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[2005] UKSSCSC CJSA_2236_2005 (09 November 2005)

DECISION OF THE SOCIAL SECURITY COMMISSIONER

The claimant's appeal to the Commissioner is allowed. The decision of the Manchester appeal tribunal dated 19 April 2005 is erroneous in point of law, for the reasons given below, and I set it aside. It is expedient for me to substitute the decision on the appeal against the decision dated 11 November 2004 as revised on 29 November 2004 (Social Security Act 1998, section 14(8)(a)(ii)). My decision is that the claimant's appeal is allowed and that she is entitled to income-based jobseeker's allowance from and including 27 September 2004 on the footing that she has income of nil. As the claim under which that award is made was terminated from 7 December 2004, my decision will only have a practical effect down to the day before that date.

This is an apparently simple and straightforward case in terms of the facts which turns out to raise very difficult questions of law. Although the amounts involved would have been important to the claimant at the time, the dispute concerns a limited period that came to an end nearly a year ago. I have therefore kept the detailed legal discussion and references, especially on issues that are not now in dispute, to a minimum.

The appeal tribunal was concerned with the claim for jobseeker's allowance (JSA), including income-based JSA, from 24 September 2004. The claimant was then aged 22 and had no partner or children. She had ceased work on 3 September 2004. On the claim form she answered yes to the question "Does anyone pay money to someone else on your behalf?" and stated that her mother paid £200 every month for her rent. She had no other money coming in. On 8 October 2004, the claimant's mother wrote a letter confirming that she paid £200 direct to the landlord on behalf of the claimant in respect of rent for her room.

On that evidence it was decided on 11 November 2004 (I do not know what took so long) that the claimant was not entitled to income-based JSA. It was decided that the £200 per month was to be taken into account in full as income (with no disregard under paragraph 15 of Schedule 7 to the Jobseeker's Allowance Regulations 1996 (the JSA Regulations) on charitable or voluntary payments) at the weekly rate of £46.15. As her applicable amount as a single claimant under 25 was only £44.05, there was no entitlement.

The claimant's mother immediately wrote in a letter dated 21 November 2004 asking for reconsideration of that decision. She said that the £200 should not have been classed as income:

"I pay this money to avoid my daughter being made homeless whilst Housing Benefit is calculated. It is not a gift and I expect her to pay it back in full. Indeed it should have been paid back a month ago."

She also said that, even if the £200 was income, £20 should have been disregarded under paragraph 15 of Schedule 7 to the JSA Regulations as it was a voluntary payment to a third party to meet rent. The claimant also wrote an undated letter (page 9), it seems at about the same time as it refers to the decision that she was not entitled to any money. In the letter the claimant said:

"My Mum is paying my rent at the moment, purely to prevent me being made homeless. She expects this money to be paid back, and cannot afford to pay this much longer. Due to the enormous delay in any decision being made by Jobcentre Plus, I therefore now owe her £600 for the last three months' rent that she has paid on my behalf."

She also argued that the loan should not be included as income, but that if it was it should have a £20 disregard.

On 29 November 2004 a decision maker revised the decision of 11 November 2004 to award income-based JSA from and including 24 September 2004 (taking account of the three "waiting days") on the basis that the claimant's income to be taken into account was only £26.15 per week. It was said that although the fact that the payments were loans did not stop them being income, they were voluntary payments attracting the disregard under paragraph 15(2) of Schedule 7 to the JSA Regulations.

The claimant appealed. On the form dated 6 December 2004 she said that when she claimed JSA she was worried that she would not be able to pay her rent due on 1 October 2004 and would lose her accommodation, as she estimated that it would take at least two weeks for the claim to be decided. She therefore asked her mother if she would lend her the rent money until her claim was assessed, promising to pay it back by 31 October 2004. It was on that basis that her mother agreed to lend the money. As a decision was not made for two months, she had to ask her mother to lend some more money. Her mother had now refused to lend any more and was demanding that she paid the loan back immediately. In a letter dated 3 December 2004 (that may well have been enclosed with the appeal), her mother wrote that her agreement with the claimant was that her loan would be paid back in full by 31 October 2004, that she had cancelled all rent payments with immediate effect and was seeking to recover the loan payments immediately. The Secretary of State's written submission to the appeal tribunal was that the payment should be treated as a voluntary payment and therefore as income, but that there should be no disregard under paragraph 15(2) of Schedule 7 to the JSA Regulations, as the payment was for rent for which housing benefit would be payable. The submission also recorded that the claimant had found work, so that her JSA claim was terminated from 7 December 2004, although she claimed again from 20 December 2004.

The claimant and her mother attended the hearing on 19 April 2005. Regrettably, the chairman's record of proceedings only covers what the chairman said by way of introduction and of explanation of her understanding of the legislation. It did not record anything said by the claimant or her mother, so that a valuable chance was lost to record clarification of some of the slight inconsistencies revealed in the history above. The appeal tribunal disallowed the appeal and confirmed the decision of 11 November 2004 as revised on 29 November 2004. So the £20 per week disregard was confirmed, although in paragraph 6 of its statement of reasons doubts were expressed about whether that was right. On the argument that the payments should not be treated as income of the claimant, the appeal tribunal said this:

"Whilst the tribunal had some sympathy with this view, it was not supported in law. The definition of income for means tested benefits such as Jobseekers Allowance is extremely wide and such that the rent payments had to be counted as the appellant's income unless they fell within a specific statutory disregard. They did not fall within a disregard. The Decision Maker's argument set out in the Submission was accepted."

The claimant now appeals with my leave. The claimant's current representative, Mr Jim Cessford of Manchester Advice, had submitted (rightly) that the appeal tribunal had given no reasons why it rejected the argument that the payments should not count as income because they constituted loans, the Secretary of State's written submission having itself given no reasons. When granting leave, I said the issues that deserved consideration on appeal included the following:

"It is arguable that the appeal tribunal failed adequately to deal with the claimant's case that the sums paid by her mother for rent were loans, to be repaid by a specific date. Within the principles accepted in Morrell v Secretary of State for Work and Pensions, R(IS) 6/03, and Leeves v Adjudication Officer, R(IS) 5/99, it could have been argued that the sums paid were subject to an immediate and certain obligation of repayment and therefore could not form part of the claimant's income at all. However, it would have to be asked whether there was an immediate obligation to repay within the period to which each payment was attributed as income and also whether there was an intention to create legal relations sufficient to create a certain obligation to repay. It may also be arguable that, despite what had been said on the claim form (page 4) and in the claimant's mother's letter of 8 October 2004 (page 7), the appeal tribunal should have expressly considered whether the payments (or at least the first one) were not paid or due to be paid at regular intervals and so were to be treated as capital under regulation 110(9) of the Jobseeker's Allowance Regulations 1996."

I also suggested that the appeal tribunal might have been right to doubt whether the legislation supported the £20 disregard of voluntary payments to meet rent liabilities. I now confirm, in the light of paragraph 6 of the submission dated 14 September 2005 on behalf of the Secretary of State, that that represented a confusion on my part. It is not easy to work through the effect of paragraph 15 of Schedule 7 to the JSA Regulations. However, remembering that the Schedule is essentially a list of amounts that are to be disregarded, paragraph 15(2) disregards the whole of payments for items other than a list including "rent for which housing benefit is payable". As any payment in the present case was for such rent, paragraph 15(2) cannot apply. But paragraph 15(1) can, as it applies to any voluntary payment not covered by paragraph 15(2) or other provisions that are not relevant in the present case. It is clear that the mother's payment direct to the landlord, if properly treated as income (see below), was to be treated as possessed by the claimant as it was used for rent (regulation 105(10)(a)(ii)) and that in that provision and in paragraph 15(2) of Schedule 7 "rent for which housing benefit is payable" means rent which falls within the meaning of that term for housing benefit purposes regardless of whether or not an award of housing benefit has actually been made.

The Secretary of State's representative submitted that the appeal tribunal had erred in law in its failure of explanation, but that the proper analysis was that there was not an immediate and certain obligation to repay the loans so as to prevent them being income in the ordinary meaning of that term and that the payments were not to be treated as capital under regulation 110(9) of the JSA Regulations. In his reply dated 19 October 2005, Mr Cessford submitted that there was a genuine expectation that repayment in full would be forthcoming within a specified period, so as to take the payments out of the category of income as defined in R(IS) 5/99 and R(IS) 6/03 and require the substitution of a decision that the claimant's JSA was to be calculated on an income of nil.

I do not accept the basis of that submission for the claimant. That is because of the question of intention to create legal relations, raised when I granted leave to appeal but not picked up in the submissions. The general principle is set out in paragraph 723 of Volume 9(1) of Halsbury's Laws of England (4th ed reissue):

"Unlike commercial agreements, in the case of family, domestic or social agreements there is a presumption, notwithstanding the presence of consideration, that the parties do not intend to create legal relations in the arrangements made between them."

The consequence of an absence of such an intention is that no contract giving rise to legal rights and obligations has been created. The notion of a family arrangement extends beyond spouses to agreements between close relatives, such as parent and child. The presumption can be rebutted if there is an express provision to the contrary in the agreement or if the contrary is to be implied from the circumstances. In the present case, although I accept that there was a clear expectation of repayment (within an anticipated short timescale) and the claimant regarded herself as owing the amounts to her mother, I am quite satisfied that the circumstances were not such as to rebut the presumption of absence of intention to create legal relations. The absence of any formal or written agreement, the looseness of the arrangement and the absence of anything to indicate that resort to legal remedies would have been regarded as appropriate all point in that direction. Accordingly, no legal obligations were created and it cannot be said that the claimant was under a legal obligation to repay, let alone a certain and immediate obligation, so as to lead to the conclusion that the payments were for that reason not part of her income.

Could the payments by way of loan however be said to have been payments of capital and not of income? Looking at the question first by leaving aside the effect of regulation 110(9) of the JSA Regulations, the answer is not clear-cut. Although some uncertainty was created by the initial information given for the claimant, which would have suggested to an outsider that the payment of rent by the claimant's mother was a longstanding arrangement, and by the claimant's reference in the undated letter at page 9 to owing £600 for three months' rent, I think that I can accept that the first payment was made to the landlord for the month's rent due on 1 October 2004 and that that was hoped and expected to be a one-off transaction. However, because no decision was made on the JSA claim (or, it seems, the housing benefit claim) a further payment was made for the month's rent due on 1 November 2004. Then, I infer that, as the initial JSA decision was to disallow the claim, the claimant's mother made a third payment for the month's rent due on 1 December 2004 before putting an end to the arrangement on 3 December 2004 (and probably before notification of the revision of the decision of 11 November 2004 was received). However, by virtue of section 12(8)(b) of the Social Security Act 1998, the appeal tribunal was prevented from taking into account any circumstances obtaining after 11 November 2004 (Tribunal of Commissioners' decision R(IB) 2/04, paragraphs 38, 53 and 188). Thus the question is whether, as at 11 November 2004, when the claimant's mother had made only two payments of rent, those payments constituted income.

The Court of Appeal in Morrell, R(IS) 6/03, made it plain that the mere fact that payments are received by way of loan does not prevent their being income, but left open how far an element of regularity or recurrence in the making of payments was necessary to a categorisation as income. The case before the Court was one in which there was plainly periodic recurrence of loan payments over a long period, but Richards J said that it was not obvious that a single loan on the same terms to meet the same recurrent expenses over a period should be treated as capital rather than income. He also gave weight to the fact that the payments in that case were provided and used for the specific purpose of meeting the claimant's recurrent needs (including rent) and that income support was a means-tested benefit designed to meet essential needs on a weekly basis.

In the present case, we have to look at a short period. The first payment was intended and expected when made to have been a one-off. I think that at that point it could only have been treated as capital. Did its character change after the second payment was made of the rent due on 1 November 2004? It is arguable that it did, in the light of the specific purpose of meeting the recurrent expenditure on rent and the recurrence of the payment. However, it would also have been arguable that both payments remained capital. In my judgment this is one of the situations in which a reasonable person could reach either conclusion within the bounds of legal principle.

I therefore need to go on to consider the effect, if the payments were income in the ordinary meaning of the term, of regulation 110(9) of the JSA Regulations:

"(9) Any charitable or voluntary payment which is not made or not due to be made at regular intervals, other than one to which paragraph (10) applies, shall be treated as capital."

None of the exceptions in regulation 110(10) applies in the present case. Regulation 110 is in the Chapter of the Regulations concerned with capital and has the general heading "Income treated as Capital".

First, I am satisfied that the payments made by the claimant's mother are to be classed as voluntary payments. I had to deal with the definition of "voluntary payment" in the equivalent housing benefit provision at some length in a recent reported case, R(H) 5/05 (see paragraphs 36 to 42). To save space I shall not set out again what I said there. The gist is that for a payment to be voluntary the payer must not get anything back in return. In an ordinary case of the making of a loan the payer does get something back in return in the form of the payee's obligation, even if deferred, to repay the loan. However, where, as here and as in R(H) 5/05, there was no intention to create legal relations, the payer does not get anything back because no legal obligation is created. In a relationship of family or affection, the moral obligation on the payee to make repayment does not take the case out of the category of "voluntary payment".

The question is then whether, in the circumstances as at 11 November 2004, the voluntary payments were made or were due to be made at regular intervals. Contrary to the view of the Secretary of State in the submission of 14 September 2005, I conclude that they were not. One flaw in the Secretary of State's submission was to approach the question on the basis that the claimant's mother had paid three months' rent and would have gone on paying if she had had the money. As explained above, section 12(8)(b) of the Social Security Act 1998 requires the question to be asked as at the time when only two payments had been paid. And I am not sure that the evidence justifies any conclusion that the claimant's mother would have gone on paying the rent. As at 11 November 2004 there had only been one interval between payments. Therefore in my judgment the condition that "payment ... is not made ... at regular intervals" was met. There had not actually been payments at intervals in the plural. At that date there was no established intention or expectation that the claimant's mother would make another payment. The hope and expectation was that JSA and housing benefit, with a payment of arrears, would be awarded before 1 December 2004, so that the claimant would be able to pay the rent due on that date. In those circumstances, the condition that "payment ... is ... not due to be made at regular intervals" was also met.

The result is that, under regulation 110(9) of the JSA Regulations, if the payments were to be regarded as income in the ordinary meaning of the term, they were to be treated as capital for JSA purposes.

Accordingly, the appeal tribunal erred in law not only by failing to explain why it rejected the claimant's case and by failing to consider the effect of regulation 110(9), but also by making a decision that was inconsistent with the effect of that provision in the circumstances. I should also say that, even if the payments had properly been treated as income, I do not think that the first payment could have been treated as paid before 1 October 2004, so that the appeal tribunal failed to explain how that could affect the claimant's entitlement to income-based JSA from 27 September 2004 to 20 September 2004.

For those reasons, I set aside the appeal tribunal's decision of 19 April 2005 as erroneous in point of law. The representative of the Secretary of State has submitted that the case is one in which I can properly substitute a decision on the current evidence. I agree, but disagree on the conclusion to be reached. For the reasons explained above, the payments made by the claimant's mother direct to the claimant's landlord for the rent due on 1 October 2004 and 1 November 2004 fall to be treated as capital and not as income in the claimant's hands. Therefore, as she had no other income, her entitlement to income-based JSA is to be calculated on the footing that she had income of nil. Capital of the amount of £200 or even £600 would not have affected the claimant's entitlement, as she does not seem to have had any other capital. And in any case the capital was never truly in her possession, as it was immediately transmitted to the landlord on the payment being made. Accordingly, my decision is as set out in paragraph 1 above.

(Signed) J Mesher

Commissioner

Date: 9 November 2005