant and her son are parties to a mortgage deed. She contributed half of the mortgage payment. For reasons of ill health the son neglected to pay the mortgage lender and substantial arrears have resulted leading to possession proceedings. The loan was for home improvements. The matters set out in paragraphs 5.1 to 5.4 of the summary of facts have been proved as facts."

The full text of their decision was as follows:

"This appeal fails. The appellant is eligible for half of the eligible interest payments because she is the joint owner of [the house] with her son and they are jointly responsible for the mortgage payments on the mortgage account."

However, the chairman granted her leave to appeal to a Commissioner and it now falls to me to deal with her appeal. On the basis of the facts set out below, the question is one of pure law.

Before setting out the facts I wish to say that, having read the file, it appears to me that this appeal has been bedevilled by a failure to establish the facts in a proper manner and to produce the right documents. Although it is probable that the facts found by the appeal tribunal were not in contention, it is not clear to me how those findings of fact were arrived at. The fact that someone signs a mortgage giving a lender security over a property is not conclusive evidence that they own that property, as a great many banks and building societies have discovered in recent years. I assume, for the purposes of this decision, that those findings are correct.

One of those findings is that the claimant and her son were parties to a mortgage deed. I can find no real evidence on the file that such a deed was executed. All that the file contains is a single page of a consumer credit agreement and a short letter from Lloyds, which makes no reference to any mortgage. The single page, which is probably the first page of the agreement, is dated 15 August 1990, that being the date on which it was signed on behalf of Lloyds. It also bears the signatures of the claimant and her son. It is expressed to relate to a further advance of £4,400, taking the total cash advanced to the claimant and her son to £15,464. It would therefore appear to relate to a further advance rather than to the original agreement. Something called a "payment protection plan premium" costing £1,392, had been added to the moneys advanced taking the total to £16,856. Towards the bottom of the page there is a note drawing attention to "the statement and terms overleaf". These are not on the file.

If the loan was made for repairs and improvements, so that it is within paragraph 8 of schedule 3, the absence of a mortgage would not appear to matter. This because sub-paragraph (1) refers to a "loan which is taken out, with or without security" for the specified purposes. Nevertheless, the appeal tribunal has made an express finding that a mortgage deed has been executed but nothing, not even the date, appears to be known about it. It is important, where an appeal involves a loan to a claimant secured by a mortgage, for copies of all the relevant documents to be put before the appeal tribunal. There will normally be two, interlocking, documents. A loan agreement and either a mortgage or a legal charge. It is important to have both documents because some terms and conditions will be set out in the loan agreement and others will appear in the mortgage or charge. Sometimes there will be a further document setting out the financial details, but not necessarily other terms, in compliance with relevant regulatory legislation, for example, building society or consumer credit legislation. There may, of course, be other documents which vary or add to the original loan agreement. Where, as in the present case, the lender has commenced possession proceedings, the loan agreement will be readily available. If the proceedings are in the High Court, O.88 of the Rules of the Supreme Court requires copies of such documents to be exhibited to the affidavit in support of the application. A copy of the affidavit and exhibits must be served on the borrower. The County Court Rules are not so specific, but in practice the High Court procedure is usually followed. In any event, the plaintiff lender is bound to supply them on request. I do not understand why the claimant's representative did not produce the relevant copies at the outset. It was in a claimant's interest for this to be done.

The basic facts, as I understand them, are as follows:

(1) It is said that on 15 August 1990, the claimant and her son jointly borrowed the sum of £16,856 for home improvements. I have already pointed out that 15 August 1990, appears to have been the date of a further, probably final, advance and that the figure of £16,856, includes £1,392 for a "payment protection plan premium".

(2) The appeal has proceeded on the basis, or at any rate submissions have been made on the basis, that the claimant and her son are jointly and severally liable to repay the loan. Lloyds have said that this is so in their letter, which is dated 9 November 1994. However, this does not appear from the single page of the agreement that is on the file. Most loans made to two or more persons are made on a joint and several basis but exceptions sometimes occur. I assume that the normal rule applies in the present case. If borrowers are jointly and severally liable for a loan, then each is responsible for the entire amount and can be sued for it. If one borrower repays what is outstanding, he or she will normally be able to recover a contribution from the other or others. This will, however, depend on the circumstances.

(3) The claimant and her son agreed between themselves that they would repay the loan in equal shares.

(4) On 30 November 1992, the claimant made a claim for income support. In the forms which she completed, she said that she owned the house jointly with her son. However, she also said that the house was not subject to a mortgage and that there were no loans secured on it.

(5) The claimant had been giving her half share of the monthly payments to her son. He was supposed to add his half share and then pay over the whole monthly amount to Lloyds. Unfortunately it appears that he used the money the claimant gave him for other purposes and paid nothing to Lloyds. This did not come to light until substantial arrears had built up. In a letter dated 14 September 1994, the claimant's representative said that he understood "that up until recently [the claimant] paid her share to her son under the impression the mortgage was being paid. However, this was not the case and serious arrears have accrued. Eviction proceedings have been commenced ...".

(7) That letter went on to ask for a review of the claimant's "claim, from the inception of her income support on the following grounds: The original decision awarding income support was given in ignorance of a material fact in as much that [the claimant] had responsibility for housing costs."

(8) A review was carried out by the adjudication officer on 22 November 1994. He decided that the claimant was entitled to one half of the eligible weekly interest payments. He decided that she was only entitled to one half because her son was jointly responsible for repayment of the loan and payment of interest. The appeal tribunal agreed with him. That question, one half or the whole, is the issue before me.

I should point out that the adjudication officer also decided that the payability of arrears should be restricted to 52 weeks prior to the request for a review on
14 September 1994. That question, I am told, is the subject of another appeal and is not before me. The decision in that appeal will determine how far back my decision in this appeal can be applied.

On those facts, the question is entirely one of law. Section 124(1) of the Social Security Contributions and Benefits Act 1992, provides that a person in Great Britain is entitled to income support if he or she satisfies certain conditions. It is not in dispute that the claimant satisfies the relevant conditions. One of these conditions is that she either has no income or her income does not exceed what is called "the applicable amount". Section 135(1) of the Act provides that, in relation to income support, the applicable amount means the amount, or the aggregate of such amounts, as may be prescribed. Subsection (4) of section 124, provides that the amount of income support to which a person who satisfies the statutory conditions is entitled is (a) either the applicable amount, if he or she has no income, or, (b) if he or she has income, the difference between that income and the applicable amount. In simple terms, having established that a person is entitled to income support, the next stage is to calculate the applicable amount. This is arrived at by adding together such specified amounts, set out in the Income Support (General) Regulations 1987 (SI 1987/1967) ("the 1987 Regulations"), to which he or she is entitled by virtue of his or her particular circumstances. The amount which he or she will actually receive is the difference between his or her income (if any) and the applicable amount.

The actual wording appears in regulation 17(1) of the 1987 Regulations which states that "... a claimant's weekly applicable amount shall be the aggregate of such of the following amounts as may apply to his case" and there then follows a list of amounts. That list includes:

"(e) any amounts determined in accordance with Schedule 3 (housing costs) which may be applicable to him in respect of mortgage interest payments or other housing costs as prescribed in that Schedule."

Schedule 3 contains extremely detailed provisions relating to housing costs. By Schedule 3, I mean that Schedule in the form in which it appeared before the coming into effect, in October 1995, of the amendments made by the Social Security (Income Support and Claims and Payments) Amendments Regulations 1995 (SI 1995/1613). Paragraph 1 of the schedule begins by providing:

"1. Subject to the following provisions of this Schedule, the amounts which may be applicable to a person in respect of mortgage interest payments or other prescribed housing costs under regulation 17(1)(e) ... applicable amounts are-

...

(b) interest on loans for repairs and improvements to the dwelling occupied as the home ...".

Paragraph 2, which is headed "Basic condition of entitlement to housing costs" states:

"2. Subject to the following provisions of this Schedule, the housing costs referred to in paragraph 1 shall be met where the claimant, or if he is one of a family, he or any member of his family is treated as responsible for the expenditure to which that cost relates in respect of the dwelling occupied as the home which he or any member of his family is treated as occupying."

Paragraph 3 then goes on to say:

"3. (1) A person is to be treated as responsible for the expenditure which relates to housing costs where -

(a) he or his partner is liable to meet those costs other than to a member of the same household;

(b) because the person liable to meet those costs is not doing so, he has to meet those costs in order to continue to live in the dwelling occupied as the home and either he was formerly the partner of the person liable, or he is some other person whom it is reasonable to treat as liable to meet the cost;

(c) ..."

From this it is clear that if the claimant was the sole owner of the house and the only person to whom the loan had been made, she would be entitled to the whole of the eligible interest. Does the involvement of the son make a difference. The adjudication officer and the appeal tribunal thought that it did, because the son was liable for half the interest payable to Lloyds, and awarded the claimant only one half of the eligible interest.

Paragraph 6 of the schedule is headed "Apportionment of housing costs" and sub-paragraph (2) provides:

"(2) Where responsibility for expenditure which relates to housing costs met under this Schedule is shared, the amounts applicable shall be calculated by reference to the appropriate proportion of that expenditure for which the claimant is responsible."

This provision was considered by Mr. Commissioner Goodman in decision CIS/743/1993 [R(IS) 19/95], to which the adjudication officer now concerned has referred. The facts there were that the appellant and her ex-husband owned a house which was subject to a mortgage in favour of a building society. The social security appeal tribunal proceeded on the basis that the liability of the borrowers, who were the appellant and her ex-husband, was joint and several and that, therefore, the appellant was in law liable to the building society for the whole amount. In practice, however, the appellant paid only half of the interest and the remaining half was paid by a combination of her ex-husband and two daughters who had guaranteed the mortgage. The tribunal declined to apply paragraph 6(2) because the liability of the appellant to the building was not limited to one half of what was due. She could be sued for the whole amount.

Mr. Commissioner Goodman held that the tribunal had misconstrued paragraph 6(2). At paragraphs 10 and 11 of his decision, he said this:

"10. It is first clear that the claimant is to be treated as "responsible for the expenditure" under paragraphs 2 and 3 of Schedule 3 to the 1987 Regulations because she was jointly and severally liable with her ex-husband on the covenant in the mortgage to pay the mortgage repayments. It was in other words a straightforward case of liability under sub-paragraphs (a) of paragraph 3(1). Had the matter remained there she would, as the tribunal found, have been able to claim income support in respect of the entirety of the mortgage interest. But in my judgement, the matter is altered by paragraph 6(2) of schedule III. It is clear that the opening words of paragraph 6(2). "Where responsibility for expenditure which relates to housing costs under this schedule is shared .." is fulfilled here, since the claimant shared legal responsibility with her ex-husband and continued to do so despite the divorce.

What then is meant by the succeeding part of paragraph 6(2), "... the amounts applicable shall be calculated by reference to the appropriate proportion of that expenditure for which the claimant is responsible"? Presumably the tribunal must have regarded the word "responsible" at the end of that sentence as having the same meaning as elsewhere in the Schedule, namely legal responsibility to a third party, here the building society. I do not think that the word "responsible" at the end of paragraph 6(2) has this meaning. If it did have that meaning, it would in fact render paragraph 6(2) nugatory, in my judgement. What is meant by "shall be calculated by reference to the appropriate proportion of that expenditure for which the claimant is responsible" is that the actual facts of the case must be looked at. If in fact the claimant is paying only a proportion of the shared responsibility for the expenditure, it is only on that proportion being paid that income support can be claimed. As it is in fact the case that the claimant was throughout paying only half of the mortgage repayments she can claim income support only in respect of one half of the interest element of those repayments. Paragraph 6(2) applies because, not only did the claimant share legal responsibility for the expenditure with her ex-husband, she in fact also shared it with the daughters who were guarantors of the mortgage. They therefore also had legal liability to the building society for the mortgage repayments. As between all the persons therefore who were legally responsible for this expenditure to the building society, the claimant only ever spent money on (note the word "expenditure" in para. 6(2)) one half of the mortgage repayments. Consequently she is entitled to income support only in respect of that half. As the claimant is aged over 60, she would therefore be entitled to actual reimbursement of one half of the mortgage interest as income support. She would not be subject to the further reduction of 50% under paragraph 7 of Schedule III to the 1987 Regulations".

It is clear that if the son had paid his agreed share, and was continuing to do so, that decision would be directly in point and the claimant would only be entitled to one half of the eligible mortgage interest. However, the claimant's son fail to pay his share, failed to tell the claimant about this and even spent the money which she gave to him to pass on to Lloyds. Do these facts alter the position?

In my judgment they do for the following reasons. If, as everyone has assumed, the obligations owed to Lloyds are joint and several then the claimant's legal obligations extend to the whole of the money outstanding and include the obligation to pay the whole of the interest. The effect of paragraphs 2 and 3 of Schedule 3, is that the claimant is to be treated as responsible for the expenditure which relates to those housing costs. That means the whole of the expenditure unless paragraph 6(2) applies. If, however, the actual facts of the case must be looked at, then those facts disclose that although the claimant's son agreed to pay his share, he did not do so. As a result, the claimant's legal liability (responsibility for the whole of the interest) remains unaffected. In decision CIS/743/1993 [R(IS) 19/95], the interest payments were being met and consequently the appellant's liability for the whole of each interest payment was extinguished when that particular payment was made. It was this state of affairs that the Commissioner was referring to when he said: "If in fact the claimant is paying only a proportion of the shared responsibility for expenditure, it is only on that proportion being paid that income support can be claimed." The appellant in decision CIS/743/1993 [R(IS) 19/95] had, in practice, discharged her liability by a payment of half the amount due to the building society. Further, there does not appear to be any suggestion in that case that the appellant's daughters were proposing to cease paying their half share.

The present case could not be more different. Since the son failed to make the payments to the building society, the claimant's liability was unaffected, and paragraph 6(2) does not come into effect. Accordingly, paragraphs 2 and 3 of the third schedule require the claimant to be treated as responsible for the whole of the interest and not just one half.

For these reasons my decision is as set out in paragraph 1 above. How far back it is to be applied is not, however, a matter for me; see paragraph 8 above. I have proceeded on the basis that the appeal tribunal's findings of fact are correct and also that the claimant and her son are jointly and severally liable to repay the loan and all interest arising on it. However, should it appear that the facts are not as found, it will be open to the adjudication officer to review my decision in accordance with section 25(1) of the Social Security Administration Act 1992, on the grounds that it was given in ignorance of, or was based on a mistake as to, some material fact.

Date: 20 December 1996 (signed) Mr. J. P. Powell Commissioner