UKSSCSC CSIS_701_1997 (20 August 1998)
Mr. W. M. Walker QC CSIS/701/1997
Capital – separation agreement between claimant and wife – whether funds received by the claimant from a severance payment and held by him to implement the financial provisions of the separation agreement constituted capital of the claimant for the purposes of Scots law
The claimant separated from his wife in 1995. The following year, the claimant received a severance payment from his employer. The claimant entered a formal separation agreement with his wife to settle their financial affairs including a payment representing a one-third share of the value of his pension fund. At the date of his claim for income support, the claimant had £15,500 in his bank account. This sum was due to be paid to his wife at a future date under the terms of the separation agreement. A social security appeal tribunal upheld the adjudication officer's decision that the claimant had in excess of the prescribed level (£8,000). The claimant appealed to the Commissioner contending that the funds in his bank account should not be regarded as capital within the meaning of regulation 46 of the Income Support (General) Regulations 1987. He further contended that these funds were held by him in trust for his wife.
Held, dismissing the appeal, that:
- the funds in the claimant's bank account, being derived from the severance payment, constituted capital (paragraph 9);
- in determining whether this was capital possessed by the claimant for the purposes of regulation 49, it was necessary to consider the ways in which capital might be otherwise held:
(a) Trustapplying Clark Taylor & Co Limited v. Quality Site Development (Edinburgh) Limited 1981 SC 11, while it was competent for the claimant to be both truster and trustee, there had been no delivery of the subject of trust and nothing had been done, by way of intimation or otherwise, to confer on the claimant's wife a right to seek payment from him as trustee. Furthermore, for the purposes of section 1(2)(iii) of the Requirements of Writing (Scotland) Act 1995, there was nothing in writing to prove the existence of a trust (paragraphs 11 and 12);(b) Matrimonial Propertyin terms of section 10(3)(a) of the Family Law (Scotland) Act 1985, the severance payment could not be matrimonial property since the parties had ceased to cohabit before the severance payment had been made. Tyrell 1990 SCLR 244 was distinguished since it was not the pension fund itself which was being divided (paragraph 13);(c) Agencyfor the purposes of Scots law, no contract of agency, express or implied, could be said to exist between the parties (paragraph 14);
- the term "encumbrance" in regulation 46(2) is not known in Scots law. It had to be interpreted as being something attached to the funds which prevented their disposal. It was also necessary to distinguish between moral and legal obligations. Further, following R(SB) 2/83, no account could be taken of liabilities (paragraph 15).
DECISION OF THE SOCIAL SECURITY COMMISSIONER
The claimant's case
"No person shall be entitled to an income related benefit if his capital or a prescribed part of it exceeds the prescribed amount."
Income support is, of course, an income related benefit. Entitlement to it is governed by the Income Support (General) Regulations 1987. Regulation 45 provides that for the purposes of that section and income support the prescribed amount is £8000. There is a prescribed amount of £16,000 for those who satisfy regulation 53(IB) but that does not apply to this case because it benefits only with those in prescribed residential care or nursing homes, an Abbeyfield Society establishment or accommodation provided under the Polish Resettlement Act 1947. Regulation 49 it is which provides for the calculation of a claimant's capital, thus -
"Capital which a claimant possesses in the United Kingdom shall be calculated—
(a) Except in a case to which sub-paragraph (b) applies, at its current market or surrender value, less -
(i) where there would be expenses attributable to sale, 10%;
(ii) the amount of any incumbrance secured on it..."
(b) [Relates only to national savings certificates.]
There was no question of any expenses of sale in respect of the sum at issue in this case. Accordingly the approach to the question involves consideration of whether this sum was capital possessed by the claimant and also free of any encumbrance secured on it.
Income or capital
"...that in order to complete the successful constitution of a trust recognised as such by our law, where the truster and the trustee are the same person, there must be in existence an asset, be it corporeal or incorporeal or even a right relating to future acquirenda; there must be a dedication of the asset or right to defined trust purposes; there must be a beneficiary or beneficiaries with defined rights in the trust estate; and there must also be delivery of the trust deed or subject of the trust or a sufficient and satisfactory equivalent to delivery, so as to achieve irrevocable divestiture of the truster and investiture of the trustee in the trust estate."
The Lord President then referred that to Allan's Trustees v. Lord Advocate 1971 SC (HL)45 and to Clark's Trustees v. Inland Revenue 1972 SC177 and pointed out that thereby it had been decided —
"...that intimation to a beneficiary of the taking out of [a policy] and of the benefits which she and other named beneficiaries were to enjoy was a sufficient equivalent to delivery producing the requisite consequence."
His Lordship went onto determine that in Clark Taylor & Co the effort to create a trust whose trustee was the truster failed because there has been nothing equivalent to delivery. The essence of Mr. Brodie's contention on this matter was that here too there had no delivery of the subject of the trust, there being no trust deed, or of a sufficient and satisfactory equivalent thereto. There had therefore been no irrevocable divestiture. To achieve that, he suggested, some proper and sufficient intimation would have been required to the wife by or for the claimant so that in effect she acquired a right to seek payment of a specific sum of money from the claimant as trustee. Indeed, because the monies remained in the claimant's ordinary bank account it was doubtful if there had even been a dedication of them to any defined purpose. Albeit with hindsight, Mr. Brodie accepted that it might have been better had the money been transferred into a separate account, possibly in joint names, or even put into the hands of Mr. Wilson's solicitors to be held by them in trust for the purposes of the agreement. Mr. Brodie directed attention to the exchange of letters by the solicitors. There is, however, not enough in them, in my judgment, to satisfy the foregoing requirements for the setting up of a trust recognised by law. Again with hindsight, it is easy to say that had Mr. Wilson sought advice upon the matter some such result might have been suggested. But, as he clearly stated to me, whilst he had informed his solicitors that he was applying for income support he had not consulted them as to any possible interaction between that application and the ongoing distribution of assets in favour of his wife.
"(a) subject to subsection (7) below, the date in which the party ceased to cohabit;
(b) the date of service of the summons in the action for divorce."
Obviously section 10(3)(a) alone applies. Subsection (7) deals with a situation where after cessation of cohabitation there has been a resumption and then a further cessation. That does not apply here. Since the parties ceased to cohabit in October 1995 and the severance package lump sum only came into possession of the claimant thereafter the other provisions of 1985 Act cannot be of assistance. Mr. Brodie, in an effort to be helpful, referred also to the case of Tyrell 1990 SCLR244 where it was held that a pension fund could be matrimonial property but then submitted that that line could not be used to assist the claimant because it was not the pension fund that was actually being divided. It was the wife's interest therein that was being bought out by use of a different fund. I must accept these submissions.
"... in the extreme that the regulations do not define in unequivocal terms the meaning of capital resources. In the commercial world it would be regarded as the height of folly for anyone to compute his assets without taking into account his liabilities. Moreover, if the man in the street were asked what his capital resources were, he would, in our judgement, have regard to his net worth and not to any artificial figure which takes no account of his liabilities. Accordingly, it is something of an affront to common-sense to construe "capital resources" without regard to liabilities."
But then, as the Commissioners pointed out, they had to address that which Parliament had decreed. I am in the same position. To seek to discover for practical purposes what is a person's "capital" would normally mean his net capital, or at least that capital ignoring what had been committed to pay particular liabilities. That, so far as the law is concerned, is really all that Mr. Wilson had done with the fund in question, given that there is no assistance to be derived from the laws of trust or of agency or the statutory provisions about matrimonial property.
Date: 20 August 1998 (signed) Mr. W. M. Walker QC