UK Social Security and Child Support Commissioners' Decisions

[2002] UKSSCSC CJSA_204_2002 (18 June 2002)

 


Commissioners file: CJSA/204/2002

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1. This appeal is allowed. The decision of the Newcastle Appeal Tribunal given on 10 October 2001 is set aside and the case is remitted to a new tribunal for rehearing in accordance with the directions given below.
2. The appeal, which is brought with the leave of a commissioner, is supported by the secretary of state. It is from a decision of the Newcastle Appeal Tribunal confirming the decision of the secretary of state issued on 28 February 2001 that the claimant was not entitled to income based jobseeker's allowance from 15 January 2001 because she was treated as possessing capital which exceeded the maximum amount she could have if she was to be entitled to income based jobseeker's allowance.
3. The claimant came to England from South Africa in July 2000. She went to live with her son in his rented flat. At that time she had R100,000 in a South African Bank. It would seem, although the original papers are not in the file, that at this stage the claimant made a claim for jobseeker's allowance, but withdrew it after it was explained that if she had capital in excess of £8000, she would not be entitled to the allowance (file, p.49).
4. In August 2000, she and her son decided to buy a new flat with the deposit being provided by the claimant (p.81). At that point they intended that the claimant should live in the flat for several years. Barclays Bank indicated its willingness to advance £60,000 to the son on 15 August 2000 (file, p.70). On 14 September 2000 her son agreed subject to contract to buy a property in Newcastle for £64,950 (file, p.65), and on 29 September the Bank made a formal mortgage offer of £60,000 in respect of that property (p.73).
5. In September 2000 the son's girlfriend moved into the old flat with them. As a result of a disagreement, which the claimant stated was in about November 2000 (pp.80, 82), it was decided that the claimant would not after all move into the house with them but would remain in their existing flat. In fact this disagreement seems to have been before 23 October 2000, when the claimant wrote to her solicitor asking for a further discussion if necessary with reference to the loan of money she had promised to her son to buy a home. It is plain from that letter that by that time she was to remain in her existing home, although she wanted the use of part of the new property for storage of her excess furniture and equipment (file, p.63). It is also plain from the same letter that at that time she was looking for some security for her proposed loan and agreement as to the circumstances in which it was to be repaid.
6. In the course of the next two months a draft legal mortgage was drawn up by the claimant's solicitor to give her some security for her loan to her son of £8500, advanced out of the R100,000 which was converted into sterling, producing about £9,020, which was paid into the son's account for convenience on 9 November 2000 (p.75) (for the draft mortgage see pp.64-67). There is an indication at p.65 that the son wanted to complete his purchase on 1 December 2000, and the claimant confirmed that completion did indeed take place on that date (p.80).
7. There is nothing signed by or on behalf of the son dealing with the repayment terms for the loan. Apart from the draft mortgage and associated correspondence, which are not in evidence, the only written evidence of the amount loaned and the basis of repayment are at p.76 where there is a typed but unsigned letter (or possibly a copy of a handwritten letter not in evidence) addressed to the claimant from her son promising to repay the loan of £8500 in the future "when I have the resources or the house is sold".
8. Finally, there is an indication that the claimant may have more money in South Africa since she indicates at the foot of p.81 that she was not sure of the total amount of her divorce settlement and that she had in total £9000 plus money in South Africa.
9. The claimant made her present application on 15 January 2001, on which date she stated that she had a bank account in credit in the sum of £350. However, her bank account statement for that date shows her to be in credit in the sum of £468.76, while in the following period to 27 February the amount in the account fluctuated, being at one point as high as £1338.59, although by 23 March 2001 it appears to have fallen to £270.84 (p1D).

10. There are therefore two questions which the tribunal ought to have addressed. First, whether the claimant had assets in excess of £8000, and secondly, whether the claimant had deprived herself of capital for the purpose of securing entitlement to a jobseeker's allowance or increasing the amount of that allowance. The tribunal was in my view in error of law in considering the first point in that it made no attempt to value what appears to have been a legal debt owed by the son to the claimant in the sum of £8500. It is plain that the claimant does not suggest that the £8500 was given away. She states that it was by way of loan. The terms of that loan were plainly relevant to the value of the loan, but no adequate findings were made as to this by the tribunal. No questions appear to have been asked as to the rate of interest on the loan, or whether interest was payable periodically or only on sale of the property or as and when the son could afford a payment. Further, although the terms seem to have been documented at least in draft mortgage documentation, no enquiry appears to have been made as to whether this documentation had been completed and if not, why not.

11. The claimant should make available for the new tribunal all the documentation relating to the terms of the loan – her solicitor can presumably supply this – together with an explanation, if it was never finalised, as to why this was. If it has not been finalised, she will also have to explain the terms of the agreement between January and March 2001 (ignoring any later variation of those terms) including the rate of interest and the whether interest was payable periodically or only when the loan came to be repaid. She should also explain what other assets she still had in South Africa at the time, and, if possible, produce relevant documentation.

10. On the basis of that evidence, and with such expert evidence as might be provided, the tribunal will have to determine the capital value of the loan at the relevant times, and the amount of any other capital assets the claimant may have had at those times. As the claimant was unable to demand immediate repayment of the loan, its value will be the amount she could have obtained had she sought to assign it to a third party. The tribunal will therefore need evidence of what a third party would pay for the claimant's rights of action bearing in mind in particular the security offered or lack of it, the rate of interest and the repayment terms. If, for example, the rate of interest is low or uncertain, the security non-existent and the repayment date an uncertain time in the future, then it would almost inevitably follow that the capital value of the loan was far less than the £8500 debt. To this sum, whatever it might be, will have to be added the amount of any other capital held at the time by the claimant, including any additional sums to which she was entitled in South Africa.

13. To the extent that the value of the loan was less than £8500, to that extent the claimant had deprived herself of capital. However, for that lost capital to be taken into account in assessing her capital resources, the claimant must have deprived herself of it for the purpose of securing entitlement to jobseeker's allowance or increasing the amount of that benefit. The findings of the tribunal under appeal are insufficient to justify that conclusion.

14. There is a finding, which seems to have been justified by the evidence (see pp.39-40 and the apparent absence of any response by the claimant to the assertion at the oral hearing that the claimant knew the rules – see p.80), that as a result of her previous application, the claimant knew of the capital limit rule. The tribunal also found that a reasonable person in the circumstances of the claimant would not have given the money to the claimant without some security and that she had therefore deliberately deprived herself of the resource within a month of its receipt. I can find no evidence to justify that conclusion. The circumstances in which the claimant had been living with her son and his girl friend and in which the son had arranged the purchase of the new flat, as recited above, are clearly such as to make it reasonable for the claimant to keep her promise to lend the deposit, and possibly the additional £2500. Not only would she have been letting her son down if she had not done so, but she would probably have been perpetuating a situation in which she was living with them in what seem to have been at the least an unsatisfactory situation which would have been made worse by her refusal to lend the deposit.

15. The tribunal itself does not go so far as to find that she ought not to have lent the money at all. It says that she should have obtained some security for the loan. It is plain that she made some effort to obtain that security. It is also plain that the deposit at least had to be loaned before any security could be given, as it would have to be paid on exchange of contracts. It is not clear why the security documentation was not executed. It could have been, for example, because the primary lender had a provision, which is very common, which precluded any second mortgage being granted. It could be because there was some dispute as to what had been agreed with her son. This needs to be investigated and findings made.

16. Further, it is plain that any security would have been poor. The first mortgage in favour of the Bank seems to have been to secure £60,000 plus interest over a property worth about £65,000. Taking into account the costs of realising the security, without a rise in property values, it is unlikely that the forced sale of the property would have produced anything for the claimant. Given the family relationship, and on the facts before me, I do not see that there can have been anything unreasonable in the claimant not insisting on formal security in these circumstances, or in making the advance before any formalities were finalised.

17. Further, it is plain that even if the loan had been made on the security of a second mortgage in these circumstances, given the other terms of the loan, it is unlikely that in the early part of 2001 it could have been worth the full amount lent. If the tribunal was finding that the deprivation was by failing to take proper security, then it would have had to value the difference between the value of the loan with security and its value without security. However, I do not consider that approach to be realistic. It is conceivable that the claimant might have decided to deprive herself of the money lent in order to claim jobseeker's allowance. It is virtually inconceivable that it would have occurred to her that by dispensing with proper security she might achieve that objective, and there is no evidence to justify such a finding.

18. Knowledge of the capital limits is not enough to lead to the conclusion that the claimant made the loan even partly for the purpose of securing entitlement to jobseeker's allowance or increasing the amount of that benefit. I can find no evidence that this objective was ever in the mind of the claimant. In the circumstances of this case, it is clear that the claimant had very good reasons for making the loan, whether or not she was ill advised as to the manner in which she made it without written terms agreed for its repayment and for security. In those circumstances one cannot infer purely from the fact that she was aware of the capital limits that part of her purpose in making the loan was to increase her prospects of benefit. This is all the more the case when it would seem from the evidence (eg, pp.60-62) that the claimant was in work at the relevant time.

19. If the only question had been whether the evidence showed that the claimant had deprived herself of capital for the purpose of securing benefit, I would have had no hesitation on the evidence before me in substituting my own decision that she had not done so. However, the reference to further assets in South Africa, to which I have referred, taken together with the fact that the loan, even if unsecured and repayable only at some uncertain time in the future, has some value as a capital asset, indicates that even after the loan the claimant may have had assets in excess of £8000. I do not consider that I

can determine this issue, and I therefore remit the case to a new tribunal, where it can be properly investigated and determined.

(signed) Michael Mark

Deputy Commissioner

18 June 2002