R(is) 10/99
Mr. W. M. Walker QC 					               CSIS/701/1997
20.8.98

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:
1.	the funds in the claimant’s bank account, being derived from the severance payment, constituted capital (paragraph 9);
2.	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)	Trust
applying 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 Property
in 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)	Agency
for the purposes of Scots law, no contract of agency, express or implied, could be said to exist between the parties (paragraph 14);
3.	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

1.	This claimant’s appeal fails.  I find no error of law in the decision of the Greenock appeal tribunal dated 9 April 1997 such as to warrant my interference. The appeal is, accordingly dismissed.
2.	This case came before me for oral hearing by direction of a nominated officer.  At it the claimant appeared by himself and without representation.  The adjudication officer was represented by Mr. J. Brodie, Advocate, instructed by the Solicitor in Scotland to the Department of Social Security.  I am grateful to both for the clear and helpful submissions put before me.
Background
3.	The factual background of this case can be shortly stated.  In October 1995 the claimant and his wife separated.  In March 1996 the claimant accepted a severance package from his employer on the grounds of ill health.  Arising out of the payment thereof an offer was made to the claimant’s wife to settle their financial affairs.  At the beginning of May 1996 the claimant’s wife accepted the offer.  For completeness the claimant and his wife in March and April 1997 executed a minute of agreement incorporating the settlement which agreement was registered in the books of the Lords of Council and Session for Preservation and Execution on 16 April 1997.
4.	A critical term of the agreement, reflected first in a letter by the claimant’s solicitors at documents 87 and 88 of the bundle, concerned the division of the claimant’s interest in the pension fund of his former employer.  The agreement involved the claimant paying to his wife £22,250 as her share of a one-third division of the value of that fund.  That matter was reflected in Article Second of the Minute of Agreement whereby, at its date, the wife, for the reasons narrated in said article, remained due £15,750.  In the meantime, in October 1996, the claimant applied for income support and in the appropriate part of the form declared - document 19A of the bundle - that he had about £15,500 left out of his lump sum which, although in his bank account he averred was not his.  Indeed, at that stage he said that he was still due to pay his £16,750 to his wife. (There was also a debt of £5000 to the Inland Revenue but that is neither here nor there in the context of the case and I say no more about it.) The adjudication officer considering the claimant’s application refused it upon the basis that his capital exceeded the maximum then permitted of £8,000.  The claimant appealed that decision to the tribunal.
The tribunal
5.	The tribunal, in effect, upheld the decision of the adjudication officer and in a remarkably brief statement of material facts and reasons, found simply that as he had declared £15,000 in a bank account at the time of his claim that exceeded the prescribed level.  They reasoned that the adjudication officer had acted correctly and that the claimant’s argument that the sum was not capital because it had not been derived from savings and was not his means of support fell to be rejected.  They noted that there was a further argument that the money was not the claimant’s as he was under the obligation to make payment of it to his wife.  They referred to R(SB)2/83 without focusing upon how that authority supported their decision.  They concluded that the said sum was indeed capital within the meaning of regulation 46 of the Income Support (General) Regulations 1987.  They noted that no part thereof fell to be disregarded under Schedule 10 of the regulations: nor was there any suggestion that that Schedule was relevant to the case before me.  Again, I say no more about it. Against that decision the claimant now appeals further to the Commissioner, with leave of the chairman.
The claimant’s case
6.	In his written grounds of appeal the claimant made essentially three points, two of which formed the basis for his principal submissions before me.  The third matter can be dealt with immediately.  This contention concentrated on an apparent anomaly between the claimant being refused income support and yet granted housing benefit when the two schemes form part of the general social security system, albeit under different administrations and regulations.  To a large degree the regulations are mirror images.  However, at the time, regulation 37 of the Housing Benefit (General) Regulations 1997 made the prescribed amount of capital for the purpose of that benefit £16,000.  Accordingly, the claimant’s capital was within that limit and that, I suspect, explains the different results about which he was so concerned.
7.	The claimant’s main points, elaborated in writing and reinforced in verbal submission to me were, first, that as the sum in question had not been derived from savings and was not for his personal use it should not be regarded as his “capital”.  He emphasised, in writing, that as a matter of honour he was holding the money for his wife.  He said more than once that he was under a legal and a moral duty to do so.  And at one point, at document 74 of the bundle, he said that he imposed on the money a trust and that the lawyers’ letters so proved.  As a result a Nominated Officer, considering the papers with a view to determining whether they were ready for submission to a Commissioner, directed an oral hearing and, in an effort to flush out anything that might be of an assistance to the claimant directed submission thereat on three matters in particular.   These can be put shortly, as to the possible involvement of a trust by implication in respect of a fund held by the claimant in which his wife had the beneficial interest and, if so, what proof would be required; second, whether the sum agreed to be paid in respect of the one-third division of the pension fund was deemed to be matrimonial property for the purposes of Section 10(5) of the Family Law (Scotland) Act 1985 and so meant that the relevant funds might themselves be so regarded, the claimant at the date of claim then being their custodian; and, finally, whether there was any branch of the law of agency which might assist the claimant’s case in respect that, as he clearly believed, he was holding himself the fund to the order of his wife.  These then were the issues upon which the hearing embarked.
Whose money
8.	To deal with the issues in the case coherently it is, I think necessary to change the order in which matters were heard and indeed Mr. Brodie agreed that logic so required.  I commence, therefore, with section 134(1) of the Social Security Contributions and Benefits Act 1992 which provides that -
“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
9.	The claimant argued strenuously that because of its origin and its destination and his inability because of the latter to intromit with it that it was not capital.  Neither “income” nor “capital” appears to have been defined either in the primary legislation or in the General regulations.  Chapter II of the regulations deals with the assessment of income for the purposes of income support.  It falls to be calculated on a weekly basis and there is the provision in regulation 28(2) for “income” to include capital treated as income under regulation 41 and also income which is not possessed in fact but requires to be treated as notional income under regulation 42.  Broadly, regulations 41 and 42 require capital being received by instalments to be treated as income and income disposed of to secure entitlement to benefit to be treated as notional income.  Chapter VI deals with capital for the purposes of the regulations and regulation 46(1) provides for the inclusion of income treated as capital under regulation 48.  That applies to such matters as tax free funds, certain holiday pay, certain bounties derived from employment and other specified matters, none of which apply to this case.  The point of rehearsing all that, however, is to indicate that what the regulations seem to have in mind on the one hand as “income” and on the other hand “capital”, special circumstances aside, is very much what those terms would indicate in normal usage.  That is to say that monies which an individual has “coming in”, whether erratically or regularly, form his “income”: everything else of which he is possessed is his capital.  Mr. Brodie put that conclusion sharply, but I thought it right, in an effort to explain matters to the claimant, to explore the set up of the regulations in case there was any contrary indication.  Accordingly, I must hold that the severance payment, of which the central sum of £15,500 forms the residual part, was, at the material time at least, “capital”.
10.	The next question is as to whose “capital” was this sum of £15,500. More accurately, was it capital of which Mr. Wilson was himself “possessed”.  It is at this point that the Nominated Officer’s specific directions require to be considered.  I deal with them in the same order in which they were set out.

Trust
11.	If there was a trust in this case then Mr. Wilson was both the truster and the trustee.  Mr. Brodie submitted that whilst Scots law may have been slow to determine the competency of such a concept there was, now, no doubt that it was indeed competent.  Mr. Brodie drew to attention Clark Taylor & Co Ltd and Quality Site Development (Edinburgh) Ltd 1981 SC 11, a special case presented for the Opinion and Judgement of the Court of Session, where the matter was authoritatively dealt with.  Lord President Emslie, having considered the whole history of the development of this branch of the law of Scotland, analysed the authorities and, at page 118, set out the result—
“...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.

12.	Mr. Brodie’s next point on the matter of a trust, referred to the Requirements of Writing (Scotland) Act 1995 enacted, of course, after the Clark Taylor & Co case and which, by a few months, was in force at the time of the agreement contained in the exchange of solicitors’ letters.  It required, by section 1(2)(a)(iii), that where a trust is declared by an individual and himself to be sole trustee of his own property— which, again, the amount of the claimant’s severance package, whence came the sum at issue, clearly was - then there had to be writing vouching, that is to say proving, the trust.  Otherwise, there could be no valid trust.  Section 2 simply requires the signature of the granter upon a document. Thus, again, hindsight in the present case indicates that had the claimant, or his solicitors on his behalf probably, sent to the wife’s representatives such a document the legal requirements for a trust could have been satisfied.  But that was not done.
Matrimonial property
13.	Turning, now, to the issue of matrimonial property, I can deal with it fairly shortly.  Mr. Brodie submitted that the Family Law (Scotland) Act 1985, upon which this matter hinged, did not make the severance package sum, or any part of it, matrimonial property.  That was essentially because matrimonial property for the purposes of that Act is defined as that which belonged to the parties to the marriage or either of them “at the relevant date”- section 10(4) of the Act.  It is further required that that acquisition be, for the purposes of this case, “during the marriage but before the relevant date”.  Undoubtedly the severance package lump sum was acquired during the marriage but “the relevant date”, according to subsection (3) of said section is the earlier of —
“(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.
Agency
14.	Finally, Mr. Brodie had to deal with the question of agency.  As I rather think he understood, that concept had been added by the Nominated Officer for completeness. It was enough for his purpose to refer first to the undoubted fact that there was no express contract of agency and then to indicate that for an implied contract there had to be equally implied consent because without consent there can be no contract.  However much there may have been an implied consent by the claimant, there had been no indication given thereof to the wife, far less any consent by implication acquired from her, to Mr. Wilson’s holding this part of his severance package for the purpose of settlement of her interest in his pension fund.  I have to agree.
Encumbrance
15. 	Finally, although he actually opened on the matter, Mr. Brodie dealt with the provision in regulation 46(2) which allows the exclusion from capital of that upon which there is a secured encumbrance.  He accepted that the word “encumbrance” is unknown to the law of Scotland however much it may be a term of art in the law of England.  Nonetheless, what is intended, however awkwardly and obliquely, is that there must be something attached to this fund of £15,500 which would have prevented the claimant himself from disposing of it.  I at once accept, of course, that he is a man of honour and indeed of candour in setting out the problems of the position in which he found himself. But, as Mr. Brodie indicated, honour cannot burden in law however much it may in morality.  I am allowed only to apply the law.  It was that concept that was really dealt with in R(SB)2/83 so much referred to by the tribunal.  In it a Tribunal of Commissioners pointed out, in paragraph 12 when dealing with a similar but not identical provision in the then in force Supplementary Benefit (Resources) Regulations 1980, that it was unfortunate -
“... 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.
Conclusion
16.	I am very sensitive of the fact that in dealing with these legal concepts Mr. Wilson was somewhat out of his depth as he, indeed, rather indicated.  He was concerned about the facts of the cases cited above.  However, they matter not.  I am bound only by the rules of law enunciated by the judges concerned.  I have sought, in part for his assistance in trying to understand what the case has been about, to fully set out the relevant passages from the authorities.  The facts were, as he said, not relevant to his case but it is what are called the judicial dicta, the rules laid down by the judges arising out of the facts, that matter.  Equally, I quite understand his concern that to him capital should not be that which he had to use or might have had to use, in the event of income support being refused.  He was also concerned about the “access” test, namely that the mere fact that he had access to the money did not mean that he could properly use it for his own purposes.  I accept that he well felt unable, and so not properly able, to so use it.  But, as already indicated, that was for reasons of morality or conscience.  For the reasons already given he could, as a matter of law, have used the money for any purpose that he liked.  Only honour, alas, forbade him.  I am concerned that someone whose sense of honour leads to a predicament where there seems no remedy so far as the social security system is concerned, but that is a matter over which I have no control.  However much morally the money in question was not the claimants: it was his in law.  He had not alienated it, that is put it aside far enough to put it beyond his reach.  Only had he done so could he have succeeded in the present claim.
17.	It is with reluctance that I have come to the decision which I have reached in this case but I see no alternative to it, as a matter of law and, as I have already indicated, my jurisdiction is limited to such an issue alone.  However, in parting from the case I note from the terms of the minute of agreement that the balance of the sum at issue was to be paid within 28 days of the final execution of the agreement - that is to say by somewhere about the middle of May 1997. I assume that, if appropriate, the claimant has thereafter made a fresh claim for income support.  If not he would be well advised to take advice now as to how to do so and seek maximum backdating.
18.	For the foregoing reasons this appeal must be disallowed.

Date: 20 August 1998					  (signed) Mr. W. M. Walker QC 
Commissioner