[2007] UKSSCSC CIS_2570_2007 (29 November 2007)

CIS/2570/2007

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1.	  This is a supported appeal with the leave of a commissioner from a decision of the Manchester Appeal Tribunal given on 17 April 2007 following a hearing on 15 April 2007.  I set aside the decision of the tribunal and I remit the case to a new tribunal to be heard in accordance with the directions below.  

2.	  The claimant had claimed income support on 4 August 1999, following the premature death intestate of his wife a few days before, leaving the claimant to care for a stepson who was nearly 7 years old and a newborn daughter.  In completing the form, the claimant indicated that he had no money except for child benefit.  He received income support for over 5 years before it emerged that he did indeed have other assets.  It is clear that there was at least £800-£1000 in cash in his home which he and his wife had been saving.  The tribunal found that there was in all £7000, although this is challenged on appeal, with the support of the secretary of state, on the ground that there is no evidence to support such a finding.

3.	  In addition, it is clear that £13,908.45 was paid to the claimant on 7 October 1999, which appears to have been the proceeds of an insurance policy taken out by his late wife.  This sum was paid into the claimant’s account at National Westminster Bank, which had previously been overdrawn since a date prior to his wife’s death.  The payment in left the account in credit in the sum of £13,509.90.  There are issues as to whether the sum received was received by the claimant in his own right or on some trust to which I shall return, but I note that the tribunal found that the sum of £13,908.45 was to be diminished in accordance with the diminishing capital rules as actual capital.  I do not understand this.  I am unclear whether the tribunal is referring the rules that apply because a claimant has deprived himself of capital for the purpose of securing or increasing entitlement to income support, or whether the tribunal was referring to the rules by which a claimant’s capital is notionally reduced for the purpose of calculating the amount of a repayment that should be made following an overpayment of benefit.  

4.	  It is plain, in any event, that the claimant did not pay off the small overdraft to secure or increase entitlement to income support, and that subject to that payment, and to any claim that the money was held on trust, the whole amount was held as the claimant’s actual capital at that time.  Further, there is no evidence that the claimant intentionally deprived himself of even the reduced amount of £13,509.90 for that purpose or at all at that stage, or, on the findings of the tribunal, at any other stage prior to October 2004.   

5.	  On this basis alone the tribunal was in error of law and its decision must be set aside.

6.	  In addition, in seeking leave to appeal, the claimant contended that the question of intentional deprivation of capital had never been raised at the hearing or previously, and that the claimant had never had the opportunity to address it, with the result that he had not had a fair hearing.  Although the tribunal has made copious notes on the claimant’s form applying for permission to appeal in relation to other matters raised, the only comment on this ground of appeal is that “the issue in the appeal is [the claimant’s] capital.  Actual capital and notional capital are different components of that issue but not separate issues.”

7.	  These comments do not address the real issue, which is whether there has been a fair hearing.  Whether one treats the question as one issue or as two issues, the claimant is entitled to know the case being made against him, and to have the opportunity to address it.  No case of intentional deprivation had been made out before, and no question had been put to him as to his motivation in making any payment out of his capital, other than in relation to subsequent transactions said to be for the benefit of the two children.  The claimant plainly did not have a proper opportunity to address that question and as a result the hearing was not a fair one.  On that ground as well, the decision must be set aside.

8.	  I do not have sufficient information to substitute my own decision, and I therefore remit the case to a new tribunal.  It is unnecessary for me to address the question whether there was any evidence at the hearing that the claimant had a total of £7,000 apart from the sum received on 7 October 1999.  Like the secretary of state, I can detect no such evidence beyond the tribunal’s account on the application for leave to appeal of what was said.  It appears clear that the references by the claimant in his statements and interview to £7000 referred, inaccurately, to the proceeds of the insurance policy and not to some other asset.  I strongly suspect that there was a misunderstanding on the part of the tribunal, and the directions that I give below are on the basis that the claimant had only £800 to £1000 in cash in the house and no other assets of any significance except insofar as he was entitled to the proceeds of his wife’s insurance policy.

9.	  The first question for the new tribunal is as to the terms of the insurance policy in respect of which payment was eventually made in October 1999 to the claimant.  If possible a copy of that policy should be obtained, together with any other documentation indicating entitlement to any payout.  It may be that the trustees of the policy had a discretion as to whom to pay the money to.  It may be that the beneficiary under the policy was the claimant, or it may be that the money ought strictly to have been paid into the estate of the claimant’s late wife.  If the trustees of the policy had a discretion, it would also to be necessary to see when and in whose favour it was executed, and whether the payment was solely for the benefit of the claimant or was paid to him to hold on trust, for example, in whole or in part for the two children.  The tribunal will need to make findings as to these matters on such evidence as may be available, including any evidence from the claimant in the absence of surviving documentation.

10.	The tribunal will also need to make findings as to when the claimant became aware of the policy, any entitlement he may have had under it, and the amount or approximate of that entitlement.

11.	At the date of his application, the claimant had in effect two assets.  One was the cash in the house, which appears to have been jointly owned before his wife’s death.  The other was any entitlement to a share of her estate or of the insurance policy – in effect the same thing.  If, at the date of the application, the claimant was entitled to the proceeds of the insurance policy either directly or as the sole beneficiary of his wife’s estate, then that entitlement was an asset to be declared.  It would appear from unchallenged findings of the tribunal under appeal that he had known of the policy during his wife’s lifetime, and that the proceeds would come to him either absolutely, or possibly on trust for his children.  If he was absolutely entitled, then that entitlement should have been disclosed when he applied for income support together with such information as he could give as to the amount which was to be paid to him.  

12.	Unless the claimant believed initially that he would get nothing for himself, he should have given the best estimate he reasonably could as to how much he was to get.  The value of that prospective receipt would then have had to be taken into account in assessing his entitlement to income support.  

13.	The new tribunal will need to make findings as to the claimant’s capital at the date of the claim and will need to include an allowance for his entitlement to all or part of the proceeds of the policy to the extent to which he was entitled to it.  It will also need to make findings as to the extent to which he needed to disclose that entitlement, which will depend also on his understanding of his entitlement at the time.

14.	The principal question which arises is whether at any time all or part of the proceeds of the policy or any assets derived from those proceeds were subject to a trust in favour of one or both of the children, so that the claimant had no beneficial interest in the assets.  There does not appear at present to have been any express written statement of intention to hold any part of the proceeds of sale on trust.  The statement by the claimant’s wife that the claimant was to use the proceeds of the insurance policy for the children and not spend it on drink does not amount to a declaration of trust in favour of the children.  Unless the proceeds of the policy were trust funds in accordance with the terms of the policy itself, on the evidence before me there was no trust unless and until some trust was created by the claimant.

15.	The only possible occasions when a trust may have been created were (1) when the £7000 was paid into the ISA with Gartmore on 9 February 2000 and (2) when the two transfers of £4000 to accounts for the benefit of each of the children were made by the claimant on 19 October 2004.  As to (1), it may be necessary to check the terms of the ISA to see if the sums so invested could be held on trust and it will also be necessary to see if any oral or other declaration of trust was made by the claimant at the time.  It is possible that such a declaration was made either expressly or by implication, but I cannot detect one on the evidence before me.  As to (2), the tribunal has found that the two new accounts were in the names of the two children, which would be sufficient, as the tribunal found, for the £8000 then transferred to cease to be part of the claimant’s capital.  However, I find it difficult to understand the reasoning of the tribunal that when the claimant paid this money into the two accounts, he did so with the intention of securing or increasing entitlement to income support.  It is true that this transfer occurred just after the first letter was sent asking the claimant to attend for an interview in connection with his income support, but the evidence is that the money came from the proceeds of the ISA, which he had stated that he regarded as the children’s money in any event.  Possibly because this issue had not been properly addressed at the hearing, and had been dealt with in the decision for the first time, adequate reasons do not appear to me to have been given for this part of the decision, and the question will have to be reconsidered by the new tribunal.

Calculation of overpayment
16.	On the assumption that the proceeds of the insurance policy were received by the claimant without being subject to any trust, it is plain that the receipt ought to have been disclosed to the Benefits Office, and that payment of income support would have terminated.  Indeed, it seems likely that the entitlement to that sum, if it existed at the date of the claim, as would appear to have been the case in the absence of any evidence that the insurance company had any discretion as to whom to pay it to, would also have meant that the claimant’s capital at the date of the claim exceeded the capital limit for income support and his claim would have failed.

17.	The new tribunal will need to find the amount of the claimant’s capital at the date of the claim.  It is plain that it will not be able to be precise as to this both because the claimant himself is imprecise as to the amount of cash in the house, and the value of the proceeds of the policy at the date of the claim will not be precisely the amount ultimately paid.  Nevertheless, doing the best it can, it must arrive at a figure, because it is by reference to that figure that regulation 14(1) of the Social Security (Payments on Account, Overpayments and Recovery) Regulations 1988 (“the Overpayment Regulations”) must be applied.

18.	Regulation 14(1) provides, so far as relevant, that where income support has been overpaid in consequence of a misrepresentation as to the capital a claimant possesses or a failure to disclose its existence, “the adjudicating authority shall treat that capital as having been reduced at the end of each quarter from the start of the overpayment period by the amount overpaid by way of income support within that quarter.”

19.	Regulation 14(2) goes on to provide that “Capital shall not be treated as reduced over any period other than a quarter or in circumstances other than those for which paragraph (1) provides”.  This appears to be intended to refer to the law as it was before the regulation was introduced, where commissioners’ decisions meant that a notional reduction occurred each week.

20.	It follows that the amount of capital which the claimant is determined to have at the date from which income support is first paid is to be reduced at the end of each period of 13 weeks starting with the first day on which the overpayment period began by the amount overpaid by way of income support.

21.	Regulation 14 deals with the question of when capital is to be treated as reduced.  It does not deal with any increase in capital, nor does it deal with actual reductions in capital.  Thus, it is clear in my judgment that if, for example, the claimant had owed a credit card company £5000, and that company had been pressing for payment, as a result of which the claimant had used part of the proceeds of the policy to pay off the credit card company, then the capital would actually be reduced by the amount so paid.  Unless that payment was shown also to have been made for the purpose of securing or increasing entitlement to benefit within regulation 51 of the Income Support (General) Regulations 1987, the claimant’s capital would in fact be reduced by that amount in addition to the notional reduction under regulation 14 of the Overpayment Regulations.  This was the case, for example when the claimant’s overdraft of £248.55 was discharged when the insurance company’s cheque was credited to his account.

22.	If the transfer to the ISA to which I have referred did not affect beneficial ownership of the capital transferred, then it can simply be disregarded, contrary to the directions given by the tribunal under appeal.  If the claimant ceased to be beneficially entitled to that £7000, then his actual capital was reduced by that amount, and the question will arise whether he should be treated as still possessing it by virtue of regulation 51 of the Income Support (General) Regulations.  If he is found still to be beneficial owner of the sums in the ISA, then the income on the £7000 each year will be treated as income and not capital initially, but after a year from its being credited, it should be treated as capital.

23.	Similar questions will apply to other expenditure of capital by the claimant.  His bank statements over the period from August 1999 show various sums paid in, most of which, given their size, may be presumed not to be capital unless otherwise explained, and a substantial number of withdrawals of varying sizes up to £700, which appears to have been expenditure by the claimant, and which had the effect of reducing his capital (unless some of it was invested elsewhere) by over £2450 in the period from October 1999 to February 2000.  The result was to reduce the claimant’s actual capital by the amount of these withdrawals, other than those, if any, which fell within regulation 51.

24.	From February 2000, the remaining sums in the account fluctuated.  Increases were the result of small payments in which should not be treated as capital as they were clearly spent within a year.  By July 2000, the claimant’s capital in his bank account was again declining, and once again, subject to the effect of regulation 51, his capital is thus reducing in fact as well as being treated each quarter as further reducing by the amount of income support received in the previous quarter.

25.	In 2001 and later, the account is occasionally boosted by some larger credits of £700 or more, which may need investigation to see if they represent capital, and if so, their source, but even treating them as capital, the amount in the account declines gradually to less than £1000 by 2004.  

26.	At some point in this period, the capital of the claimant, who seems to have been receiving around £4000 to £6000 a year in income support, will have reduced, after applying regulation 14(1) and actual capital expenditure, first to below £8000 and then to below £3000.  How quickly this happened depends on the treatment of the £7000 ISA and the extent to which any actual capital expenditure may be disallowed by virtue of regulation 51.

27.	Although it is unnecessary for me to consider the point further in this decision, I have some difficulty in seeing how, when the claimant was already in receipt of income support, any capital expenditure could be considered to be for the purpose of securing or increasing entitlement to income support at least before he became aware that he was under investigation.

28.	It follows from the above, that I consider that the tribunal erred in its directions to the secretary of state as to the calculation of the overpayment, but it is unnecessary for me to go into further detail in that respect.

29.	It seems to me that if any issues are to be raised as either the claimant’s motivation in any expenditure, or as to the source of any receipts, that those issues should be identified before the hearing, so that the claimant knows what he has to address and in relation to what he may need to seek information from his bank or elsewhere.  In relation to the trust issues, I have identified what he may need to establish in the earlier part of this decision.

	(signed on the original)	Michael Mark
		Deputy Commissioner
		29 November 2007