Upper Tribunal (Administrative Appeals Chamber)

[2009] UKUT 7 (AAC) (15 January 2009)

 


IN THE UPPER TRIBUNAL Appeal No. CH/4/2008

ADMINISTRATIVE APPEALS CHAMBER

Before E A L Bano

Attendances:

For the Appellant: Mr Rothwell, of Counsel, instructed by Vizards Tweedie LLP, Solicitors

For the Respondent Mr Mulrennan, DWP Solicitors' Department

Decision: My decision is that the decision of the tribunal involved the making of an error on a point of law. I set aside the tribunal's decision and remit the case to the First-tier Tribunal for rehearing by a differently constituted tribunal in accordance with the directions set out below.

REASONS FOR DECISION

1. This is an appeal, brought with the leave of a district chairman, against the decision of the tribunal given on 26 May 2007, dismissing the claimant's appeal against a decision of the respondent housing authority refusing a claim for housing benefit made on 6 March 2006. The housing authority has played no part in this appeal, but the Secretary of State for Work and Pensions was joined as a Second Respondent to the appeal at my invitation and opposed the appeal both in a written submission dated 12 June 2008 and at the oral hearing before me. As a result of the coming into force on 3 November 2008 of the Transfer of Tribunals Functions Order 2008 (SI 2008 No. 2833), this appeal continues as an appeal to the Upper Tribunal under the Tribunals, Courts and Enforcement Act 2007, but that has no bearing on the substantive issues in the case.
2. The claimant is a man with severe disabilities who lives with his sister and carer (who is also his appointee) in the house which he occupied with his late father and with his mother prior to her death in 2005. The claimant's mother left the house on discretionary trusts for the benefit of her husband and of her children and remoter issue, but no power of appointment under the trust has ever been exercised. The claim for housing benefit giving rise to this appeal is based on a one year shorthold tenancy agreement dated 7 December 2005 between the trustees and the claimant, and the principal question in this case is whether in the absence of any appointment in the claimant's favour he is a beneficiary of the trust for the purposes of regulation 9(1)(e) of the Housing Benefit Regulations 2006 (SI 2006 No. 213) ("the 2006 regulations"), thereby placing on him the burden of establishing under regulation 9(3) that his liability under the tenancy agreement was not intended to be a means of taking advantage of the housing benefit scheme.
3. By her will dated 22 October 2002, the claimant's mother appointed her husband and four of her children to be her executors and trustees, but her husband predeceased her and the trustees of the will are therefore three sisters and a brother of the claimant. Although the trust contains elaborate provisions dealing with different classes of trust property, I was told that for all practical purposes the only trust property is in fact the house which is the subject of this appeal.
4. Clause 7.1 of the Will provides as follows:

"The Trustees shall hold the capital and income of the Trust Fund upon trust for or for the benefit of such of the Discretionary Beneficiaries, at such ages or times, in such shares, upon such trusts (which may include discretionary powers or trusts) and in such manner generally as the Trustees shall in their discretion appoint. Any such appointment may include such powers and provisions for the maintenance, education or other benefit of the Discretionary Beneficiaries or for the accumulation of income, and such administrative powers and provisions as the Trustees think fit."

Under clause 8, in the absence of any appointment under clause 7.1, the trustees are bound to apply the income of the trust for the benefit of the discretionary beneficiaries, and by clause 9 there is power for the trustees to apply the capital of the trust for the benefit of any or all the discretionary beneficiaries in such shares and in such manner as they think fit. Under clause 23, the trustees have power to "permit any beneficiary to occupy or enjoy all or any part of the Trust Fund on such terms as they think fit". The terms "discretionary beneficiaries" and "beneficiary" are defined in clause 46 as follows:

"46.10 The "Discretionary Beneficiaries" shall mean my children and remoter issue, whether living at my death or born thereafter;

46.11 "Beneficiary" shall mean any person beneficially interested in my Estate."

The claimant's mother had eight children, and I was told that there are now approximately 39 discretionary beneficiaries.

5. Very shortly after the claimant's mother died, the trustees and the claimant entered into a standard form shorthold tenancy agreement of part of the accommodation in the house for a term of 12 months commencing on 7 December 2005 at a rent of £900.00 per calendar month. The agreement also provided for the claimant to pay a deposit of £5000.00, which he may have been able to pay because he is the beneficiary of a trust of monies paid under the Vaccine Damage Payments Act 1979 (it does not appear to be disputed that that fund is exempt capital for housing benefit purposes).
6. The claim for benefit was refused by a decision notified by letter dated 17 July 2006 (purportedly under the Housing Benefit (General) Regulations 1987, although the claim was dated the day the 2006 regulations came into force), on the ground that the claimant was a beneficiary of the trust of the property. In response to a letter from the claimant's then advisers in support of an application to review the decision, the authority stated that they had concluded that the tenancy had been created to take advantage of the housing benefit scheme, and on 24 August 2006 the claimant's appointee appealed on his behalf against the refusal decision.
7. The tribunal, consisting of a legally qualified panel member, dismissed the appeal. The decision notice put the basis of the decision as being that the claimant was de facto the beneficiary of a trust, and also that there was no "true commercial tenancy agreement". However, the statement of reasons did not deal with the question of whether the tenancy was on a commercial basis. The claimant's solicitors applied for leave to appeal on his behalf on the grounds he was not a beneficiary of the trust, and that the chairman had misconstrued regulation 9(1) of the 2006 regulations by importing the word "true" into the regulation. The district chairman who dealt with the application considered that the decision was in error of law because of the inconsistency between the decision notice and the statement of reasons, and also because, as he correctly observed, the use of the phrase "true commercial tenancy" committed the common error of confusing the actual existence of a liability with its deemed non-existence under regulation 9 of the 2006 regulations. However, despite those errors, the district chairman gave leave to appeal rather than setting aside the decision because he considered that the question of whether the object of a discretionary power can properly be said to be beneficiary of a trust was a question which should be considered by a Commissioner.
8. Under regulation 9(1) of the 2006 regulations, a person who is liable to make payments in respect of a dwelling shall be treated as if he were not so liable where-

"(e) subject to paragraph (3), his liability under the agreement is to a company or a trustee of a trust of which-

(i) he or his partner;

(ii) his or his partner's close relative who resides with him; or

(iii) his or his partner's former partner

is, in the case of a company, a director or an employee, or, in the case of a trust, a trustee or beneficiary."

Paragraph (3) provides:

"Sub-paragraphs (e) and (g) of paragraph (1) shall not apply in a case where the person satisfies the appropriate authority that the liability was not intended as a means of taking advantage of the housing benefit scheme established under Part 7 of the Act."

9. Regulation 49(2) of the 2006 regulations provides that "except in the case of a discretionary trust" any capital which would become available to the claimant upon application being made but which has not been acquired by him is treated as being possessed by the claimant, and in their grounds of appeal the claimant's solicitors submitted that it was therefore clear that discretionary beneficiaries of a trust are ignored for housing benefit purposes. Mr Rothwell submitted that as a matter of trust law the objects of a discretionary trust have no interest in the trust property. The position of such persons is described in Lewin on Trusts (18^th ed. paragraph 7.20) as follows:

"The objects or beneficiaries of a discretionary trust have a right to be considered as potential recipients of benefit from the property which is subject to such trust, a right to compel the trustees to consider the exercise of their discretion from time to time, and also, crucially, a right to compel the trustees to distribute the trust property over which such discretion has been conferred (be it income or capital or both.) In the case of a discretionary trust, there is no one entitled in default of appointment, or of an exercise of a power of appointment, in whom beneficial ownership of the property can be said to be vested. The question, therefore, is whether the object of a discretionary trust, like the beneficiary under a fixed interest trust, can be said to have a proprietary 'interest' of any kind in the property which is the subject of the trustees' discretion."

Applying that principle, it was held in Gartside v IRC [1968] AC 553 that for the purposes of section 43 of the Finance Act 1940 the objects of a discretionary trust did not have an "interest in possession" before any advancement was made.

10. Under the terms of the trust in this case, the "beneficiaries" are any persons who are beneficially interested in the trust property, which in accordance with the principle set out above does not include discretionary beneficiaries in whose favour no appointment has been made. Any permission to the claimant to occupy the house would necessarily involve the exercise of a power of appointment under the trust, and to that extent Mr Rothwell was therefore in my view correct in submitting that as a discretionary beneficiary and in the absence of any appointment in the claimant's favour he did not fall within the definition of "beneficiary" in clause 46.11 of the will.
11. However, what has to be considered in this case is the proper construction of the term "beneficiary" in regulation 9 of the 2006 regulations. In paragraph 16 of R(H) 1/03 Mr Commissioner Jacobs (as he then was) held that: "the purpose of the provision (the predecessor of regulation 9 of the 2006 regulations) is to prevent abuse of the housing benefit scheme. It excludes from entitlement a category of cases which by their very nature are capable of being an abuse of the housing benefit scheme." In cases falling within paragraphs (e) and (g) of regulation 9, entitlement to benefit is not necessarily excluded, but the burden is placed on the claimant of showing that the liability under the letting agreement was not created to take advantage of the housing benefit scheme.
12. In the case of lettings by trustees, it seems to me that the particular abuse at which regulation 9(1)(e) of the 2006 regulations is directed is the use of housing benefit to meet a person's housing needs when there are in existence trust assets which can be used for that purpose. There may be cases where trustees exercise their powers of leasing to a claimant for reasons unconnected with housing benefit, for example, if the use of other trust powers to provide a claimant with accommodation would be unfair on other beneficiaries of the trust with urgent calls on the trust assets. However, in such cases I consider that the manifest intention of regulation 9(1)(e) of the 2006 regulations is to place on the claimant the burden of showing that the exercise of the trustees' powers of leasing, instead of the use of other powers available to the trustees to provide the claimant with accommodation, was not intended to be a means of taking advantage of the housing benefit scheme. That intention would be defeated in the case of a discretionary trust if the term 'beneficiary' in regulation 9(1)(e) did not extend to objects of the trust in whose favour no power of appointment has been exercised, since under a discretionary trust the normal way of allowing an object of the trust to occupy trust property is by the exercise of a power of appointment. Regulation 49(2) of the 2006 regulations is in my view concerned with the entirely different issue of what constitutes notional capital, and I therefore reject the claimant's contention that the term 'beneficiary' does not extend to objects of a trust in whose favour no power of appointment has been exercised. I am fortified in that conclusion by observing that such persons are described as "beneficiaries" in the extract from Lewin on Trusts set out above.
13. Under clause 10 of the Will the claimant has an interest in remainder in the trust property, but I consider that for the purposes of regulation 9(1(e) of the 2006 regulations a person is only a 'beneficiary' of a trust if under the terms of the trust the person can be permitted to occupy the dwelling which is the subject of the housing benefit claim. In Frish Limited v Barclays Bank Limited [1955] 2 QB 541 the freehold reversion of premises let on a business tenancy was vested in trustees of a discretionary trust of the income of the trust, one of whose objects had entered into an agreement with the landlords to take a tenancy of the premises at a rent higher than that paid by the existing tenants. He opposed the grant of a new tenancy under section 30 of the Landlord and Tenant Act 1954, contending that he was to be treated as the landlord of the premises by virtue of section 41(2), which provides that "where the landlord's interest is held on trust references…to the landlord shall be construed as including references to the beneficiaries under the trust or any of them." The Court of Appeal held that some limit must be put on the meaning of the words "the beneficiaries under the trust or any of them" and that, since occupation of the premises by the beneficiary in that case would have no reference whatever to his beneficial interest, he was not entitled to object to the grant of a new lease to the existing tenants under section 30 of the 1954 Act.. I see no reason not to apply the same principle to regulation 9(1)(e) of the 2006 regulations, and accordingly to limit the application of the provision to those cases where there is power under the trust (other than by the grant of a lease) to provide the claimant with the accommodation in respect of which the claim for housing benefit has been made.
14. The decision of the tribunal involved the making of an error of law for the reasons identified by the district chairman, and also because in my view the tribunal did not give adequate reasons for concluding that the liability under the letting was intended to be a means of taking advantage of the housing benefit scheme. The decision of the tribunal must therefore be set aside, but it remains to be decided whether I should rehear it myself or remit it for rehearing to a new tribunal.
15. Although the claimant's solicitors have written asking me to re-hear the case myself, I have decided not to do so. There does not appear to me to have been any adequate factual investigation yet of the trustees' intentions in granting the claimant a tenancy of the premises and there are a number of features of the case which are unusual-for example the resources available to the claimant under his vaccine damage trust fund (which may provide a motive for the grant of a tenancy to the claimant irrespective of his entitlement to housing benefit), and the very high deposit. The authority has not expressed a view on what should happen if the appeal is allowed, and I have come to the conclusion that it would not be satisfactory for a wide ranging factual inquiry to be conducted for the first time before the Upper Tribunal. I have therefore decided to remit the case for rehearing to a differently constituted tribunal.
16. For the reasons I have given, I direct the new tribunal to treat the case as governed by regulation 9(1)(e) of the 2006 regulations and accordingly to consider whether on the evidence before the tribunal the burden on the claimant of showing that the liability under the tenancy agreement was not intended to be a means of taking advantage of the housing benefit scheme has been satisfied. The tribunal under appeal seems to have taken the view that the tenancy agreement did not create a genuine liability. If the authority wishes to oppose the appeal on that ground, or on the ground that the tenancy agreement was not on a commercial basis, I direct them to make a written submission setting out their position no later than 28 days before the re-hearing of the appeal.
17. For the reasons I have given, I have accepted the submissions of Mr Mulrennan on the construction of regulation 9 of the 2006 regulations, without the need to refer specifically to those submissions. Since I have found in Mr Mulrennan's favour on the construction arguments, I have not considered it necessary to deal with his alternative submission based on the rule in Saunders v Vautier.
18. For those reasons, my decision is as set out above.

E A L Bano

Judge of the Upper Tribunal

15 January 2009