R(IS) 6/94

Mr. J. Mitchell	CIS/569/1992
23.6.93
Housing costs - loan used to purchase bankrupt partner’s former share of property from trustee in bankruptcy - whether for the purpose of “acquiring an interest in the dwelling”
The claimant and his wife jointly purchased their home in 1983 with a loan of £10,053. On                21 September 1987 the claimant was declared bankrupt and on 6 June 1988 a trustee in bankruptcy was appointed on behalf of the claimant’s creditors. On 15 November 1988 the claimant’s wife raised a loan of £25,000 for the purpose of:
a.	repaying £10,800 on the loan used to purchase the home;
b.	repaying £5,104 outstanding business debts;
c. 	paying £6,500 to the trustee in bankruptcy for the share of the home previously owned by the claimant and now held by the trustee on behalf of the creditors; and
d.	paying £2,244 for redecoration.
On a claim for income support treated as made on 5 March 1990 the adjudication officer awarded eligible housing costs on only £9,226.44 of the loan of £25,000. This was the eligible portion of the original loan used to purchase the home. Payment was made under paragraph 7(3)(b) of Schedule 3 to the Income Support (General) Regulations 1987. The claimant appealed and the social security appeal tribunal awarded eligible interest on a further £6,500. This was the part of the loan paid to the trustee in bankruptcy to acquire that share of the home now held by the trustee. The adjudication officer appealed to a social security Commissioner.
Held that:
1.	on the appointment of a trustee in bankruptcy the bankrupt’s share of any property transfers to the trustee who holds it on behalf of the bankrupt’s creditors (paras. 8, 9, and 10);
2.	a loan used by a bankrupt’s partner to purchase from a trustee in bankruptcy the share of the property formerly owned by the bankrupt falls to be treated under paragraph 7(3)(a) of Schedule 3 to the Income Support (General) Regulations 1987 (para. 10).

DECISION OF THE SOCIAL SECURITY COMMISSIONER
1.	This is an adjudication officer’s appeal, brought by leave of the chairman of the social security appeal tribunal, against a decision of that tribunal dated                25 February 1992 which varied (in the claimant’s favour) a decision issued by the adjudication officer on 7 November 1991. My own decision is that the aforesaid decision of the appeal tribunal is not erroneous in point of law, although in the course of what follows I shall, for the benefit of the local adjudication officer, somewhat amplify the tribunal’s decision.
2. 	I held an oral hearing of the appeal in Liverpool. The adjudication officer was represented by Mr. S. M. Cooper, of the Office of the Solicitor to the Departments of Health and Social Security. A few days before that hearing Mr. Cooper had, very helpfully and properly, written both to the Office of the Social Security Commissioners and to the claimant’s solicitors stating that:
(a)	he had only recently received the papers in this appeal;
(b)	he was not in agreement with the submission dated 9 July 1992 made by the adjudication officer now concerned;
(c)	he himself was of the view that the appeal tribunal’s decision was not erroneous in law; but
(d)	in view of the complexity of the legal issues involved, he did not propose to withdraw the adjudication officer’s appeal and would appear at the appointed hearing in order to develop those issues.
Unsurprisingly, the claimant’s solicitor immediately wrote to this office asking that “the appeal be struck out at this stage particularly as the writer is attending at considerable cost”. I then issued a direction in which I indicated that I intended to proceed with the appointed hearing and that it was, of course, for the claimant and/or his solicitor to decide whether or not to attend thereat.
3.	In the event there attended before me both the claimant and his solicitor, Mr. S. Morecroft, of Messrs. Clarke Hayes, solicitors, St. Alkmund’s Square, Shrewsbury. I am grateful to Mr. Morecroft. He made a valuable contribution to a discussion which I myself found to be as enjoyable as it was instructive. It is only right that I should record that it emerged, in response to a comment by myself, that Mr. Morecroft was making no charge for the services which he was rendering to the claimant; and, of course, he had travelled from Shrewsbury to Liverpool in order to render those services. I need hardly add that Mr. Cooper was as helpful as I have always found him to be in matters which are true province of conveyancers and equity lawyers. The whole of my own career at the bar was in the field of common law. That makes me especially grateful for the lucid expertise afforded by Mr. Cooper. As is his wont, he further assisted me by putting in his own written summary of the central facts and the legal analysis thereof.
4.	Those facts are not, and never have been, in dispute. For ease of cross-reference I set them out in sub‑paragraphs:
(1)	The claimant and his wife (“Mrs. E”) have three children, born, respectively, in 1974, 1977 and 1981.
(2)	In 1983 the claimant and Mrs. E. bought, in their joint names, the house (“No. 32”) which has ever since been their matrimonial home. No. 32 was bought from the local authority with the help of a loan of £10,053 advanced by way of mortgage by the Telford Development Corporation (“the TDC”).
(3) 	The claimant’s business failed. On 21 September 1987 he was adjudicated bankrupt. A trustee in bankruptcy was appointed on         6 June 1988. At that latter date the sum of £9,226.44 was outstanding on the TDC mortgage.
(4)	The trustee in bankruptcy duly set about the realisation, in the interests of the creditors, of the estate and effects of the claimant. He negotiated with Mrs. E. with a view to selling to her the interest which the claimant had had in No. 32. A price of £6,500 was agreed. There is not, and has never been, the slightest suggestion that the transaction was other than at arm’s length. (The trustee’s duty was, of course, to the creditors.) For her part, Mrs. E. sought from the Birmingham Midshires Building Society (“the Midshires”) an advance by way of mortgage which would:
(a)	discharge the TDC mortgage;
(b)	discharge a second mortgage pursuant to which Lloyds Bank had advanced money to the claimant so that he might meet business liabilities; and
(c)	finance the purchase of the claimant’s erstwhile interest in No. 32.
(5)	The upshot was that:
(a)	on 15 November 1988 the Midshires advanced to Mrs. E. the sum of £25,000 secured by a mortgage on No. 32; and
(b) 	by a conveyance made on 7 December 1988 between the claimant, the trustee in bankruptcy and Mrs. E., Mrs. E. acquired, for the sum of £6,500, the whole outstanding legal and equitable interest in No. 32 (subject, of course, to the Midshires’ charge).
(6)	There is in the papers a copy of the completion statement furnished in respect of that conveyance. It shows that of the £25,000 advanced by the Midshires:
(a)	£10,800 went to discharge the TDC mortgage;
(b)	£5,104 went to discharge the Lloyds Bank mortgage; and
(c)	£6,500 went to the trustee in bankruptcy.
After the payment of various legal fees and charges, a balance of £2,244 was passed to Mrs. E. She expended that money upon redecoration.
(7)	After the collapse of the claimant’s business, he and Mrs. E. obtained employment with a local firm of contractors. But that employment ceased (for both of them) on 23 February 1990. By a form B1 signed on 14 March 1990 the claimant claimed income support. (The claim was subsequently treated as having been made on 5 March 1990.) There were delays in the computation of entitlement. Unsurprisingly, in view of the matters which I have set out in sub‑paragraphs (2), (5) and (6) above, the local adjudication officer sought detailed clarification of the housing costs aspect of the claim. Moreover, at the hearing before me Mr. Morecroft stated that after the claim had been made relevant papers were lost by the Department of Social Security. Finally, and after the piecemeal elucidation of information and of supporting documentation, the adjudication officer, by the decision issued on 7 November 1991, awarded housing costs in the sum of £19.30 per week. That sum represented the interest upon a mortgage of £9226.44 (cf. sub‑para. (3) above). The adjudication officer refused to bring into the calculation the sum of £6,500 (cf. sub‑paras. (4) to (6) above). At the hearing before me there was some uncertainty as to the precise extent to which the award of 7 November 1991 was backdated. But, of course, simple backdating is not, in these arrears of mortgage interest cases, the whole answer to a claimant’s problems. As is common knowledge, arrears are added by the mortgagee to the capital outstanding. That in turn increases the monthly interest due; and to the extent that that interest relates to capital representing arrears of interest, the legislation makes no provision for assistance, by way of housing costs, to claimants in the position of the claimant in the appeal now before me.
(8)	The claimant now carried his case on housing costs to the appeal tribunal. But at this stage I turn briefly to the relevant legislation.
5. 	And I can deal with that legislation briefly. Mr. Cooper and Mr. Morecroft are at one as to its construction and application. It would be a pointless waste of time for me here to attempt to summarise the provisions of Schedule 3 to the Income Support (General) Regulations 1987. I set out only the opening of paragraph 3 and the whole of sub‑paragraphs (1) and (3) of paragraph 7 of that Schedule:
“3(1)	A person is to be treated as responsible for the expenditure which relates to housing costs where -
(a)	he or his partner is liable to meet those costs other than to a member of the same household;
…
7(1)	Subject to the following sub‑paragraphs of this paragraph, the following amounts shall be met under this paragraph -
(a)	if the claimant or, if he is a member of a couple, or if a member of a polygamous marriage, he or any partner of his is aged 60 or over, 100 per cent of the eligible interest in his case;
(b)	except where sub‑paragraph (1)(a) applies, if the claimant or, if he is a member of a couple, or if a member of a polygamous marriage, he and any partner of his are aged under 60 -
(i)	where the claimant has been in receipt of income support in respect of a continuous period of not less than 16 weeks, 100 per cent of the eligible interest in his case;
(ii)	in any other case, 50 per cent of the eligible interest in that case.
...
(3)	Subject to sub‑paragraphs (3A) to (6) [which do not bear upon this case], in this paragraph ‘eligible interest’ means the amount of interest on a loan, whether or not secured by way of a mortgage or, in Scotland, under a heritable security, taken out to defray money applied for the purpose of -
(a)	acquiring an interest in the dwelling occupied as the home; or
(b)	paying off another loan but only to the extent that interest on that other loan would have been eligible interest had the loan not been paid off.”
6. 	Since the time when the local adjudication officer had ascertained the full relevant facts, there has never been any dispute that the interest upon £9226.44 was “eligible interest” (cf. para. 4(7) above). That interest clearly fell within paragraph 7(3)(b) of Schedule 3. By the like token, no one has attempted to bring within “eligible interest” the interest payable in respect of the part of the Midshires’ which was used to discharge the Lloyds Bank mortgage. Controversy has been directed solely to that part of the Midshires’ loan which was used to furnish the consideration for the conveyance referred to in paragraph 4(5)(b) above. Understandably enough, before the local adjudication officer issued his decision the advice of the Chief Adjudication Officer was sought. I dare say that it is equally understandable in both the query to and the response from the Chief Adjudication Officer sight was completely lost of the role of the trustee in bankruptcy. I quote the third, and final, paragraph of the response:
“3. I cannot accept that either the sum of £6,500 which purportedly acquired her partner’s interest in the dwelling or the balance of the second loan of £25,000 is admissible as housing costs. The claimant’s wife protected their interest in the dwelling with the second mortgage which redeemed and replaced the original.”
I can well see that, if the role of the trustee in bankruptcy is left out of the picture, difficulties can arise in the application of paragraph 7(3)(a) to the “buying out” of one joint tenant by another, at least where the joint tenants are a husband and wife who are living in the same household. In income support much emphasis is laid upon the concept of a “couple”. What interest is being acquired by the relevant couple where one member thereof “buys out” his or her joint tenant? But in the case now before me I do not have to answer that question; and I make no attempt to do so. The role of the trustee in bankruptcy puts the matter in a quite different light.
7.	In his submission dated 9 July 1992 the adjudication officer now concerned took a simple, and superficially attractive, view. With the help of the TDC mortgage the claimant and Mrs. E. had in 1983 acquired the whole of such interest in No. 32 as they had ever enjoyed. No interest had been acquired since then. Indeed, there was no further interest which could be acquired. As I indicated in paragraph 2 above, Mr. Cooper took a different view. He was in no way disposed to be over critical of the Department’s adjudication officers. He stressed that he had been unable to find in the Income Support (General) Regulations 1987 any specific provisions in respect of bankruptcy. He readily conceded that since adjudication officers seldom, if ever, have legal qualifications, it is asking too much to expect of an adjudication officer an acquaintance with the more arcane principles of the law of bankruptcy. For my part, I am glad that he made those comments. The main principle to which Mr. Cooper drew my attention is, I must confess, one which had escaped my own notice throughout the years of legal studies and my (many more) years of legal practice.
8.	One starts with the proposition that, subject to certain statutory exceptions, the bankrupt’s estate includes all property belonging to or vested in the bankrupt at the commencement of the bankruptcy (see section 283 of the Insolvency Act 1986). From there I pass to paragraph 381 of Vol. 3(2) of the 4th Edition of Halsbury’s Laws of England:
“381. Vesting of bankrupt’s estate. The bankrupt’s estate vests in the trustee immediately on his appointment taking effect or, in the case of the official receiver, on his becoming trustee. Where any property which is, or is to be, comprised in the bankrupt’s estate vests in the trustee, it so vests without conveyance, assignment or transfer. In the case of real estate situtated outside the United Kingdom, the property may pass only according to the law of the place where it is situated. Where the bankrupt is the proprietor of any registered land or charge, his trustee is entitled to be registered as proprietor in the place of the bankrupt on production of evidence that the land or charge is comprised in the bankrupt’s estate.” (The footnotes in Halsbury give, of course, authority for all of those propositions.)
9.	Mr. Cooper referred me to pp. 625‑7 of the 8th Edition of Bromley’s “Family Law”. Those pages deal with the situation which arises when the matrimonial home forms part of the assets of a bankrupt and are, in view of the subject to which the book is devoted, much directed towards the (limited) degree to which the occupation rights of the spouse and of children are protected. But the principle to which I referred in the final sentence of paragraph 7 above is to be found in footnote 5 on p. 625:
“If they [the spouses or cohabitants] are equitable joint tenants, the joint tenancy will be severed when the property vests in the trustee and the trustee and the other party will become equitable tenants in common in equal shares.”
I have already confessed that that came as news to me. It is to Mr. Morecroft’s credit, however, that he treated the proposition as being so self‑evident as to be axiomatic! And the editor of Bromley seems to have taken the same view, for no authority is cited in support of the aforesaid footnote. Mr. Cooper did, however, refer me to the very recent case of In re Dennis (a Bankrupt) [1992] 3 WLR 204, where Sir Donald Nicholls V‑C also seems to have treated the proposition as self-evident.
10.	So the matter assumes a complexion quite other than that which it bore in the sight of the two adjudication officers who have made written submissions thereon. Upon the appointment of the trustee in bankruptcy, the relevant “couple” (i.e. the claimant and Mrs. E.) ceased to own the full beneficial interest in No. 32. The erstwhile joint tenancy was severed. It was replaced by an equitable tenancy in common. The tenants in common were the trustee in bankruptcy and Mrs. E in equal shares. The trustee in bankruptcy held his share for the benefit of the creditors. That left Mrs. E. with a like share, and nothing more. When granting leave to appeal, the chairman of the appeal tribunal referred to the “aggregation” principle (see regulation 23 of the General Regulations and section 136(1) of the Social Security Contributions and Benefits Act 1992, formerly section 22(5) of the Social Security Act 1986). But, as Mr. Cooper stressed before me, that principle cannot affect the outcome of this appeal. The vesting principle which I summarised in paragraph 8 above meant that, after the trustee’s appointment, the claimant possessed no assets which could be the subject of aggregation with Mrs. E.’s assets. And, so far as No. 32 was concerned, her interest, which was the couple’s interest, was down to one half.
11. 	Upon a true analysis, accordingly:
(a)	by the conveyance referred to in paragraph 4(5)(b) above, Mrs. E. acquired an interest in the dwelling occupied as the home;
(b) 	the mortgage referred to in paragraph 4(5)(a) above was taken out with the intention that part of the total sum advanced should be used to defray the cost of acquiring that interest; and
(c)	£6,500 of the total sum advanced was indeed applied for that very purpose.
12. 	It follows that the “eligible interest” in this case is the interest upon £15,726.44 of the loan advanced by the Midshires, made up as follows:
Under paragraph 7(3)(b) of Schedule 3	£	9,226.44
Under paragraph 7(3)(a) of Schedule 3 	£	6,500.00
	£15,726.44

With characteristic thoroughness, Mr. Cooper canvassed the question of whether paragraphs 7(3)(a) and 7(3)(b) were mutually exclusive. He submitted that they were not. I unreservedly agree. Indeed, I have myself given decisions in which I have allowed eligible interest under both heads.
13. 	The appeal tribunal likewise decided that eligible interest was the interest payable in respect of the sum of £15,726.44. Unsurprisingly, it did not set out its reasoning at anything approaching the length of this, my decision. In particular, it did not go into any detail about the effect of the claimant’s bankruptcy. It is clear, however, that its eye was firmly on the essential issues. I myself have dealt in some detail with the effect of bankruptcy in order that some practical guidance may be available to adjudication officers who, as I indicated in paragraph 7 above cannot reasonably be expected to have more than a superficial acquaintance with the principles of law which are peculiar to that topic. If there was a shortcoming in the appeal tribunal’s decision, it was the failure to specify the date or dates from which entitlement to the relevant housing costs was to run. I dare say that the tribunal considered the answer to be so manifest that specification was unnecessary. Be that as it may, I assured Mr. Morecroft that I myself would supply the deficiency. As Mr. Cooper readily agreed, entitlement (in respect of interest on the full sum of £15,726.44) must run from the date of the relevant claim i.e. from 5 March 1990. The assessment of arrears will, however, be subject to the restriction imposed by paragraph 7(1) of Schedule 3 in respect of the initial 16 weeks of entitlement (cf. my para. 5 above).
14. 	As is so often the situation in this type of case, repossession proceedings are in the offing. They are not, of course, a matter for me. Nor is it within my jurisdiction to make any award by way of an extra‑statutory payment in respect of the additional interest which has become payable in consequence of the capital sum on loan having been increased by arrears of interest. That is entirely for the Secretary of State. I trust, however, that I shall not be regarded as having exceeded my legitimate function if I comment that this does seem to be an appropriate case for such a payment. I should be very sorry if it were to be thought that I am saying that because I consider that there has been culpability on the part of any officer of the Department of Social Security. On the contrary, I have been at pains to explain that I consider that, until this matter reached Mr. Cooper, the relevant officers of the department were (wholly understandably) out of their depth. But I am in no doubt that, even upon a true legal analysis of the situation, the claimant was entitled to housing costs by way of interest on the full sum of £15,726.44 from 5 March 1990, subject to the paragraph 7(1) initial restriction. I myself find it difficult to believe that the claimant should be the sufferer simply because the relevant law is so arcane that it was not properly understood until Mr. Cooper came upon the scene.
15.	The adjudication officer’s appeal is disallowed.

Date: 23 June 1993 	(signed) Mr. J. Mitchell	Commissioner