Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CIS/4315/2012

ADMINISTRATIVE APPEALS CHAMBER

Before Upper Tribunal Judge Rowland

Decision:  The claimant’s appeal is allowed.  The decision of the First-tier Tribunal dated 10 August 2012 is set aside and there is substituted a decision that the claimant is entitled to income support from 25 July 2011 on the basis that she is not to be treated as possessing capital of £7,000 on the ground that she had deprived herself of that sum for the purpose of increasing the amount of her income support.

REASONS FOR DECISION

1. This is an appeal, brought by the claimant with my permission, against a decision of the First-tier Tribunal dated 10 August 2012, whereby it dismissed the claimant’s appeal against a decision of the Secretary of State dated 29 September 2011 to the effect that the claimant’s entitlement to income support from 25 July 2011 should be calculated on the basis that she had, in addition to her other capital, notional capital of £7,000 because she had deprived herself of that sum for the purpose of increasing her entitlement to income support.

2. Where a claimant possesses capital valued at or over £6,250, the capital either reduces the amount of income support payable or disentitles the claimant from income support altogether.  Regulation 51(1) of the Income Support (General) Regulations 1987 (SI 1987/1967), as amended by the addition of exceptions that are not material to this appeal, provides that –

“A claimant shall be treated as possessing capital of which he has deprived himself for the purpose of securing entitlement to income support or increasing the amount of that benefit, except …”

3. The claimant had been in receipt of income support since 15 May 2009 when a customer compliance officer was visited her on 25 July 2011 in order to carry out a review of her entitlement.  As requested at that visit, she subsequently disclosed bank statements to him and one statement revealed that, on the day of that visit, the claimant had withdrawn £7,000 from an ISA account.  When she was asked about that withdrawal, she said that the money had been used to repay her ex-partner money that she had borrowed from him.  The Secretary of State understood that the customer compliance officer had explained to the claimant during his visit the effect of income and capital on entitlement to income support and had also explained the effect of depriving oneself of capital or income.  Against that background, he took the view that, while the claimant’s predominant purpose might have been to repay the debt, the timing of the withdrawal showed that a significant operative purpose was to reduce the effect that her total capital would have on her entitlement to income support and so the claimant was to be treated as still possessing the £7,000 by virtue of regulation 51(1).

4. The claimant appealed, giving more detail about the loan and supplying evidence of related expenditure together with a letter from her ex-partner confirming the loan and stating that he had asked for the money to be returned because he himself had debts and his working hours had been reduced and there was a chance he would lose his job altogether.  She also disputed that the effect of possessing or depriving herself of capital had been explained to her by the customer compliance officer and stated that it was mere coincidence that the withdrawal of the money had been on the same day as the customer compliance officer’s visit.

5. The First-tier Tribunal dismissed the claimant’s appeal, finding that the effect of possessing or depriving herself of capital had been explained to her by the customer compliance officer and refusing to accept that the withdrawal and the visit being on the same day was mere co-incidence.  It accepted the Secretary of State’s argument that that timing showed that the claimant had indeed deprived herself of capital for the purpose of increasing the amount of her entitlement to income support.

6. Having been refused permission to appeal by the First-tier Tribunal, the claimant applied to the Upper Tribunal for permission and also applied for an oral hearing.  Her request for a hearing was granted and it took place before me in Manchester.  The claimant was represented by Mr Makan Shuker of counsel, instructed by Thompsons, solicitors, of Birmingham.  Unfortunately, although quite properly, the Secretary of State was not represented at the hearing and the written procedure following my grant of permission to appeal has not worked as smoothly as it usually does. 

7. The 1987 Regulations came into force in 1988 when income support replaced supplementary benefit.  There had been an equivalent to regulation 51 of the 1987 Regulations in regulation 4(1) of the Supplementary Benefit (Resources Regulations 1981 (SI 1981/1527) and that regulation was considered by Social Security Commissioners in a well-known line of cases.  Thus it is well established that the purpose of securing entitlement to a benefit or increasing the amount of that benefit need not be the dominant purpose behind a deprivation of capital – it is enough that it be a significant operative purpose (R(SB) 38/85, R(SB) 40/85) – but there must be a positive intention to gain or increase entitlement to the benefit (R(SB) 9/91).  R(SB) 38/85, R(SB) 40/85 and R(SB) 9/91 were all mentioned in the Secretary of State’s submission to the First-tier Tribunal in the present case.  Not mentioned was R(SB) 12/91, in which it was held, unsurprisingly, that the requisite intention cannot be formed unless the claimant knows, at least in general terms, about the effect that capital has on entitlement.  Hence the significance in the present case of what was said by the customer compliance officer when he visited the claimant and the timing of the withdrawal.

8. More importantly as far as this appeal is concerned, in R(SB) 12/91, having held that the social security appeal tribunal’s decision must be set aside because it had failed to make a finding as to whether the claimant was aware that possession of capital in excess of £3,000 would disentitled him from supplementary benefit, Mr Commissioner Rice continued –

“11. However, …, I consider that I should give some directions by way of guidance to the new tribunal. The first question is whether or not the divesting by the claimant of the sum of £3,655 in favour of his two daughters was in reduction or discharge of debts owed to them or whether in the alternative it was by way of gift. Although the tribunal did not make the position perfectly clear, it would seem that they regarded this divesting as being in reduction or discharge of indebtedness. If this was their view, it is difficult to see why they reached that conclusion.  Originally, the business carried on on the ground floor of the premises, where the claimant lived, belonged to the claimant. A balance sheet for 31 December 1981 was produced to the tribunal, and this showed, amongst other things, that Sandhya had lent the business £6,545 and Sumi £7,153. Apparently, it was agreed that from 1 January 1982 Sumi would take the business over and run the shop. An opening account has been produced, which shows that, in consideration of the transfer of the assets of  the business to Sumi, she assumed all its liabilities. Naturally enough, Sumi ceases to appear in the capital account as a creditor, whilst Sandhya is now the creditor of her sister for the £6,545. The important point, for the present appeal, is that there is no evidence in this account, or, for that matter in any other of the accounts relating to the business produced from time to time, suggesting that in any way either of the two sisters were creditors of the claimant. In short, the only evidence that I can see for the contention that the claimant owed his two daughters money is the bare assertion to that effect by the claimant, possibly backed up by similar oral evidence on the part of Sumi. But no explanation appears to have been given as to the amount of the two debts alleged to be owed by the claimant to his two daughters, still less how they were created, and when. It cannot be over‑emphasised that bland allegations of this nature, unsupported by any documentation or any particularity, should be approached with grave suspicion.

12. I wondered whether I should consider setting aside the tribunal’s decision on the basis that their acceptance of Sandhya’s and Sumi’s alleged loans to their father was not sustainable, but on balance I thought it was safer, as I have not seen or heard the claimant or his daughters, and as I have in any event to set aside the tribunal’s decision on other grounds, to make no firm determination on this issue. However, the new tribunal must go into this matter thoroughly. Of course, it is enough, if they are sufficiently persuaded, to accept merely the word of the claimant, with or without the oral evidence of his two daughters. But they should be slow so to do, unless the alleged loans are backed up by written evidence, or are at least particularised and, on the face of it, at least appear feasible.

13. The importance of the point is that, if the tribunal are satisfied that the payment of £3,655 was properly made in reduction or discharge of debts owed by the claimant to his daughters, then in my judgment, regulation 4(1) cannot apply on any footing.  A person has to pay his debts. He has no choice in the matter and if he has no choice, then any divesting of capital resources in pursuance of the reduction or discharge of his indebtedness cannot be for the purpose of securing supplementary benefit or any increase thereof. Such a motive cannot direct or influence his course of action. There can only be one purpose governing his conduct, namely the need to meet his indebtedness.

14. Of course, the above principle only applies where the relevant debt is immediately payable. If the obligation to repay does not mature for several years, or, as in the case of the usual mortgage of house property, there is no need to repay the sum borrowed, provided the agreed interest and capital repayments are kept up, then any premature repayment of indebtedness will be a voluntary act constituting a deliberate choice. And if there is a choice then the question will arise as to whether a significant operative purpose albeit not necessarily the predominant purpose, was to secure supplementary benefit or any increase thereof (R(SB) 38/85; R (SB) 40/85).

15. In the present case, if the Tribunal find as a fact that the claimant was genuinely indebted to his daughters, and they must be satisfied that there was a legal debt capable of enforcement in the courts, and if they are satisfied that such debt was immediately repayable, then as regards any sum employed in reduction or discharge of that indebtedness, regulation 4(1) will have no application. But if the new Tribunal are not so satisfied, and consider that there was no such indebtedness enforceable at law, or, if there was, that it was not immediately repayable, they must then go on to consider whether a substantive reason for the payment to the daughters was to secure supplementary benefit.”

9. In Jones v Secretary of State for Work and Pensions [2003] EWCA Civ 964, Schiemann LJ, with whom Dyson and Buxton LJJ agreed, said in relation to regulation 51(1) of the 1987 Regulations –

“41. I record that I am not presently persuaded that a debtor who repays a debt repayable on demand but which has not in fact been demanded, e.g. a bank overdraft, must by virtue of Regulation 51 necessarily be treated as possessing that sum as capital.”

10. Dyson LJ gave a concurring judgment, with which Buxton LJ also agreed and in which he said –

“52. In my judgment, it is a question of fact whether a person acquiring a personal possession (para 10 of Schedule 10) or depriving himself of capital (regulation 51(1)) does so for the Forbidden Purpose.  If the payment is made in satisfaction of a debt, the fact-finder will not usually conclude that, in making the payment, the debtor’s purpose was to secure an entitlement to income support, rather than simply to repay the debt.”

Observing that the “phrase ‘an immediately repayable debt’ has assumed some significance in the jurisprudence in this area”, he then set out the latter part of paragraph 13 and paragraphs 14 and 15 of R(SB) 12/91 and continued –

54. As Mr Broatch points out, this passage addresses the legal nature of the debt, rather than the particular creditor's subjective intention in relation to its enforcement. If an immediately repayable debt is repaid, the fact-finder will almost always conclude that the payment was not made for the Forbidden Purpose. But I cannot agree with Mr Commissioner Rice that, even in such a case, the payment "cannot be for the purpose of securing supplementary benefit or any increase thereof". It will be a question of fact in every case. Thus, for example, there might be evidence that the debtor thought that the creditor would not call in an immediately repayable debt for some time, and that he repaid the loan when he did for the purpose of becoming entitled to income support. Conversely, and perhaps more realistically, even if the debt is not immediately repayable, the repayment of it by a debtor will not necessarily have been made for the forbidden purpose. This is the point made by Mr Commissioner Rice at paragraphs 14 and 15, and I agree with him. As I say, it is a question of fact in every case.

11. It is quite common for it to be argued that a debt is not immediately repayable if the creditor is not pressing for payment.  However, it is clear from both R(SB) 12/91 and from what Dyson LJ said in Jones that that is not terminologically accurate.  All debts are immediately repayable unless there is a mutual agreement to the contrary, as in the examples given by Mr Commissioner Rice in paragraph 14 of R(SB) 12/91.  On the other hand, as Dyson LJ makes clear, even where a debt is immediately repayable, a debtor who believes that the creditor will not call it in for some time is in the same position vis-à-vis regulation 51 as he or she would be if the debt were not immediately repayable. 

12. Moreover, Dyson LJ also makes it clear that the fact that a debt is not immediately repayable or a creditor is not calling in an immediately repayable debt, is not decisive against the claimant for the purpose of regulation 51.  Schiemann LJ mentioned the person who pays off a bank overdraft.  In CJSA/1425/2004, I considered the position of a person who had paid off credit card debts and held that the payment had not been for the purpose of obtaining income-related jobseeker’s allowance. 

13. But, what if a creditor is calling for repayment of an immediately repayable debt?  It is clear from the Court of Appeal’s decision that it is a question of fact whether a claimant paying such a debt thereby deprives himself or herself of capital for the purpose of securing entitlement to income support or increasing the amount of that benefit, rather than it being an inevitable legal consequence that that is not the purpose of the deprivation.  To that extent, the Court disagreed with Mr Commissioner Rice.  However, this disagreement may be more one of legal theory than of practical significance.  Dyson LJ said that “the fact-finder will not usually conclude that, in making the payment, the debtor’s purpose was to secure an entitlement to income support, rather than simply to repay the debt” and none of the Judges suggested any circumstance in which it would be reasonable to say that a person who had no choice but to repay a debt was caught by regulation 51(1) as a result of the repayment.

14. The Secretary of State did not initially engage with these issues in this appeal.  In his first submission he argued that the First-tier Tribunal’s decision should be set aside because it had not dealt with other capital that the documents that were before the First-tier Tribunal indicated the claimant possessed.  However, as I pointed out when directing a further response, although it is not entirely clear what “outcome decision” gave rise to the appeal to the First-tier Tribunal, it appears that the First-tier Tribunal focused on the £7,000 that the Secretary of State had taken into account as notional capital because that was the issue presented to it by both parties and there was no indication of any dispute about the other capital on the appeal.  Even if the Secretary of State’s submission to the First-tier Tribunal should have referred to a supersession decision based on the total amount of both actual and notional capital held, I am not satisfied that the First-tier Tribunal made any material error in not itself referring to the actual capital, given the terms of section 12(8)(a) of the Social Security Act 1998.  Equally, the First-tier Tribunal was not invited to consider the claimant’s entitlement before 25 July 2011.

15. In the light of my direction, the Secretary of State now submits that it is clear from its statement of reasons that the First-tier Tribunal did not doubt that the loan was immediately repayable in the present case and that therefore the Upper Tribunal should substitute for its decision a decision that the claimant did not deprive herself of the £7,000 for the purpose of securing entitlement to income support or increasing the amount of that benefit.  

16. The statement of reasons certainly records evidence of a debt and evidence that the creditor did, at the time of the repayment, wish the debt to be paid immediately and, in view of the Secretary of State’s concession, I am prepared to infer from the words “”whilst the appellant’s predominant purpose may have been to repay the debt she owed to her ex-partner” that the evidence was accepted by the First-tier Tribunal, although that is not clearly stated anywhere in the statement. On that basis, the fact that the claimant might have continued to ignore her ex-partner’s request for repayment if she had not been aware that her entitlement to income support would increase if she paid off the debt seems irrelevant.  The debt had to be paid and she had no legitimate choice but to pay it immediately.  That is not to say that the First-tier Tribunal was not entitled to find that the compliance officer’s visit precipitated the repayment of the loan; in this respect, this case is similar to CJSA/1425/2004, where, although the claimant and his wife were prompted largely to settle their credit card bills at the particular time that they did so by their desire to claim income-based jobseeker’s allowance, the payments were nonetheless not made for the purpose of obtaining that benefit. 

17. I therefore allow the claimant’s appeal and decide that she is not to be taken to have had notional capital of £7,000 from 25 July 2011.

18. In this case, the claimant had provided the type of written evidence that Mr Commissioner Rice had said in paragraphs 11 and 12 of R(SB) 12/91 was necessary and the customer compliance officer had also seen evidence of the building work that the claimant had said was financed by the loan.  It is, however, worth emphasising the point that the law does not always provide an easy answer for decision-makers and tribunals considering regulation 51(1) and that they may therefore need to investigate the facts in the thorough manner suggested by Mr Commissioner Rice.  Thus, if a claimant claims to have repaid a loan to a friend or relative, it may be necessary to investigate whether there ever was a loan giving rise to a legally-enforceable debt and the decision-maker or tribunal may wish to see evidence of the transfer to the claimant of the money that was lent as well as evidence of the transfer of money to the alleged lender.  Although, as Mr Commissioner Rice said, the word of a claimant may be accepted without corroboration, it may in this type of case be reasonable to expect a friend or relative to provide written and documentary evidence in support of a claimant who claims they were both parties to a legitimate transaction involving a substantial amount of money.

Mark Rowland

30 January 2015