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Case Summary

1. This case concerns an appeal by a claimant, SH, against a decision by the London Borough of Tower Hamlets to deny her housing benefit. The Council argued that SH had intentionally deprived herself of capital by gifting her flat to her sister and therefore was not entitled to assistance. The First-Tier Tribunal upheld the Council’s decision, concluding that obtaining housing benefit was a “significant operative purpose” in SH’s decision to gift the flat. This decision was appealed to the Upper Tribunal.

Key Themes and Issues

Deprivation of Capital

2. The central issue revolves around whether SH intentionally deprived herself of capital (the flat) to become eligible for housing benefit. Housing benefit regulations often disqualify individuals with substantial capital assets.

Purpose vs. Consequence

3. The legal crux of the case is differentiating between the purpose of an action and its consequence. The Upper Tribunal Judge Mark argues that simply knowing housing benefit might become available as a consequence of disposing of capital does not necessarily mean the purpose of the disposal was to obtain that benefit.

4. As stated in paragraph 9:
“It does not follow… even if they are aware of the existence of housing benefit and the capital limits, that they have deprived themselves of the capital which they have paid out and lost ‘for the purpose of securing entitlement to housing benefit’.”

5. Further, paragraph 8 states:
“…it does not appear to me that such presumed intention is the same as purpose.”

Mixed Motives

6. The First-Tier Tribunal considered that even if the claimant had mixed motives, the intention to obtain benefits only needs to be a “significant operative purpose” to disqualify the claimant. The Upper Tribunal judge finds the original tribunal’s reasoning “confused”.

Reasonableness

7. The First-Tier Tribunal used a “reasonableness” test, drawn from a previous case (CJSA/1425/2004), to determine if obtaining benefits was a significant operative purpose. The Upper Tribunal Judge Mark explicitly disapproves of the approach in CJSA/1425/2004 and asserts that the reasonableness of the claimant’s conduct is less relevant if obtaining housing benefit was the principal operative purpose.

Inconsistency in Reasoning

8. Judge Mark identifies several inconsistencies in the First-Tier Tribunal’s reasoning. For instance, if SH’s primary motive was to obtain housing benefit, it is unclear why she would give away a mortgage-free flat where she lived rent-free, requiring her to then seek rented accommodation and claim benefits. Also, the judge questions how she could know so much about benefits (as the Tribunal assumes) but be unaware of the rules around “notional capital”.

Unreasonable Conduct vs. Intent

9. The Judge gives illustrative examples of litigants or business people who make bad decisions that impoverish them. The Judge is clearly concerned that the original tribunal was conflating unreasonable conduct with evidence of a purpose to obtain benefit.

10. Paragraph 9 states:
“The actions of these litigants and businessmen are unreasonable and their expenditure and losses are the almost inevitable consequence of their unreasonable conduct. It does not follow, however… that they have deprived themselves of the capital which they have paid out and lost ‘for the purpose of securing entitlement to housing benefit’.”

Important Facts & Details

11. SH purchased her flat under the right to buy scheme in 2002 and paid off the mortgage by 2007.

12. In early 2008, she transferred the flat to her 19-year-old sister for no consideration but continued to live there.

13. Her stated reasons for the gift were initially that her sister had been good to her, then later that her husband found it culturally unacceptable to live in a house owned by his wife (although she had trouble explaining why it was acceptable to live in a house owned by her sister).

14. Her husband suffered from mental illness (paranoia, schizophrenia, and psychosis).

15. SH and her husband separated a few months after the gift.

16. She had savings of over £9,000 at the time of the gift.

17. SH was working for the Council, presumably with some knowledge of housing benefit rules.

18. She fell out with her sister in July 2009 and was asked to leave the flat.

19. She applied for housing benefit in August 2009.

20. The judge acknowledges that SH may not have been totally frank with the Council or the tribunal regarding the motive for the gift and the husband’s employment.

Outcome

21. The Upper Tribunal allowed the appeal, set aside the First-Tier Tribunal’s decision, and remitted the case to be reheard by a new tribunal. The judge found the First-Tier Tribunal’s reasoning “defective in law” and expressed no view as to the likely outcome of the new hearing.

Implications

22. This case highlights the importance of carefully considering the purpose behind disposing of capital when determining eligibility for housing benefit. Tribunals must avoid conflating unreasonable behaviour or awareness of benefit rules with a deliberate intention to manipulate the system. It also highlights the need to consider alternative explanations for conduct which appears, on the face of it, to be intended to generate entitlement to benefit.

23. The case is particularly interesting in that the Judge raises the possibility of cultural explanations for behaviour not being properly considered by the original tribunal.

Case Overview

1. This document summarises the decision of the Upper Tribunal (Administrative Appeals Chamber) in the case of CA v Hastings BC [2022] UKUT 57 (AAC). The appeal concerns the appellant’s entitlement to Housing Benefit and whether the First-tier Tribunal (FTT) erred in law by upholding Hastings Borough Council’s decision that the appellant possessed capital exceeding the prescribed limit of £16,000, leading to an overpayment recovery demand. The Upper Tribunal (UT) found that the FTT did err in law.

Key Issues

2. Capital Limit Exceeded: The central dispute revolves around whether the appellant possessed capital (specifically, the value of his shares in a limited company) exceeding the £16,000 limit stipulated in Regulation 43 of the Housing Benefit Regulations 2006, resulting in the overpayment.

3. The respondent (Hastings BC) originally determined that the appellant’s income exceeded the limit and later determined the appellant’s share in the company as of August 21, 2017, was valued at £40,000 (well over the limit).

4. Valuation of Company Shares: A significant point of contention is how to value the appellant’s shareholding in the company. The FTT determined the value of the company based on what an investor was willing to pay for a percentage of the shares, concluding the appellant’s share was worth £40,000.

5. The FTT stated that “the value of a company is ‘what someone is willing to pay for it’.”

6. Regulation 49(5) and (6) of the Housing Benefit Regulations 2006: This regulation, crucial to the UT’s decision, concerns individuals who stand in a position analogous to that of a sole owner or partner in a company. Critically, this regulation allows for the value of their holding to be disregarded under certain circumstances, specifically if they are actively involved in the business.

7. Regulation 49(5): “Where a claimant stands in relation to a company in a position analogous to that of a sole owner or partner in the business of that company, he may be treated as if he were such sole owner or partner and in such a case—(a) the value of his holding in that company shall, notwithstanding regulation 44 (calculation of capital) be disregarded; and (b) he shall, subject to paragraph (6), be treated as possessing an amount of capital equal to the value or, as the case may be, his share of the value of the capital of that company…”

8. Regulation 49(6): “For so long as the claimant undertakes activities in the course of the business of the company, the amount which he is treated as possessing under paragraph (5) shall be disregarded.”

Upper Tribunal Decision and Rationale

9. The Upper Tribunal allowed the appeal and remitted the case back to a new panel of the First-tier Tribunal for a complete rehearing. The primary reason for this was the FTT’s failure to consider Regulations 49(5) and 49(6) of the Housing Benefit Regulations 2006. The UT found this to be an error of law.

10. The UT Judge noted the FTT was not made aware of the regulation.

11. The UT determined that based on FTT findings, “The Claimant’s position was, on the findings made at paragraphs 8-12 of the Tribunal’s reasons, analogous to that of a partner in the business of the company…” The appellant worked substantial hours and had significant influence on the company.

12. The UT also highlighted the discretionary nature of Regulation 49(5), noting the FTT never addressed whether, if the appellant was in a partner-like position, he ought to be treated as such for the purpose of calculating his capital.

13. The UT emphasised that even if the capital calculation were changed due to considering Regulation 49(5) and (6), the First-Tier Tribunal would still need to consider the appellant’s income level to determine housing benefit eligibility. The FTT had not previously made any factual findings regarding income.

Key Arguments and Evidence

14. Appellant’s Argument: The appellant consistently disputed the valuation of his shareholding, arguing the company was not worth the amount attributed to it by the Respondent. He highlighted the precarious financial state of the company.

15. Respondent’s Argument: The council argued that the appellant’s shareholding should be valued based on what the investor was willing to pay and that the appellant’s income exceeded acceptable limits. They argued the appellant was not a “sole owner”.

16. Valuation Tribunal Decision (Council Tax Reduction): The Valuation Tribunal, in a related Council Tax Reduction appeal, did consider the equivalent of Regulation 49(5) and (6) and determined that the appellant’s capital holding should be disregarded because he was undertaking activities in the course of the company’s business. The Council disagreed with this ruling.

Directions for the First-tier Tribunal on Remittal

17. The Upper Tribunal directed the new FTT panel to address specific questions:

1. Did the Appellant at the material time stand in relation to the company in a position analogous to that of a partner in the business of the company?
2. If so, ought he to be treated for the purposes of the Tribunal’s decision on the appeal as if he were such a partner?
3. If so, what is the amount of capital which he is to be treated as possessing, applying Regulation 49(5)(a) and (b)?
4. If the Appellant is to be treated as possessing capital by reason of those provisions, did the Appellant at the material time undertake activities in the course of the business of the company, resulting in the capital amount arrived at by the application of Regulation 49(5) being disregarded?”

Conclusion

18. The Upper Tribunal’s decision emphasises the importance of considering all relevant regulations, especially those that could potentially lead to a disregard of capital assets for Housing Benefit eligibility. The case has been remitted for a complete rehearing, requiring the First-tier Tribunal to assess the appellant’s position in relation to the company and the applicability of Regulations 49(5) and (6) of the Housing Benefit Regulations 2006, as well as the appellant’s income.