Upper Tribunal (Administrative Appeals Chamber)

[2008] UKUT 21 (AAC) (20 November 2008)

 


IN THE UPPER TRIBUNAL Appeal No. CJSA/1556/2007

ADMINISTRATIVE APPEALS CHAMBER [2008] UKUT 21 (AAC)

Before Charles Turnbull

1. This is an appeal by the Claimant, brought with the permission of Mr Commissioner (as he then was) Levenson, against a decision of an appeal tribunal sitting at Wigan on 22 November 2006. For the reasons set out below that decision was in my judgment erroneous in law and I set it aside. In the exercise of the power now to be found in s.12(2)(b)(ii) of the Tribunals, Courts and Enforcement Act 2007 I substitute the following decision for that made by the Tribunal:

The decision of the Secretary of State made on 31 May 2006 is set aside. The claim for jobseeker's allowance made on 23 March 2006 is to be redetermined by the Secretary of State on the footing that the withdrawals of up to £250 per week which were allowed to the Claimant under the restraint order originally made in February 2005 were not his income within the meaning of (in particular) regulation 93 of the Jobseeker's Allowance Regulations 1996.

2. On or about 9 February 2005 a restraint order was made against the Claimant. The order was made by a High Court Judge under s.77 of the Criminal Justice Act 1988. No copy of the actual order is in the papers, but it has been assumed throughout that it prevented the Claimant from dealing with the property specified in para. 9 of the witness statement of 9 February 2005 sworn in support of the application for the order – i.e. the credit balance in a specified account with Lloyds TSB, a sum of £7,500 held in the client account of a firm of solicitors and 9 properties situated in Manchester, Middlesbrough and Bolton. It would appear that the order also had a sweep-up provision restraining dealing with "all other realisable property owned by [the Claimant] or to which he is authorised." An order was also made against the Claimant's partner in respect of a number of the properties.
3. It is common ground that the order also contained a proviso permitting the Claimant to expend a sum not exceeding £250 per week in respect of his living expenses.
4. The Claimant was in prison from November 2004. He was released on 23 March 2006, subject to a home detention curfew ("tagging") order, and went to live with his partner at one of the properties specified in the restraint order. On that date he also claimed jobseeker's allowance. At that time the Lloyds TSB account specified in the order had a credit balance of between £15,000 and £16,000.
5. On 21 April 2006 decision was made awarding jobseeker's allowance from 26 March 2006, on the footing that the assets subject to the restraint order could not be treated as the Claimant's capital. It appears that at that time the DWP was not aware of the proviso in respect of living expenses, and that in any event the Claimant did not begin to withdraw any sums in respect of living expenses until 8 May 2006.
6. On or about 16 May the Claimant informed the DWP about the proviso in respect of living expenses, and that on 8 May he had begun to withdraw sums of £250 per week from the Lloyds TSB account.
7. On 31 May 2006 a decision was made superseding the decision of 21 April and replacing it with a decision that from 8 May 2006 the Claimant was not entitled to jobseeker's allowance because he was in receipt of an income of £250 per week.
8. The Claimant appealed on the ground that the £250 per week could not be income because it was simply the withdrawal by him of his savings – i.e. his capital.
9. The Tribunal, by the decision now under appeal to me, dismissed that appeal, holding that the £250 per week had rightly been treated as income.
10. I held an oral hearing of the appeal to a Commissioner, at which the Claimant appeared in person, and the Secretary of State was represented by Miss Wise, of the Office of the Solicitor to the Department for Work and Pensions.
11. At the hearing the Claimant told me that a confiscation Order had been made against him in April 2007.
12. The stance taken in the Secretary of State's original written submission in the appeal to a Commissioner was that the decision of 31 May 2006 was right to treat the £250 as income. Ms Wise did not dissent from that at the hearing before me. However, I thought that further consideration needed to be given to the proposition, which seemed to be the basis of the decision of 31 May 2006, that the restraint order prevented the property subject to it (and in particular the sum in the bank account) from being the Claimant's capital, and to the provisions of the legislation under which the order had been made. I therefore directed a further written submission by the Secretary of State.
13. In that further submission it is now submitted, following the obtaining by the Secretary of State of legal and policy advice, that (i) the beneficial ownership of the property subject to the restraint order remained with the Claimant and (ii) the withdrawals of £250 per week were therefore simply withdrawals by the Claimant of his capital and therefore could not be income.
14. In the final paragraph of the submission it is submitted as follows:

"It may well be that the value of the property subject to the restraint order has little or no market value and I would therefore suggest that the Commissioner allow the appeal and set aside the decision of the tribunal and remit the case to a new tribunal with a direction to the Secretary of State to seek a valuation of the property that was the subject of the restraint order in order to decide whether or not the claimant had a capital asset which exceeded the prescribed amount provided by regulation 107 of the Jobseeker's Allowance Regulations 1996."

15. The restraint order was made by the High Court under the power in s.77 of the Criminal Justice Act 1988. The powers in that Act to make confiscation orders in connection with the proceeds of crime, and restraint orders for the preservation of the assets on which a subsequent confiscation order will bite, are now contained in the Proceeds of Crime Act 2002. However, the 1988 Act provisions remained applicable in respect of offences said to have been committed before 24 March 2003, and it is presumably for that reason that the application for the restraint order in the present case was made to the High Court under the 1988 Act, rather than to the Crown Court under the 2002 Act.
16. The relevant powers to make confiscation orders were contained in sections 71 onwards of the 1988 Act. Under the primary power in s.71, for example, if the court determines that the offender has benefited from any relevant criminal conduct, it shall determine in accordance with subsection (6) the amount to be recovered in his case under the section, and make an order requiring the offender to pay that amount. Subsection (6) provides that the amount which the order requires the offender to pay must not exceed (a) the benefit in respect of which it is made or (b) the amount appearing to the court to be the amount that might be realised at the time the order is made (whichever is the less).
17. By s.77:

"(1) The High Court may by order (referred to in this Part of this Act as a "restraint order") prohibit any person from dealing with any realisable property, subject to such conditions and exceptions as may be specified in the order.

(2) Without prejudice to the generality of subsection (1) above, a restraint order may make such provision as the court thinks fit for living expenses and legal expenses."

18. By s. 78:

"(1) The High Court may make a charging order on realisable property for securing payment to the Crown –

(a) where a confiscation order has not been made, of an amount equal to the value from time to time of the property charged; and

(b) in any other case, of an amount not exceeding the amount payable under the confiscation order.

(2) For the purposes of this Part of this Act, a charging order is an order made under this section imposing on any such realisable property as may be specified in the order a charge for securing the payment of money to the Crown."

19. By s.74:

"(1) In this Part of this Act, "realisable property" means, subject to subsection (2) below—

(a) any property held by the defendant; and

(b) any property held by a person to whom the defendant has directly or indirectly made a gift caught by this Part of this Act.

(3) For the purposes of this Part of this Act the amount that might be realised at the time a confiscation order is made is—

(a) the total of the values at that time of all the realisable property held by the defendant, less

(b) where there are obligations having priority at that time, the total amounts payable in pursuance of such obligations,

together with the total of the values at that time of all gifts caught by this Part of this Act.

(4) Subject to the following provisions of this section, for the purposes of this Part of this Act the value of property (other than cash) in relation to any person holding the property—

(a) where any other person holds an interest in the property, is—

(i) the market value of the first-mentioned person's beneficial interest in the property, less

(ii) the amount required to discharge any incumbrance (other than a charging order) on that interest; and

(b) in any other case, is its market value."

20. Looking at those statutory provisions, and in the absence of any authority, I would have said that the mere making of a restraint order does not deprive the defendant of his interest in the property the subject of the order, which therefore must remain his capital for income support/JSA purposes. The order operates simply in personam; he will be in contempt of court if he deals with the property in breach of the order.
21. In my judgment that conclusion is apparent from (i) the fact that a restraint order is not expressed to deprive the defendant of his interest in the property, or to give the Crown any form of security; (ii) the fact there is express and separate provision for the making of a charging order, which does give the Crown security; (iii) the fact that in s.74(3) of the 1988 Act the amount that might be realised at the time a confiscation order is made is defined as "the total of the values at that time of all the realisable property held by the defendant". As to (iii), that wording would surely have been inappropriate if it was considered that a restraint order (which it must have been contemplated would be obtained in many cases) deprived the defendant of his interest in the property.
22. There are obvious close similarities between a restraint order and a freezing order (formerly known as a Mareva injunction) made by the Court under the powers in Part 25 of the Civil Procedure Rules. As noted by Mitchell Taylor & Talbot on Confiscation and the Proceeds of Crime, para. III.021:

"Obviously, as the purpose of the restraint order is to prevent disposal of assets, similar principles and practice have arisen between restraint orders and conventional civil freezing orders. In some cases under the confiscation legislation the court has specifically referred to the similarity."

The authors cite a number of cases in support of that, including DPP v Scarlett [2000] 1 WLR 515.

23. There is clear authority that a freezing order "gives the applicant no proprietary right in the assets seized and no advantage over other creditors of the defendant" (Supreme Court Practice, Vol. 2 para. 2555): see Cretanor Maritime v Irish Marine Management [1978] 1 WLR 966; Derby v Weldon [1990] Ch 65. Gee on Commercial Injunctions, 5^th Ed, summarises the position as follows:

"A Mareva injunction does not affect the defendant's proprietary interest in his assets. The claimant gains no priority over any other creditor of the defendant and no proprietary interest in or charge over the assets which are subject to the injunction." (p.132).

24. However, although I have not been referred to it by either party, I should also consider Re M (restraint order) [1992] 1 All ER 537. It concerned the interplay between the jurisdiction (under s.8(1) of the Drug Trafficking Offences Act 1986 in that case) to make a restraint order and the court's jurisdiction in bankruptcy. A restraint order had been made against the debtor under that Act. When his creditors pressed for payment of their debts the defendant applied to the Court and obtained an interim order under s.252 of the Insolvency Act 1986 authorising a nominee appointed under a voluntary arrangement with his creditors to realise sufficient of his assets to discharge all debts to creditors. By s.252(2) such an order had the effect that no proceedings, execution or other process might be commenced or continued against the debtor or his property without the leave of the court.
25. When the prosecution applied for the appointment of a receiver pursuant to s.8(6) of the Drug Trafficking Offences Act, the defendant argued that s. 252(2) of the Insolvency Act prevented the prosecution from pursuing such an application. However, Otton J. held that an interim order under s.252 did not prevent the prosecution from applying for the appointment of a receiver in respect of property which was subject to a restraint order which had been made before the s.252 order, because the property to which a restraint order applied was no longer to be considered as part of the debtor's estate. Otton J. said (p.543):

"The property to which the restraint order applies is no longer to be considered a part of the defendant's estate. He holds only notional title to such property. All dealings with such property are to be held in abeyance until such time as the defendant is acquitted or a confiscation order is made and satisfied. Any doubt is removed by consideration of the purpose of the Drug Trafficking Offences Act 1986, which is to be found in s.13 ……. The purpose, in short, is to make available the value of the realisable property and, by its realisation, to satisfy the confiscation order.

Here Mr M is a defendant. He has been charged with a drug trafficking offence. The High Court on two previous occasions has been satisfied that there exists a reasonable likelihood that he will be convicted. It has made a restraint order pursuant to s.8 of the 1986 Act. All property rights in the property to which the order relates lie in abeyance. The property can no longer be considered part of his estate until the outcome of his criminal trial."

26. Those statements, although made in a different context, would appear to provide quite strong support for an argument that assets of a claimant which are subject to a restraint order are not the claimant's capital for the purpose of calculating his entitlement to income support/JSA.
27. I have come to the conclusion that it unnecessary for me to decide whether that is so or not, for two reasons. First, if (as I am strongly inclined to think) such assets remain his capital, their "market value" (and therefore their value for the purpose of means tested benefits (see, in the case of JSA, reg. 111 of the Jobseeker's Allowance Regulations 1996)) must surely be nil. An asset which a person is prohibited by court order from disposing of must surely be treated as having no market value.
28. Secondly, even if assets subject to a restraint order cease in general to be the claimant's capital for the purpose of assessing his entitlement to means tested benefits, that conclusion must itself be subject to the terms of the order. Section 77(1) of the 1988 Act permits the Court to provide for "such conditions and exceptions as may be specified in the order", and s.77(2) empowers the court "without prejudice to the generality of subsection (1)", to make such provision as the court thinks fit for living expenses. The provision in the order permitting the Claimant to withdraw up to £250 per week was in substance an exception to the order. Even if the assets subject to the order ceased in general to be the Claimant's capital, because (in Otton J's words) all property rights in the property to which the order related lay "in abeyance", that was in my judgment plainly not so in relation to sums which the Claimant was permitted to withdraw under the proviso relating to living expenses. Sums so withdrawn were freed, at the time of each withdrawal, from the effect of the order. The Claimant's rights ceased to be "in abeyance" in respect of each weekly sum which he was permitted to and did withdraw, and each such sum must in my judgment therefore be regarded as having had, at the time of withdrawal, its original quality of capital in the Claimant's hands. In short, the weekly sums were not amounts of income paid to him by some third party. They were amounts of his capital which he was permitted, by way of exception to the order, to expend.
29. Further, none of the provisions in the Jobseeker's Allowance Regulations 1996 (or their equivalents in the Income Support (General) Regulations 1987) which treat certain payments of capital as income would appear to apply. The withdrawals of £250 per week were in my judgment clearly not "capital payable by instalments which are outstanding on the first day in respect of which an income-based jobseeker's allowance is payable" within reg. 104(1) of the 1996 Regulations. Those words in my judgment apply only if there is a contractual or other obligation on the part of some other person to pay a capital sum to the claimant by instalments. There was no such obligation in the present case.
30. In the Decision Makers Guide the position is stated as follows:

"29333 In England and Wales a Court can make an order such as a restraint order which stops people withdrawing or selling their capital.

29334 The Order will list the capital involved.

29335 During the period of the order the people named in the order are not the beneficial owners of the capital which is listed.

29337 The order may let people withdraw a fixed sum of money each week from their capital to pay for living expenses. If money is withdrawn it should be taken into account as income. If the person does not withdraw the money or withdraws less than the fixed sum, the DM should decide if the person has notional income."

31. It follows from what I have said above that I disagree with what is said in para. 29337, as does the Secretary of State's representative in the most recent submission to me. As I have also said above, I and am very doubtful whether para 29335 is correct (although, as I have said, that is likely to be of little practical importance because the market value of the assets must surely be taken as nil).
32. It can be argued that my conclusion is not a satisfactory one. If one assumes that the assets subject to a restraint order would have been worth in excess of £16,000 had there been no restraint order, the claimant would, in the absence of the order, have been disqualified from entitlement to income support/JSA by virtue of his capital. The existence of a restraint order means that he will not be disentitled by virtue of his capital. However, a provision in the order permitting withdrawal of living expenses up to £250 per week (apparently the going rate) means that on one view he does not need income support/JSA, save in the somewhat unlikely event of his "applicable amount" exceeding £250 per week. It can therefore be argued that it would be more appropriate if the withdrawals designed to cover living expenses were treated as income. However, for the reasons which I have given that is in my judgment not the case under the present legislation. Such a result could in my view only be produced by amending legislation.
33. The point which the Claimant in this case has been at pains to make is that the assets of his which are subject to the restraint order are worth less than £16,000. That contention appears to be on the footing that the bank account has at all material times had less than £16,000 in it, and that of the properties specified in the order the only one which he owned was the one in which he and his partner are living. (He makes no mention of the sum in the solicitors' client account). He therefore submits that if there had been no restraint order he would have been entitled to JSA. He would have been able to spend sums in his bank account without them being treated as income. He goes on to submit that it would be unfair if he is worse off, so far as entitlement to JSA is concerned, with a restraint order in place than he would have been if there had been no such order – i.e. it would be unfair if the payments of £250 per week were (as the Tribunal held in the present case) treated as income. That submission appears to overlook that, if there had been no restraint order, a tariff income from the capital in excess of £6,000 would have been attributable to him. Subject to that qualification, the point nevertheless has some force. The position of a person whose capital assets (even ignoring the effect of the restraint order) are worth less than £16,000 would no doubt need to be taken into account in framing any amending legislation.
34. I therefore set aside the Tribunal's decision and make the decision set out in paragraph 1 above.
35. If the result of this decision and the redetermination of the Claimant's claim which I have directed is that the Claimant is awarded JSA, a lump sum will be due to him by way of arrears. Had he been awarded JSA at the time of his claim, and been paid on a continuing basis, it would not have been necessary for him to withdraw so much from his capital in order to pay living expenses (and indeed the restraint order might have been modified so as to reduce the amount which he was permitted to withdraw each week). The amount of capital available to satisfy the confiscation order which was eventually made in April 2007 would therefore have been greater. Whether a lump sum by way of arrears of JSA received now would be subject to the confiscation order I do not know. The Secretary of State may wish to consider, before paying any sum by way of arrears, whether the prosecuting authority should be notified of the position.

Charles Turnbull

Judge of the Upper Tribunal

20 November 2008