Upper Tribunal (Administrative Appeals Chamber)

[2009] UKUT 34 (AAC) (09 February 2009)
Main Category: Capital

THE UPPER TRIBUNAL Appeal No. CH 426 2008

ADMINISTRATIVE APPEALS CHAMBER

Chichester District Council v B and the Secretary of State for Work and Pensions (Council tax benefit)

DECISION

The appeal is allowed. For the reasons below, the decision of the tribunal is set aside. I refer the appeal to the First-tier Tribunal to decide the appeal again in accordance with the following directions.

Directions for new hearing

A The new hearing will be at an oral hearing. That hearing may be before the judge who heard the appeal previously.

B The appellant is reminded that the tribunal can only deal with the appeal as at the date of the original decision under appeal.

C Both parties are directed that they must make any submissions they wish to make about the proper law of the contracts and trusts relevant to this appeal, and produce any evidence they wish to produce of the law of Malta or of any other state, or any other evidence, within two months of the issue of this decision.

D The case is not to be relisted until the parties have had adequate time, as directed, to produce any new evidence.

E I suggest, but do not direct, that the solicitors acting for both parties may with advantage discuss the questions that arise in this appeal, and the evidence to be presented to the new hearing, before it is listed for hearing. It will obviously assist the tribunal judge if any joint position or approach can be communicated to the judge before the hearing.

These directions are subject to any later direction by a tribunal judge.

REASONS FOR DECISION

1. Chichester District Council ("the Council") is appealing against a decision of the Portsmouth tribunal on 22 10 2007 under reference 201 07 00041. The tribunal decided that the claimant ("Mr B") was not disentitled to council tax benefit by reason of being possessed of capital exceeding £16,000. The decisions of the Council that Mr B had been credited with excess council tax benefit and that the benefit should be withdrawn were set aside.
2. Questions of law arise because most of the capital that was alleged to be in the beneficial ownership of Mr B was held in bank accounts. And most of those bank accounts were joint bank accounts held outside the United Kingdom. As the questions appeared to raise general issues of some difficulty, I invited the Secretary of State for Work and Pensions to become a party to the appeal. I am grateful to the Secretary of State for accepting that invitation and making submissions in the appeal. I had the benefit of expert written submissions from all three parties. As no one asked for a hearing, I did not hold one.

The facts

3. The tribunal held a hearing at which both Mr B and the Council were present. There is a full record of proceedings. I take the statement of facts from the tribunal decision, save for anonymising them. Apart from the points discussed below about the existence of a trust, I find no reason to question those findings:

"The appellant and Mr S jointly owned their Chichester house as tenants in common. This house was acquired under Mr B's father's right to buy many years ago. Mr S and Mr B used to be partners. This relationship ceased around 1988 but they remained friends. It was in 1973 or thereabouts that the joint account at Lloyds Bank was opened. The designation was never changed although for many years until closure Mr B used it alone as his day to day current account both for his personal finance and his small bed and breakfast business operated from his home, the Chichester house. Mr S has not accessed this account for many years. The funds belonged to Mr B.

Mr S is the sole owner of a property in Malta. The property was purchased in 1985, when he was working in Saudi Arabia, from offshore funds. He retains ownership currently. He worked in that country for three periods: 1978/82, 1983/86 and 1995/2006. It was after his return in 2006 and his taking up residence at the Chichester house that the events leading to this appeal were set in train.

In association with this purchase and to provide a sheltered location for funds derived from overseas employment bank accounts were opened in Malta. They were opened in the joint names of Mr S and Mr B. At the time the property in Malta was purchased Mr S and Mr B were partners. The accounts were wholly funded by Mr S. I am satisfied that they were put in joint names not to give Mr B a share but to facilitate access by him on Mr S's authority when funds were required in connection with the Maltese property. The only time when Mr B accessed any of this money was in 2006 when Mr B went to Malta and supervised work on Mr S's specific authority. At that time it was not practical for Mr S to leave Saudi Arabia and to go to Malta.

There were money transactions with new accounts opened in Malta and overseas accounts that remained in joint names. These were not accessed by Mr B other than mentioned above.

When Mr S returned home he opened two new accounts again in joint names although the designation was reversed to Mr S/Mr B. One was a fixed term account to which in fact Mr B had no access and the other was a current account. There was only one debit card and the funds transferred to account in the sole name of Mr S.

Although Mr B was joint legal owner of the bank accounts in question at the material time he had no beneficial interest and so no part of their value can be attributed to him in considering his entitlement to council tax benefit."

The tribunal decision

4. The tribunal considered whether there was any reason in law, such as the existence of a trust, that gave Mr B any beneficial interest in the funds in the bank accounts based on these findings. It accepted that the onus of proof was on Mr B to show that he had no beneficial interest in the property in question. And it noted that it was therefore for Mr B to rebut the assumption that a joint account is jointly (as to 50% each) owned by two joint owners. It concluded, based on its findings of fact, that "there was no trust imposed in respect of the Maltese accounts". It decided that therefore the decision of the Council should be set aside.

Grounds of appeal

5. The Council asked permission to appeal because the facts established that its decision was right and that Mr B was beneficially entitled to half the capital in the accounts. It relied on CH 715 2006 to support this argument.
6. Solicitors acting for Mr B submitted that the decision of the tribunal was essentially a finding of fact and was not open to be disturbed on appeal. The solicitors also argued that the tribunal may not have been correct in law in finding no trust. Creation of a trust of personalty did not require any writing and could be established by words or conduct alone. There was a trust of the accounts and Mr S was the sole beneficiary. But the tribunal nonetheless reached the correct conclusion on the facts.

The issues

7. The submissions of both parties to the tribunal decision raised the question whether the tribunal had dealt with the issue of the law of trusts properly. But both failed to note the fact that the relevant banks accounts were in Malta and were funded from funds derived from outside the United Kingdom. Indeed, the accounts were not held in sterling. It was therefore not obvious that the law of trusts of England and Wales is the relevant law.
8. The Secretary of State for Work and Pensions took the view that the tribunal had been wrong in law with regard to the question of the existence of a trust, but that the Council was wrong in assuming that a trust existed under English law. The matter should go back to a tribunal to deal with the facts, including any facts about Maltese trust law or the terms of the bank accounts. The Secretary of State submitted that attention should be paid to the Recognition of Trusts Act 1987 and the Hague Convention on the Law Applicable to Trusts and on their Recognition. The Secretary of State also submitted that it was for the Council to find out about Maltese law if it wished to take the point further.
9. In reply, the Council point out that it had not raised the trust issue, and that it was for Mr B, not the Council, to raise any issues of Maltese law. It restated its contention that the tribunal found no trust and the Council considered that the tribunal had erred in disagreeing with the Council after making that finding.

The tribunal's finding that there was no trust

10. The tribunal found as fact that the bank accounts were in the joint names of both Mr B and Mr S. It did not consider, nor make any findings about, the contractual or other terms under which those accounts were established. Nor did it consider the fact that the important bank accounts for this appeal were Maltese accounts.
11. I agree with the Secretary of State and Mr B's solicitors that the tribunal was wrong in law in finding that no trust existed on the facts it found. Money - a form of personal property in the law of England and Wales - was paid by Mr S from his own funds into an account in the joint names of Mr S and Mr B. It was assumed that the jointly named accounts were joint accounts. In the law of England and Wales that transaction can only work if a mechanism is put in place to bridge the gap between the joint ownership in law of the account (if it was joint ownership) and the single beneficial ownership of the money in the account that the tribunal found to exist.
12. What is that mechanism? The starting point is set out in the following passage from the opinion of Lord Brown-Wilkinson in Westdeutsche Landesnak Girozentrale v Islington BC [1996] AC 669, 708:

"[W]here A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B; the money or property is held on trust for A (if he is the sole provider of the money) or in the case of joint purchase by A and B in shares proportionate to their contributions."

13. This is cited in Snell's Equity at para 23-02. The learned editors add the comment that "[T]he trust arises by operation of law to give effect to the presumption that A did not intend B to take the property beneficially. This is confirmed by another decision of the highest authority, namely the judgment given by Lord Millett for the Privy Council in Air Jamaica Ltd v Charlton [1999] 1 WLR 1399 at 1412:

"Like a constructive trust, a resulting trust arises by operation of law, though unlike a constructive trust it gives effect to intention. But it arises whether or not the transferor intended to retain a beneficial interest – he almost always does not – since it responds to the absence of any intention on his part to pass a beneficial interest to the recipient."

14. As the tribunal made no finding that the relevant law was not the law of England and Wales, it had to deal as a matter of law with the resulting trust indicated by the facts it found. It did not do so, and I must allow the appeal for that reason.
15. I must also refer to CH 715 2006. That concerned a claim for benefit, not an overpayment, so the burden in that case was on the claimant. The asset in dispute was a British joint bank account. The claimant contended that the money in the account was held on trust for relatives. But the money was clearly paid into the account by him. The dispute before the tribunal was about whether there was a trust. The facts of that case are therefore completely different to those here. In that case it was for the claimant to show that when he placed the money in the bank account he had placed it in trust, or in other words given it away. Here it is for the Council to show that when someone else placed the money in the joint bank accounts it was given to Mr B. I need not comment further on that case save to repeat a citation of the earlier decision of Commissioner Rice in R(IS) 1/90 at paragraph 7 that is directly relevant here:

"I should be very slow to conclude that a person has in effect given away his property, either by direct transfer or by declaration of trust, in the absence of a clear indication to that effect … No one should be treated as having voluntarily given up a proprietary interest in property in the absence of the clearest indication that that was his intention."

In the light of the authorities above, that must still be the approach in cases such as this.

Was there a trust?

16. On the primary facts found by the tribunal, the main assets in question were money held in joint accounts in Maltese banks. The funds were provided by Mr S and not Mr B. There is no clear evidence of any gift to Mr B other that a separate amount that Mr B had declared to the Council. The facts suggest that Mr S was not resident in the United Kingdom when the money was paid into the accounts, and that there was no other connection between the money and the United Kingdom before it went into the accounts.
17. It must be noted that no one has considered the terms on which the bank accounts were established. They were Maltese accounts. There will be contracts dealing with the position as between the bank and the accounts holders of the position. There is nothing in the papers indicating what those terms are.
18. Assuming no relevant terms, and assuming no proof of any aspect of Maltese law, then these matters are to be judged by the law of England and Wales. It must follow that a presumption of a resulting trust to Mr S arises from those facts. I can see no basis in English law for the assumption that Mr B is joint beneficial owner of the money in the Maltese accounts on the facts found by the tribunal.
19. One matter not yet considered is whether the law of England and Wales is the proper law by which the questions are to be determined. It cannot be the proper law of the contract under which the accounts were established with the banks unless that is a specific term of those contracts. Nor is it clear whether, at that time, Mr S was subject to the civil law of England and Wales at all. Was he domiciled or habitually resident in England and Wales? He was found to have been working outside the United Kingdom from 1995 to 2006, and to have established a base in Malta as well as the place where he was working at that time. There is no indication that he had any separate dwelling in the United Kingdom until he came to stay with Mr B. No findings were made about those questions.
20. What is the nature of the relationship between Mr S and Mr B with reference to the bank accounts situated in Malta? What were the contractual arrangements between Mr S and Mr B and the banks? What was the status in Maltese law of the placing of funds by Mr S in an account of which Mr B was a co-signatory? Was Mr B also a joint owner of those funds in law? Was there any trust imposed by Maltese law on those funds?
21. If there is a trust of the money between Mr S and Mr B, it must also be asked what is the proper law of that trust? This question is a matter not only of the conflict of laws but of the statute law of the United Kingdom. The Court of Appeal accepted this in its consent decision allowing an appeal against a decision of the late Commissioner Fellner (reheard by Commissioner Turnbull as CIS 213 2004 and CIS 214 2004).
22. The relevant law is in the Recognition of Trusts Act 1987. This gives force of law in the United Kingdom to the Hague Convention on the Law Applicable to Trusts and on their Recognition. The relevant provisions are set out in Schedule 1 to the Act. Article 3 of the Convention states that "the Convention applies only to trusts created voluntarily and evidenced in writing". But section 1 of the Act ensures that the terms of the Convention have wider effect within the law of the United Kingdom. Section 1(2) provides:

"[The Convention] provisions shall, so far as applicable, have effect not only in relation to the trusts described in Articles 2 and 3 of the Convention but also in relation to any other trusts of property arising under the law of any part of the United Kingdom or by virtue of a judicial decision whether in the United Kingdom or elsewhere."

23. Articles 6 to 8 of the Convention define the applicable law:

"Article 6

A trust shall be governed by the law chosen by the settler. The choice must be express or be implied in the terms of the instrument creating or the writing evidencing the trust, interpreted, if necessary, in the light of the circumstances of the case.

Where the law chosen under the previous paragraph does not provide for trusts or the category of trust involved, the choice shall not be effective and the law specified in Article 7 shall apply.

Article 7

Where no applicable law has been chosen, a trust shall be governed by the law with which it is most closely connected.

In ascertaining the law with which a trust is most closely connected reference shall be made in particular to: -

(a) the place of administration of the trust designated by the settler;

(b) the situs of the assets of the trust;

(c) the place of residence or business of the trustee;

(d) the objects of the trust and the places where they are to be fulfilled.

Article 8

The law specified by Article 6 or 7 shall govern the validity of the trust, its construction, its effects and the administration of the trust …"

24. The 1987 Act therefore provides that these are the tests to be applied to see under what law any trust that arises with reference to the Maltese bank accounts are to be considered.
25. Is there anything in social security law that prevents that Act applying? The only relevant rule in the Council Tax Benefit Regulations 2006 appears to be regulation 41 (capital jointly held). This provides that:

"… where a claimant and one or more persons are beneficially entitled in possession to any capital asset they shall be treated as if each of them were entitled in possession to the whole beneficial interest therein in an equal share and the foregoing provisions of this Section [of the Regulations] shall apply for the purpose of calculating the amount of capital which the claimant is treated as possessing as if it were actual capital which the claimant does possess."

The relevant foregoing regulation is regulation 38 (calculation of capital outside the United Kingdom). Nothing turns on that provision here. Nor is regulation 41 relevant until it is shown that both Mr B and Mr S were beneficially entitled in possession to the money in the bank accounts. That can only be established after consideration has been given to the relevant aspects of the 1987 Act and the Convention. So there is no conflict between these rules.

The burden of proof

26. The Secretary of State, the Council and Mr B's solicitors disagreed over whom was to establish what with regard to the facts of this case. The answer lies in the basic principles applying to the social security jurisdiction as it interacts with the rules set out above.
27. Mr B claimed council tax benefit in April 2006 using the rule allowing 52 weeks backdating. The Council granted the benefit to Mr B, although the decision doing so does not appear to be in the papers. There then appears to be another decision in August 2006 when Mr S "moved in". Mr B had previously been awarded 75% benefit as a single occupier, and then became liable to 50% as one of two occupiers. That would be a supersession decision based on a change of circumstances. The decision under appeal to the tribunal appears to be a decision revising both the original decision and the supersession decision although it is not expressed as such.
28. The burden of proof therefore lies on the Council to show that on the balance of probabilities on the available evidence there were grounds to revise the decisions awarding the benefit to Mr B. To establish this, the Council has to show that Mr B probably has a beneficial interest in the money in the Maltese bank accounts. If the Council can show that, then it can rely on regulations 38 and 41 of the Council Tax Benefit Regulations for the assumption that Mr B had the benefit of half the money in the accounts. But before that arises the Council must show that Mr B probably has some beneficial interest (and not merely a legal interest) in that money.
29. In practical terms, the starting point is the identification of the proper law of any relevant contract (under common law) or trust (under the Convention rules). If the law is any law other than that of England and Wales, that law must be put in evidence as a matter of fact. If there is no evidence of Maltese or other law (or of any relevant terms of any contract or other document), then the law of England and Wales is to be applied. If that is applied, then the presumption of a resulting trust must be considered. If the facts are as found by this tribunal, then it is for the Council to produce evidence displacing the presumption that the funds paid in by Mr S to the accounts is subject to a resulting trust in his favour.
30. I therefore agree with the Secretary of State that it is for the Council to produce either evidence of Maltese law showing that Mr B has a beneficial interests in the bank accounts, or, alternatively, (if only the law of England and Wales is in issue) that the presumption of a resulting trust does not apply here. Mr B's solicitors can of course also provide evidence to the tribunal of the law of Malta and about the resulting trust.

Was there fraud?

31. The other reason behind Mr B's appeal was the implication that he had broken the criminal law. Mr B was subject to a formal interview. This arose because the Council came to know about the joint Maltese bank accounts and Mr B had not mentioned them on his claim forms. But there has been no prosecution or even threat of a prosecution.
32. It may be that the difference between the Council's approach to what Mr B told it and Mr B's approach was partly a result of the terms of the questions in the claim form itself. It is not entirely clear to me that everyone reading the form would understand the question "Do you … have any bank accounts…" as including accounts of which someone is a joint account holder but not a beneficial owner. I see no problem with the Council asking claimants to disclose all accounts of which they are account holders or joint account holders regardless of whether they are "your" accounts. But that was not the question asked. On the facts I can see why Council officials, on their interpretation of the form, took the approach they initially took. I can also see why Mr B, on his interpretation of the form, took the approach he initially took. It is unfortunate that this led to misunderstandings. I have seen similar misunderstandings in other appeals here. Perhaps the scope of the questions needs clarifying.

Summary

33. This must go back to a new tribunal for decision. The tribunal is entitled to have full regard to the findings made by the previous tribunal save on the matter of trusts and to the extent that new evidence is put before the tribunal. There is no reason in this case why the appeal should not be reheard by the same judge who heard the initial appeal but I leave that to the First-tier Tribunal to decide.
34. It is for the Council to establish its case before the new tribunal. The new tribunal is to consider whether it is satisfied that Mr B has any beneficial interest in the Maltese accounts, or any other relevant assets, in the light of the guidance above.

Dr David Williams

Judge of the Upper Tribunal

11 02 2009

[Signed on the original on the date stated]