UK Social Security and Child Support Commissioners' Decisions

 
DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. My decision is given under paragraph 8 of Schedule 7 to the Child Support, Pensions and Social Security Act 2000:

The decision of the appeal tribunal under reference U/06/062/2005/01501, held on 9 October 2006, is not erroneous in point of law.

REASONS
2. This is one of three lead cases for 19 associated appeals, brought with the leave of the district chairman who heard the appeals. All the cases involve the same landlord, which I shall refer to as SIL. The other lead cases are CH/0055/2007 and CH/0058/2007. They have been selected as representative of the appeals, but in fact nothing has turned on any difference between them. My decision and reasons are the same for all three cases. My decisions in the other 16 cases are in short form, adopting the reasoning in the lead cases.
3. I held a directions hearing on 30 April 2007. The lead cases were then considered at an oral hearing on 13 September 2007. All the parties were represented at both hearings by counsel. Ms Lorna Findlay appeared for the local authority, Mr Peter Prescott QC (instructed by Beech Jones Law, solicitors) for the claimants and Ms Catherine Davidson for the Secretary of State. I am grateful to all counsel for their submissions.

The background

4. I shall only refer to the facts in broad outline and sufficiently to deal with the grounds of appeal.
5. The claimants are all individuals with learning disabilities who are housed and supported by SIL. The quality of that accommodation and support was not in issue and, from what I have seen in the evidence, it was not only suitable to the claimants' needs but of good quality.
6. SIL is a not for profit organisation. It rents flats to the claimants and provides support for them, partly in the premises where the flats are located. The claimants pay rent and charges for support services to SIL. SIL leases the premises from a company that I shall refer to as SMS. On the face of it, there is nothing suspicious about that arrangement. However, the main controlling mind behind SMS is a Mr C. (His wife is also involved.) At one time, he rented accommodation to and provided support for claimants. He then set up SIL through which he provided accommodation and services. The premises were then transferred to SMS and SIL became a not for profit organisation with Mr C as a consultant. This reorganisation took place at the time when the Transitional Housing Benefit scheme was being brought into force. The local authority was suspicious about the increase in rents and charges and at the difficulties it had obtaining explanations from Mr C and others associated with SIL and SMS. It noted that, although SIL was run on a not for profit basis, Mr C stood to gain through his directorship of SMS and his consultancy with SIL.

The local authority's decisions

7. The local authority decided that the claimants were not entitled to housing benefit on two alternative grounds: (i) their tenancies were not on a commercial basis; and (ii) their liability was created to take advantage of the housing benefit scheme.

The appeal to the appeal tribunal

8. The claimants appealed against those decisions and the appeals were allowed by the appeal tribunal. It decided that neither of the two grounds applied. The hearing, at which Mr Prescott QC and Ms Findlay appeared on behalf of their clients, lasted three and a half days and the tribunal had before it 15 files of evidence.

The appeal to the Commissioner

9. On appeal to me, Ms Findlay did not challenge the tribunal's decision on commerciality and did not invite me to direct a rehearing on that issue if I allowed the appeals. I will, therefore, say no more about commerciality.
10. It is important to understand the issue I have to decide. It is whether the tribunal went wrong in law in making its decision. I do not have to decide whether the tribunal was right on the facts. Nor do I have to decide what conclusions of fact I would have reached. What I say on the grounds of appeal must be read in that context.

The legislation

11. Housing benefit is governed by the Social Security Contributions and Benefits Act 1992. Section 130(1) provides:

'(1) A person is entitled to housing benefit if-

(a) he is liable to make payments in respect of a dwelling in Great Britain which he occupies as his home'.

12. Section 137(2) provides:

'(2) Regulations may make provision for the purposes of this Part of this Act-

…

(i) for treating any person who is liable to make payments in respect of a dwelling as if he were not so liable'.

13. Regulation 9(1) of the Housing Benefit Regulations 2006 is made under that authority:

'(1) A person who is liable to make payments in respect of a dwelling shall be treated as if he were not so liable where-

…

(l) in a case to which the preceding sub-paragraphs do not apply, the appropriate authority is satisfied that the liability was created to take advantage of the housing benefit scheme established under Part 7 of the Act.'

14. Regulation 9 is a consolidation of regulation 7 of the Housing Benefit (General) Regulations 1987, which is mentioned in the full statement of the tribunal's decision. Neither version uses the word 'contrivance', but it is commonly used as a shorthand way of describing this provision.

Analysis of the legislation

15. It was agreed that, given the mental capacity of the claimants, the issue was whether the landlord had taken advantage of the scheme. This is consistent with Peter Gibson LJ's view in R v Stratford-upon-Avon Borough Council, ex parte White (1998) 31 HLR 126 at 141.
16. It was also agreed that 'take advantage of the scheme' does not mean 'use the scheme'. If it did, there would be no market for tenants who required public financial support for their housing costs.
17. Nor does 'take advantage of the scheme' mean 'make the most of the opportunities that it presents'. Assume that a landlord rents a flat to a claimant. It is located in a rundown neighbourhood and is in poor condition. Having learnt of the way that rent officer referrals work, the landlord buys another flat and rents that to the claimant instead. This flat is the same size and has the same facilities as the previous flat, but it is in a superior neighbourhood and is in immaculate condition. As a result, the rent officer fixes a higher rent. The landlord has taken advantage of the scheme to help finance the purchase of a better investment and the tenant has taken advantage to live in better conditions and surroundings, both at public cost. But I doubt whether anyone would argue that that fell foul of regulation 9(1)(l).
18. So what does 'take advantage of the scheme' mean?
19. It means something akin to abuse of the scheme of the scheme or taking improper advantage of it. Bad faith is not abuse, but it could be persuasive evidence of abuse. See the judgment of Kennedy LJ in Solihull Metropolitan Borough Council Housing Benefits Review Board v Simpson (1994) 27 HLR 41 at 49. Kennedy LJ also mentioned the dominant purpose of an arrangement, but concluded:

'It may shift the evidential burden of proof, but it depends on the facts of the case whether or not it is conclusive.'

Care has to be taken with the use of dominant purpose even in this qualified way, especially when only the landlord's motivation is relevant. Many landlords use the housing benefit scheme as a way of financing the purchase of property as an investment or of financing a business, but it is not the function of regulation 9(1)(l) to impede the proper operation of the private rented housing sector.

20. It was agreed that there may still be an abuse of the scheme even if the claimant would, under other arrangements, be entitled to benefit. R v Manchester City Council, ex parte Baragrove Properties Ltd (1991) 23 HLR 337 is authority for that proposition.
21. Mr Prescott QC referred me to the history of regulation 9 and particularly to the substantial amendments that were made in 1999. I have to interpret the regulation as it now stands and do so in the context of the housing benefit legislation as a whole. Part of that context, as I pointed out at the oral hearing, is the other control mechanisms that allow the local authority to control the amount payable by way of housing benefit. I draw three conclusions from that context.
22. First, there is no built in link between those mechanisms and regulation 9(1)(l). As a result, there is a possibility that an arrangement may fall outside the control mechanisms without being caught by regulation 9(1)(l).
23. Second, the cases in which those control mechanisms apply only operate if the cases are not excluded from the scheme by regulation 9. The terms of those mechanisms therefore reflect on the regulation by indicating the type of arrangement that is not caught by it. For example, the control on the rent under regulation 13 shows that a landlord does not take advantage of the scheme merely by setting a rent that is too high.
24. Third, it is relevant to take account of the effect of regulation 9(1)(l). If it applies, it excludes the claimant from the housing benefit scheme in respect of that particular liability for rent. The other control mechanisms operate to reduce the amount of housing benefit payable. That suggests that regulation 9 is concerned with circumstances in which it would be inappropriate to allow the claimant into the scheme at all. Although that does not give a precise indication of the sort of case that is caught by regulation 9(1)(l), it provides a touchstone for its application. It is relevant to consider whether the type of arrangement that has been made is one that calls for complete exclusion or is more appropriately controlled, if at all, by control over the amount of payment.
25. I accept, of course, that the control mechanisms are not an exclusive code for controlling the amount of housing benefit payable. An argument to that effect was put in R v Manchester City Council, ex parte Baragrove Properties Ltd (1991) 23 HLR 337 at 343, but rejected (page 345). In that case, landlords had targeted vulnerable claimants whose rent could not be effectively restricted under the usual control mechanisms. The premises were, as far as I can tell, ordinary accommodation and were not in any way adapted or appropriate for any particular needs the claimants might have. That is very different from the circumstances of the present case. The landlords there were in a way rigging the market by excluding all but a particular class of claimant from consideration. I do not read the case as deciding that a landlord necessarily takes advantage of the scheme by: (i) an individual decision to let to a particular claimant because that would produce the highest return; or (ii) setting up in business to provide appropriate accommodation or support to vulnerable claimants.
26. The cases I have cited were decided on the pre-1999 legislation, but no one argued that this affected their relevance to the present wording and I can see no material change to undermine their continuing authority.

The grounds of appeal

27. I will deal with Ms Findlay's arguments as she set them out in the grounds of appeal for the local authority. I deal later with Ms Davidson's arguments for the Secretary of State. I am sure that Mr Prescott QC will bear it with fortitude if I focus on Ms Findlay's arguments and why I reject them rather than on his arguments in support of the tribunal's decision and reasoning.

Paragraph 1

28. At first, I thought this was Ms Findlay's strongest point. She argued that the tribunal had misdirected itself on the basis of this sentence from paragraph 16 of the chairman's statement:

'In the view of the tribunal for it to come within Regulation 7(1)(l) it would have to be an abuse of the scheme whereby tenants who would not otherwise get Housing Benefit therefore get it because of the contrivance.'

Ms Findlay argued that that was a misdirection in the light of R v Manchester City Council, ex parte Baragrove Properties Ltd (1991) 23 HLR 337 as the chairman was saying that there was no abuse because the claimants would be entitled to benefit under other arrangements.

29. It would be astonishing if an experienced district chairman made so basic a mistake after sitting in the housing benefit jurisdiction since 2001. Moreover, with all respect to the chairman, paragraph 16 contains something of a ragbag of points and lacks the unity apparent in the other paragraphs of his statement. I have to read the statement as a whole and, doing so, I consider that he did not misdirect himself. I say that for three reasons taken together:

•    I can see nothing in the rest of the statement to show that the chairman did make the mistake attributed to him by Ms Findlay.

•    Indeed, some of his reasoning is inexplicable if he did misdirect himself. Why would he have concerned himself with anything other than issues of entitlement if he were under this misapprehension on the law?

•    It is possible to read the passage relied on by Ms Findlay as saying that the claimant must get more housing benefit than would otherwise be awarded as a result of the contrivance. This statement was dictated and I have considered how it might sound when spoken rather than how it can now be read when typed. It could easily come across in the way I have suggested if spoken with the appropriate emphasis.

Paragraph 2

30. This was the first of a number of paragraphs that attacked paragraph 12 of the chairman's statement. He wrote there that 'the tribunal considered that in this case the scheme presented by SIL was not designed and created to take advantage of the Housing Benefit scheme or Transitional Housing Benefit scheme.'
31. Ms Findlay argued that that showed a misdirection. The issue for the tribunal was whether the liability between the claimants and SIL had been created to take advantage of the scheme. The local authority accepted that SIL was a bona fide not for profit organisation, but had argued that the creation of the liability between SIL and the claimant had two effects: (i) it removed the need for community care assessments; and (ii) it made it difficult to restrict the core rent.
32. I accept that Ms Findlay has correctly stated the legal issue and summarised the local authority's case. However, I do not accept that the tribunal misdirected itself. I am sure that the chairman knew the correct legal issue. He was not in paragraph 12 directing himself on the law. He had done that in paragraph 8 and done so correctly. What he was doing in paragraph 12 was explain why the tribunal rejected Ms Findlay's arguments. He naturally did so in the context of the evidence and argument as a whole, which involved the whole reorganisation around SIL.

Paragraph 3

33. This followed on from paragraph 2. Ms Findlay amplified the local authority's argument, saying that the reorganisation amount to 'dubious ingenuity' and that the lack of transparency and inconsistency was evidence of the kind of improper conduct envisaged by regulation 9(1)(l). This was a theme of the local authority's case before the tribunal. I regard it as an historical one. It concerned the difficulties that the local authority encountered in obtaining information about SIL. It may be that the authority was entitled to be suspicious at that stage. However, the tribunal held a long hearing with a quantity of evidence that is exceptional in tribunal proceedings. The chairman considered that evidence and came to conclusions. Once the tribunal had made its findings, there ceased to be any uncertainty or lack of transparency.

Paragraph 4

34. This led on from paragraph 3 and again related to paragraph 12 of the chairman's statement. Ms Findlay argued that the tribunal had not dealt with the local authority's argument that the charges and rent were not bona fide or justifiable.
35. I accept that the chairman did not, in precise words, address this argument. However, he did so in substance. What he did was to address the key legal issue, which was whether there was an abuse of the housing benefit scheme. The tribunal found that the claimants had genuine needs that were being met by SIL and that considerable thought had been given to the most appropriate form of organisation, with other options being considered and advice taken. The tribunal recognised that the reorganisation put the companies and those who controlled them in a financially advantageous position as regards the housing benefit scheme, but 'saw no harm' in that. In other words, the tribunal found no evidence of abuse. That was a finding of fact and the tribunal was entitled to make it.
36. There is another point that I have touched on already. Ms Findlay's argument made much of the level of the rent and charges. As I pointed out, the legislation contains a number of control provisions that restrict the amount that can be paid by way of housing benefit. If those mechanisms seem to a local authority inadequate to control its housing benefit expenditure, it does not follow that there has been an abuse of the scheme. It may follow, but not necessarily. To put it another way, it is not the function of regulation 9(1)(l) to fill every gap that may exist in the other control provisions. It is permissible for landlords so to organisation their affairs that they maximise the amounts payable by way of housing benefit, provided they do so in a way that does not 'take advantage of the scheme' as those words have been interpreted by the courts.

Paragraph 5

37. This was Ms Findlay's final assault on paragraph 12 of the chairman's statement. She argued that the tribunal had not explained what the legitimate reasons were for the reorganisation that took place.
38. I reject this argument. The chairman was clearly accepting the evidence of motivation that had been given in writing and at the hearing. And he was characterising the explanation he was given as legitimate or, in other words, as not involving an abuse. His reasoning on that issue has to be read as a whole. Taking paragraph 12 as a whole, what the chairman said was that the reorganisation was based on legitimate commercial considerations and not designed to abuse the housing benefit scheme.

Paragraph 6

39. This dealt with communications between the parties. Ms Findlay argued that it was perverse of the tribunal to find that there was a lack of communication between the parties when the local authority had set out its attempts to obtain information. I suspect that the chairman was trying to say that the communications between the parties had not been effective, rather than to attribute blame to both sides. But even assuming that Ms Findlay is right, I do not see how the tribunal's opinion could have affected the outcome of the appeal.

Paragraph 7

40. This turned to paragraph 15 of the chairman's statement, which is similar to his reasoning in paragraph 12. Ms Findlay argued that the analysis does not answer the local authority's case that the use of SIL between the head landlord and the claimants allowed SIL to charge significantly higher rents than would otherwise be allowed and to recoup otherwise ineligible costs that included unjustified and unsubstantiated charges.
41. The tribunal considered the voluminous evidence before it, which went into the financial and commercial considerations in what in my experience was a wholly unprecedented way. It came to the conclusion that everything had been organised for proper commercial motives. The size of the charges and the profit that would result were relevant under regulation 9(1)(l) only in so far as they showed abuse. The tribunal considered on the evidence as a whole that there was no abuse. There is no objection to the making of a profit from the housing benefit scheme. If there were, there would be no market for tenants who required public financial support for their housing costs. I consider that the local authority's real objection is that the amount of the benefit to which the claimants would be entitled exceeded what it considered appropriate. The appropriateness of a rent or charge is fixed by the market, in so far as there is one, and is subject to controls within the housing benefit scheme. It was not necessarily an abuse of the scheme if (i) the arrangements in this case were not caught by those controls or (ii) the landlord was aware of that. A landlord may so arrange its affairs to take advantage of the opportunities presented by the scheme. Doing so of itself is not abuse.

Paragraph 8

42. This was in much the same vein as paragraph 7. Ms Findlay referred to the history of the arrangements emphasising that the controlling minds behind the operation had provided accommodation and services at much lower rates for many years.
43. This point may be right, but it does not show that there was abuse. It would only show abuse if an abuse inevitably followed from an adjustment to make best use of the housing benefit scheme from a commercial point of view. That is what the tribunal found that SIL had done. Once it is accepted that a landlord may arrange its affairs in a way that allows it to make the best use of the housing benefit scheme, Ms Findlay's argument fails to show that the tribunal must have gone wrong in law in its reasoning.

Paragraph 9

44. This paragraph dealt with the fact that the services provided to the claimants did not change, although the rent and charges increased substantially. Ms Findlay argued that this evidence either showed abuse or required an explanation of why it did not.
45. I am sure that the tribunal did not overlook this point. The reason why the rent and charges increased was obvious. The housing benefit scheme presented an opportunity for the increases when taken together with the reorganisation. Ms Findlay sought to equate that with abusing the scheme. The tribunal rejected that argument and was entitled to do so.

Paragraph 10

46. This final paragraph referred to the chairman's comment on the local authority's decision to award benefit in respect of another property run by SIL. The chairman opened this paragraph with 'Furthermore' and commented that the local authority's decisions on the different properties were inconsistent. This was a conclusion reached 'after hearing the evidence as a whole'. In other words, it was a conclusion that followed from the tribunal's findings on abuse. Moreover, the comment was a response to an argument put to it by Mr Prescott QC and responded to by Ms Findlay. To that extent, the chairman was obliged to deal with it. I do not consider that this comment affected the tribunal's reasoning on the cases before it. Rather it followed from that reasoning.

The argument for the Secretary of State

47. Ms Davidson presented a skeleton argument supporting Ms Findlay's grounds of appeal. I have dealt with those arguments above.
48. At the oral hearing, Ms Davidson made these points in response to issues that arose during the discussion:

•    Control mechanisms within the housing benefit scheme are separate from regulation 9(1)(l).

•    Regulation 9(1)(l) will be narrowly construed and the claimant may be the person to suffer most.

•    The provision must be given some effect.

•    There was contrivance found in CH/0136/2007, one of a number of cases decided together by Mr Commissioner Williams.

•    There should be consistency in the application of regulation 9(1)(l).

•    A sudden increase in rent could be the creation of a new liability, as could a change in the status of the landlord.

•    It would only be possible to clarify the scope and operation of regulation 9(1)(l) by listing relevant factors.

49. I agree with most of those submissions, but I would qualify them to this extent:

•    Regulation 9(1)(l) must be given effect, but that must be in the context of the legislation as a whole.

•    CH/0136/2007 depended on its own facts, as do all cases under regulation 9(1)(l). Reasoning by factual analogy or comparison from case to case is unlikely to be helpful. Authorities are only relevant for the propositions of law on which they are based.

•    I doubt whether consistency is attainable given that regulation 9(1)(l) is, no doubt deliberately, worded in general terms as a catch all category.

•    A sudden increase in rent or change in status of the landlord might involve the creation of a new liability for the purposes of regulation 9(1)(l), but the outcome of this appeal does not turn on that.

Disposal

50. It is not for me to say whether the tribunal was right in fact to come to the decision that it did on the evidence before it. That issue does not arise before me. Nor is it for me to say whether the facts of this case show that there is a need for further controls on the amount of housing benefit that may be awarded in such circumstances. That is a matter of policy, which is ultimately a political decision. The issue for me is whether the tribunal went wrong in law in coming to the decision that it did. My decision is that it did not. I am sure that the chairman would have worded his statement differently had he known in advance the sustained assault that Ms Findlay would bring to bear on it. But his reasoning is clear and involves no misdirection in law. As far as the reasons are concerned, they satisfy the legal test of adequacy. The tribunal did not go wrong in law.
51. I dismiss the appeal.

Signed on original on 27 September 2007

Edward Jacobs Commissioner