CS v Chelmsford Borough Council (Capital : Ownership/Possession) [2014] UKUT 518 (AAC)

UKUT-AAC
CS v Chelmsford Borough Council (Capital : Ownership/Possession)
[2014] UKUT 518 (AAC) · 2014-11-18
[1]The issue in this appeal before the First-tier Tribunal (“the tribunal”) was whether the appellant had capital in excess of £16,000 for the purposes of entitlement to council tax benefit. The nub of this issue was whether capital that was subject to a restraint order made under the Proceeds of Crime Act 2002 should be treated as capital for those purposes.[2]The appellant and her partner made a claim to the respondent council for council tax benefit on 1 October 2012. They stated that they had £11,745.48 cash in an ISA. They also declared six bank accounts but did not declare the balances. They also declared that the appellant’s partner (Mr Z) owns a property in Spain with an approximate value of £130,000 and an outstanding mortgage of £100,000.[3]The appellant provided a copy of a restraint order made under the Proceeds of Crime Act 2002 at Cambridge Crown Court on 19 April 2011. The order was directed to the appellant and Mr Z. The order prohibited the appellant and Mr Z from disposing of or dealing with any of their assets, whether they are in or outside England and Wales. The order identified as included within their assets seven specified bank or building society accounts, two cars, the Spanish property, and the property where the appellant and Mr Z live.[4]The order provided that the appellant and Mr Z were not prohibited from spending a sum to be agreed with the prosecutor towards their ordinary living expenses.[5]On 7 November 2012 the council notified the appellant in writing of its decision that she was not eligible for council tax benefit because she had capital in excess of £16,000. The letter stated that “it is clear from the wording of the Order that you are able to access your bank accounts for your daily living expenses with the agreement of the prosecutor. Clause 16 also states that you are able to withdraw money from the bank subject to that withdrawal being permitted under the Order. It would appear therefore that you have some access to your accounts and should therefore be able to obtain details of the balances from your banks.” The letter said that the decision could be revised if the appellant provided recent bank statements.[6]On 20 November 2012 the appellant appealed against that decision on the basis that neither she nor Mr Z had any access to any of the accounts and were unable to provide balances on the accounts or the value of assets. She stated that there had been no agreement with the prosecutor enabling them to withdraw any funds.[7]Following enquiries from the council, on 16 January 2013 Hertfordshire Police informed the council that the appellant and Mr Z had not yet made an application for access to funds to pay daily living expenses. They said that council tax would count as an expense which they would allow. On 8 February 2013 the appellant wrote to the council to say that an application had been made but that it was refused by the prosecution. On 27 November 2013 solicitors retained by the appellant and Mr Z wrote a letter confirming that there had been unsuccessful attempts to have the restraint order varied or removed.[8]Following a hearing on 19 December 2013 the First-tier Tribunal refused the appeal and confirmed the council’s decision. The appellant appealed to the Upper Tribunal. The decision of the First-tier Tribunal[9]The tribunal’s decision notice confirming the council’s decision stated as follows “While there is evidence that the Appellant’s assets are subject to a restraining order, that does not enable the assets (including the property in Spain) to be disregarded under Schedule 5. The Tribunal notes also that there is confirmation from Mr G Hughes, who is described as the contact point for the restraint order, that there is provision for payment of day to day expenses, which would include council tax. The Appellant believes applications have been made unsuccessfully for payment of council tax, but has no evidence of that. Mr Hughes says no application has been made. On that basis there are funds and assets available to pay the council tax.”[10]The tribunal provided a statement of reasons dated 12 February 2014. This included the following:
“5. …Basically the Tribunal was of the view that the Appellant did have access to funds and did not provide evidence to the contrary. The restraint order did prevent them from disposing of assets. It did however not prevent them from making an application to sell the house in Spain (which they had failed to do) or making an application for payment of living expenses and utilities. While there was a letter from solicitors on behalf of the Appellant claiming that unsuccessful applications had been made for the release of monies, there was actually no evidence as to this or of any failed attempts to obtain money. In addition it did not seem that the house in Spain would be covered by the restraining order, although the Appellant was unable to give any details at all of any such applications or the reasons why they had been refused. She did confirm that no steps had been taken to sell the property in Spain…. 6. The Tribunal therefore decided, as set out in the decision notice, that it was entirely possible that monies can be raised from the assets to pay utilities if details are given and an application made… 7. The assets were not assets in any event which could be disregarded under Schedule 5 and as a result had to be taken into account. In turn that meant that the Appellant had assets which took her outside the scope of Council Tax Benefit.”
Proceedings in the Upper Tribunal[11]On 11 August 2014 I gave permission to appeal. I observed as follows:
“2. I have decided to grant permission because I consider that it is arguable that the First-tier Tribunal erred in law in that it addressed the wrong question and failed to address the issues relevant to a determination whether the appellant’s capital exceeds the prescribed amount. It seems that, in the present case, the relevant issues are as follows: a) Whether the appellant “possesses” capital in or outside the UK: regulations 37 and 38 of the Council Tax Benefit Regulations 2006? Can the appellant be treated as “possessing” capital in the light of the restraining order? b) Whether the appellant should be treated as possessing capital and if so how much, pursuant to regulation 39(2) of the 2006 regulations? In this context, it seems that it may well be relevant that the restraining order does not enable the appellant to obtain consent to the release of all relevant capital but only that which is necessary for payment of her ordinary living expenses. c) Whether any capital should be disregarded pursuant to Schedule 5? However, if in accordance with either of the above sub-paragraphs the appellant possesses capital in excess of £16,000, it does not appear to me at present that any of the disregards apply. Where there was no evidence that, at the time of the relevant decision the appellant or her partner was taking reasonable steps to sell the Spanish property, it seems that paragraph 26 of that schedule may not apply. As the First-tier Tribunal noted in its decision of 31 January 2014, that is a matter which the appellant could now raise with the local authority. 3. If the above is correct, then it appears that the tribunal may have erred in considering only whether the appellant could raise the funds to pay the council tax.”
[12]By written submissions dated 22 September 2014 the council supports the appeal. The council agrees that the tribunal failed to consider the application of regulations 37 and 38 of the regulations, but suggested that the error might not be material in the light of the decision of Upper Tribunal Judge Turnbull in CJSA/1556/2007 (the title and neutral citation of this case is SH v Secretary of State for Work and Pensions [2008] UKUT 21 (AAC) ) . The council submitted that the Upper Tribunal should set aside the decision of the First-tier Tribunal and remit it to the council to calculate the appellant’s council tax benefit entitlement disregarding all assets which are subject to the restraint order. The council also submitted that the Upper Tribunal should consider whether or not tax credits which were being paid into one of her bank accounts fall to be disregarded, albeit as income rather than capital.[13]The appellant has sent further written submissions responding to the council’s submissions and I deal with these, where relevant, in my reasons below.[14]Neither party has requested an oral hearing and I am satisfied that I can fairly determine this appeal on consideration of the papers. Discussion and conclusions[15]Section 134(1) Social Security Contributions and Benefits Act 1992 provides that no person shall be entitled to an income-related benefit (which includes council tax benefit) if his capital or a prescribed part of it exceeds the prescribed amount. At the relevant time the prescribed amount was, by virtue of regulation 33 of the Council Tax Benefit Regulations 2006 (the CTB Regulations), £16,000.[16]The following provisions of the CTB Regulations are relevant to the calculation of capital:
“34.— Calculation of capital (1) For the purposes of Part 7 of the Act as it applies to council tax benefit, the capital of a claimant to be taken into account shall, subject to paragraph (2), be the whole of his capital calculated in accordance with this Part and any income treated as capital under regulation 36 (income treated as capital). (2) There shall be disregarded from the calculation of a claimant's capital under paragraph (1), any capital, where applicable, specified in Schedule 5 . … 3 7. Calculation of capital in the United Kingdom Capital which a claimant possesses in the United Kingdom shall be calculated at its current market or surrender value less— (a) where there would be expenses attributable to the sale, 10 per cent; and (b) the amount of any encumbrance secured on it. 38. Calculation of capital outside the United Kingdom Capital which a claimant possesses in a country outside the United Kingdom shall be calculated— (a) in a case where there is no prohibition in that country against the transfer to the United Kingdom of an amount equal to its current market or surrender value in that country, at that value; (b) in a case where there is such a prohibition, at the price which it would realise if sold in the United Kingdom to a willing buyer, less, where there would be expenses attributable to sale, 10 per cent and the amount of any encumbrances secured on it. 39.— Notional capital (1) A claimant shall be treated as possessing capital of which he has deprived himself for the purpose of securing entitlement to council tax benefit or increasing the amount of that benefit except to the extent that that capital is reduced in accordance with regulation 40 (diminishing notional capital rule). (2) Except in the case of— (a) a discretionary trust; or (b) a trust derived from a payment made in consequence of a personal injury; or (c) any loan which would be obtained only if secured against capital disregarded under Schedule 5 ; or (d) a personal pension scheme or a payment made by the Board of the Pension Protection Fund ; or (e) any sum to which paragraph 47(2)(a) of Schedule 5 (capital to be disregarded) applies which is administered in the way referred to in paragraph 47(1)(a) ; or (ea) any sum to which paragraph 48(a) of Schedule 5 refers; or (f) child tax credit; or (g) working tax credit, any capital which would become available to the claimant upon application being made, but which has not been acquired by him, shall be treated as possessed by him but only from the date on which it could be expected to be acquired were an application made. … (7) Where a claimant is treated as possessing capital under any of paragraphs (1) to (3) the foregoing provisions of this Section shall apply for the purposes of calculating its amount as if it were actual capital which he does possess.”
[17]It can be seen immediately that the First-tier Tribunal has erred in law because it has failed to apply the above provisions of the CTB Regulations. First the regulations require consideration of what capital a claimant “possesses” within and outside the UK and calculation of its value in accordance with regulations 37 and 38 respectively. Second, the regulations require consideration of whether a claimant should be treated as possessing capital under regulation 39. Finally, if the claimant has any capital, the regulations require consideration of whether it should be disregarded pursuant to regulation 34(2) and schedule 5.[18]Instead of doing this, the tribunal has decided that there are “funds and assets available to pay the council tax” (Decision Notice) and that “it was entirely possible that monies could be raised from the assets to pay utilities” (statement of reasons paragraph 6). That is not the correct test under the regulations. The tribunal has failed to consider and apply the specific provisions of the regulations as above.[19]The more difficult issue raised by this appeal is as to how the tribunal should have approached the capital of the appellant and Mr Z, in the light of the restraint order. I need to address this in order to decide whether the tribunal’s error was material and how I should dispose of this appeal.[20]As set out above, the restraint order was made under the Proceeds of Crime Act 2002. It is necessary to set out a number of provisions of that Act.[21]The Act provides for the making of confiscation and restraint orders. Section 6 sets out the conditions for making a confiscation order and, at section 6(5), if those conditions exist the court must make a confiscation order requiring the defendant to pay “the recoverable amount” that, is (section 7(1)) the amount equal to the defendant’s benefit from his criminal conduct. However, section 7(2) limits the recoverable amount to the “available amount”.[22]Section 9 defines the “available amount” as the aggregate of “(a) the total of the values (at the time the confiscation order is made) of all the free property then held by the defendant minus the total amount payable in pursuance of obligations which then have priority; and (b) the total values (at that time) of all tainted gifts.”[23]The purpose of a restraint order is, in summary, to preserve property for the purpose of satisfying a confiscation order (section 69). Section 41 provides for the power to make a restraint order. In so far as material, it reads:
“41. (1) If any condition set out in section 40 is satisfied the Crown Court may make an order (a restraint order) prohibiting any specified person from dealing with any realisable property held by him. (2) A restraint order may provide that it applies— (a) to all realisable property held by the specified person whether or not the property is described in the order; (b) to realisable property transferred to the specified person after the order is made. (3) A restraint order may be made subject to exceptions, and an exception may in particular— (a) make provision for reasonable living expenses and reasonable legal expenses; (b) make provision for the purpose of enabling any person to carry on any trade, business, profession or occupation; (c) be made subject to conditions. …”
[24]Section 79 provides:(1) This section applies for the purpose of deciding the value at any time of property then held by a person.(2) Its value is the market value of the property at that time. …”[25]Section 83 defines “realisable property” as:
“(a) any free property held by the defendant; (b) any free property held by the recipient of a tainted gift.”
[26]Section 82 provides that all property is free unless within specific exceptions. Section 84 defines property as “all property” and provides that “property is held by a person if he holds an interest in it, “ references to an interest, in relation to land in England and Wales or Northern Ireland, are to any legal estate or equitable interest or power”, and “references to an interest, in relation to property other than land, include references to a right (including a right to possession).”[27]By section 417 property subject to a restraint order is excluded from the estate of a person who is adjudged bankrupt.[28]In SH v SSWP above , referred to in the council’s submissions, Upper Tribunal Judge Turnbull considered similar but not identical statutory provisions relating to a restraint order made under section 77 of the Criminal Justice Act 1988, the predecessor to the 2002 Act, for the purpose of deciding whether assets which were subject to a restraint order were capital for the purpose of calculating entitlement to income support or jobseekers’ allowance (in respect of which regulations make materially similar provisions for the calculation of capital as those in the CTB regulations). Judge Turnbull was inclined to think that such assets remained the claimant’s capital with a market value of nil, though he left open the possibility that the assets might not be capital. Having set out the relevant provisions of the Criminal Justice Act, he said as follows:
“20. Looking at those statutory provisions, and in the absence of any authority, I would have said that the mere making of a restraint order does not deprive the defendant of his interest in the property the subject of the order, which therefore must remain his capital for income support/JSA purposes. The order operates simply in personam; he will be in contempt of court if he deals with the property in breach of the order. 21. In my judgment that conclusion is apparent from (i) the fact that a restraint order is not expressed to deprive the defendant of his interest in the property, or to give the Crown any form of security; (ii) the fact there is express and separate provision for the making of a charging order, which does give the Crown security; (iii) the fact that in s.74(3) of the 1988 Act the amount that might be realised at the time a confiscation order is made is defined as “ the total of the values at that time of all the realisable property held by the defendant”
. As to (iii), that wording would surely have been inappropriate if it was considered that a restraint order (which it must have been contemplated would be obtained in many cases) deprived the defendant of his interest in the property. 22. There are obvious close similarities between a restraint order and a freezing order (formerly known as a Mareva injunction) made by the Court under the powers in Part 25 of the Civil Procedure Rules. As noted by Mitchell Taylor & Talbot on Confiscation and the Proceeds of Crime, para. III.021:
“Obviously, as the purpose of the restraint order is to prevent disposal of assets, similar principles and practice have arisen between restraint orders and conventional civil freezing orders. In some cases under the confiscation legislation the court has specifically referred to the similarity.”
The authors cite a number of cases in support of that, including DPP v Scarlett [2000] 1 WLR 515. 23. There is clear authority that a freezing order “gives the applicant no proprietary right in the assets seized and no advantage over other creditors of the defendant” (Supreme Court Practice, Vol. 2 para. 2555): see Cretanor Maritime v Irish Marine Management [1978] 1 WLR 966; Derby v Weldon [1990] Ch 65. Gee on Commercial Injunctions, 5 th Ed, summarises the position as follows:
“A Mareva injunction does not affect the defendant’s proprietary interest in his assets. The claimant gains no priority over any other creditor of the defendant and no proprietary interest in or charge over the assets which are subject to the injunction.”
(p.132). 24. However, although I have not been referred to it by either party, I should also consider Re M (restraint order) [1992] 1 All ER 537. It concerned the interplay between the jurisdiction (under s.8(1) of the Drug Trafficking Offences Act 1986 in that case) to make a restraint order and the court’s jurisdiction in bankruptcy. A restraint order had been made against the debtor under that Act. When his creditors pressed for payment of their debts the defendant applied to the Court and obtained an interim order under s.252 of the Insolvency Act 1986 authorising a nominee appointed under a voluntary arrangement with his creditors to realise sufficient of his assets to discharge all debts to creditors. By s.252(2) such an order had the effect that no proceedings, execution or other process might be commenced or continued against the debtor or his property without the leave of the court. 25. When the prosecution applied for the appointment of a receiver pursuant to s.8(6) of the Drug Trafficking Offences Act, the defendant argued that s. 252(2) of the Insolvency Act prevented the prosecution from pursuing such an application. However, Otton J. held that an interim order under s.252 did not prevent the prosecution from applying for the appointment of a receiver in respect of property which was subject to a restraint order which had been made before the s.252 order, because the property to which a restraint order applied was no longer to be considered as part of the debtor’s estate. Otton J. said (p.543): “The property to which the restraint order applies is no longer to be considered a part of the defendant’s estate. He holds only notional title to such property. All dealings with such property are to be held in abeyance until such time as the defendant is acquitted or a confiscation order is made and satisfied. Any doubt is removed by consideration of the purpose of the Drug Trafficking Offences Act 1986, which is to be found in s.13 ……. The purpose, in short, is to make available the value of the realisable property and, by its realisation, to satisfy the confiscation order. Here Mr M is a defendant. He has been charged with a drug trafficking offence. The High Court on two previous occasions has been satisfied that there exists a reasonable likelihood that he will be convicted. It has made a restraint order pursuant to s.8 of the 1986 Act. All property rights in the property to which the order relates lie in abeyance. The property can no longer be considered part of his estate until the outcome of his criminal trial.” 26. Those statements, although made in a different context, would appear to provide quite strong support for an argument that assets of a claimant which are subject to a restraint order are not the claimant’s capital for the purpose of calculating his entitlement to income support/JSA. 27. I have come to the conclusion that it unnecessary for me to decide whether that is so or not, for two reasons. First, if (as I am strongly inclined to think) such assets remain his capital, their “market value” (and therefore their value for the purpose of means tested benefits (see, in the case of JSA, reg. 111 of the Jobseeker’s Allowance Regulations 1996)) must surely be nil. An asset which a person is prohibited by court order from disposing of must surely be treated as having no market value.[29]The Judge then went on to explain his second reason which was based on the particular circumstances of that case and are not relevant to the present appeal.[30]I note that, in KS v SSWP (JSA) [2009] UKUT 122 (AAC) , [2010] AACR 3 Upper Tribunal Judge Mark said that he was inclined to agree with Judge Turnbull in relation to the effect of a restraint order but did not need to decide the point in that case as he was concerned with the effect of a bankruptcy order.[31]I consider that Judge Turnbull’s reasoning applies equally in the present situation, with some modification to take account of the differences between the Criminal Justice Act 1988 and the Proceeds of Crime Act 2002. In particular, not only is a restraint order not expressed to deprive the defendant of his interest in the property, but the terminology of the Proceeds of Crime Act consistently presupposes that the defendant retains his interest in property that is subject to a restraint order. Thus by section 9 all free property “held by the defendant” can be subject to a confiscation order. By reason of section 84(2)(a) this means property in which the defendant holds an interest. By section 69, where property is subject to a restraint order its value is taken into account in the calculation of the “available amount” under section 9(1) because it is free property held by the defendant. It follows that making of a restraint order does not terminate a person’s interest in the property to which the order is subject.[32]Although there is no equivalent in the Proceeds of Crime Act 2002 to the provision in the Criminal Justice Act 1988 for making charging orders, the Explanatory Note to the 2002 Act explains that this is because the provision is not necessary. This is likely to be because of other powers in the Act to secure property such as by means of the exercise of the powers of the management receiver.[33]I also consider it to be highly relevant that, by section 417 of the 2002 Act, property which is subject to a restraint order made before the person was adjudged to be bankrupt is excluded from his estate for the purposes of the Insolvency Act 1986. Section 283 of the Insolvency Act 1986 defines a bankrupt’s estate as including “all property belonging to or vested in the bankrupt” and “property” is defined in section 436(1) as including “money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property.” If the making of a restraint order deprived a person of his interest in the property, there would be no need for that provision.[34]I note however that there is an apparent conflict between this analysis and that of Otton J in Re M , as explained by Upper Tribunal Judge Turnbull. It is not easy to reconcile the two positions. As did Judge Turnbull, I consider that it is unnecessary for me to do so. Either, following Otton J in Re M , the assets no longer form part of the appellant’s estate and do not count as capital. Or, on my analysis, the assets remain the appellant’s capital but have no market value because she is unable to dispose of them and so the assets are not taken into account under regulation 34 of the CTB Regulations. Conclusion[35]In the light of the foregoing, I conclude that the First-tier Tribunal erred in law in holding that the appellant had capital in excess of £16,000.[36]It is clear that, whether she possessed no capital or she possessed capital with a market value of nil, the appellant had no capital for the purpose of section 134(1) of the 1992 Act.[37]Accordingly I set aside the decision of the First-tier Tribunal.[38]The council submits that I should deal with the issue of the value of the appellant’s tax credits. I do not consider that I am in a position to make findings about this. There is a dispute between the appellant and the council as to whether she is permitted to make arrangements for the tax credits to be paid directly to her. I note what the council says at paragraph 12 of its submissions and that the provision for receipt of state benefits by the “Department of Social Security” (for which read the Department for Work and Pensions) ought equally to apply to payments by HMRC. However, arrangements enabling the appellant to spend her tax credits have not in fact been made.[39]The council properly accepts that this is not a case where the appellant should be treated as having notional income under regulation 32(1). They do not address regulation 32(2), but it seems that this is also inapplicable as it does not apply to working tax credit or child tax credit.[40]The question of the appellant’s entitlement to council tax benefit in the light of the payments of tax credit remains to be determined.[41]Therefore I set aside the decision of the First-tier Tribunal and substitute the decision that the tribunal should have made. That decision is that the council’s decision of 7 November 2012 was wrong and that the appellant had no capital within section 134(1) of the Social Security Contribution and Benefits Act 1992. That means that the decision of 7 November 2012 must be set aside and the appellant is entitled to a fresh decision by the council as to her entitlement to council tax benefit at all relevant times. The council will have to determine that matter in accordance with my judgment.[42]The council has also submitted that the recalculation of council tax benefit entitlement should (subject to backdating) be from 17 September 2013. I do not understand that as the appellant claimed council tax benefit on 1 October 2012. The recalculation of the appellant’s entitlement to council tax benefit should be from the date of her claim subject to relevant backdating. Signed on the original Kate Markus QC On 18 November 2014 Judge of the Upper Tribunal

Cited in 2 later judgments