PJ v Dover District Council (HB) [2010] UKUT 354 (AAC)

UKUT-AAC
PJ v Dover District Council (HB)
[2010] UKUT 354 (AAC) · 2010-09-28
[1]These are appeals by the Claimant, brought with my permission, against decisions of a First-tier Tribunal made on 5 August 2009. For the reasons set out below those decisions were in my judgment wrong in law and I set them aside. In exercise of the power in section 12 of the Tribunals, Courts and Enforcement Act 2007 I make the findings of fact set out below and re-make the First-tier Tribunal’s decisions as follows:(1) The Claimant’s appeal against the decision of Dover District Council (“the Council”) made on 12 September 2007 in respect of housing benefit is allowed. The Claimant was and was to be treated as liable for rent in respect of his occupation of no. 44 (as defined below). All issues as to the computation of the Claimant’s entitlement (if any) to housing benefit are remitted to the Council for determination.(2) The Claimant’s appeals against the decisions of the Council made on 12 September 2007 and 20 February 2008 in respect of council tax benefit appear to have been rendered unnecessary by subsequent decisions, save as regards the issue whether, in computing the Claimant’s business income, he is entitled to deduct (i) a rent payable in respect of his occupation of no. 65 (as defined below) since 11 September 2007 or (ii) the interest payable to Commercial First Business Ltd on the mortgage of no. 65 . I direct that the latter is correct.(3) In the event that either of the parties contends that this decision fails to dispose of all the issues relating to council tax benefit which were properly before the First-tier Tribunal, that party may refer the matter back to me for further determination, within one month of that failure becoming apparent. Introduction[2]I held an oral hearing of these appeals on 20 September 2010 at which the Claimant appeared in person and the Council was represented by Mr Peter Barker of Housing Benefit Info.[3]The facts in this case are of unusual complexity. The documents run to some 900 pages, and the Claimant gave evidence for more than a day before the First-tier Tribunal, whose detailed Statement of Reasons runs to 71 paragraphs. Prior to the hearing before me I had sent to the parties a draft decision, setting out for their assistance my provisional views on the housing benefit appeal, having regard to the papers and written submissions before me. I took that course because I had based my draft decision on a point not specifically covered in the written submissions, and because the Claimant had in any event requested an oral hearing of his appeals. I made it clear that the findings and conclusions in my draft decision were provisional. In the circumstances which I refer to in more detail below it was accepted at the hearing that, if I were to set aside the Tribunal’s decisions, I should, rather than remitting the matter to a fresh First-tier Tribunal, make the necessary further findings of fact and re-make the Tribunal’s decisions. I heard what was in effect a substantial amount of further oral evidence from the Claimant, in answer to questions put to him by me and Mr Barker.[4]References in this decision to [p. ] are to page numbers in the bundle in CH 3189 2009 and references to [CTB p. ] are to page numbers in the bundle in CH 3190 2009. The housing benefit appeal[5]The issue in the housing benefit appeal is whether in respect of the material period the Claimant can be treated as liable to pay rent in respect of his occupation of no. 44 S Road, Deal (no. 44). As I am substituting my own decision, it is convenient, before explaining why in my judgment the First-tier Tribunal erred in law, to set out my own findings of fact. They are made on the basis of(i) the documentation before me, which includes the Record of Proceedings containing the chairman’s note of the evidence given before the First-tier Tribunal, and(ii) the evidence given by the Claimant at the hearing before me.[6]The Claimant is a man now aged 51. The Claimant and his wife (Mrs J) had purchased no. 44 in December 1984, and lived in it as their matrimonial home. Their beneficial joint tenancy was severed in 1992 so that the Claimant could withdraw part of his share in the form of capital in order to start a business. At that time the mortgage on no. 44 was increased and the property was agreed to be held as to 12/43 for the Claimant and as to 31/43 for Mrs J. Mrs J left no. 44 in January 2005, when they separated.[7]Down to his bankruptcy in September 2007 the Claimant carried on a retail photoprocessing business, under a trading name which I shall refer to as “Photos”, at shops in Dover and Folkestone, both of which were leased. From about 2002 a third branch of that business was also carried on, directly or through the medium of a company, from premises at 65 H Street, Deal (“no. 65”), in circumstances which I refer to in more detail below in connection with the council tax benefit appeals. Owing to a deterioration in trading conditions the Claimant was in very severe financial difficulties by about September 2006, such that he needed if possible to raise additional capital in order to repay creditors.[8]There was substantial equity in no. 44, after allowing for repayment of the existing mortgage, and the transactions which took place in relation to no. 44 in December 2006 were designed to raise some money to enable the Claimant to pay some creditors and continue trading, while at the same time enabling him to continue living in no. 44.[9]As at December 2006 Mr J was the majority shareholder in a company which I shall refer to as SL Ltd. He had set this company up in May 2005 for the purpose of taking over a retail lighting business and running a closing down sale of that business. The company had been dormant since the winding down of that business (p.421). The 100 issued shares were owned as to 51 by the Claimant and as to 49 by another company (which I shall refer to as “Sales Ltd”). Sales Ltd. was by December 2006 carrying on the branch of the photography business at no. 65. Mrs. J managed this branch of the business until some time after she left the matrimonial home in January 2005, after which the Claimant ran it. The shares in Sales Ltd. were owned as to 98% by Mrs J and as to 2% by the Claimant.[10]As at December 2006 there was a mortgage of about £35,000 on no. 44 in favour of Northern Rock, and there was a valuation of it at £170,000. I accept the Claimant’s evidence that Mrs J was not willing to agree to any increase in the amount secured on no. 44, at any rate if it would mean increasing the amount of her potential liability. The Claimant, having seen an advertisement in a newspaper relating to a sale and rentback scheme, came up with the idea of a sale and leaseback transaction, with an increased mortgage from Capital Home Loans. The latter were willing to lend 85% of valuation, but their valuer valued the property at £155,000, meaning that Capital Home Loans would lend £131,000. On 23 December 2006 the Claimant and Mrs J executed a transfer of no. 44 to SL Ltd, for a consideration which was stated in the Transfer to be £170,000. Capital Home Loans paid £131,000 to SL Ltd by way of loan. After repayment of the existing mortgage of about £35,000, and payment by SL Ltd to Mrs J of a sum of £53,000 in respect of her beneficial interest, the Claimant received a sum of about £40,000, from the sale, which he used to repay certain creditors. That still left Mrs J short of some £38,000, on the basis of a sale price to SL Ltd of £170,000. I accept the Claimant’s evidence that that shortfall was dealt with by the issue of additional shares in SL Ltd.[11]Additional, non-voting shares in SL Ltd were issued as follows: 4401 to Sales Ltd, and 4500 each to Mrs. J, their son, their daughter, and the Claimant’s mother. However, the non-voting shares not issued to Mrs J were agreed to be held for Mrs J’s benefit. (p.426). These shares were in lieu of payment to her by SL Ltd of the part of the purchase price which was not paid. After the transaction the Claimant therefore retained voting control of SL Ltd, and he had throughout been and remained the sole director. I accept the Claimant’s evidence that the reason for the shares being issued to other persons as nominees was that if any individual had held more than 20% of the shareholding in SL Ltd, a personal guarantee from that individual would have been required by Capital Home Loans. As regards the documents, I would refer in particular to the solicitors’ completion statement at p.324.[12]In order to comply with the terms of the mortgage to Capital Home Loans (which was a “buy-to-let” mortgage), and to secure the Claimant’s continued entitlement to occupy no. 44, on 23 December 2006 a document was purportedly executed by which SL Ltd granted to the Claimant a tenancy of no. 44 for a term of 6 months from 23 December 2006, at a rent of £625 per month. The tenancy agreement was signed (as the Claimant told me in evidence) on behalf of S L Ltd by one of the staff who worked at the Folkestone branch of Photos, at the Claimant’s direction, and by the Claimant on behalf of himself. The Claimant told me that it did not seem appropriate that he should sign it on behalf of both parties. The rent of £625 per month was the rent which was advised by the valuer employed by the mortgagee to be appropriate.[13]On 19 January 2007 the Claimant made a claim for housing benefit (Claim A) in respect of the rent payable by him for no. 44. On 6 February 2007 the Council refused that claim, in reliance on reg. 9(1)(h) of the Housing Benefit Regulations 2006 (i.e. that the property had been owned by the Claimant within the previous 5 years). However, on 24 May 2007 the Council revised that decision to the effect that the refusal of the claim was based on reg. 9(1)(e) (i.e. on the ground that the Claimant was a director of SL Ltd, the landlord).[14]The Claimant appealed against that decision (Appeal A). On 7 August 2007 an appeal tribunal dismissed Appeal A. There was no doubt that the Claimant was at the material time a director (indeed the sole director) of S L Ltd, and the only ground on which the Claimant could have won the appeal was therefore to establish that his liability for rent “was not intended to be a means of taking advantage of the housing benefit scheme”, within the proviso to reg. 9(1)(e) contained in reg. 9(3) of the 2006 Regulations. The Tribunal found that the Claimant had not established that (the onus of doing so being clearly placed on him under the terms of reg. 9(3)). The Tribunal indicated, in its Statement of Reasons, that had it been necessary for the Council to rely on reg. 9(1)(h) to reject the claim, the Tribunal would have found that it was able to do so, because the Claimant had not shown that he could not have continued to live in no. 44 without disposing of it.[15]The Claimant was given permission to appeal to a Commissioner against the Tribunal’s decision of Appeal A, but after holding an oral hearing Mr Commissioner Pacey dismissed that appeal on 3 September 2008, holding that the Tribunal’s decision was not wrong in law.[16]Meanwhile, on 28 August 2007 (i.e. some 3 weeks after the Tribunal had dismissed Appeal A) the Claimant resigned as director of S L Ltd, which of course would mean that reg. 9(1)(e) would not apply in respect of any subsequent claim for housing benefit. Sales Ltd and a company which I shall refer to as Buildings Ltd (owned as to 50% by Sales Ltd and as to 50% by SL Ltd) were appointed as directors of SL Ltd. On 29 August 2007 the Claimant made a further claim for housing benefit in respect of his liability for rent in respect of no. 44.[17]Then on 11 September 2007 the Claimant was declared bankrupt on his own petition. A number of complex transactions were entered into at around the time of the bankruptcy intended to secure that after the bankruptcy the Claimant would be able to carry on, on his own account, the part of the photography business which had been carried on at no. 65. I refer to these in more detail below, in connection with the council tax benefit appeals.[18]On 12 September 2007 the Council refused the further claim for housing benefit, the refusal being based on reg. 9(1)(h). That decision was confirmed on reconsideration on 20 February 2008. The Claimant appealed (Appeal B).[19]On 12 November 2008 the first hearing of Appeal B took place, the Tribunal consisting of a legally qualified chairman and a financially qualified panel member. That hearing lasted a full day, during which lengthy evidence was given by the Claimant. The Council was represented. The hearing was adjourned part heard, and on 15 December 2008 directions were made for substantial further documentary evidence to be supplied by the Claimant.[20]A further hearing took place on 22 January 2009, at which the Claimant gave further evidence. That hearing was again adjourned, with directions for yet further documentary evidence to be provided by the Claimant.[21]A paper hearing then took place on 5 August 2009, at which the Tribunal dismissed Appeal B. It is against that decision that this appeal to me is brought. The Tribunal’s Decision Notice reads as follows:
“[The Claimant] is not entitled to housing benefit from 12 September 2007 [I think that that should probably have said 29 August 2007, which was the date of claim]. 1. [the Claimant] has not shown that he has a liability to pay rent in respect of [no. 44] from 12 September 2007. 2. If there is a liability to pay rent then [the Claimant] is treated as not liable to make payments in respect of the dwelling under the provisions of reg. 9(1)(h). 3. If that paragraph 9(1)(h) had not applied Regulation 9(1)(l) would apply so that [the Claimant] was not treated as liable to make payments in respect of this dwelling.”
[22]However, although in the Decision Notice the absence of liability for rent was put as the first ground for decision, the Tribunal said the following in paras. 67 to 70 of its Statement of Reasons:
“67. With effect from August 2007 [the Claimant] had divested himself of all his directorships and in its place appeared to appoint Companies as Directors of each other. This appeared to the Tribunal to be a device so that [the Claimant] could remain in control of his business whilst being debarred from being a Director and whilst subject to the bankruptcy. They appear to be shell companies and not independent entities. They were [the Claimant] in all but name. He controlled them. 68. The tenancy for [no. 44] was between [the Claimant] as the tenant and [SL Ltd] as the Landlord. It was not argued before the Tribunal that the tenancy itself was a sham. It was accepted by the Local Authority and tacitly by the Tribunal that there was a tenancy. For this reason the decision not to allow Housing Benefit is based on the provisions of Regulation 9(1) 69. In deliberating about the facts of this case the Tribunal was drawn to the conclusion that there was no actual liability to pay rent in respect of [no. 44]. The Tribunal had directed that the Tenancy Agreement be produced. The Agreement was not produced although in response to that direction [the Claimant] produced another Tenancy Agreement. It is not clear if this was an inadvertent mistake. It is accepted that there does not need to be a formal tenancy agreement although one would have been expected in this case. 70. [The Claimant] did not have the opportunity to fully argue the issue of whether there was a liability to pay rent in respect of [no. 44]. After the length of time [the appeals] took to hear, the Tribunal was reluctant in August 2009 to adjourn for a further hearing or to invite further submissions. The Tribunal therefore draws these matters to the parties’ attention as a further factor whilst relying for the purpose of dismissing [the Claimant’s] appeal upon the provisions of Regulation 9(1).”
[23]It appears that, in response to the Direction of the Tribunal on 15 December 2008 that a copy of the tenancy agreement in respect of no. 44 be produced, the Claimant had mistakenly produced a copy of a tenancy agreement relating to the maisonette at no. 65 (p.476). But no point on this seems to have been taken at the hearing on 22 January 2009, and in the papers before me there is now a copy of the tenancy agreement relating to no. 44 (p.637), which has a stamp on it which appears to indicate that it had been produced to and seen by the Council on 24 January 2007.[24]In my draft decision I stated that the First-tier Tribunal’s decision was in my judgment wrong in law in a number of respects, and would therefore have to be set aside. However, I indicated my provisional view that I should nevertheless substitute a decision having the same effect as that made by the First-tier Tribunal – i.e. that the Claimant was not entitled to housing benefit. I considered that reg. 9(1)(h) did not apply, but that reg. 9(1)(l) did, albeit for somewhat different reasons than those which had been relied on by the First-tier Tribunal.[25]At the hearing before me on 20 September 2010 Mr Barker handed in a typed submission or skeleton argument, in which it was contended that the Claimant was not entitled to housing benefit on the grounds that(1) the Claimant was not under any genuine liability to pay rent and(2) that reg. 9(1)(l) applied. Mr Barker accepted on behalf of the Council the findings and conclusion in my draft decision that reg. 9(1)(h) did not apply.[26]The Claimant’s attitude at the hearing was that he was ready and willing to deal not only with the issues under reg. 9(1)(h) and (l), on which I had made it plain in my provisional decision that I would be likely to substitute my own decision (rather than remitting the matter to a fresh tribunal), but also with the “no liability” issue.[27]I remind myself that the housing benefit decision under appeal was that made on 12 September 2007, relating to the claim made on 29 August 2007. The time period in respect of which the Tribunal was required to decide the Claimant’s entitlement to housing benefit was therefore that between 29 August 2007 and 12 September 2007.[28]I turn to explain why in my judgment the First-tier Tribunal’s decision was wrong in law, and to consider what decision I should substitute. The latter will involve making some findings of fact in addition to the primary ones set out above. Was the Claimant actually liable for rent in respect of his occupation of no. 44?[29]I have noted above that whereas the first ground of the First-tier Tribunal’s decision, as expressed in the Decision Notice, was that there was no liability to pay rent, it was stated in the subsequent Statement of Reasons that, although the Tribunal was of that view, the decision was not founded on that conclusion because the Claimant had not had the opportunity fully to argue the point. It follows, in my judgment, that if the Tribunal’s decision was wrong in law in relation to the reg. 9(1) issues, it must be set aside; it could not safely be left to rest on the “no liability” point.[30]Mr Barker submits that I should hold that the Claimant has no genuine liability to pay rent to SL Ltd, but in substance only a liability to pay the mortgage instalments to Capital Home Loans Ltd, for essentially the following reasons:(1) No. 44 is the only asset owned by SL Ltd.(2) In December 2006 the Claimant owned a majority of the voting shares in SL Ltd. All the non-voting shares, being the vast majority of the total share capital, were owned by or on behalf of Mrs Jull.(3) The Claimant was in December 2006 the only director of SL Ltd.(4) Mr Barker relied on the manner in which the tenancy agreement was signed.(5) The Claimant has given evidence that Mrs Jull is not interested in having anything to do with S L Ltd or her interest in it: (i) On p.7 of the typed transcript of the Record of Proceedings of the hearing on 12 November 2008 the Claimant is recorded as having said “effectively she does not want know. Through children she wants divest herself of her 100% interest. Now likely to be worth nothing on present house prices.” (ii) in a letter dated 18 February 2009 (p.634) the Claimant said:
“At the conclusion of divorce proceedings [Mrs Jull] wanted her name removed from everything so her shares are now held by [Buildings] in trust for the children.” (6) As the Claimant was at December 2006 the only director of, and owned the majority of the voting shares in, S L Ltd, there was no practical possibility of his obligations under the tenancy agreement being enforced, or of possession being sought against him. (7) The position was therefore in substance that the Claimant was claiming housing benefit, not in order to pay a genuine liability for rent, but in order to pay the sums due under the mortgage with Capital Home Loans. The social security system does provide mortgage support (via income support/employment and support allowance, or jobseeker’s allowance), but only for those fulfilling the conditions of entitlement to those benefits (which all apply only if the claimant is not in full time work), and with a less generous means test than the housing benefit taper. Section 130(2) of the Social Security Contributions and Benefits Act 1992 expressly provides that the “payments in respect of a dwelling” which can be prescribed as qualifying for housing benefit do not include “mortgage payments.”
[31]I consider first whether there is any point which could be taken as to the validity of the purported tenancy of no. 44, given the manner in which the tenancy agreement was executed. As noted above, it was purportedly executed on behalf of SL Ltd by one of the Claimant’s employees. Section 36A of the Companies Act 1985 (since replaced, with effect only from 6 April 2008, by s.44 of the Companies Act 2006) required a document to be executed by a director and the secretary or by two directors.[32]However, a grant of a tenancy for less than 3 years does not require to be in writing; it can therefore be granted orally. By s.36 of the 1985 Act a contract could be made on behalf of a company by any person acting under its authority, express or implied, and with the same formalities as apply to a contract of that nature made by an individual. The Claimant clearly had authority to enter into a contract on behalf of the company, and it is in my view no objection, as regards formal validity, that the other party was the Claimant himself. Subject to Mr Barker’s points about the tenancy not being genuine, the grant of the six month term was therefore in my judgment valid. Even if it had not been, the payment by the Claimant to SL Ltd of rent would have given rise at least to a periodic tenancy.[33]I think that, as a matter of legal analysis, Mr Barker’s submissions which I summarised above amount to a contention that(i) the purported tenancy (or at least the obligation to pay rent) must be disregarded on the ground that it was a “sham” and/or(ii) that a court would “pierce the corporate veil” and treat SL Ltd as being the Claimant for these purposes.[34]The generally accepted definition of a “sham” transaction is that in Snook v London and West Investments [[1967] 1 All ER 518 and 528, where Diplock LJ said:
“I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. …….[f]or acts or documents to be a “sham”, with whatever legal consequences flow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.”
[35]In my judgment it is not possible to find that either the tenancy or the obligation of the Claimant to pay rent were a “sham”. The Claimant and Mrs Jull could not simply remortgage no. 44 themselves, because Mrs Jull was not willing to undertake any further liability. The Claimant’s evidence to me, which I accept, was that his overriding objective was to raise additional funds quickly in order to stave off bankruptcy. I accept his evidence that if, by about October 2006, he had been able to sell no. 44 quickly with vacant possession he would probably have done so, even though it would have meant giving up occupation of it. He then saw an advertisement which alerted him to the possibility of a sale and leaseback transaction. It was necessary to transfer no. 44 to a company so that it could undertake the mortgage liability. As the money would be lent by the mortgagee on the basis that the property would be let, there would have to be a tenant, and conveniently the Claimant was the obvious tenant. I further accept the Claimant’s evidence that Mrs Jull was aware of and agreed to the fact that part of her equity in the property would not be realised but would in effect be converted into a shareholding in the company. Her wish to have nothing further to do with this was expressed only later, by which time the value of no. 44 had fallen.[36]It cannot in my view be said that there was no intention on the part of either the Claimant or Mrs Jull that there should in reality be a tenancy, or a liability to pay rent. It was part of the terms on which the money was lent by Capital Home Loans that the property would be let, and all parties intended that there should be a tenant under a genuine tenancy. I accept that, as things then stood , the Claimant was in a position to ensure that it was unlikely that the obligations under the tenancy would be enforced. However, that is not in my judgment the same as saying that the tenancy was a sham. If, for example, S L Ltd were to go into liquidation, the liquidator would be able to enforce the tenancy obligations, including making a claim for any arrears of rent. When the Claimant went bankrupt, his shares in S L Ltd vested in his trustee in bankruptcy, who could have procured the taking of steps by the company to enforce the tenancy obligations.[37]The position is not that far removed from that in a line of cases concerned with the position where a tenancy of a dwelling was granted to a company, with the intention that it be occupied by the owner of the company, in order to prevent security of tenure under the Rent Acts from arising. It has been held that provided that there was a genuine intention to let to the company (which would necessarily be so in the landlord’s case), the interposition of the company could not be regarded as a sham: Hilton v Plustitle [1988] 3 All ER 1051.[38]However, even if it were possible to disregard the tenancy on the ground that it was a sham, that alone would not, it seems to me, mean that the Claimant has no liability which can give rise to a claim for housing benefit. Under reg. 12(1) of the 2006 Regulations “the periodical payments which a person is liable to make in respect of the dwelling which he occupies as his home”, in respect of which housing benefit can be payable, include not only “(a) payments by way of rent” but also “(c) payments by way of mesne profits” and “(d) payments in respect of, or in consequence of use and occupation of the dwelling.” Even if the tenancy was a sham, the fact remains that title to no. 44 was vested in S L Ltd, not the Claimant. On that footing, the Claimant was in occupation with the consent of the company, and on well-established principles of property law he would be liable to pay, by way of payments for “use and occupation”, a reasonable rate in respect of his occupation.[39]That conclusion could in my judgment only be avoided if it were possible to “pierce the corporate veil” and to treat S L Ltd as being in effect the Claimant, with the result that the Claimant’s liability was in substance to pay the mortgage instalments, not to pay rent (or compensation for use and occupation). As to piercing the corporate veil, I would refer generally to Halsbury’s Laws, Vol. 7(1), para. 402. I do not see how the doctrine of piercing the corporate veil can apply in the present case. First, it was clearly essential to the December 2006 transactions that S L Ltd should be a person different from the Claimant (or the Claimant and Mrs Jull). Given that Mrs Jull would not enter into any further liabilities, and that the additional mortgage was to be on a “buy to let” basis, it was necessary to transfer the property to a company so that it could grant the mortgage to Capital Home Loans, and could then let the property. Capital Home Loans clearly intended to lend money to, and be granted a mortgage by, S L Ltd, not the Claimant (or the Claimant and Mrs Jull). S L Ltd was intended to be and became the registered proprietor of no. 44. Further, the Claimant was not the only person interested in S L Ltd. Mrs Jull had the overwhelming majority of the shares. That was deliberate, and was way of payment for the part of her share in the equity in no. 44 which the company was not able to pay to her with the remortgage proceeds. Given that there was a genuine intention that Mrs Jull should own almost the entirety of the share capital, I do not see how the company can be treated as the alter ego of the Claimant. Regulation 9(1)(h)[40]Regulation 9(1)(h) provides (so far as directly material) that a person who is liable to make payments in respect of a dwelling shall be treated as if he were not so liable where – “(h) he previously owned ….. the dwelling in respect of which the liability arises ……. , save ….. where he satisfies the appropriate authority that he …… could not have continued to occupy that dwelling without relinquishing ownership.”[41]The question is therefore whether the exception at the end of reg 9(1)(h) applies. The First-tier Tribunal decided that it did not, and therefore that reg. 9(1)(h) defeated the Claimant’s claim to housing benefit. My draft decision was to the effect that the Tribunal erred in law in reaching that conclusion, and further that I should on the evidence substitute a decision that the exception did apply. In argument before me Mr Barker accepted on behalf of the Council that no other finding was reasonably possible. I should, nevertheless, explain why I have reached that view, as it is of some relevance to other issues.[42]I turn first to consider whether The First-tier Tribunal’s decision of the reg. 9(1)(h) issue was wrong in law. It is clearly necessary to read the Tribunal’s detailed and generally careful Statement of Reasons as a whole, but the paragraphs most crucial to this issue are in my view paras 41 to 43, and 49 to 51.[43]One of the Claimant’s grounds of appeal is that some of the Tribunal’s findings in para. 41, relating to the sale of no. 44 to SL Ltd, and the change in SL Ltd’s share capital, are incontrovertibly wrong. It is apparent, from comparing para. 41 with the findings which I have made, that the Tribunal’s findings were a potentially misleading summary of what occurred. I do not find it necessary to decide whether I would have set aside the Tribunal’s decision on that ground alone.[44]In my view the most substantial respect in which the Tribunal went wrong in law, in relation to reg. 9(1)(h), is that it did not sufficiently consider and deal with the Claimant’s contentions(i) that he was in effect forced into disposing of no. 44 in order to raise additional capital and thus stave off the risk of being made bankrupt and(ii) that if he had been made bankrupt his beneficial interest in no. 44 would have vested in the trustee in bankruptcy, and no. 44 would have been disposed of by the trustee in bankruptcy, so that the Claimant would have ceased to be entitled to occupy it.[45]In para. 51 the Tribunal emphasised (as was common ground) that there was no pressure from the mortgagee of no. 44, there being no evidence of significant mortgage arrears, and that there was no pressure from Mrs Jull (who held part of the beneficial interest) to sell. However, in my view it is clear that the “practical compulsion to sell”, which is referred to as a necessity in the decided cases on reg. 9(1)(h), need not necessarily come from a mortgagee of the home, or from another beneficiary. It can also arise in other ways. I do not see why, if the reason for selling the home is to raise capital, and if that is the only way of being able to continue to trade, and thereby hopefully avoid bankruptcy, with consequent loss of the home, that cannot be said to give rise to the necessary practical compulsion.[46]In para. 42 the Tribunal recognised that the December 2006 transactions “arose out of the financial difficulties [the Claimant] found himself in ….. The Tribunal accept that from at least 2006 onwards steps were taken by [the Claimant] to mitigate his financial difficulties and to forestall bankruptcy …” In para. 50 the Tribunal stated that the transactions “deferred the risk of potential bankruptcy.” However, the Tribunal also found (para. 49) that “it was a conscious decision on the part of [the Claimant] to sell the property in December 2006. He was not forced into the situation and could have continued to occupy the property as owner at that time” and (para. 50) that “he made a conscious decision to sell the property to [SL Ltd] as it gave him maximum financial advantage at that stage to do so.”[47]The Claimant’s evidence and contention (see pp.432-3) was that if the December 2006 transactions had not been entered into, and the Claimant had been made bankrupt shortly thereafter, his beneficial interest in no. 44 would have vested in the trustee in bankruptcy, and no. 44 would probably have been sold with vacant possession. (In so far as that is a statement of law, it is right: the Claimant’s beneficial interest, although not his legal estate, would have vested in his trustee in bankruptcy: s.283(1) and (3) of the Insolvency Act 1986). The Tribunal made no express reference to that contention, nor did it refer in terms to the Claimant’s evidence that the sum which he received from the sale and remortgage of no. 44, in respect of his share of the beneficial interest, enabled him to continue trading for longer than would otherwise have been the case. The Tribunal, in finding that the Claimant could simply have continued to occupy without selling, did not in my judgment sufficiently deal with the Claimant’s contention.[48]If the Tribunal was intending to hold that the factors which the Claimant relied upon were not capable of constituting circumstances which meant that he could not have continued to occupy without relinquishing ownership, it was in my judgment wrong as a matter of law. The fact that the Claimant made a “conscious decision” to sell did not detract from his case, if there was no alternative reasonably open to him.[49]I would add that the Tribunal’s statement, in para. 51 of the Statement of Reasons, that the Claimant “perhaps could have re-mortgaged without selling ….” was contrary to the Claimant’s evidence (p.69) that this route was not open because Mrs J was unwilling to agree to any increase in a mortgage for which she was responsible. The Tribunal therefore in my judgment further erred in law in not stating any basis for this finding, a finding which seems to have been of some importance, in the overall scheme of the Tribunal’s reasoning.[50]Mr Barker accepts, and I so find, that by December 2006 the Claimant’s financial position was such that if he had not been able to raise the additional funds which were realised from the sale and leaseback transaction, he would have gone bankrupt shortly thereafter, with the consequent loss of his home. I would refer, in support of that conclusion, to the Statement of Affairs (admittedly as at a slightly later date) showing a deficiency of assets over liabilities of some £265,000, and credit card debts of £163,396 (p.584). I find that by December 2006 the Claimant could not have continued to occupy no. 44 for anything more than a very short period without relinquishing ownership, and therefore that reg. 9(1)(h) did not disentitle the Claimant to housing benefit. Regulation 9(1)(l)[51]Regulation 9(1)(l) applies where “in a case to which the preceding sub-paragraphs do not apply, the appropriate authority is satisfied that the liability was created to take advantage of the housing benefit scheme ….”[52]The Claimant’s evidence is that although, at the time of the December 2006 transactions, he was aware of the existence of housing benefit, he had no thought of claiming it, and that the possibility of claiming only occurred to him when in January 2007 he requested a form for claiming the single person’s discount for council tax, and found that it was in fact a form for claiming housing and council tax benefit. The Tribunal rejected that evidence, saying:
“The Tribunal did not find this evidence credible. [The Claimant] was clearly an experienced and intelligent businessman who had been running a series of businesses. He was alert to financial opportunities and it is not unreasonable to have expected that he would have known about the possibility of applying for Housing Benefit. Indeed he did so initially in January 2007 shortly after completing the transfer of the property into the name of [SL Ltd].”
[53]The essence of the remainder of the Tribunal’s reasoning in relation to regulation 9(1)(l) is in paras. 53 to 58 of the Statement of Reasons, which again I shall not set out in full in this decision. It is really encapsulated in para. 58:
“The Tribunal concluded that the evidence was that it was a conscious decision on the part of [the Claimant] in December 2006 to sell the property to a Company which he controlled which would allow him to take a lease back and to claim housing benefit. Saving the home for himself may be one of his motives but a dominant feature was that he could claim Housing Benefit and by doing so mitigate his financial difficulties.”
[54]Although in that paragraph the Tribunal said that the intention to claim housing benefit was “a dominant feature”, earlier, in para. 55, the Tribunal said that “ the dominant purpose of the Landlord and Tenant entering into the Agreement to rent the property was to allow the tenant to claim Housing Benefit.” (My emphasis).[55]In my judgment, the Tribunal’s reasoning and decision in relation to reg. 9(1)(l) were wrong in law, for the following reasons.[56]First, the Tribunal did not in my judgment sufficiently indicate that, in finding (paras. 55 and 58) that obtaining housing benefit was the (? a) dominant purpose of the arrangements, it had taken into account the Claimants evidence that his overriding intention, by obtaining a remortgage of no. 44 through SL Ltd, was to obtain a capital sum with which to pay debts, and thus to avoid going bankrupt. No mention is made in the Statement of Reasons of what sum the Claimant received, or what was done with it.[57]Secondly, one cannot in my judgment avoid the inference that the Tribunal’s decision in relation to reg. 9(1)(l) was heavily influenced by its conclusion (para. 67) that the companies were “shell companies and not independent entities. They were [the Claimant] in all but name. He controlled them.” It seems to me that it must follow almost as of course that it is an abuse of the housing benefit scheme for a tenant to claim housing benefit in respect of an alleged liability for rent which is in substance being paid to his own company. However, in my judgment the Tribunal did not sufficiently explain on what basis it found that the companies (and in particular SL Ltd). were simply emanations of the Claimant, so that the corporate veil could in effect be pierced. I have decided above that that was not a conclusion which was reasonably open on the evidence.[58]Linked with this point is a related natural justice point. Part of the Tribunal’s reason for concluding (para. 69) that there was no actual liability to pay rent in respect of no. 44 seems to have been that the landlord was simply the Claimant’s alter ego. (That was the express basis on which it found in para. 71 that there was no liability on the Claimant to pay rent in respect of no. 65 to the LLP). Although the Tribunal expressly stated in para. 70 that it did not base its decision that there was no entitlement to housing benefit on the absence of a liability for rent in respect of no. 44, it is apparent from the Decision Notice (p.635) that the first ground for its decision was in fact that there was no rental liability. If it was not right, on natural justice grounds, to make such a finding, it seems to me that it was very probably a breach of natural justice to rely, in relation to reg. 9(1)(l), on a finding that there was in effect no distinction between the Claimant and the companies, that being really the basis of the conclusion that there was no rental liability.[59]In my draft decision I stated my provisional view that I should, however, substitute a decision to the same effect as that made by the Tribunal, based on the conclusion that reg. 9(1)(l) did apply. Mr Barker submitted that my reasoning was correct, but the Claimant challenged it. I have come the conclusion, on further consideration in the light of the argument, that my provisional views were wrong.[60]It is helpful to examine, in particular, two decisions of the Court of Appeal, albeit on the regulations in their previous form. It is well established that the words “the liability was created to take advantage of the housing benefit scheme” carry the connotation of something in the nature of an abuse of the scheme. In R v Solihull MBC ex p Simpson [1995] 1 FLR 140 Kennedy LJ referred to Sedley J’s statement at first instance that the purpose of the former reg. 7(1)(a), (b) and (c) was “to shut out certain arrangements which, in the Secretary of State’s view, amount to an abuse of the system” and added:
“I believe that to be a correct approach, provided that abuse is not equated with bad faith on the part of the applicant. Bad faith would, of course, be persuasive evidence of abuse, but the appropriate authority might in some cases properly conclude that there was a breach of the [the ]regulation without it. In other words, the use of the words “take advantage” shows that at least in the eye of the beholder there has to be conduct which appears to some extent improper. Mr Croxford submitted that [the regulation] can properly be invoked, when taking advantage of the housing benefit scheme is an applicant’s dominant purpose when taking out a particular tenancy, as opposed to the reasonable satisfaction of his housing needs. I would not disagree with that ……”
Earlier, Kennedy LJ had said that:
“it is commonplace for persons of limited means to enter into tenancies in the expectation of obtaining housing benefit, and [the Regulation] is clearly not intended to enable benefit to be refused to all such applicants on the basis that their liability to make payments has been created to take advantage of the housing benefit scheme.”
[61]In R v Stratford upon Avon Borough Council ex p. White (1998) 31 HLR 126, Otton LJ, having referred to those statements of Kennedy LJ, said:
“Clearly if there is evidence from which the Council can infer that there was an abuse of the system, or that the applicant had behaved improperly through bad faith then they could readily infer that the liability had been created to take advantage of the Housing Benefit scheme. ………. In my judgment the precise language of [the Regulation] indicates that there must have been some purposive conduct on the part of those seeking to benefit, the liability must appear “to have been created to take advantage”
. This connotes that something has been contrived or devised for the purpose of taking advantage of or exploiting the scheme. There is no evidence to suggest that Mr White (and, I would add, the landlord) has behaved in such a manner or been motivated by any dubious ingenuity to create the liability. Thus the Council could not reasonably have concluded that the liability had been created to take advantage of the scheme.” Peter Gibson LJ said:
“The answer, in my opinion, lies in giving to the words “take advantage” its common meaning of avail oneself unfairly or improperly. R v Manchester City Council, ex p. Baragrove Properties Ltd is an example of taking advantage in that sense, a landlord deliberately targeting tenants exempt from rent restriction to charge rents many times higher than the market rents. What must be focused on …. is the purpose of the creation of the liability …..”
[62]In my draft decision I reasoned that because the period in issue for housing benefit purposes fell after the termination of the six month fixed term tenancy, the “liability” to which reg. 9(1)(l) was referring was the liability for rent under the statutory periodic tenancy which on the facts of this case had arisen, by virtue of s.5(2) of the Housing Act 1988, on the termination of the fixed term tenancy. I therefore concluded that the Tribunal had been looking at the Claimant’s intention at the wrong time. I further stated as follows:
“Taking the arrangements at face value, the position by the end of August 2007 was that the Claimant was liable for rent to a company which required the rent in order to pay the capital and interest under the mortgage of the freehold. That company was beneficially owned, as to almost the entirety of the share capital, by the Claimant’s wife. If the Claimant himself had been the owner of the vast majority of the share capital, there would in my judgment have been a clear abuse in that the Claimant would have been claiming housing benefit with the intention that it be paid, by way of rent, to his own company and used by it to defray the mortgage instalments. The purpose of housing benefit is to enable a claimant to satisfy what is a genuine rental liability, not in substance to enable him, or a company which he owns, to pay instalments under a mortgage of the freehold. I do not think that the position is any different, save perhaps in exceptional situations, where the freeholder is the Claimant’s wife, or a company which she owns. The assets of a claimant and his wife, living together with him, are aggregated for housing benefit purposes, and it does not seem to me that a distinction should be drawn between the two, for present purposes. In the present case the Claimant and his wife had of course ceased living together in January 2005, but it does not seem to me that that makes a difference. The Claimant and his wife were each potentially directly interested in the other’s financial position, by virtue of the Court’s potential powers to make ancillary orders on divorce. Mrs J in fact began divorce proceedings at the beginning of 2008. In my view it was an abuse of the housing benefit system to claim housing benefit for the purpose of it being paid to a company which was in the near 100% ownership of his own wife, and used by that company to pay the instalments on a mortgage of the freehold. Again, the purpose of the housing benefit scheme is to enable a tenant to pay rent, and not in substance to enable a tenant or his wife to pay the sums due under a mortgage of the freehold.”
[63]As I have said, Mr Barker on behalf of the Council supported that reasoning. However, I accept the Claimant’s contention that my provisional view was wrong in that it treated as an abuse something which could have been expressly included in one of the other sub-paragraphs of reg. 9(1), but which has not been. In particular, reg. 9(1)(e) deals with cases in which the liability for rent is to a company of which specified persons (e.g. the claimant, his partner or former partner) are a director or employee . Ownership of shares in the landlord company is not brought within the ambit of reg. 9(1)(e) (or any of the other sub-paragraphs). That is to be contrasted, perhaps, with the case of trusts, where under reg. 9(1)(e) the specified persons must be neither trustees nor beneficiaries. Furthermore, even where reg. 9(1)(e) applies, it will be disapplied if the claimant “satisfies the appropriate authority that the liability was not intended to be a means of taking advantage of the housing benefit scheme”, indicating that the factual situations described in reg. 9(1)(e) are not necessarily an abuse.[64]It is not in my judgment permissible to reason that the Claimant’s undoubted intention, by the time when the liability under the statutory tenancy came into being, to claim housing benefit so that it could be paid to a company owned principally by his wife, amounted in and of itself to an intention to “take advantage” of the scheme. To do so would in effect amount to adding an additional case to the specific ones itemised, in considerable detail, in reg. 9(1), and without the possibility of the escape route in reg. 9(3). It is material here to note the background to the enactment, with effect from 1 January 1999, of the amendments to what is now reg. 9. The background is referred to in the decision of the Court of Appeal in Campbell v Northamptonshire DC [2004] EWCA Civ 409 ; R(H) 8/04, at paras. 40 to 49. In particular, it was proposed that there should be a provision that a person should be treated as not liable to make payments where the appropriate authority was satisfied that “the substance of the liability amounts to an abuse of the housing benefit scheme”, and that without prejudice to the generality of that provision certain specific situations should be set out as falling within it. However, it was objected that the reference to “abuse” would be too uncertain, and in the result that wording was not included, and the approach adopted was that the situations specifically falling within what is now reg. 9 were extended and defined in more detail.[65]One cannot in my judgment say that there was in principle necessarily something in the nature of an abuse in an arrangement of the nature adopted in the present case. In any event, I would accept the Claimant’s evidence to me that, although he was theoretically potentially interested, by virtue of the Court’s powers on divorce, in the value of his wife’s shareholding in S L Ltd, the December 2006 arrangements were viewed by the Claimant and his wife as part of an agreed process of splitting up their assets.[66]I have already found that the Claimant’s overriding intention, in December 2006, was to raise additional cash in order to attempt to avoid bankruptcy. That involved a sale to a company and the grant of a “buy to let” mortgage. I further accept the Claimant’s evidence to me that the fact that he could be the tenant, and so retain occupation, was a welcome spin-off – i.e. a somewhat secondary, but nevertheless important consideration. I do not feel it necessary to make a finding as to whether he had the intention, at the time of the grant of the tenancy, to claim housing benefit. If he did, then in my judgment it was a consideration very much secondary, and incidental to, the more important purposes of(i) raising cash with which to pay creditors and(ii) enabling him to continue to occupy no. 44.[67]In the light of those findings it is my judgment impossible to find that the fixed term tenancy was created in order to take advantage of the housing benefit scheme. The transactions were not carried out in the form in which they were for the purpose of claiming housing benefit. I infer, on the basis of the Claimant’s evidence, that they would have been carried out in that form even if there had been no possibility of claiming housing benefit.[68]That being so, the position is not in my judgment altered by the fact that the liability for rent in respect of which housing benefit is claimed arose, not under the fixed term tenancy, but under the statutory tenancy. It would in my judgment be wholly artificial to say that, even though the original fixed term tenancy was not created to take advantage of the housing benefit scheme, the position changed when, as had been intended at the time of the grant of the fixed term tenancy, the Claimant remained in possession when it expired, and continued to pay rent under the statutory periodic tenancy which then arose. The only thing which may have changed is that by that time the Claimant obviously did have an intention to claim housing benefit, and indeed caused himself to be replaced as a director so that he would not fall within reg. 9(1)(e). But in my judgment the liability under the statutory tenancy was no more created in order to take advantage of the housing benefit scheme than the liability under the fixed term tenancy had been.[69]In para. 14 of CH/3008/2002 Mr Commissioner (as he then was) Jacobs referred to the possibility of the liability under a statutory tenancy having been created to take advantage of the scheme, even though the liability under the fixed term tenancy had not been. Whilst recognising that that may be a realistic possibility in some (although I should have thought rare) cases, it is not in my judgment a realistic one here. Conclusion in relation to the housing benefit appeal[70]The Claimant’s appeal in respect of housing benefit therefore in my judgment succeeds. The Claimant was liable, and did not fall to be treated by reg. 9(1) as not liable, for rent in respect of his occupation of no. 44. The Council Tax Benefit appeals.[71]The decisions under appeal to the First-tier Tribunal in respect of council tax benefit (CTB) were made on 12 September 2007 and 20 February 2008. In each case the decision was that the Claimant was not entitled to CTB. The first decision was originally on the basis that the Claimant had not provided sufficient evidence of his self-employed income. The second decision was on the basis that, on the information which he had by then provided, his self-employed income was too high to enable him to qualify for CTB, because rent which he claimed to be paying in respect of business premises at no. 65 could not be deducted in calculating his income.[72]As I understand it the Council has revised its original decisions to the effect that maximum CTB has been awarded for the period from the beginning of the claim down to 5 October 2008. That latter date is of course well after the later of the two decisions which were under appeal to the First-tier Tribunal.[73]However, the particular issue, argued before me, relating to the rent for no. 65, would appear to be still relevant for CTB in relation to later periods, and may be material to the calculation of housing benefit. I therefore propose to deal with it.[74]The Council’s position is that, in computing the Claimant’s income, what is allowable is the interest payable under a mortgage of the freehold of no. 65, and not the higher amount of what the Claimant says is rent payable by him under a tenancy of no. 65. The First-tier Tribunal’s Decision Notice dismissed the appeal and added:
“In assessing his income no deduction shall be made from his gross income for business rent. It has not been established that he has a liability to pay that rent. The rent payment is effectively a payment to himself.”
[75]In para. 71 of the Statement of Reasons the Tribunal explained that decision as follows:
“[The Claimant] produced evidence of his business income and expenditure but did not satisfy [the Council] that there was a liability to pay rent in respect of the business premises in respect of [no. 65 H] which was purchased in 2002 by [the Claimant] and sold to [the LLP] in August 2007. Again the Tribunal took the view that [the LLP] was in fact [the Claimant] and that there was no liability upon him to pay the rent to his own limited liability partnership. For this reason the Tribunal was satisfied that the decision taken on 20 February 2008 …..was correct. In assessing his business net income no deductions should be made in respect of business rent for [no. 65 H].”
[76]In paras. 62 to 66 of the Statement of Reasons the Tribunal had referred to the action which the Claimant took at around the time of his bankruptcy, including the setting up of the LLP, and concluded in para. 67 as follows:
“With effect from August 2007 [the Claimant] had divested himself of all his directorships and in its place appeared to appoint Companies as Directors of each other. This appeared to the Tribunal to be a device so that [the Claimant] could remain in control of his business whilst being debarred from being a Director and whilst subject to his bankruptcy. They appear to be shell companies and not independent entities. They were [the Claimant] in all but name. He controlled them.”
The events in relation to no. 65[77]The Claimant’s evidence as regards these events can be summarised as follows. I stress that what I am setting out is his evidence, as opposed to my findings, although I shall in some instances refer to documentation on which the Claimant relies.[78]The Claimant purchased no. 65 on 23 August 2002 for the sum of £350,000 [CTB p.41], of which the majority was borrowed from Barclays Bank (later replaced by Commercial First Business Ltd) on mortgage. He was registered as proprietor on 19 September 2002.[CTB p.75]. The Claimant’s mother provided part of the purchase price. The Claimant’s evidence as to the terms on which she did so has on the face of it not been wholly consistent. In evidence to me he said that she provided 21% of the purchase price, partly by way of gift and partly by way of loan. The Claimant provided to the Council in July 2007 a copy of a document [CTB p.74], purportedly “signed as a deed” by him, in the following terms:
“By an agreement made on 20 September 2002 in consideration of certain monies advanced to assist with the purchase of the property known as [no. 65] [the Claimant] charges the said property by way of legal mortgage to [the Claimant’s mother] ….as security for the payment of 21% of any sale proceeds of the said property should a sale occur during her lifetime.”
[79]That charge was not registered until 6 September 2007 [CTB p.77]. In information provided to the Council in May 2007 [CTB p.65] the Claimant said that his mother had lent £49,999, but in information supplied in relation to his bankruptcy [p.525] he stated that his mother was owed £90,300 in respect of no. 65.[80]No 65 was purchased to enable the carrying on in Deal of a third branch of the Claimant’s photographic business, the other two being already established in Dover and Folkestone. The Deal branch was managed primarily by the Claimant’s wife until some time after she left the matrimonial home at the beginning of 2005.[81]By 2004 the Claimant was beginning to struggle financially, and in order to raise funds the Claimant sold the tangible assets of the photographic business located in no. 65 to a finance company, which then leased them back to Sales Ltd, which had until then been dormant. Sales Ltd was owned as to 98% by Mrs Jull and as to 2% by the Claimant. The directors were at this time the Claimant and Mrs Jull.[82]The Deal business was then carried on in the name of Sales Ltd, and that company agreed to pay the Claimant a rent of £2200 per month for its occupation of no. 65, but no written lease or tenancy agreement was entered into. In information provided to the Council in May 2007 [CTB p.66] the Claimant stated that no. 65 was subject to a tenancy in favour of Sales Ltd which commenced on 1 September 2005, at a rent of £2200 per month.[83]The accounts of Sales Ltd drawn up by the Claimant [p.158] show that company as trading from about August/September 2005 and paying rent of £24,200 per annum.[84]In addition, the Claimant’s evidence is that in early 2005 [CTB p.241] he granted Sales Ltd. an option to purchase no. 65. He says that this was done by means of a document, although it has not been produced in evidence. He told me in evidence that the option was granted in order to ensure that Sales Ltd did not get a “poor bargain.”[85]Although Mrs Jull left the matrimonial home in January 2005, she did not leave the business until much later in the year.[86]At around the time of the Claimant’s bankruptcy in September 2007 the following transactions and events took place. In order to preserve Sales Ltd’s right to occupy no. 65 a limited liability partnership (“the LLP”) LLP was incorporated as a vehicle to enable Sales Ltd. to become the beneficial owner of no 65 pursuant to an exercise of its option to purchase, but without payment of some £30,000 stamp duty which would have become payable if Sales Ltd itself had become the owner. The legal title remained in the Claimant so that no early redemption penalty or new lending fee would have to be paid to the mortgagee.[87]The initial members of the LLP were Sales Ltd, Buildings Ltd, and the Claimant. The Claimant’s daughter and son were then appointed as members of the LLP, the latter only for a short period. The Claimant’s daughter was only a member of the LLP so that she could be a related party – she has a nominal £1 interest in it. Buildings was there to be a second designated member. All else belongs to Sales Ltd. The LLP stands in the place of Sales Ltd, and was only necessary in order to avoid the costs (stamp duty, and fees which would otherwise have become payable to the mortgagee) referred to above.[88]At p.323 is a copy of a document (“the Declaration of Trust”) signed by the Claimant in the following terms:
“This deed is to witness that with effect from 31 August 2007 the freehold shop and maisonette property known as [no. 65] is beneficially owned by [the LLP] of [no. 65], jointly and severally by its members and held in the name of [the Claimant] only in trust for and on behalf of [the LLP]. Monies due to be paid to meet the requirements of the extant mortgage held by Commercial First Business Ltd ….. remain the responsibility of [the Claimant] and regardless of any monies paid or provided to or on behalf of [the Claimant] by [the LLP] it takes no legal liability for monies due to Commercial First Business Limited other than in the case of a sale of the property as provided by the terms of the said mortgage. The property also remains subject to the extant mortgage held by [the Claimant’s mother] and [the LLP] will account to her for any monies contingently due to her upon a sale of the property. It is held that this deed and the underlying transaction do not constitute a sale within the meaning of the terms of that mortgage. The terms of the agreement dated 1 March 2003 between [Sales Ltd] and [the Claimant] and the options available to either party thereunder remain in place and this deed does not affect their enforceability under that agreement.”
[89]This document was drafted by the Claimant without legal advice. The document does not state on what date it was signed, but in information provided in connection with his bankruptcy the Claimant stated that the LLP became the owner on 28 August 2007. [p.545].[90]The Claimant was intending that, on his bankruptcy, he would obtain leave to act as a director of Sales Ltd, and the business at no. 65 would continue to carried on by that company. However, it did not prove to be possible to get such an application heard at the same time as the bankruptcy petition, and so the Claimant carried on the business as sole trader. The Claimant describes himself as renting the assets from Sales Ltd [p.632, and evidence to me].[91]The businesses which the Claimant had carried on at Folkestone and Dover under the trading name Photos had ceased trading at or before the bankruptcy, and the trustee in bankruptcy apparently disclaimed the leases of those shops. The accounts prepared by the Claimant show him as trading from no. 65 under that name from 12 September 2007 [p.551].[92]The District Valuer valued no. 65 at £450,000 as at 7 June 2007 [CTB p.73]. The Claimant’s estimate of value in May 2007 had been £385,000 to 400,000 [CTB p.70]. The amount owed to Commercial First, secured on no. 65, was some £350,000 as at February 2007 [CTB p.62].[93]I do not think that it is necessary for me to decide precisely to what extent I accept the Claimant’s evidence. Even accepting the entirety of the Claimant’s evidence at face value, I am not satisfied that the Claimant has established that he has been liable to make any payment by way of rent in respect of his occupation of no. 65 since the bankruptcy, for the following reasons.[94]It must be emphasised that the Claimant has throughout been the registered proprietor of no 65, and that he is the person who is contractually liable to make the payments to the mortgagee. His contention is therefore that he is liable to pay rent, or at least some form of payment, in respect of property in which he holds the legal title.[95]First, I am not satisfied that the Declaration of Trust was, as a matter of construction (and ignoring the point referred to in the next paragraph below), effective to declare a trust of no. 65 in favour of the LLP, for at least two reasons. First, the second paragraph of the document states that the Claimant remains liable to pay the monies due under the very substantial mortgage with Commercial First Business Ltd. That seems to me to be completely at odds with a suggestion that the LLP has become the beneficial owner of no. 65. The document does not state that the LLP (or Sales Ltd) is liable to indemnify the Claimant against any such payments. Secondly, the statement in the last paragraph of the document that the terms of the agreement dated 1 March 2003 between Sales Ltd and the Claimant (i.e. presumably the agreement granting the option to purchase) remain in place is completely at odds with the Claimant’s evidence that the LLP became the beneficial owner of no. 65 by way of the exercise by Sales Ltd of its option to purchase.[96]Secondly, at the date on which the Declaration of Trust was stated to take effect (31 August 2007) the LLP had not been incorporated. The application for incorporation of the LLP was signed on 28 August 2007 [p.370], but the LLP was not incorporated until 14 September 2007 [p.368]. Even if, had the Claimant not been declared bankrupt on 11 September, the declaration of trust would have taken effect immediately on the incorporation (which I do not need to decide) the effect of the bankruptcy order was that the Claimant’s interest in no. 65 vested in the trustee in bankruptcy. The Claimant then had no power to declare a trust in favour of the LLP. On the Claimant’s evidence the position immediately before his bankruptcy on 11 September 2007 was that there was an executed declaration of trust in favour of the LLP which had been incapable of taking effect because the LLP did not yet exist. It seems to me that the bankruptcy and the consequential vesting of at least the beneficial interest in no. 65 in the trustee in bankruptcy prevented the declaration of trust from subsequently taking effect, if indeed it would otherwise have done.[97]In my judgment, therefore, on the evidence before me, for both the reasons set out above the purported declaration of trust did not operate to pass the beneficial interest in no. 65 to the LLP. The Claimant remained the registered proprietor of no. 65, with the beneficial interest being in the Official Receiver. He cannot therefore have been liable to pay an occupation rent to either the LLP or Sales Ltd in respect of his occupation of no. 65. His liability was to make the mortgage payments, not to pay an occupation rent.[98]Even if those conclusions are wrong, I would find as follows.[99]The only natural persons who, on the Claimant’s own evidence, had anything more than a nominal interest in either the LLP or Sales Ltd were the Claimant and Mrs Jull. (Their daughter and son were appointed as members of the LLP, the son only for a short period, but the Claimant’s evidence to me was that his daughter’s interest was entirely nominal). Mrs Jull had 98 of the 100 issued shares in Sales Ltd. However, by September 2007 Mrs Jull was having nothing whatever to do with the business, or any of these transactions. They were all undertaken at the sole direction of the Claimant, without consulting her. The Claimant said to me in evidence that Mrs Jull would have considered that any value in the business at no. 65 belonged to her. However, I infer that Mrs Jull had by that stage agreed that, and the Claimant was proceeding on the basis that, any profit which he could make from the business or its assets was to accrue to him. In my judgment the appropriate inference is that it was in substance agreed that the Claimant was to be the beneficial owner of Mrs Jull’s shares in Sales Ltd. On that footing it does seem to me to be correct to say, as the First-tier Tribunal found and as Mr Barker submitted, that the LLP was in substance the Claimant, and therefore that, even if I were wrong on the first and second points set out above, he could not be liable to pay an occupation rent to it. Conclusion in relation to the council tax benefit appeals[100]In my judgment, therefore, the result at which the First-tier Tribunal arrived in relation to the point of substance which has been argued in relation to the council tax benefit appeals was correct. The Claimant was not liable to pay rent in respect of no. 65, but rather to pay the mortgage instalments, and his income should be assessed on that basis. However, the Tribunal’s conclusion was inadequately reasoned in para. 71 of the Statement of Reasons, and its decision of those appeals must therefore also be set aside. For the reasons set out above I substitute a decision in the terms set out in paragraph 1 above. Charles Turnbull Judge of the Upper Tribunal 28 September 2010

Cited in 1 later judgment