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[1997] UKSSCSC CIS_12403_1996 (16 May 1997)

R(IS) 17/98

Mr. D. G. Rice CIS/12403/1996

16.5.97

Capital - claimant granting power of attorney - effect of attorney using claimant's money

The claimant was aged 97 and, although compos mentis, had granted an enduring power of attorney to her daughter ("the attorney"). The attorney used £8,000 of the claimant's money to repay a loan which was in the attorney's name but had been used to make home improvements to the claimant's house whilst the attorney lived there with the claimant. The attorney also made gifts of £1,000 from the claimant's money to both the attorney herself and to the claimant's grandchildren, great-grandchildren and great-great-grandchildren. The adjudication officer decided that the claimant should be treated, under regulation 51(1) of the Income Support (General) Regulations 1986, as possessing notional capital exceeding £8,000 on the ground that the claimant had deprived herself of the capital for the purpose of obtaining income support. The claimant's appeal to a tribunal was dismissed and she appealed to the Commissioner.

Held, allowing the appeal, that:

the tribunal had erred in law by reason of their failure to make sufficient findings of fact and to give adequate reason for their decision (para. 5);

the effect of the power of attorney was that the attorney had a general authority to act on the claimant's behalf in relation to all her property and affairs and the acts of the attorney became the acts of the claimant, but the attorney was under a fiduciary duty to the claimant and had to act for the benefit of the claimant and not for personal gain (para. 7);

the fact that the claimant might have approved of the attorney's actions was irrelevant in determining the propriety of those actions (para. 7);

as regards the loan of £8,000, it was necessary to determine who in actual fact incurred the indebtedness as the mere fact that the loan was in the attorney's name was not decisive (para. 9);

if the real responsibility was that of the attorney then the money has been paid in breach of her fiduciary duty and the claimant had a chose in action to the value of £8,000 which would constitute actual capital (para. 9);

if the indebtedness was that of the claimant then it was necessary to determine whether the repayment was made with the purpose of securing her entitlement to income support, bearing in mind that there did not seem to be any pressing need to make repayment at the time the loan was discharged, and if the payment was made with that purpose then the claimant would be treated as having £8,000 notional capital (para. 10);

as regards the gifts, the attorney did have power to make gifts provided they were not unreasonable within the meaning of section 3(5) of the Enduring Powers of Attorney Act 1985 (para. 12);

if the gifts were unreasonable then the claimant would have a chose in action which would constitute actual capital (para. 12);

if the gifts were not unreasonable then it was necessary to consider whether the predominant motive was to enable the claimant to claim income support and if that was the case the value of the gifts would constitute notional capital (para. 12);

it was also necessary to consider whether there was any further actual or notional capital available to the claimant (para. 13);

if the claimant was not entitled to income support at the date of her claim, it was necessary to consider whether she was entitled at some later date (para. 14).

The Commissioner referred the case to a differently constituted tribunal.

DECISION OF THE SOCIAL SECURITY COMMISSIONER

My decision is that the decision of the social security appeal tribunal given on 11 September 1995 is erroneous in point of law, and accordingly I set it aside. I direct that the appeal be reheard by a differently constituted tribunal, who will have regard to the matters mentioned below.

This is an appeal by the claimant, brought with the leave of a Commissioner, against the decision of the social security appeal tribunal of 11 September 1995.

In view of the fact that I found the adjudication officer's written submissions unpersuasive, I directed an oral hearing. At that hearing the claimant was represented by Mrs. Maureen Prendergast of the Surrey Welfare Rights Unit, whilst the adjudication officer appeared by Mr. D. Jones of the Solicitor's Office of the Department of Social Security.

On 28 November 1994 the claimant, through her appointee, applied for income support. On 13 February 1995 the adjudication officer disallowed the claim on the basis that the claimant had to be treated as possessing capital in excess of the statutory limit of £8,000. In due course, the claimant appealed to the tribunal, who in the event upheld the adjudication officer.

Both Mrs. Prendergast and Mr. Jones agreed that the tribunal had erred in point of law by reason of their failure to make sufficient findings of fact and to give adequate reason for their decision, and I myself take the same view. There were various issues which the tribunal failed to investigate, and various instances where the tribunal's findings could not be substantiated. It follows that I must set aside their decision for breach of regulation 23(2)(b) of the Social Security (Adjudication) Regulations 1995, SI 1995 No. 1801. Accordingly, I direct that the appeal be reheard by a differently constituted tribunal.

However, it is desirable that I give the new tribunal some guidance as to how they should approach this matter. The claimant is a lady of advanced years, I understand she is now 97. I am told that she is fully compos mentis, but, not surprisingly, it was thought desirable that she should execute an enduring power of attorney pursuant to the Enduring Powers of Attorney Act 1985 conferring upon her daughter, her appointee for the purposes of her claim to income support, a general power of attorney. That it was duly executed and is valid is not in dispute.

The effect of the power of attorney was to confer on the donee a general authority to act on the donor's behalf in relation to all her property and affairs. The donee (i.e. the attorney) became the agent of the donor. And the acts of the attorney became the acts of the donor (i.e. the claimant) (see CIS/12011/1996 at page 4 and CIS/2051/1995 at pages 4 and 5). However, an attorney is under a fiduciary duty to the donor, and accordingly the attorney in the present case, who was the claimant's daughter, had to act in all the transactions entered upon on behalf of her mother for the benefit of her mother, and not for any personal gain. It was pointed out to me by Mrs. Prendergast that in practice the claimant, since she was compos mentis, and her daughter had acted throughout in concert, and there was no question of her daughter, as her attorney, having done anything of which the claimant disapproved. But, be that as it may, the approval or otherwise of the claimant to any transaction carried out by her attorney was wholly irrelevant in determining the propriety of the action in question. During the subsistence of the power of attorney, the claimant had relinquished all powers over the management of her property and affairs.

The question of a possible breach of the attorney's fiduciary duty arises in this case in connection with the repayment of a loan of £8,000 made by the Halifax Building Society. For the attorney applied £8,000 of the claimant's capital in paying off the loan, which had been incurred to enable certain house improvements be made, new French windows to be installed, and carpets, curtains, a three-piece suite and two single beds to be purchased. The loan had been taken out in the name of the attorney (or more accurately in her former name), during a period when she resided with her parents. The attorney had lived with her parents for some 20 years until her remarriage approximately two years prior to the tribunal hearing, and she had, together, of course with her parents, enjoyed the benefit of the improvements and purchases for some six years. Accordingly, it will be a crucial matter, for the tribunal's determination, whether the indebtedness was that of the attorney or the claimant. For on the answer to this question depends the propriety or otherwise of the use of the claimant's capital to pay off the loan.

The new tribunal will have to determine who it was that actually incurred the indebtedness. The mere fact that the loan was taken out in the name, or former name, of the attorney is in no sense decisive. All the circumstances have to be looked at, including, in particular, the fact that both the attorney and the claimant, and the claimant's husband whilst he was alive, all derived the benefit of the expenditure. If the new tribunal consider that the real responsibility was that of the attorney, I do not see how she could have properly applied the claimant's capital for the purposes of paying off her own debt. This would be a clear breach of her fiduciary duty as attorney, and the claimant would have a chose in action for recovery of the money so misapplied. That chose in action would have to be valued, and that value would have to take into account the extent, if any, to which the attorney was unable to make restitution, and any costs that might prove irrecoverable. The chose in action so valued would constitute actual (as distinct from notional) capital in the hands of the claimant, and as such would, of course, have to be taken to account in determining whether or not the claimant had resources from all quarters in excess of the statutory maximum of £8,000.

But, if the new tribunal take the view that the indebtedness was the responsibility of the claimant, there could, in my judgment, be no suggestion that there was any breach of duty on the part of the attorney in the use of the claimant's money for the purpose of repaying that indebtedness. However, that is not the end of the matter. The new tribunal will then have to go on to determine whether, in making repayment, the attorney did so "for the purpose of securing [for the claimant] entitlement to income support" within regulation 51(1) of the Income Support (General) Regulations 1987, SI 1987 No. 1967. For if she did, on behalf of the claimant, deprive her of £8,000 for the aforesaid purpose, then the claimant will be treated as possessing the capital of which she has been deprived (notional capital). It will be a matter for the tribunal to decide, on the evidence before them including all necessary inferences from that evidence, whether the attorney did intend, by making the repayment, to secure for the claimant entitlement to income support. In that connection, it must be borne in mind that, on the evidence as it now is, there was nothing to suggest that there was any pressing need to make repayment at the time the loan was discharged. This might well be thought strong evidence by the new tribunal that the real motive behind the repayment was the desire to obtain for the claimant income support by reducing her capital below the statutory limit. However, this will be a matter for the determination of the new tribunal on the evidence then before them.

At the date of the claim, it would appear not to be in dispute that the claimant had in her building society account the sum of £6,667.51. This must be added to any actual or notional capital considered by the tribunal as belonging to the claimant as a result of their investigation of the repayment of the Halifax Building Society loan.

It is not in dispute that the attorney applied out of the claimant's capital the sum of £1,000 to the attorney herself as a Christmas gift to cover the cost of a carpet, and a further £1,000 to the claimant's grandchildren, great grandchildren, and great great grandchildren (nine in all) by way of gifts. The attorney had power under section 3(5) of the Enduring Powers of Attorney Act 1985 to make gifts of this kind out of the property of the claimant "provided that the value of each such gift is not unreasonable having regard to all the circumstances and in particular the size of the donor's estate". The new tribunal will have to decide whether or not gifts on the scale that took place were in the circumstances of the case allowable pursuant to section 3(5). If they were not, then the claimant will have a claim against the attorney for the misapplication of the capital involved, and this chose in action will have to be valued in the way indicated in paragraph 9 above. If, on the other hand, the tribunal take the view that the payments were proper, then they will have to consider whether the predominant motive was to bring the claimant's resources below the statutory limit, and if they consider that such was the case, then the claimant will be deemed still to have been in possession of a corresponding sum pursuant to regulation 51(1) by way of notional capital.

There is also a further area which the new tribunal must investigate. When the claimant went into residential accommodation, her home was sold for the sum of £27,284.46. At the date of claim, the claimant had in her building society deposit account only £6,667.51. Some of the difference is accountable by reason of the repayment of the £8,000 loan from the Halifax Building Society and of the distribution of presents to the attorney and other members of the claimant's family. Moreover, the adjudication officer identified various items of expenditure, amounting in all to £8,779.69, which seemingly he accepted as involving the normal costs of living, so that they would not constitute notional capital within regulation 51(1). However, there is still a deficit as between all the items accounted for and the realised proceeds of sale of the claimant's home. It will be incumbent on the tribunal to investigate this deficit, and decide whether or not there was at the date of claim any further actual or notional capital available to the claimant.

If the new tribunal decide that, as at the date of claim, the claimant was not entitled to income support, they will, as this is a continuing claim, have to consider the position up to the date when they reach their decision. For it may be that at some time after the date of claim and before the date of the rehearing by the new tribunal, the claimant qualified for benefit.

I allow this appeal.

Date: 16 May 1997 (signed) Mr. D. G. Rice

Commissioner