Upper Tribunal (Administrative Appeals Chamber)

 

IN THE UPPER TRIBUNAL Case No.  CH/1528/2012

ADMINISTRATIVE APPEALS CHAMBER

Before Mr Justice Charles

 

Decision: 

1.           The appeal is dismissed.

2.           The matter is remitted to the First-tier Tribunal for directions on the definition and resolution of the remaining issues (if any) between the parties.

 

REASONS FOR DECISION

Introduction

1.               This is an appeal by Wirral Borough Council (“the Council”) against the decision of the First-tier Tribunal (“the FTT”), given by a decision notice and a statement of reasons dated 2 February 2012 (“the 2012 FTT Decision”), that Salisbury Independent Living (“SIL”) meets the definition of a voluntary organisation for the purposes of paragraph 4(10) of Schedule 3 to the Housing Benefit and Council Tax Benefit (Consequential Provisions) Regulations 2006 (“the HB Regulations”), and therefore that the individual respondents to this appeal (Mr Furlong and Ms Perry) occupied exempt accommodation.  The Secretary of State for Work and Pensions (“the SSWP”) has been joined as an interested party and was represented before me.

2.               The FTT was a single judge.  The hearing before him lasted seven days and took place in November 2011.  He granted permission to appeal to the Upper Tribunal on 7 March 2012 commenting that: “the appeal involves the definition of "a voluntary organisation" in relation to exempt accommodation status within Housing Benefit law, it appears that there are no earlier precedents by way of guidance and that the matter is one which requires consideration by the Upper Tribunal”.  It is common ground that apart from one obiter reference in Salford CC v PF [2009] UKUT 150 (AAC) (CH/577/2009), a decision by an Upper Tribunal judge, there are no earlier decisions that are directly in point. 

3.               I agree that the meaning and application of the definitions within the HB Regulations of a voluntary organisation and a housing association merit consideration by the Upper Tribunal.  At a directions hearing consideration was given to whether this appeal should be heard by a three-judge panel of the Upper Tribunal, but it was common ground that experience of the application of the relevant underlying law relating to housing benefit was not of any particular value and therefore that I should hear this appeal as Chamber President, sitting alone.  I also directed that SIL is a party to the appeal and should be referred to as a Respondent. 

4.               As set out in the 2012 FTT Decision, there has been a considerable amount of litigation between the Council and SIL since 2005, and I was told that outstanding issues remain between them whatever the outcome of this appeal. The same judge of the FTT (then sitting as the Appeal Tribunal) heard an earlier appeal (“the 2006 Appeal”) which involved the Council and SIL, but different individuals. The 2006 Appeal took three and half days before the FTT and its decision (“the 2006 FTT Decision”) was appealed and heard by Commissioner (now Upper Tribunal Judge) Jacobs. His decision (CH/0039/2007) is dated 27 September 2007.  In that Appeal, as here, the Council was supported by the SSWP. 

Relevant Regulations and non-statutory Guidance

5.               Paragraph 4(1)  of Schedule 3 of the HB Regulations has since April 2008 provided that:

“ 4 (1) Subject to the following provisions of this paragraph, the eligible rent of a person -

(a) -----; or

 (b) who is liable to make payments in respect of a dwelling occupied by him as his home, which is exempt accommodation, shall be determined in accordance with -

(i) regulations 12 (rent) and 13 (maximum rent) of the Housing Benefit Regulations, or, as the case may be,

(ii) regulations 12 (rent) and 13 (maximum rent) of the Housing Benefit (State Pension Credit) regulations,

as set out in paragraph 5.”

6.               This is a transitional and saving provision and I was told that it dates back to 1995 when a new system of rent assessment by rent officers was introduced.  That system has now changed but this provision still applies to “exempt accommodation” and results in a higher entitlement to housing benefit.  As explained in paragraphs 4.1011 and 4.1012 of guidance provided to local authorities by the Department for Work and Pensions by HTB/CTB Circular A22/2008 (“the DWP Guidance”) quoted in paragraph 12 below, the use of the maximum rent, through the continued use of what has become known as "old scheme" rules, was designed to ensure that housing benefit would continue to meet rents at levels that reflected the higher costs of providing exempt accommodation.

7.               The definition of “exempt accommodation” is in paragraph 4(10) of Schedule 3 to the HB Regulations, and  is as follows (with my emphasis):

“ accommodation which is -- provided by a non-metropolitan county council in England within the meaning of section 1 of the Local Government Act 1972, a housing association, a registered charity or voluntary organisation where that body or a person acting on its behalf also provides the claimant with care, support or supervision ”

8.               That definition has two elements namely:

i)                the accommodation has to be provided by such a body or person, and

ii)               that body or person, or a person acting on its behalf, has to provide the claimant with care, support or supervision. 

This appeal is concerned only with the first element of that definition.  But, I was told that, if the first element is satisfied, issues remain as to whether or not the second element is satisfied by SIL.

9.               A “voluntary organisation” is defined in regulation 2 of the Housing Benefit Regulations 2006, in the following terms:

“ a body, other than a public or local authority, the activities of which are carried on otherwise than for profit ”

10.           Regulation 2(1) of the Housing Benefit Regulations 2006 provides that the definition of “housing association” is that which is found in section 1(1) of the Housing Associations Act 1985, which provides that it is:

“--- a society, body of trustees or company

(a) which is established for the purpose of, or amongst whose objects or powers are included those of, providing constructing improving or managing, or facilitating or encouraging the construction or improvement of, housing accommodation, and

(b) which does not trade for profit or whose constitutional rules prohibit the use of capital with interest or dividend exceeding such rate as may be prescribed by the Treasury, whether with or without differentiation as between share and loan capital ”

11.           Regulation 9 of the Housing Benefit Regulations 2006 provides as follows:

“Circumstances in which a person is to be treated as not liable to make payments in respect of a dwelling

This section has no associated Explanatory Memorandum

9.—(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—

(a) the tenancy or other agreement pursuant to which he occupies the dwelling is not on a commercial basis;

-----------

 (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 a beneficiary;

(f) his liability under the agreement is to a trustee of a trust of which his or his partner’s child is a beneficiary;

-------------

 (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.

(2)  In determining whether a tenancy or other agreement pursuant to which a person occupies a dwelling is not on a commercial basis regard shall be had inter alia to whether the terms upon which the person occupies the dwelling include terms which are not enforceable at law.

(3)  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 to be a means of taking advantage of the housing benefit scheme.

(4)  ------------------ ”

 

12.           No statutory guidance is provided as to what constitutes a voluntary organisation or a housing association.  The DWP Guidance states in paragraph 3 that it is not intended to be an authoritative statement of the law, but it is updated from time to time and is designed to give guidance to local authorities on dealing with claims from those living in supported accommodation.  It is therefore something that local authorities should have regard to.  Under the heading “exempt accommodation” the DWP Guidance states:

“ 4.1010 "Exempt accommodation" is an individual dwelling for which a person is liable to make payments that they occupy as their home in which is

·               a resettlement place ----------

·               provided by a non-metropolitan county council in England, a housing association, a registered charity or voluntary organisation when that body or a person acting on its behalf also provides the claimant with care, support or supervision

4.1011 The purpose of including this provision was to ensure that the rents of certain non profit making groups who are involved in providing specialist supported accommodation with care, support or supervision to residents were not subject to rent restriction under the maximum rent rules.

4.1012 This is achieved through defining the housing provision as exempt accommodation and protecting it from the use of the maximum rent through the continued use of what has become known as "old scheme" rules.  The protection was designed to ensure that HB would continue to meet rents at levels that reflected the higher costs of providing this type of accommodation but is also balanced against the requirement to restrict rent levels by comparison with suitable alternatives.

Accommodation provider

4.1020 To decide whether an individual dwelling meets the definition of "exempt accommodation", the starting point is the accommodation provider, which must be --------- [and the definition and the second bullet point of paragraph 4.1010 is set out]

Specific landlords

4.1023 If the accommodation is provided by a

·              non-metropolitan county council  ----

·              registered charity ---------

·              housing association,  if they are a

-        registered housing association or Registered Social Landlord (RSL), you should check their registration details with the Housing Corporation.  This can be checked using ----------

-        housing association which is not registered with the Housing Corporation, you should confirm that they fall within the definition of a Housing Association under s1(1) of the Housing Associations Act 1985.  This is defined as: ------------

To confirm an unregistered Housing Association status you should ask to see a copy of their constitution or the rules which govern their activities, an explanation of why they are unregistered, and, when appropriate, a summary of their accounts.

·               Voluntary organisation.  The HB/CTB Regulations 2006 define a voluntary organisation as

---------------- [the definition is set out]

You should therefore ask to see a copy of their constitution or the rules that govern their activities and request a summary of their accounts to demonstrate their not for profit status.  The common features of a voluntary organisation are that it

-  is formally constituted

-  does not formally or informally pay dividends or make profits from its operations or in selling, disposal or winding up of its assets or operations

- does not make payments to directors or any person, organisation or body connected to them which are quasi or disguised profits and dividends from its operations or in selling, disposal or winding up of its assets or operations.  Confirm these from their accounts

-  does not have arrangements with any person, organisation or body formally or informally to make payments or dividends, quasi dividends or disguised profits from its operations or in selling, disposal or winding up of its assets or operations

-  that the objects of the organisation and its arrangements are such that it is not possible for any person, organisation or body to make a profit from its operations or in selling, disposal or winding up of its assets or operations

Further guidance is at: http:/www.nao.org.uk/guidance/better_funding/annexA.htm

4.1024 In some situations, a landlord may fall in more than one of these above categories (e.g. a Housing Association may also be a registered charity).  In these situations, it is sufficient to verify that the accommodation is included within one of the above categories, not all of them.

Contrived to take advantage

4.1050 When an arrangement appears to be constructed in such a way as to create or increase an entitlement to benefit consider whether it is contrived to take advantage of the benefits scheme.  HB Reg 9(1)(l)

4.1051 You need to make a judgement on the facts of the case and, in doing so, consider the dominant purpose behind the arrangement as it exists.  See, Annex E, Commissioner’s decisions CH/58/2007 and CH/136/2007  at the end of this chapter.

4.1052 The following situations may be relevant factors which indicate that the dominant purpose of the arrangement is to take advantage of the HB scheme.  These factors may not be decisive on their own and must be considered among all the other facts of the case

·              If the landlord leases property, ensure that the terms of the lease support the tenancy granted, especially where it is an assured tenancy

·              If the landlord leases property and is a voluntary organisation, in the form of a not for profit limited company, use Companies House to find out whether the company which owns the property has connections to the voluntary organisation that is the landlord

·              If care and support is alleged to be provided, ensure that the need has been assessed and agreed by a qualified person or organisation.  A private sector voluntary organisation landlord providing support following their own assessment of need would not be acceptable

Commonly asked questions under the "Old scheme" rules

What if the level of rent charged is in multiples of or significantly higher than the rent officer’s determination of a claim related rent?

-------------

HB regulation 9(1)(l) should not only be considered for those claims when it appears that the entire liability is seeking to take advantage of the HB scheme but also where the liability has been engineered to gain more HB than would otherwise be available or reasonable.  This decision can be made regardless of whether the contrivance is due to the actions of the landlord or the claimant.  (See Commissioner’s decisions ch/58/2007 and CH/136/2007 at Annex E  of this chapter).

Brief outline of the background facts

13.           In the context of the issues in the 2006 Appeal, Commissioner (now Upper Tribunal Judge) Jacobs succinctly summarized the background as follows:

“ The claimants are all individuals with learning disabilities who are housed and supported by SIL.  The quality of that accommodation and support is not an issue and, from what I have seen of the evidence, it was not only suitable to the claimant's needs but of good quality.

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 provide 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 decided that the claimants were not entitled to housing benefit onto 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. ”

14.           The last quoted paragraph sets out the context of the 2006 Appeal, which was based on Regulation 9 of the Housing Benefit Regulations 2006.  On the appeal to the Commissioner the Council not only did not challenge the FTT 2006 Decision on commerciality (i.e. that the tenancies were on a commercial basis), it also did not invite the Commissioner to direct a rehearing on that issue if it succeeded on its argument that the FTT had erred in law in determining that the liability between the claimants and SIL tenants was not created to take advantage of the housing benefit scheme (and so was not an abuse applying Regulation 9(1)(l)).  On that live part of the appeal, Commissioner Jacob concluded the FTT had not gone wrong in law and, in doing so, pointed out that:

i)                the FTT had concluded that the reorganisation was based on legitimate  commercial considerations and was not designed to abuse the housing benefit scheme, and

ii)               a landlord may so arrange its affairs to take advantage of the opportunities presented by the scheme.

He also recorded that, at that stage, the Council accepted that SIL was a bona fide not for profit organisation.

15.           So, the outcome of the 2006 Appeal was that the liabilities between (1) SIL, and (2) the occupiers of properties it leased from SMS, were created on a commercial basis and were not created to take advantage of the housing benefit scheme.  Also, the Commissioner’s summary shows that a close connection between SIL and SMS was accepted or established.

16.           In this round of litigation, the individual claimants are different and some of the properties let or licensed to occupiers by SIL are owned by SMS, and others are owned by partnerships in which Mr C and his wife are partners.  But otherwise the background facts are essentially the same, and from that base the Council now argues that the arrangements between (1) SIL and (2) SMS, and the partnerships (which I shall refer to as SMS and the C partnerships) mean that SIL is not a voluntary organisation or a housing association.

17.           The arguments of the Council were modified by the end of the hearing before me.  But its leading counsel in her written submissions to the FTT and in her submissions to me summarized the Council’s position as follows (with my emphasis):

“ At the centre of the present case are the arrangements and activities of SIL (in particular its arrangements with Mr C and his associated businesses) the payments which SIL makes or is liable to make to Mr C and his associated businesses, and whether the arrangements are such that it is possible for Mr C or any of the businesses with which he is associated to make a profit from its operations [ paragraph 22 of the summary of the Council's case before the FTT ]

[In describing its position before the FTT and the Upper Tribunal in paragraphs 35 and 36 of its skeleton] --  the Council nailed its colours squarely to the mast of the DWP guidance and submitted that the First-tier Tribunal should approach the question of whether SIL was a voluntary organisation by reference to the matters set out in the circular.  The question for the First-tier Tribunal was whether SIL was a body the activities of which are carried on otherwise than for profit.  This question was to be answered by looking at the body's actual activities (including its relationships with third parties) and not just its memorandum and articles of association.  The definition did not demand that the profit be made by the voluntary organisation alone: it would be absurd if the definition of voluntary organisation included organisations that simply provide non-shareholders or non members with profit.

The Council submitted, having regard to the DWP guidance, that an organisation should only be regarded as a voluntary organisation if it does not have arrangements with any person, organisation or body formally or informally to make payments, disguised profits etc and if its objects and arrangements are such that it is not possible for any person, organisational body to make a profit from its activities.  The concepts of corporate personality and of piercing the corporate veil were inapplicable and irrelevant: this was not a context in which the First-tier Tribunal was being asked to fix another person with a liability that ostensibly falls on a company or to transfer to a third party an asset which is ostensibly an asset of a company.  The First- tier Tribunal was simply being asked to look at SIL’s activities and arrangements and its relationship with other business and individuals. ”

18.           So this argument was firmly based on the DWP Guidance and the possibility that companies, bodies and individuals (all of whom had separate legal personalities) could make profits from their arrangements with SIL.  In advancing that argument the Council accepted and asserted that arrangements between SIL and independent third parties through which they could profit (and which they entered into for profit) did not mean that SIL was not a voluntary organisation or housing association.  So the Council were relying on Mr C’s connection and association with (1) SIL and (2) SMS and the C partnerships and the possibility that SMS and the C partnerships could make profits from payments made to them by SIL.  (There is also the hint that the Council were or might be relying on there being disguised profits). 

19.           Indeed, it seems that initially before the FTT, the Council was asserting that there were disguised profits, and so may have been seeking to resile from the position it adopted on the 2006 Appeal.  And, although as I understand it, in the light of the evidence, the Council did not ask the FTT to make any finding on that assertion, the FTT did in fact do so in paragraph 13 of the 2012 FTT Decision where it is stated that:

“the Tribunal did consider whether or not there had been any disguised profits made by Mr C or indeed anybody else but concluded that it had not.”

The FTT also concluded in paragraph 14 of the 2012 FTT Decision that SIL had not actually made any profit.

20.           At my invitation during argument before me, and subject to points of detail in individual claims, it was confirmed expressly that the Council was not asserting that, or advancing any case on the basis that, there was any lack of commerciality or bona fides in the arrangements between (1) SIL and (2) SMS and the C partnerships.  This was a formal abandonment of any assertion or hint that the Council was seeking to prove and rely on any such assertion and thus, for example, that there was any overcharging of claimants for property or services by SIL, or any overcharging of SIL by SMS and the C partnerships, or more generally that there were any disguised profits.  The confirmation that the Council was not seeking to rely on any disguised profits covers all payments made by SIL and so to (a) its directors (de jure, de facto or shadow)  or its employees or consultants, and (b) to SMS and the C partnerships (and through them to Mr C).

21.           This express confirmation laid to rest my concerns that the Council was seeking to re-open issues that were decided (and accepted) in the 2006 Appeal and before Commissioner (now Upper Tribunal Judge) Jacobs. 

22.           So, the Council with the support of the SSWP, bases its primary argument on the possibility that SMS and the C partnerships will make profits from the payments made to them as a result of the bona fide and commercial arrangements they have made with SIL and thus on the point that others may make profits from payments made to them by SIL. 

23.           This possibility plainly exists, and its existence is accepted by the Respondents.  Further, the Council accepts that arrangements between SIL and independent third parties, through which they could profit (and which they entered into for profit), would not mean that SIL was not a voluntary organisation or housing association. 

24.           It follows that the primary argument of the Council and the SSWP is advanced:

i)                 on an accepted and obvious possibility, and

ii)               on the basis that because of Mr C’s interests in and connections with SIL, SMS and the C partnerships, the profits that could be made (and are made) by connected third parties (SMS and the C partnerships), as a result of the totality of the activities and bona fide and commercial arrangements made by SIL with SMS and the C partnerships, are to be treated  as profits of SIL or as profits to be taken into account in determining whether SIL is a housing association or a voluntary organisation.

25.           With the benefit of hindsight, it is puzzling why the evidence before the FTT needed to be so extensive to establish that obvious possibility and that connection, given the summary of Mr C’s involvement set out by Commissioner Jacobs in his decision on the 2006 Appeal. 

26.           An alternative to which I will return is that, leaving the profitability of connected third parties out of account, SIL itself is/was trading for profit.

 Discussion

27.           It is of course axiomatic that whether or not a particular body or person is a voluntary organisation or a housing association falls to be decided by the application of the relevant statutory definition to the facts of the given case.  It is also clear that the decision of the Council in this case was driven by the Council’s view of its particular facts and that this view has given rise to two lengthy hearings before the FTT, which were largely directed to the resolution of quite wide ranging underlying disputes of fact.

28.           This fact specific approach is demonstrated by submissions made on behalf of the Council, and the SSWP, to the effect that the decision maker is concerned with substance rather than form and so the “reality” of the given situation.  It is however clear that such an approach has the dangers that:

i)                it allows such general assertions to triumph over the application of legal principles and so leads to palm tree justice or unprincipled results, or

ii)               it results in the decision maker ignoring the point that part of the “reality” of everyday life involves the day-to-day activities of corporate bodies and thus the day-to-day application of the legal principles relating to such bodies and those who manage and control them. 

29.           These dangers, together with the point that the statutory definitions have to be applied to a variety of situations, lead me to the view that it is sensible to consider the meaning and effect of the relevant statutory definitions against the backdrop of the general reality of personal and commercial life.

30.           Albeit that the focus of the Council’s argument (supported by SSWP) was on whether SIL is a voluntary organisation, the primary issue is whether SIL is a housing association and/or a voluntary organisation.  The Council’s focus on whether it is a voluntary organisation arose because it relied so heavily on the DWP Guidance relating to voluntary organisations.  That reliance was misplaced because, even if the DWP Guidance was correct, the focus should be on the relevant legislation and regulations.

31.           One way of satisfying the statutory definition of a housing association is to establish that the relevant society, body or company is one “which does not trade for profit”.  And, a voluntary organisation is defined as a body “the activities of which are carried on otherwise than for profit”.  There is plainly the potential for overlap between those parts of the respective definitions and, it was common ground before the FTT and me that, although they use different language, these two statutory phrases relating to profit mean the same thing.  I agree and I shall refer to them as the “Non-profit making Condition”.

32.           So, if:

i)                 by reference to its Memorandum of Association a company satisfies s. 1(1)(a) of the Housing Associations Act 1985 (which it is common ground SIL does), and

ii)               the second part of s.1(1)(b) does not apply (and it was not argued that it did apply to SIL),

 the Non-profit making Condition is determinative of the issue whether a company (and so SIL) is a housing association

33.           It is also the determinative condition on the issue whether SIL is a voluntary organisation.

34.           The statutory phrases, defining the Non-profit making Condition, use ordinary English words and their meaning and effect has to be applied in the context in which they are used.  This is a well established approach to statutory interpretation and application (see for example Reg v MMC Ex p. SYT [1993] 1 WLR 23 at 29C and  Customs and Excise Commissioners v Top Ten Promotions [1969] 1 WLR 1163, 1171 where Lord Upjohn says:

“ It is highly dangerous, if not impossible, to attempt to place an accurate definition upon a word in common use; you can look at examples of its many uses if you want to in the Oxford Dictionary but that does not help on definition; in fact it probably only shows that the word normally defies definition. The task of the court in construing statutory language such as that which is before your Lordships is to look at the mischief at which the Act is directed and then, in that light, to consider whether as a matter of common sense and every day usage the known, proved, admitted or properly inferred facts of the particular case bring the case within the ordinary meaning of the words used by Parliament.”

35.           Here, the immediate and primary context of the Non-profit making Condition is whether SIL is a housing association or a voluntary organisation and thus a body that can be a provider of exempt accommodation (as defined).  But, the use of such phrases in other legislation and, in particular, in the Housing Associations Act 1985 means that the use of similar or the same phrases to define the nature of a body or company are capable of being applied by analogy to determining whether a body can be a provider of such accommodation with the aim and result sets out in paragraphs 4.1011 and 4.1012 of the DWP Guidance.

36.           In the “real world” it is an obvious possibility that a provider of accommodation and support (a “Provider”) may well enter into arrangements with others whose purpose is to make a profit from them, and I shall refer to them as “Property and Service Contractors”.  Indeed, this is almost inevitable.

37.           Further, it is an obvious possibility that the Property and Service Contractors and the Provider, and those who are responsible for their respective management and decision making, could either:

i)                 have no connection other than that derived from the arrangements entered into between them for the provision of property or services, or

ii)               have some pre-existing or continuing connection. 

In both cases, to borrow the expression used by counsel for SIL the relationship between the Provider and the Property and Services Contractors would be a symbiotic one.

38.           In my view, the obvious possibility (if not the inevitability) that the Provider will enter into arrangements with Property and Services Contractors, who seek to make a profit from the payments made to them by the Provider means that Parliament could not have intended that, by itself, this possibility (if not inevitability) would prevent the Provider from satisfying the Non-profit making Condition (and so from being a housing association or a voluntary organisation).

39.           From that, it follows that, the fifth point made in paragraph 4.1023 of the DWP Guidance describing common features of a voluntary organisation, upon which the Council (and the SSWP) sought to rely so heavily, namely:

“- that the objects of the organisation and its arrangements are such that it is not possible for any person, organisation or body to make a profit from its operations or in selling, disposal or winding up of its assets or operations”

is simply wrong.  Indeed, this was accepted by the Council and the SSWP but, as before the FTT, the Council (with the support of the SSWP before me) continued to seek to rely heavily on this assertion in the DWP Guidance in support of their argument that having regard to substance and not form, and thus “reality”, the ordinary English words of the Non-profit making Condition meant that, in applying it, the distinction between Property and Service Contractors (i) who do have a connection with, and (ii) who do not have a connection with, the Provider must be taken into account. Clearly this meant that they had to suggest that this passage in the DWP Guidance should not be read and applied literally.  During oral argument some amendments to this guidance were suggested and, at my request, leading counsel for the Council provided me with her suggestions in writing after the hearing.  They were:

“(1) The objects of the organisation and its arrangements are such that any person, body or organisation with a close connection to it cannot realistically profit/make a profit from its operations.

(2) The objects of the organisation and its arrangements are such that it is not likely that a person, body or organisation with a close connection to it can profit/make a profit from its operations.”

40.           Those suggested alternatives introduce and rely on there being “a close connection” between the Provider and the Property and Services Contractor(s), and so qualify the argument initially put to me, in line with the DWP Guidance, that the possibility of a profit being made by a connected Property and Service Contractor from payment made to it by a Provider would mean that the Provider was not a housing association or a voluntary organisation and the accommodation it provided was not exempt accommodation.

41.           These suggested ways of reading the DWP Guidance now encapsulate the contention of the Council (supported by the SSWP) that Parliament intended that the Non-profit making Condition should be interpreted and applied to exclude any body or company, that would otherwise satisfy the definition of a housing association or voluntary organisation, from being a provider of exempt accommodation, if it enters into such arrangements, namely arrangements that have the result that any person, body or organisation with a close connection with the Provider can realistically, or is likely to, profit/make profit from the operations of the Provider.

42.           The suggested alternatives involve a significant re-writing of that part of the DWP Guidance on which so much weight was placed and introduce into it ordinary English words of degree.  In my view, it is not possible to so re-write this part of the non-statutory DWP Guidance on the basis that it reflects what its author and the DWP meant to say.  This is because there is no evidence that this was the case, or upon which it can be that it should be inferred that it was the case, and so any such re-write would be based on unjustified speculation. 

43.           But this does not mean that the Council’s argument cannot be based on the breadth of meaning of the ordinary words used in the legislation defining the Non-profit making Condition.  This is because, as mentioned earlier:

i)                it is this definition and language that is of central importance, not the wording or substance of the non-statutory DWP Guidance, and

ii)               although I naturally accept that the Council was right to take the DWP Guidance into account, and could have been criticised if it had not done so, even if the part of the non-statutory DWP Guidance upon which such weight was placed had been correct, the Council’s elevation of its importance was fundamentally flawed.

44.           In advancing its argument the Council (with the support of the SSWP) asserted before me that it is not seeking to do any of the following:

i)                lift the corporate veil or go behind the corporate and legal personalities of the Provider or the Property and Services Contractors who have a close connection to it,

ii)               allege a sham or any other façade, or any overcharging or non-commercial dealing, or

iii)              rely on Regulation 9.

45.           On the assumptions that:

i)                the relevant Provider (SIL) has a sufficiently close connection with the relevant Property and Services Contractors (SMS and the C partnerships), and

ii)               the relevant likelihood or reality of profit being made by the Property and Services Contractors (SMS and the C partnerships) from their bona fide commercial arrangements with SIL exist,

the Respondents say that this argument of the Council is wrong on a purposive and literal approach and, as part of that argument, the Respondents say that the argument and approach of the Council either ignores, or does not take proper account of, the “reality” that SIL, SMS and the C partnerships have separate legal identities and so the “realities” of commercial life.  I agree.

46.           It seems to me that, as soon as one recognises (as the Council do and must) that a Provider can enter into arrangements with independent and unassociated third parties that are designed to and do make profits for those third parties and still satisfy the Non-profit making Condition, their argument is doomed to failure on the basis that it fails to have any or any proper regard to the realities of  commercial life based on well established principles of law, that Parliament must have taken into account when defining exempt accommodation, and so a housing association, a voluntary organisation and the Non-profit making Condition.

47.           The legal and commercial reality is that what is sometimes described a “Dear Me company” because of “Me’s” connections with it and control of it, is a different legal entity to (a) another “Dear Me company”, (b) a partnership in which “Me” is a partner and (c) “Me” as an individual.  And this cannot, as a matter or reality or otherwise be ignored as the Council (with the support of SSWP) effectively seeks to do.

48.           The qualifications and points of degree that the Council has been driven to introduce into its argument on how the Non-profit making Condition is to be construed and thus:

i)                 the “close connection” (or no doubt a sufficiently close connection) between those involved in the bona fide and commercial arrangements, and

ii)               the “likelihood or reality” (or no doubt a sufficient likelihood or reality) of profits being made from those arrangements by the  Property and Services Contractors,

not only show that the Council’s argument does not reflect the primary meaning of the language of the DWP Guidance it relied so heavily on, but also that it introduces wide concepts of degree that do not fit easily with the statutory language of the Non-profit making Condition, when it is applied to arrangements between separate legal entities who enter into bona fide and commercial arrangements that do not involve any hidden or disguised profit. 

49.           On a purposive approach, it seems to me that Parliament’s primary intention was to ensure that housing benefit continued to meet rents charged to residents that reflected the bona fide and commercially based higher costs of providing them with specialist supported accommodation with care, support and supervision (see for example paragraphs 4.1011 and 4.1012 of the DWP Guidance). 

50.           The point that a central part of the method of doing this was to define the Providers of the accommodation does not dilute this intention, or introduce an intention that a distinction should be drawn between cases where the Provider and the Property and Services Contractors are not connected and where they are connected (or are sufficiently connected).  This can be demonstrated by considering what the position would be if:

i)                a Provider (e.g. SIL) has leased the relevant premises and contracted out the relevant services to an obviously independent third party Property and Services Contractor (X Ltd) and as a result the situation exists where (a) the Provider (SIL) has entered into bona fide commercial arrangements with X Ltd, which were designed to and did contribute to the profits of X Ltd (the existing arrangements), and (b) the bona fide and commercial rents charged by the Provider (SIL) and funded by housing benefit calculated under the “old scheme rules” enable it to meet the payments due under those existing arrangements, and then

ii)               the shares or relevant undertaking of X Ltd are bought by Y Ltd or an individual or individuals (SMS or Mr C) who have a connection with the Provider (SIL) and trade for profit and, as part of that trade, take over the existing arrangements with the Provider (SIL) who continues to charge the same rents to residents.

On the Council’s case this change in the Property and Services Contractor (X Ltd to Y Ltd or individuals), without any change in the existing arrangements or in the rents charged to residents, would result in the accommodation ceasing to be exempt accommodation and so a reduction in housing benefit for the residents. 

51.           It seems to me most unlikely that Parliament would have intended that result on the premise that the Council advances its argument, namely that the relevant arrangements relating to the provision of property and services are and remain bona fide and commercial and do not involve any overcharging or secret payments / profits.  This is because, to use the Council’s description, the “reality” on the ground concerning the provision of specialist supported accommodation to the residents, and so something that seeks to meet their needs, have not changed. 

52.           This view is reinforced by the “contrived to take advantage” provisions in Regulation 9 of the Housing Benefit Regulations 2006, and the point that the purchase and change referred to above could be motivated because X Ltd has decided to leave the sector, or is in receivership or liquidation, and the only practical way of continuing to provide the specialist supported accommodation in the “real world” is for Y Ltd to step in.  This reinforcement is because these points emphasise the importance of what the bona fide and commercial arrangements provide, namely accommodation to residents who need specialist supported accommodation.

53.           Albeit that I acknowledge that, if an independent third party Property and Services Contractor has never been involved, it may be less easy to show that the relevant arrangements are bona fide and commercial and do not involve any disguised profits being paid, I see no reason why Parliament would have intended a differentiation to be made between the situation resulting from such a change and one where such arrangements had from the start been between connected legal entities.  It follows that I agree with Commissioner (now Upper Tribunal Judge) Jacobs that Parliament intended that a landlord (a Provider) and legal entities with whom it contracts (Property and Services Contractors) may so arrange their affairs in a bona fide and commercial way to take advantage of the opportunities presented by the “old scheme” rules, and so the higher housing benefit payable to residents of accommodation where specialist supported accommodation with care, support or supervision is provided pursuant to such arrangements.

54.           Pausing here.  For the reasons given the primary argument of the Council fails as a matter of law and so it does not provide an alternative route to achieving the result the Council seeks (namely a reduction in housing benefit payments to residents of property provided by SIL) to that which it took, without success, in the 2006 Appeal, and which was firmly based on its contention that some of the arrangements (the tenancies) were not on a commercial basis and the liability of the residents was created to take advantage of the housing benefit scheme. 

55.           Although it was not segregated out as an alternative by the Council the arguments it advanced contain, as mentioned above, the alternative that, if the possible or actual profits of SMA and the C partnerships arising from their bona fide and commercial arrangements with SIL are left out of account, SIL is trading for profit and so is not a housing association or a voluntary organisation.

The possible alternative focusing on SIL leaving out of account profits or possible profits of its Property and Services Contractors arising from bona fide and commercial arrangements with SIL

56.           This alternative raises issues concerning the constitution of SIL, whether it has made a profit and/or has been making overpayments to directors (whether de jure, de facto or shadow), employees or others and so disguised profits.  It thus raises the first three arguments advanced by the Respondents, namely:

i)                SIL’s constitution is determinative;  alternatively

ii)               only SIL’s constitution and accounts are relevant; alternatively

iii)              SIL was not making any profit or disguised profit.

57.           If correct, points (i) and (ii) provide an alternative route to the conclusion I have reached on the Council’s primary argument based on the profits or possible profits of sufficiently connected Property and Services Contractors.

58.           When the focus moves to profits of the Provider (SIL) rather than those of the Property and  Services Contractor(s)  (SMS and the C partnerships), in broad terms, the nature of any disguised profits changes from overcharging by the Property and Service Contractor(s), to undercharging by them or an ability of the  Provider to make a profit by reference to its receipts (and so rents funded by housing benefit and any other income or capital gain) over its outgoings.

59.           It is important to remember that the ability to make, or the making of a surplus regularly, or from time to time, does not mean that a company is trading for profit and so, for example, in breach of its memorandum of association if it provides that it is not to trade for profit.  This reflects the commercial inevitability and thus the reality that, for each accounting period, a company or other body providing accommodation or other service or product will not be able to balance its books.  So, whether a company or entity does or does not trade for profit engages the issue what it can or does do with any surplus or profit.  An example of this approach, based on the realities of commercial life and the ordinary English words found in the Non-profit making Condition, is the decision of the Court of Appeal in Customs and Excise Commissioners v Bell Concord Educational Trust ltd [1990] 1 QB 1040 in particular at 1040 E/G, 1044 F/G (the question in that case), 1045A – 1046E,  1047C and 1050 C/D.  The passage at 1045D – 1046E is as follows:

“ In my judgment the phrase "otherwise than for profit" is ambiguous and is capable of bearing either of the meanings contended for  --------

--------- There is nothing in the context which throws any light on the meaning of the words and my reasons for favouring the company's contentions are primary practical. If the phrase "otherwise than for profit" requires one to look at the constitution of the organisation to discover the purposes for which it is established, there is a clear and unambiguous test as to whether the suppliers make a profit. If the commissioners’ test is correct the consequential difficulties are formidable.

If the phrase "otherwise than for profit" implies that a charitable organisation can carry on a business for "profit" the question at once arises as to what is meant by "profit". In relation to what period does one assess the profit? How often does one have to ask the question, "Is the organisation providing its services otherwise than for profit?" Mr Sankey, for the commissioners, suggested that the matter could be considered quarterly, that is to say on each occasion when the organisation is liable to make a value-added tax return. I find it inconceivable that Parliament could have intended the question of exemptions to depend upon ascertaining the subjective state of mind of an educational body at such short intervals. Common sense suggests the exemption should depend on some long-lasting and objective yardstick rather than on this frequent review of the state of mind of those running the organisation.

If the profit is not to be taken on a quarterly basis, what are the periods to be taken? Although the Act does not say so, let us assume, as did the judge, the question whether or not the organisation is conducted for profit has to be answered by reference to the excess in any year of receipts over expenses. This would require every educational charity, in order to be exempt from value added tax, to budget precisely in order to cover expenditure of one year out of the income of the same year. Quite apart from being a hopeless task, this would cut across the well-known policy of many educational charities. Is it really intention that an organisation which aims to make a surplus in year 1 in order to provide the funds necessary to meet a known liability falling payable in year 2 is not to be a body supplying services "otherwise than for profit?" If exemption is not lost by budgeting to cover a known liability arising in the following year, at what stage does such surplus become a profit? If the organisation seeks to pitch its fees at a level sufficient to cover known expenditure in year 3 or year 6 or year 10, is that sufficient?

If, on the other hand, one has to look to see if the intention was to make a surplus in any one year, if the organisation seeks to make a surplus in year 1 in order to cover a liability in year 2, then the organisation will be registrable in year 1 but cease  to be registrable in year 2. Again, I find it difficult to believe that Parliament intended this exemption to be such a transitory matter.

In my judgment, Parliament is far more likely to have considered that the phrase "otherwise than for profit" meant bodies which were non-profit making bodies in the ordinary sense of the word rather than bodies which from time to time, aim to make a surplus on revenue account. The administration of the tax for educational charities would become so complex on any other view that, apart from any guidance from the Directive, I would reject the commissioners’ construction. ”

60.           Other authority for the proposition that an entity is not “trading for profit” when it makes a surplus in one year, or period, which is to be used to further its objectives (if they do not include a distribution of profit) can be found in Alder: Housing Associations Law and Practice (2003) paragraph 2-005, National Deposit Friendly Society Trustees v Skegness UDC [1959] AC 293 at 309-10, 319-320, 323-324 and Goodman v Dolphin Square Trust Ltd (1979) 38 P &CR 257 at 265-266.

61.           The reasoning and conclusions in these cases demonstrate that the objects of the Provider (and so of the relevant entity or organisation, and here the company SIL) are of central importance and an obvious starting point to determining whether the Non-profit making Condition is satisfied because they dictate what the Provider can lawfully do.

62.           It is common ground that the objects and powers of SIL, a company limited by guarantee, accord with the Non-profit making Condition because they provide that:

i)                the income and property of the company are to be applied solely towards the promotion of its objects and no portion thereof is to be paid or transferred directly or indirectly by way of dividend, bonus or otherwise howsoever to its members, and

ii)               on a winding up any surplus will not be paid to the members  but to some other institution or institutions with similar objects.

The objects also provide that they do not prevent (i) any payment in good faith by the company of reasonable and proper remuneration to any, member, officer or servant of the company for any services rendered to the company, and (ii) the payment of reasonable and proper rent for premises demised or let by any member.

63.           It follows that if SIL acts in accordance with its objects and powers, and profits made by any third parties do not fall to be taken into account, SIL is a bona fide not for profit organisation as was accepted by the Council on the 2006 appeal.  Also, s. 37 of the Companies Act 2006 provides that:

“ In the case of a company limited by guarantee and not having a share capital any provision in the company's articles, or in any resolution of the company, purporting to give a person a right to participate in the divisible profits of the company otherwise than as a member is void .”

The objects and powers of SIL do not permit any of its divisible profits to be paid or distributed to its members and any other payments out of its divisible profits would be void pursuant to this section.

64.           This is not the place to examine in detail the possible criminal or civil liabilities that might result from a payment of a profit or other moneys by a company in breach of its Memorandum and Articles of Association or contrary to s. 37 Companies Act 2006.  SIL’s accountant in his evidence to the FTT referred to his duty to report matters to the Serious Organised Crime Agency and it is understood by the Respondents that the duties he was referring to derive from (a) the Proceeds of Crime Act 2002 (“POCA”) because, as an accountant, he works in the regulated sector (see Schedule 9 para 1(1)(l) and (m) of POCA) and so has an obligation to report money laundering (see ss. 329(1) and 340(3) and (11) of POCA), and (b) the point that dishonest appropriation of money from a company with the intention of permanently depriving a company of it amounts to theft (see R v Gomez [1993] AC 442 496F) and such stolen money would be “criminal property” under POCA (see s. 340(3)).  There are also routes to recovery of moneys unlawfully paid out from a company from those who receive it and those who have authorised it as directors (who owe fiduciary duties to the company).

65.           These possible criminal and civil consequences:

i)                form an additional argument to the pragmatic ones referred to in the Bell Concord case, based on the objects and powers of a company and the meaning of “trading otherwise than for profit” and thus the Non-profit making Condition, in support of the first two arguments of the Respondents set out in paragraph 56 above, and

ii)               are evidentially relevant to any assertion that SIL is making and paying out or distributing profit or disguised profit, because any such assertion carries with it an a allegation that those responsible are acting unlawfully and perhaps criminally.  This has the consequence that any such assertion should not be made lightly and the specific payments relied on (e.g. to an employee or a director (de jure, de facto or shadow) should be particularised appropriately both before and after disclosure of documents.

66.           As mentioned above, the FTT found that SIL had not made any profits and that no disguised profits had been made by Mr C or anybody else (see paragraph 19 above) and the Council confirmed that it was not relying on any disguised profits (see paragraph 20 above).  Indeed, so far as I am aware, no such payments to Mr C (or others) as a director (de jure, de facto or shadow) a consultant or employee of SIL were asserted by the Council.  Rather, as I have explained, the Council sought to rely on payments to SMS and the C partnerships and the point that they (and thus Mr C) did or could make profits derived from those payments, and the Council did not seek to identify those payments as, for example, payments to an individual or corporate director (of any kind) of SIL.

67.           This finding and approach of the Council on disguised profits, the point that even if SIL had made a profit or surplus in any accounting or other period this does not mean that, as a matter of law, it did not satisfy the Non-profit making Condition and my conclusion on the Council’s primary argument based on the possible profits of SMS and the C partnerships, render the debate on the first two arguments advanced by the Respondents academic. But as they were argued at the FTT and before me as reasons why the case could and should be decided without embarking on the determination of such issues of fact, I should deal with them.

The Respondents’ first two arguments set out in paragraph 56 above 

68.           Whether the Non-profit making Condition is satisfied is a question of fact and law, in the sense that the decision maker has to reach his conclusion by applying the right test in law to the facts.  In my judgment this means that, unless this is required by the relevant statutory scheme, as a matter of general approach and principle, its determination cannot be limited in the way argued for by the Respondents in their first two arguments. 

69.           The general approach and principle applicable to such issues of fact and law is reflected in the obiter view of Upper Tribunal Judge Turnbull in paragraph 55 of his decision in Salford CC v PF [2009] UKUT 150 (AAC) (CH/577/2009) that, in agreement with the DWP Circular, in determining whether the Non-profit making Condition is satisfied “it is relevant to look not simply at the constitution of the body, but at its actual activities”. 

70.           In that case, the point that the Provider, a registered voluntary association, was in fact making profits on the basis of the higher rate of housing benefit was not raised at the FTT and the Upper Tribunal concluded that the FTT could not be criticised for not pursuing it (see paragraphs 49(1) 68 and 69).  So, the Tribunals in the Salford case did not consider the interpretation and application of the Non-profit making Condition and their focus was on Regulation 9.

71.           In my view, the decision and approach of the Court of Appeal in the Bell Concord case (and in the other authorities referred to in paragraph 60 above) do not found a conclusion that it is not appropriate to look outside the objects and powers of a legal entity and /or them and its accounts to determine whether or not it is trading otherwise than for profit (or for profit).  Rather, their focus and importance is on what the phrase means and, in particular that the making of a surplus in any accounting period - and so that activity of the entity - does not mean that the entity is trading for profit.  Issues relating to: the relevant entities acting in breach of their objects and powers, a lack of bona fides or commerciality, their accounts not showing a true picture, or secret or disguised profits, and thus such other activities of the relevant entities were not in issue.

72.           In a case such as the Salford case and this one, where the objects and powers of the Provider are such that they are “non-profit making” organisations / companies whose objects require them to apply any surplus / profit in furtherance of its non-profit making objects, and to whom, in the case of a company s. 37 Companies Act 2006 applies, I have not been able to think of a situation in which it might be argued that the Provider did not satisfy the Non-profit making Condition, in the absence of an allegation of there being one of more of (i) a lack of commerciality and/or of bona fides, (ii) overcharging and/or (iii) secret or disguised profit, and so without at least the strong likelihood that Regulation 9 of the Housing Benefit Regulations 2006 was also engaged.

73.           I have however concluded that this does not mean that under the statutory scheme such allegations can only be dealt with under Regulation 9 or any other relevant anti-abuse provision.  This is because:

i)                I accept that it would be wrong to discount the possibility that a situation may arise when the two lines of challenge are not mutually exclusive and the remedies flowing from the different legal analyses, based on findings relevant to both, could differ, and

ii)               in my view, the application of the general approach to be taken to mixed issues of fact and law arising under the statutory scheme is not ousted by the existence of the anti-abuse provisions it contains.

74.           The Respondents argued that their approach provided a straightforward or pragmatic one for decision-makers on the ground.  I agree, but if issues arise relating to the bona fides or commerciality of relevant activities, or to disguised or secret profits, these would have to be addressed by the decision-makers and it does not make their task more straightforward to confine the relevance of these issues to anti-abuse provisions.  The decision-makers can approach their consideration of whether to raise, investigate and advance such factual issues in the same way for both issues and no doubt, a significant factor within any such consideration will be whether they are alerted to the possible existence of any such issues. If they are not, they will not pursue them.

75.           In my judgment, a sequential approach by decision-makers on the ground based;

i)                firstly, on the objects, and powers of the Provider, on the basis that they are complied with and of its accounts on the basis that they give an accurate picture of the activities and affairs of the Provider, and then

ii)               on any other activities or matters that might be relevant to either or both of the definition of “exempt  accommodation” or any anti-abuse provision

is pragmatic and straightforward. And, as mentioned earlier (see paragraph  65(ii) above), it highlights the need to make properly particularised allegations at the second stage, whether they are focused on the anti-abuse provisions or the status of the Provider.

76.           Further, it has occurred to me that in other situations it may (I stress may) be relevant to look outside the constitution of the Provider / landlord in determining whether the accommodation it provides is exempt accommodation.  Such a situation might be when, for tax or other reasons, the Provider as a wholly owned subsidiary of a registered charity covenants its profits to that charity.

77.           So, I agree with Upper Tribunal Judge Turnbull’s view that “it is relevant to look not simply at the constitution of the body, but at its actual activities”.  However, I do not agree with him when he described the provisions relating to the identity of the Providers of exempt accommodation as ones containing “controls against abuse of the more favourable regime” before you get to Regulation 9.  This is because it seems to me that the non-profit making nature of the Providers reflects the primary intention of Parliament I have referred to earlier, rather than a control against abuse, and that the sequential approach to activities and arrangements that might be relevant to the definition of the Provider and/or to anti-abuse provisions, inferred by his description is unlikely to be appropriate, as a part of the application of the controls against abuse contained in the legislation or otherwise.

Conclusions on the arguments mentioned above

78.           The Council’s primary argument, which is now firmly based on the acceptance that the arrangements between SIl and SMS and the C partnerships are bona fide commercial arrangements  and do not involve over-charging or disguised profits, is wrong in law.

79.           The Respondents’ argument that the decision-maker need only look at the objects and powers of the Provider, alone or together with its accounts is wrong in law.  But it is the first stage of a pragmatic and straightforward approach that should be taken at the first stage of the relevant decision-making process. At the next stage, it is necessary for the decision-makers to carefully identify the bases upon which they assert that the definition of “exempt accommodation” is not met or any anti-abuse provision is engaged, particularly, as it is likely that this will involve an allegation of unlawful and/or dishonest conduct.

80.           So, in theory it was open to the Council to argue that it could look outside SIL’s Memorandum and Articles of Association and its accounts, and so at its activities and those of others, to establish that SIL was not a housing association  or a voluntary organisation.  But:

i)                in respect of the arrangements between (1) SIL and (2) SMS and the C partnerships, by concession (and in line with the finding of the FTT) it has failed to establish the existence of any arrangements, activities, over-charging, other payments or profits (actual, possible, secret or disguised) to make good its argument, and

ii)               in respect of SIL, it has failed to establish the existence of any arrangements, activities, overpayments to directors (of any kind), consultants, employees or others or the existence of any profits (actual, possible secret or disguised) to make good its argument.

The Reasons challenge

81.           This challenge falls away because:

i)                On the factual bases advanced by the Council (namely that the arrangements between (1) SIL and  (2) SMS and the C partnerships are and were bona fide and commercial, and did and do not involve any over-charging or disguised profits), its  primary argument is wrong in law and correctly it has not argued that it should now be permitted to make assertions that there is or was  any lack of bona fides or commerciality or any over-charging or disguised profits that could be relevant to that primary argument.  It has had its chance to do this on two occasions.

ii)               The  possibility that in the future SIL could make a surplus or profit in one or more accounting or other periods does not, as a matter of law, establish that it does not satisfy the Non-profit making Condition.  And in any event, as I understand it, if the profits that can be or are made by and through third parties (i.e. SMS and the C partnerships) are left out of account, the Council has never argued the case on this basis.  And

iii)              both the acknowledgement that the Council does not seek to rely on or establish that SIL has made (and paid out) made disguised profits and the finding of the FTT that neither Mr C nor anybody else has made any disguised profits, mean that the Council’s alternative argument must fail and correctly it has not argued that it should now be permitted to make any such assertions.

82.           However, as the “Reasons’ challenge” was argued I shall deal with it briefly.

83.           Firstly, I comment that, it seems to me that the FTT was presented with a difficult task as a result of (a) the manner in which the Council advanced its case, and (b) the problems presented by the points I have already made that it is not easy to see why so much evidence was required and to what much of it was directed.  An example of this is the introduction of issues as to whether Mr C was a de facto or shadow director of SIL.  In the grounds of appeal, the FTT is criticised for not dealing with this issue properly, but in her closing submissions to the FTT leading counsel for the Council submitted that the Council did not have to show that Mr C was a de facto or shadow director of SIL, but it was a useful question to ask. I was not told, and have not found out, why she thought it was a useful question or avenue of enquiry.  Two possibilities have occurred to me but neither seems to be useful.  First, it could establish a close connection between Mr C and SIL; but that was effectively established in the 2006 Appeal and, in any event, could more easily have been established in other ways.  Indeed, such a close connection was so found to exist by the FTT (see paragraph 11 of the Reasons), and its existence seems to be indisputable.  Secondly, it could have been advanced as the platform for payments by way of disguised profit to Mr C as a director of SIL.  But, so far as I can see it was not so advanced and, in any event, Mr C accepted that he was a consultant and any relevant payment could just as easily have been linked to that legal relationship.  So, I have sympathy with the FTT in recording that such issues were usually raised in directors’ disqualification cases (paragraph 13 of the Reasons) and simply finding that, although Mr C has had a considerable involvement with SIL, it does not displace or undermine the evidence of the constitution of SIL and its actual activities and its lack of distribution of profit (paragraphs 11 and 15 of the Reasons).

84.           In my view, a fair reading of the Reasons is that the FTT accepted the first three of the arguments advanced by the Respondents (the Appellants) which are set out in paragraph 56 above and which the FTT sets out in paragraph 7 of the Reasons. I acknowledge that the FTT does not make it clear whether it accepted all of the first three arguments seriatim as a progression of alternatives.  But in my view, on the Council’s alternative argument (i.e. the argument that leaves out of account the arrangements with SMS and the C partnerships) this does not matter because the FTT makes the relevant finding (which accords with the Council’s clarification of its position before me and so far as I am aware its position before the FTT) that there were no disguised profits of SIL paid out to Mr C or anybody else.

85.           The first two arguments advanced by the Respondents (Appellants before the FTT) are also relevant to the fourth argument as described by the FTT namely: “even if all aspects of SIL’s activities were relevant they did not show in any event that improper profits were made or were capable of being made from their activities”.  This fourth argument is directed to the Council’s primary argument, which is referred to in paragraph 8 of the Reasons.  The fourth argument engages the following three matters or elements (a) a challenge to the assertion that all the activities were relevant and thus the separate legal identities point, (b) the point that there were no improper profits, and thus the issue whether the arrangements between (1) SIL and (2) Mr C and the C partnerships were bona fide and commercial and did not involve over-charging or disguised profits and (c) other issues of fact relating to the Council’s primary argument.

86.           It is correct that the FTT does not expressly (a) reject the Council’s primary argument as being wrong in law, or (b) deal with the Council’s argument that the possibility of Mr C making profits or gaining substantial reward through the activities of SIL when taken together with those of SMS and the C partnerships, mean that SIL is not a housing association or a voluntary organisation.  But, it seems to me that this approach to the Council’s primary argument was not the focus of arguments before the FTT in the same way as it was before me and, in my view, a fair (albeit generous) reading of the short reasons given by the FTT is that it accepted all elements of the arguments of the Respondents (Appellants before the FTT) and so rejected the Council’s primary argument both as a matter of law and fact.

87.           But, in any event, I repeat that, as I have concluded that if, as is accepted by the Council and accords with the findings of the FTT, the arrangements between (1) SIL and (2) SMS and the C partnerships are bona fide and commercial and do not involve over-payments or disguised profits, the Council’s primary argument is wrong in law, it follows that any defect in the reasoning of the FTT would not be an error of law that would warrant the decision of the FTT being set aside pursuant to s. 12 of the Tribunals, Courts and Enforcement Act 2007.

 

Mr Justice Charles

21 June 2013