JAMES HOURIGAN on behalf of his mother MARY HOURIGAN (deceased) v SECRETARY OF STATE FOR WORK AND PENSIONS [2002] EWCA Civ 1890

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM A SOCIAL SECURITY COMMISSIONER
Mr Commissioner Lloyd-Davies
[2002] EWCA Civ 1890Case No Case No: A1/2002/0489 SSTRFVenue Royal Courts of Justice, Strand, London, WC2A 2LL
Between
JAMES HOURIGAN on behalf of his mother MARY HOURIGAN (deceased)Respondent/ClaimantSECRETARY OF STATE FOR WORK AND PENSIONSAppellant/ Defendant
Before
Lord Justice AuldLord Justice BrookeLord Justice SedleyNathalie Lieven (instructed by Solicitor to Department of Work and Pensions) for the AppellantJohn Howell QC & Kate Gallafent (instructed by Child Poverty Action Group) for the RespondentHearing date : 18th November 2002Date 19 December 2002

Lord Justice Brooke :

This

[1]is an appeal by the Secretary of State from a decision of Mr Commissioner Lloyd-Davies, sitting as a Social Security Commissioner, on 15th October 2001 whereby he allowed the claimant's appeal from a decision of a Social Security Appeal Tribunal on 8th June 1998 which had determined that the deceased claimant Mrs Mary Hourigan had an equal half-share in the value of her house at 53 Lake Road, Stalybridge and therefore did not qualify for income support. The Commissioner substituted a determination that at all material times the value of her capital was less than £8,000.[2]The underlying facts of the case are very straightforward. Mrs Hourigan had bought her home from the local authority with the help of her son James who contributed five-sixths of the purchase price. In 1993 the value of the house was £27,000. In March of that year she moved from her home to a residential home because she was becoming increasingly frail, and she stayed at that residential home until her death in August 1997.[3]At all material times her son James has acted as his mother's appointee, and he has continued to pursue her appeal after her death. Her income support was terminated in June 1993, soon after her move, on the basis that she possessed capital in excess of £8,000. A lengthy series of appeals culminated in the matter being remitted to the appeal tribunal which on 8th June 1998 made the findings of fact which I have incorporated into this judgment. It is the appeal tribunal's finding of law which has been the subject of the appeals first to the Social Security Commissioner and then to this court.[4]The effect of the appeal tribunal's decision was that Mrs Hourigan was the legal owner of 53 Lake Road and that she and her son James owned the beneficial interest in that property as tenants in common in a ratio of 1:5. The question of law we have to determine is whether on the proper interpretation of regulation 52 of the Income Support (General) Regulations 1987 ("the 1987 Regulations") Mrs Hourigan is to be deemed, artificially, to have been the beneficial owner of half the property. If she is, then her capital at the material time would have exceeded £8,000 and it would have been correct to refuse her income support after her move to the residential home.[5]Ms Lieven, who appears for the Secretary of State, argues that this is the correct result. Mr John Howell QC, who appears for the claimant, submits that regulation 52 does not have this artificial effect when the beneficial interests in property are owned by tenants in common. Alternatively, he submits that regulation 52 is ultra vires .[6]For the purposes of resolving this dispute it is necessary only to consider a few sections of the Social Security Contribution and Benefits Act 1992 ("the 1992 Act") which are all included in Part VII of that Act (entitled "Income-Related Benefits"), and a few of the 1987 Regulations.[7]Section 124 of the 1992 Act provides, so far as is material, that "(1) A person in Great Britain is entitled to income support if:(a) he is of or over the age of 16;(b) he has no income or his income does not exceed the applicable amount;(c) he is not engaged in remunerative work … (4) …where a person is entitled to income support, then (a) if he has no income, the amount shall be the applicable amount; and (b) if he has income, the amount shall be the difference between his income and the applicable amount."[8]Section 134(1) provides that "No person shall be entitled to an income related benefit if his capital or a prescribed part of it exceeds the prescribed amount."[9]Section 135(1) provides that "The applicable amount, in relation to any income-related benefit, shall be such amount or the aggregate of such amounts as may be prescribed in relation to that benefit."[10]Section 136 provides, so far as is material, that:
"(2) Regulations may provide that capital not exceeding the amount prescribed under section 135(1) above but exceeding a prescribed lower limit, shall be treated, to a prescribed extent, as if it were income of a prescribed amount. (3) Income and capital shall be calculated or estimated in such manner as may be prescribed. … (5) Circumstances may be prescribed in which (a) a person is to be treated as possessing capital or income which he does not possess; (b) capital or income which a person does possess is to be disregarded."
[11]The basic rules for valuing capital for the purposes of income support are contained in regulations 49 and 50 of the 1987 Regulations. In particular regulation 49 provides that:
"Capital which a claimant possesses in the United Kingdom shall be calculated – (a) except in [the case of a National Savings Certificate], at its current market or surrender value, less (i) where there would be expenses attributable to its sale, 10 per cent; (ii) the amount of any encumbrance secured on it."
[12]Regulation 52, which is at the centre of this appeal, provides that:
"Except where a claimant possesses capital which is disregarded under regulation 51(4) (notional capital) where a claimant and one or more persons are beneficially entitled in possession to any capital asset they shall be treated as if each one of them were entitled in possession to the whole beneficial interest therein in an equal share, and the foregoing provisions of this Chapter shall apply for the purposes of calculating the amount of capital which the claimant is treated as possessing as if it were actual capital which the claimant does possess."
[13]Regulation 51 provides that a claimant is to be treated as possessing capital of which he has deprived himself for the purposes of obtaining income support. Regulation 53 provides for a claimant to be ascribed a tariff income for each amount of capital taken into account.[14]In Chief Adjudication Officer v Dowell (CAT 5 February 1995) this court interpreted regulation 52 as meaning that a claimant to whom the regulation applied was to be treated as possessing a particular amount of capital (namely, an entitlement in possession to an equal share in the whole beneficial interest), and that the value of that share was to be calculated at its current market value in accordance with regulation 49. The court rejected a contention by the Secretary of State to the effect that regulation 52 required the whole beneficial interest to be valued, disregarding the existence of the shares in it and their consequences, and for the claimant to be treated as possessing an equal share of that value.[15]The critical words in regulation 52 which fall for interpretation on this appeal are the words:
" where a claimant and one or more persons are beneficially entitled in possession to any capital asset they shall be treated as if each one of them were entitled in possession to the whole beneficial interest therein in an equal share." (Emphasis added)
It was common ground on the hearing of the appeal that the words "entitled in possession" were to be contrasted with "entitled in expectancy" or "entitled in reversion". They can therefore be ignored for the purposes of the problem we have been asked to resolve.[16]The language of regulation 52 lends itself naturally to a situation in which two or more people are jointly entitled to the equitable interest in the same capital asset. They do not each possess a separate share in the equitable interest. They are jointly invested with the whole of that interest together with the other joint tenants. If there are two joint tenants and one dies, the other is solely entitled by survivorship to the whole beneficial interest. Unity of interest is a necessary feature of a joint tenancy. The natural effect of regulation 52 is therefore to treat that unity of interest as severed, and to treat the claimant as if he/she was entitled to an equal share (with the others) of the whole beneficial interest. Thus he/she is to be treated as possessing what he/she does not in fact possess (see section 136(5)(b) of the 1992 Act).[17]With tenancies in common, there is no need to treat a claimant's unity of interest as if it had been severed for the purpose of computing fairly the capital he/she owns for the purposes of Part VII of the 1992 Act. As Mr Commissioner Howell observed, a beneficial interest which a claimant owns as a tenant in common is an asset separately disposable by him/her, both in English and Scots law. In case CIS 7097/95 the claimant was not beneficially entitled to nearly 75% of the money, derived from her husband's National Savings, which had only been paid into their joint bank account as a convenience in order to enable their daughter to pay his nursing home bills by direct debit. If this money of his had been paid into a building society account, or a bank account, in his own name, there could have been no suggestion that his wife was entitled to a beneficial interest in half of it.[18]Similarly, on the facts of the present case, the son's five-sixth beneficial interest in his mother's house, and his mother's one sixth interest, represented separate capital assets of which each was free to dispose in those shares. It would be a misuse of language to say that the two of them were beneficially entitled to the house within the meaning of regulation 52: they were not.[19]Ms Lieven, in her admirable submissions on behalf of the Secretary of State, called in aid administrative convenience in support of the interpretation for which she contended. She told us that the department's staff do not necessarily have legal acumen, and administrative convenience demands a statutory code which is reasonably simple to administer. When a court has to identify the ownership of beneficial interests between competing parties, it has some hope of reaching a "true" solution because each party is keen that the court should attribute the maximum interest to their own share. Inside the statutory scheme created by Part VII of the 1992 Act, on the other hand, there is no such incentive, and experience, she tells us, has showed that the members of a family habitually attribute as low a value as is realistically possible for a claimant's share in shared property in order to maximise the chances of him/her qualifying for an income-related benefit.[20]Ms Lieven told us that social security benefits staff are not customarily concerned with divided shares in corn or oil or in the other commodities which the members of the court, drawing on their memories of the Roman law concepts of commixtio or confusio , put to her during the course of argument. In the real world of social security she said that it is the ownership of shares in a business, or a house, or money that gives rise to questions of this kind. Those instructing her thought that no difficulties had arisen under this aspect of regulation 52 until the decision in case CIS 7017/15 in February 1997. Claimants and their representatives had seemingly been content to allow a claimant's share to be treated for the purposes of this regulation as a half, or a third, or a quarter, or as the case may be, depending on the number of other parties also entitled to a share.[21]However that may be, the issue has now been raised and a just answer to it must be found. Justice is not always the handmaiden of administrative convenience. In my judgment it would need very much clearer words in the regulation if a court were to be constrained to interpret it in the unfair way for which the Secretary of State contends. There is, in my judgment, great force in the submission by Mr John Howell QC, who appeared for Mr Hourigan, in paragraphs 22 and 23 of his skeleton argument:
"22. Regulation 52 may only apply to require a person to be treated as if he is entitled in possession to an equal share of the whole beneficial interest when in fact he is not so entitled. The obvious case (if the regulation applies to a tenancy in common as the Secretary of State contends) is where individuals have different shares in the beneficial interest. For example, whether a claimant owned only 5% or 95% of the equitable interest, in either case he would be treated as owning 50% of the whole equitable interest if there is only one other person also beneficially entitled in possession to a share. But he would be treated as owning 33% if two others are involved; 25% if three other are; 20% if four other are; and so on. There is no rational reason in the context of income support why a claimant should be deemed to possess so much more than he actually has and no rational reason why, given the same actual share, the amount that the claimant is deemed to have should depend on the number of others with a share regardless of their actual interest. Indeed the latter would be a standing invitation to abuse. Nor is it rational, if the number of others involved may be relevant, for those who have an interest in the same equitable interest otherwise than beneficially in possession (such as those interested in it in reversion) to be ignored. 23 As Mr Commissioner Howell observed [in CIS 7097/95], the result of the Secretary of State's interpretation would be to make the system 'a lottery; … producing arbitrary answers (on some facts unjustly in favour of claimants, on others against)' and that 'the injustice and absurdity' was 'obvious'."
[22]We have had the opportunity of considering the decision of Mr Commissioner Goodman in CIS /3283/97 (Appendix to linked cases, at paras 16-18). At the end of this decision he adopted the interpretation of regulation 52 for which the Secretary of State is now contending. He considered that the regulation applied to all kinds of co-ownership because its language was broad enough to cover both joint tenants and tenancies in common. He called in aid of this interpretation the heading to regulation 52 ("Capital jointly held") and the reference to "the other joint owners" of a dwelling which appeared, fleetingly, in a 1995 amendment to regulation 52. (He was to declare the regulation, as amended, to be ultra vires , and it has now reverted to its original form). He said he did not think it necessary, desirable or practicable to try to distinguish between the various kinds of co-ownership, and if this meant that an owner of an undivided share was regarded as possessing a greater share than in fact he did, then that was in his view an inescapable result of the application of regulation 52.[23]For my part, I do not consider that such an interpretation of regulation 52 is inescapable. In Fullwood v Chesterfield Borough Council 26 HLR 126, 129 Hoffmann LJ observed that there was no ordinary and generally understood meaning of the words "jointly occupied", and that the ordinary speaker of English would probably say that he thought one should ask a lawyer to ascertain what these words meant in the context of a statutory regulation. So, too, with the words "capital jointly held". A lawyer would furnish the answer given by Mr Commissioner Howell.[24]Ms Lieven argued that Parliament must have contemplated such a potentially unfair and unreasonable result when it empowered the Secretary of State to prescribe circumstances in which a person was to be treated as possessing capital which he did not possess. It is easy to see why Parliament used that language to enable the Secretary of State to make sensible arrangements governing the treatment of capital held in a joint tenancy. It is unnecessary to conclude that by the use of these words an intention must be attributed to Parliament to the effect that it contemplated the making of regulations which were manifestly unfair. The intention of this statutory scheme is that people should be expected to dip into their capital rather than be reliant on the state for income support. Why should Parliament have expected people to dip into capital which they did not in fact possess? Ms Lieven did not give us any answer other than that encapsulated in the words "administrative convenience".[25]For these reasons I would dismiss this appeal. It is not therefore necessary to consider Mr Howell's alternative argument, namely that regulation 52 is ultra vires if it has to be interpreted in the manner for which the Secretary of State contends.

Lord Justice Sedley:

[26]I agree with Lord Justice Brooke's conclusion that this appeal should be dismissed. But since a fresh regulation may well follow our judgment, I will set out my reasons, which are not quite the same as his.[27]First, I am not persuaded that Regulation 52 even meets the purpose of administrative convenience which is the foundation of Miss Lieven's case. It does not relieve departmental officials of the sometimes extremely difficult task of deciding whether property is held in shares at all, for if it is not, the regulation does not apply. What it does is cut out the often relatively easy sequel of deciding what the respective shares are.[28]Secondly, it replaces the true share with a crude calculation which, as Lord Justice Brooke has shown, can be both a source of real unfairness and an incentive to create multiple shares, perhaps spuriously, in order to drive up the divisor and so drive down the imputed value of the claimant's interest. Even in relation to honest arrangements, in fact, the regulation can be counter-productive – notably where the claimant's true share is greater than her deemed share. Thus if a house worth £45,000 is shared as to 50% by the claimant and as to 10% by each of her five children, her real share of £22.500 will be deemed to be a one-sixth share worth £7.500, making her artificially eligible for income support. Such a outcome is unfair not only to other claimants, including people like the present respondent, but to the public who provide the funds.[29]We have been shown no real need for such an erratic device. Where the Secretary of State is satisfied that there is a genuine division of shares, there can be no difficulty in giving effect to it. Where he is not, it may well be that a default allocation of deemed equal shares is reasonable and practicable. But nothing like this has been attempted in regulation 52 as it now stands.[30]The relevance of the foregoing considerations is not that regulation 52 could be a much sharper and fairer instrument than it is. That is a question solely for the Secretary of State. It is that Miss Lieven cannot, in spite of her admirable endeavours, establish the breadth of meaning for which she contends on grounds either of administrative convenience (since the regulation largely misses out on this) or of abuse prevention (since it draws in honest as well as devious arrangements). We are left with a power granted by Parliament which, for the reasons set out by Lord Justice Brooke, cannot be held to have contemplated such an arbitrary form of implementation. To read it down as the Commissioner has done is enough to protect Mrs Hourigan. The question of vires remains unaddressed. Lord Justice Auld[31]I agree that the appeal should be dismissed for the reasons given by my Lords.[32]Regulation 52 does not apply to this case – one of a tenancy in common where the tenant has no unity of beneficial interest with another or others in the capital in question. It applies only to a joint tenancy where there is such unity of interest and where the entitlement of the claimant is, or may, not be equal to that of the other joint tenant or tenants. In such a case it operates to sever the unity of interest and to treat the claimant as if he were entitled to an equal share with the other or others of the whole beneficial interest.[33]Such an interpretation accords with the plain legal meaning of the words used by the parliamentary draftsman, who must be taken to have had in mind the distinction between a tenancy in common and a joint tenancy. I see no reason why, in this context, the words should be given any other meaning. The clear intention of the provision was to simplify the administrative task of assessing the value of a claimant's interest in jointly held property for the purpose of determining his entitlement to income support. No doubt, it was considered that the exercise of identifying the relative sizes of shares for this purpose would be less difficult in the case of tenancies in common.[34]As Sedley LJ has pointed out, Regulation 52, in deeming an equal apportionment in cases of joint tenancy, can produce injustice either way - as it also could in cases of a tenancy in common if it applied to it. Whatever the strengths and failings of the device as an aid to administrative convenience, prevention of abuse or overall fairness in application, they do not, in my view, support the interpretation for which the Secretary of State contends.

Cited in 2 later judgments