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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Patmalniece v Secretary of State for Work and Pensions [2009] EWCA Civ 621 (25 June 2009) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2009/621.html Cite as: [2009] 3 CMLR 36, [2009] 4 All ER 738, [2009] EWCA Civ 621, [2010] PTSR 128

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SOCIAL SECURITY COMMISSIONERS
Mr Commissioner Rowland
CPC/1072/2006

		Royal Courts of Justice Strand, London, WC2A 2LL
		25 June 2009

Lord Justice Moses:

1. The appellant was born in Russia; she is now 71. Her family moved to Latvia when she was aged 3. She worked in factories and as a kitchen assistant for over forty years. When she stopped working, aged 55, she received a state retirement pension. She arrived in the United Kingdom on 12 June 2000 and claimed asylum; she said that her Russian origin would lead to persecution were she to return.
2. By January 2004 all her attempts to establish refugee status had failed. But she did not return to Latvia; she was destitute apart from her Latvian pension, worth about £50 a month (2005 valuation). Four months later, on 1^st May 2004, Latvia acceded to the European Union.
3. Article 3 of Council Regulation (EC) 1408/71 required that persons within the scope of the Regulation should enjoy the same benefits under legislation of a Member State as the nationals of that state. Ms Patmalniece comes within the personal scope of the 1971 Regulation. Council Regulation 647/2005 of 13 April 2005 included State Pension Credit under the United Kingdom's State Pension Credit Act 2002 (the 2002 Act) within the material scope of 1408/71.
4. Ms Patmalniece applied for State Pension Credit. Under the 2002 Act entitlement depends upon the claimant being "in Great Britain", within the meaning of the State Pension Credit Regulations 2002 (the 2002 Regulations). Since she was not a worker, and did not otherwise qualify under those regulations, her entitlement to State Pension Credit depended on being able to establish habitual residence in Great Britain or in the Republic of Ireland. But the Regulations provided that she could not be treated as habitually resident unless she had a right to reside in the United Kingdom or Ireland. On 7 September 2007 her claim was refused on the grounds that she had no right to reside for the purposes of entitlement to that benefit.
5. Ms Patmalniece is not able, under domestic legislation, to acquire a right to reside. She is no longer a worker, she is not self-employed, she is not self-sufficient nor is she a member of a family of such a person. But a United Kingdom national has a right to reside by virtue of his right of abode under s.2(1) of the Immigration Act 1971. Thus all United Kingdom nationals pass that test. So do Irish nationals. Ms Patmalniece appealed to the Appeal Tribunal asserting direct discrimination contrary to Article 3 of the 1971 Council Regulation; had she been a United Kingdom national she would have been entitled to State Pension Credit; her Latvian nationality precluded such entitlement. The President upheld her appeal on the grounds of direct discrimination. The Secretary of State appealed.
6. On 11 June 2008 Commissioner Rowland upheld the Secretary of State's appeal. He concluded that the imposition of a right to reside test, which all United Kingdom nationals but only some EU nationals passed, was indirect discrimination and was justified on the basis that the right of residence test was a proportionate means of achieving the legitimate aim of protecting the public finances of the host member state. State Pension Credit, as a means-tested benefit, had strong characteristics of social assistance. There was no obligation on the United Kingdom, under Community law, to afford access to social assistance to those who had no right of residence. The appellant appeals with permission of the Commissioner.
7. State Pension Credit is a means-tested benefit, payable in accordance with the provisions of the 2002 Act (s.1). By s.1

"(2)     A claimant is entitled to state pension credit if -

(a)     he is in Great Britain;

(5)     Regulations may make provision for the purposes of this Act –

(a)     as to circumstances in which a person is to be treated as being or not being in Great Britain;"

Regulation 2 of the 2002 regulations provides:

"(1) Subject to paragraph (2) a person is to be treated as not in Great Britain if he is not habitually resident in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland, but for this purpose, no person is to be treated as not habitually resident in the united Kingdom who is-

(a) a worker for the purposes of Council Regulation (EEC) No 1612/68 or (EEC) No 1251/70 or a person with a right to reside in the United Kingdom pursuant to Council Directive No 68/360/EEC or No 73/148/EEC or a person who is an accession worker for the purpose of the definition of "qualified person" in regulation 5(1) of the Immigration (European Economic Area) Regulations 2000 pursuant to regulation 5 of the Accession (Immigration and Worker Registration) Regulations 2004 ..." or

((b)-(e) identify other persons who, like workers are not to be treated as not habitually resident)

"(2) For the purpose of treating a person as not in Great Britain in paragraph (1), no person shall be treated as habitually resident in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland if he does not have a right to reside in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland."

8. Ms Patmalniece falls outwith Regulation 2(1)(a) to (e). Regulation 2(2) precludes Ms Patmalniece's entitlement to State Pension Credit. She has no right to reside in the United Kingdom, the Channel Islands, the Isle of Man or the Republic of Ireland; she cannot, therefore, be treated as habitually resident and, thus, cannot be treated as in Great Britain, for the purposes of entitlement to State Pension Credit under s.1(2)(a) of the 2002 Act. A United Kingdom national who falls outwith Regulation 2(1)(a)-(e) may be treated as in Great Britain, provided only that he can establish that he is habitually resident in the specified territories, pursuant to the opening words of Regulation 2(1) of the 2002 Regulations.
9. In 2004, a new requirement of a right to reside was introduced into all the income-related benefit rules: those which governed entitlement to Income Support, to Income-based Jobseeker's Allowance, to Housing Benefit and Council Tax Benefit, as well as to State Pension Credit. The requirement to have a right to reside imposed on those falling outside Regulation 2(1)(a)-(e) of the 2002 Regulations was inserted into those Regulations, on 1^st May 2004, by the Social Security (Habitual Residence) Amendment Regulations 2004 (the 2004 Regulations). The current, materially identical, provision is to be found in regulation 9 of the Social Security (Persons from Abroad) Amendment Regulations 2006.
10. The purpose of the introduction of that requirement was made plain by the Secretary of State in the statement he was required to make (pursuant to s.172(1) of the 2002 Act) because the 2004 Regulations had been referred to the Social Security Advisory Committee. The underlying purpose of the introduction of a "right to reside" test into the UK's social security system was to protect that system from exploitation by those who do not wish to come to work but to live off benefits (§4). The Committee had taken the view that the existing habitual residence test was sufficient to prevent "benefit tourism". The Secretary of State, however, concluded that the habitual residence test was ineffective in withholding entitlement to income-related benefits from those who had decided to live in the UK indefinitely without being economically active (§14). The 2004 Regulations were:

"intended to fill a gap in measures to safeguard the public purse against exploitation by people with no right to reside here, irrespective of nationality." (§17)

11. This court has previously considered the lawfulness of the imposition of the right to reside test as a qualification imposed on EU or EEA nationals seeking income-related benefits in Abdirahman & Others v Secretary of State for Work and Pensions [2007] EWCA Civ 657, [2008] 1 WLR 254 and Kaczmarek v SSWP [2008] EWCA 1310.
12. In Abdirahman, the claimant claimed income support. She contended that the requirement that she have a right to reside as a qualification for that benefit breached the prohibition in Article 12 of the EC Treaty against discrimination on the grounds of nationality. But to rely on that prohibition she needed to establish that the discrimination of which she complained fell within the scope of application of the Treaty (§§ 41 and 42). She could not do so. The benefits which she sought did not fall within the scope of application of the Treaty (§43). She could not establish a right of residence under domestic legislation, nor could she do so under Article 18 of the EC Treaty. Article 18 conferred no absolute right of residence. The qualifications in Council Directive 90/364/EEC, a Directive adopted to give effect to what is now Article 18, precluded an EU citizen from acquiring a right of residence under that article, if she did not have sufficient resources to avoid becoming a burden on the social assistance system of the host member state (§§ 30 and 31). After consideration of the jurisprudence of the European Court of Justice, Lloyd LJ concluded that the limitations within that Directive were proportionate to the legitimate aim of protecting the public finances of the host state (§ 34).
13. For the same reason, Mr Ullusow's claim to pension credit failed. It fell outwith the scope of the Treaty and thus outwith the prohibition against discrimination in Article 12 (§50).
14. In Kaczmarek, the claimant, unlike the economically inactive claimants in Abdirahman, had been a student and in employment during the three years she was lawfully present in this country. But she had become economically inactive, incapable of supporting herself and sought income support. She relied on Article 18 EC to establish a right of residence, on the basis that it was disproportionate to deny her a right of residence in the light of her social integration and past economic activity within the United Kingdom. The Court followed Abdirahman. It held that it was not disproportionate to exclude the claimant from income support once she had become economically inactive.
15. None of the claimants in Abdirahman and Kaczmarek relied on 1408/71. Ms Patmalniece does. By concession, limited to this appeal, she falls within the personal scope of that Regulation. Article 2 identifies the persons covered by the Regulation. Those to whom the Regulation applies include "employed" persons who have been subject to the legislation of one of the Member States and are nationals of one of the Member States. "Employed person" is defined by Article 1(a) as:

"any person who is insured, compulsorily…for one or more of the contingencies covered by the branches of a social security scheme for employed…persons".

16. Moreover, for reasons which I develop later, State Pension Credit is a benefit which falls within the material scope of the Regulation. It is what has been described as a "hybrid benefit" which shares the characteristics of a social security benefit and social assistance. It is not, therefore, disputed that the conditions of entitlement to State Pension Credit must comply with the requirement of equality of treatment contained in Article 3 of 1408/71:

"1. Subject to the special provisions of this regulation, persons to whom this Regulation applies shall be subject to the same obligations and enjoy the same benefits under the legislation of any member state as the nationals of the State".

17. Accordingly, there is an important distinction between this appeal and Abdirahman. The discrimination of which the claimants complained in that case fell outwith the scope of the prohibition in Article 12 EC. In the instant appeal, direct and indirect discrimination on the grounds of nationality is prohibited by Article 3. This appeal turns on two issues: whether the distinction between nationals of the United Kingdom and those of other member states, in the application of the right to reside test, is overt discrimination and, if not, whether the apparently neutral test, may be justified by reference to the same considerations as those which justified the exclusion of social assistance from the scope of Article 12 EC in Abdirahman.
18. Mr Cox accepted that Article 3 is a specific manifestation of the general prohibition in Article 12 EC. The approach the court must adopt is explained in Borawitz v Landesversichterunganstalt Westfalen [2000] ECR I-7293:

"23. In this respect, it must be borne in mind that the object of Article 3(1) of Regulation No 1408/71 is to ensure, in accordance with Article 48 of the Treaty, equal treatment in matters of social security, without distinction based on nationality, for the persons to whom that regulation applies by abolishing all discrimination in that regard deriving from the national legislation of the Member States (Case C-131/96 Mora Romero v Landesversicherungsanstalt Rheinprovinz [1997] ECR 1-3659, paragraph 29).

24. It is settled case-law that the principle of equal treatment, as laid down in that article, prohibits not only overt discrimination based on the nationality of the beneficiaries of social security schemes but also all covert forms of discrimination which, through the application of other distinguishing criteria, lead in fact to the same result (Mora Romero, paragraph 32).

25. Accordingly, conditions imposed by national law must be regarded as indirectly discriminatory where, although applicable irrespective of nationality, they affect essentially migrant workers or where the great majority of those affected are migrant workers, as well as conditions which are applicable without distinction but can more easily be satisfied by national workers than by migrant workers or where there is a risk that they may operate to the particular detriment of migrant workers (Case C-237/94 O'Flynn v Adjudication Officer [1996] ECR I-2617, paragraph 18).

26. It is otherwise only if those provisions are justified by objective considerations independent of the nationality of the workers concerned, and if they are proportionate to the legitimate aim pursued by the national law (O'Flynn, paragraph 19)." (my emphasis)

19. Mr Cox submitted that the requirement that Ms Patmalniece has a right to reside directly discriminates against her on the grounds of her nationality. All United Kingdom nationals have a right to reside. Only some EEA nationals may acquire that right. Had she been of United Kingdom nationality, she would have been entitled to State Pension Credit. Her Latvian nationality is the sole reason for her lack of entitlement. Such discrimination based solely on the grounds of her nationality is, he contended, incapable of justification.
20. Mr Lewis QC, on behalf of the Secretary of State, countered by seeking to demonstrate that conditions which all those of one nationality were bound to satisfy, but which only some of other nationalities might fulfil, have been regarded by the Court of Justice as indirect discrimination and capable of justification. He referred to CRAM v Toia [1979] ECR 2645 which related to restrictions on family benefit to those children of French nationality. Mothers of French nationals would, Mr Lewis told us, always satisfy such a requirement since their children would always be French. But the Court regarded the case merely as one of indirect discrimination and made no finding that all the children of French mothers would always be of French nationality; the case does not support the Secretary of State's contention. Nor does R (Bidar) v Ealing LBC [2005] QB 812, on which he also relied, assist. Entitlement to a student loan required students to be settled, i.e., without restriction on the period on which they may remain. The test would be satisfied by all United Kingdom nationals but precluded any foreign nationals from achieving settled status. Mr Lewis may be right to assert that if the claimant is correct, this was a case of direct discrimination. But, again, the case does not support his proposition, since for reasons which remain unexplained, the Court approached the case on the basis that the condition was "likely to be more easily satisfied by United Kingdom nationals" (§53).
21. If conditions of entitlement to benefits within the scope of 1408/71 make an express and disadvantageous distinction between the nationals of one member state and the nationals of other member states, they are proscribed by Article 3. Discrimination based on nationality is forbidden.
22. Mr Cox focussed his complaint of overt discrimination on the right to reside condition. I do not think he was correct to do so. Article 3 requires the conditions for entitlement to State Pension Credit, under the legislation of the United Kingdom, to be the same for Latvian nationals as for United Kingdom nationals. Accordingly, it is necessary to focus on those conditions as a whole rather than one particular element of those conditions to the exclusion of others. The right to reside condition does not by itself entitle a claimant to the benefit. Entitlement is based on the claimant being "in Great Britain". A claimant can only be treated as being in Great Britain if he satisfies one of the conditions identified in 2(1)(a)-(e) of the 2002 Regulations, or, if he cannot, establishes as a matter of fact that he is habitually resident in the United Kingdom. For example, workers from all Member States are deemed to be habitually resident (under 2(1)(a) of the 2002 Regulations which applied at the time). Nationals of all Member States, who are not workers or did not fall within other provisions of Regulation 2(1)(a)-(e), must satisfy the requirement of habitual residence.
23. The only distinction drawn between nationals from Member States, other than the United Kingdom and the Republic of Ireland, and nationals of the United Kingdom, is in relation to the right to reside. All United Kingdom nationals satisfy that test, other nationals who do not fall within the provisions of Regulation 2(1)(a)-(e), may do so but with greater difficulty. A national of an EEA State could acquire a right to reside as a "qualified person", at the relevant time, pursuant to the Immigration (European Economic Area) Regulations 2000 (see Regulation 5 and the analysis of Lloyd LJ in Abdirahman §19).
24. I conclude that the conditions for entitlement to State Pension Credit are not overtly based upon the nationality of the claimant. The fact that nationals from other Member States may qualify, whether as workers, members of the same family, or for other reasons, precludes such a conclusion.
25. Even if the question whether discrimination is overtly based on nationality is confined to the right to reside test, I reject the claimant's submission. Nationals from other Member States may satisfy that test (it is worth contrasting this possibility with the situation of the student in Bidar, whose nationality, despite sufficient social integration, precluded any possibility of acquiring settled status as a student (§61)).
26. But since it is accepted that far fewer nationals of other Member States will acquire a right to reside, the court must still answer two further questions: whether the distinction drawn between United Kingdom and foreign nationals in relation to the right to reside test, although apparently neutral, is based on considerations independent of nationality and whether the distinction drawn is proportionate to a legitimate aim.
27. The justification advanced for the distinction is the same as that advanced in Abdirahman and Kaczmarek. The claimant is a non-economic migrant, who cannot support herself. She has never worked in the United Kingdom and the transitional arrangements mean that she could not derive a right to reside from work-seeking. In those circumstances, it is both legitimate and proportionate to seek to protect the resources of the United Kingdom by refusing her a means-tested benefit .
28. This court, in both those cases, in which claimants were seeking benefits which the courts characterised as social assistance, held that the limitations on the right to reside in a Member State under Article 18(1) EC, contained in Directive 90/364 (and now 2004/38/EC) pursued a legitimate objective and was proportionate. The Directive restricted the right to reside to those:

"who have sufficient resources to avoid becoming a burden on the social assistance system of the host member state during their period of residence." (Article 1)

As Kaczmarek explains, the change made by Council Directive 2004/38/EC, from 30 April 2006, removed the requirement of being economically active or self-sufficient but only after five years' lawful presence (§23); Ms Patmalniece's claim was made before she had been lawfully present for the necessary years since Latvia's accession.

29. Lloyd LJ (at §33), and Maurice Kay LJ (at §13) followed Trojani v Centre Public d'aide sociale de Bruxelles [2004] ECR I-7573. As Lloyd LJ pointed out (§31 (iv)), the European Court of Justice adopted the Advocate General Geelhoed's grounds for distinguishing between economic and non-economic migrants:

"36. In those circumstances, a citizen of the Union in a situation such as that of the claimant in the main proceedings does not derive from art 18 EC the right to reside in the territory of a member state of which he is not a national, for want of sufficient resources within the meaning of Directive 90/364. Contrary to the circumstances of the case of Baumbast's case [2003] ICR 1347, [2002] ECR I-7091 (para 92), there is no indication that, in a situation such as that at issue in the main proceedings, the failure to recognise that right would go beyond what is necessary to achieve the objective pursued by that directive."

30. It is important to appreciate that both this court and the Court of Justice have accepted, as part of the ratio of their decisions, the proposition that to preclude those who are not economically active and not self-sufficient from access to social assistance, by depriving them of a right of residence, pursues the legitimate aim of protecting the public finances and is proportionate to that aim. Of course, in Abdirahman and Kaczmarek, the effect of that conclusion was to exclude the alleged discrimination from the scope of the prohibition in Article 12 EC. But it does not necessarily follow that the proposition, for which those cases are authority, loses its force when considering the justification for discrimination within the scope of 1408/71.
31. Mr Cox distinguishes those cases because the benefit in the instant case does fall within the scope of the prohibition against discrimination on the grounds of nationality. 1408/71 draws a distinction between social assistance and those benefits, which now include State Pension Credit, described as "special non-contributory benefits". Social assistance is outwith the scope of 1408/71 (by virtue of article 4.4); State Pension Credit is within its scope (by amendment to Article 4.2a and Annex IIa). It follows, he says, that it is not open to the Secretary of State to justify discrimination by reference to considerations relevant to social assistance.
32. To assess that contention, it is necessary to understand the purpose and effect of 1408/71 and the reason why means-tested benefits such as State Pension Credit were brought, by amendment, within its scope. As I have indicated, (§15) Ms Patmalniece was compulsorily insured in Latvia and is thus "employed" within the meaning of Article 1a of 1408/71.
33. Once she left Latvia, Articles 4.1 and 10 of 1408/71 ensure that Latvia cannot withdraw or modify her pension, if she resides in another Member state. Her Latvian pension falls within Article 4.1 of 1408/71:

"1. This Regulation shall apply to all legislation concerning the

following branches of social security:

(a) sickness and maternity benefits;

(b) invalidity benefits, including those intended for the maintenance or improvement of earning capacity;

(c) old-age benefits;

(d) survivors' benefits;

(e) benefits in respect of accidents at work and occupational diseases;

(f) death grants;

(g) unemployment benefits;

(h) family benefits."

The Latvian institution responsible for payment is not entitled to suspend or withdraw her pension by virtue of Article 10.1 :

"Waiving of residence clauses — Effect of compulsory insurance on reimbursement of contributions

Save as otherwise provided in this Regulation invalidity, old-age or survivors' cash benefits, pension for accidents at work or occupational diseases and death grants acquired under the legislation of one or more Member States shall not be subject to any reduction, modification, suspension, withdrawal or confiscation by reason of the fact that the recipient resides in the territory of a Member State other than that in which the institution responsible for payment is situated."

34. The purpose of these provisions is clear. It is to promote and maintain the Treaty rights of workers to freedom of movement; such freedom would be inhibited were they to lose their previously established entitlement to social security, on exercising their right to move. This purpose is expressed in the first and second recitals to 1408/71:

"Whereas the provisions for coordination of national social security legislations fall within the framework of freedom of movement for workers who are nationals of Member States and should contribute towards the improvement of their standard of living and conditions of employment;

Whereas freedom of movement for persons, which is one of the cornerstones of the Community, is not confined to employed persons but also

extends to self-employed persons in the framework of the freedom of establishment and the freedom to supply services;"

The Court of Justice expressed this purpose, in Spruyt v Bestuur van de Sociale Verzekeringsbank [1986] ECR 1 685, thus:

"18. In that respect it should be noted, first, that the provisions of Regulation no 1408/71 and in particular those of Annex VI thereto, were adopted to implement Article 51 of the EEC Treaty and must be interpreted in the light of the objective of Article 51, which is to contribute to the establishment of the greatest possible freedom of movement for migrant workers, which is one of the foundations of the Community.

19. Article 51 requires the Council to adopt such measures in the field of social security as are necessary to provide freedom of movement for workers by securing, inter alia, payment of benefits for persons resident in the territories of the Member States. The aim of Articles 48 to 51 would not be attained if, as a consequence of the exercise of their right to freedom of movement, workers were to lose the advantages in the field of social security guaranteed to them by the laws of a single Member State.

20. Consequently, the purpose of Article 10 (1) of Regulation no 1408/71 concerning the waiving of residence clauses is to guarantee the person concerned his right to social security benefits even after taking up residence in a different Member State and to promote the free movement of workers, by insulating those concerned from the harmful consequences which might result when they transfer their residence from one Member State to another."

35. But the recitals acknowledge that the social security systems of the Member States differ; they have not been harmonised. Accordingly, one of the main purposes of 1408/71 is co-ordination:

"Whereas the considerable differences existing between national legislations as regards the persons to whom they apply make it preferable to establish the principle that the Regulation applies to all persons insured under social security schemes for employed persons and for self-employed persons or by virtue of pursuing employment or self-employment;

Whereas it is necessary to respect the special characteristics of national social security legislations and to draw up only a system of coordination;" (3^rd and 4^th Recitals)

36. The purpose of Article 3's provision for equality of treatment must be understood in that context, as the fifth recital explains :

"Whereas it is necessary, within the framework of that coordination, to guarantee within the Community equality of treatment under the various national legislations to workers living in the Member States and their dependants and their survivors;"

37. But 1408/71 has no application to social assistance. By Article 4.4 :

"This Regulation shall not apply to social and medical assistance, to benefit schemes for victims of war or its consequences".

This provision, which requires a distinction to be drawn between social security and social assistance, led to the amendments to 1408/71 by which benefits which had the characteristics of both social security and social assistance were included.

In 1992, 1408/71 was amended to bring within the scope of the regulation what were described as "special non-contributory benefits". The relevant parts of the amendment, in Council Regulation (EEC) No 1247/92 read :

"2. In Article 4, the following paragraphs shall be inserted:

'2a. This Regulation shall also apply to special non-contributory benefits which are provided under a legislation or schemes other than those referred to in paragraph 1 or excluded by virtue of paragraph 4, where such benefits are intended:

(a) either to provide supplementary, substitute or ancillary cover against the risks covered by the branches of social security referred to in paragraph 1 (a) to (h), or

(b) solely as specific protection for the disabled.'

4. The following Article shall be inserted:

'Article 10a

Special non-contributory benefits

Notwithstanding the provisions of Article 10 and Title III, persons to whom this Regulation applies shall be granted the special non-contributory cash benefits referred to in Article 4 (2a) exclusively in the territory of the Member State in which they reside, in accordance with the legislation of that State, provided that such benefits are listed in Annex IIa. Such benefits shall be granted by and at the expense of the institution of the place of residence.'"(my emphasis).

38. At that time, the United Kingdom listed in Annex IIa a number of benefits such as family credit and income support under now defunct social security legislation. Article 10a had the effect of derogating from the principle expressed in Article 10 that benefits acquired under the legislation of one Member State should be exportable to another Member State. In contrast to the benefits described in Article 4.1, 1408/71 confers no right to carry any of the benefits identified in Article 4(2a) to another Member State. As Article 10a.1 makes clear, entitlement to such benefits will depend on the legislation of the State in which the claimant resides. Residence is defined as habitual residence (Article 1(h)).
39. The nature of these benefits and the purpose of including them within the material scope of 1408/71 was explained in the recitals to the amending regulation, 1247/92:

"Whereas it is also necessary to take account of the case law of the Court of Justice stating that certain benefits provided under national laws may fall simultaneously within the categories of both social security and social assistance because of the class of persons to whom such laws apply, their objectives and their manner of application;

Whereas the Court of Justice has stated that, in some of its features, legislation under which such benefits are granted is akin to social assistance in that need is an essential criterion in its implementation and the conditions of entitlement are not based upon the aggregation of periods of employment or contributions, whilst in other features it is close to social security to the extent that there is an absence of discretion in the manner in which such benefits as are provided thereunder are awarded and in that it confers a legally defined position upon beneficiaries;

Whereas Regulation (EEC) No 1408/71 excludes from its scope, by virtue of Article 4 (4) thereof, social assistance schemes;

Whereas the conditions referred to and their methods of application are such that a system of coordination which differs from that currently provided for in Regulation (EEC) No 1408/71 and which takes account of the special characteristics of the benefits concerned should be included in that Regulation in order to protect the interests of migrant workers in accordance with the provisions of Article 51 of the Treaty;

Whereas such benefits should be granted, in respect of persons falling within the scope of Regulation (EEC) No 1408/71, solely in accordance with the legislation of the country of residence of the person concerned or of the members of his or her family, with such aggregation of periods of residence completed in any other Member State as is necessary and without discrimination on grounds of nationality;

Whereas it is necessary nevertheless to ensure that the existing system of coordination in Regulation (EEC) No 1408/71 continues to apply to benefits which either do not fall within the special category of benefits referred to or are not expressly included in an Annex to that Regulation; whereas a new Annex is needed for this purpose," (my emphasis)

40. These hybrid benefits share characteristics both of social security and social assistance. The reason why they are not exportable but payable in the country of residence, in accordance with the legislation of that country, stems from the nature of such benefits. Unlike the benefits in Article 4.1, entitlement to these special non-contributory benefits does not depend upon the legislation of the country in which the claimant was compulsorily insured (in casu Latvia). They are, as Article 4.2a, after further amendment in 2005, explains, designed to supplement the cover afforded by the social security benefits identified in article 4.1 so as to provide a minimum subsistence income having regard to the economic and social situation of the country of residence. They are closely linked to the standard and cost of living of the state in which the claimant resides (see e.g. Snares v Adjudication Officer [1997] ECR 1 6057 §43 and Advocate General at §85).
41. It is for those reasons that the amended 1408/71 draws a distinction between social security benefits, within Article 4.1 and hybrid benefits, within Article 4.2a. Social security benefits cannot be subjected to a residence condition, they must be exportable, whereas hybrid benefits may be the subject of a residence condition. Entitlement to hybrid benefits depends upon the legislation of the country of residence, which reflects the social and economic conditions in that country.
42. The system of co-ordination changed to protect the rights of workers in accordance with Article 42 EC (ex 51). But the purpose of 1408/71 did not change after the widening of its scope to include benefits which were not exportable but payable only in the country of residence. In Jauch v Pensionsversicherungsanstalt der Arbeiter [2001] ECR I-1901, which concerned hybrid benefits, the Court said:

"20. As the Court has consistently held (see, for example, Case 284/84 Spruyt [1986] ECR 685, paragraphs 18 and 19), the provisions of Regulation No 1408/71 adopted to give effect to Article 51 of the EC Treaty (now, after amendment, Article 42 EC) must be interpreted in the light of the objective of that article, which is to contribute to the establishment of the greatest possible freedom of movement for migrant workers. The aim of Articles 48 and 49 of the EC Treaty (now, after amendment, Articles 39 EC and 40 EC), Article 50 of the EC Treaty (now Article 41 EC) and Article 51 of the Treaty would not be attained if, as a consequence of the exercise of their right to freedom of movement, workers were to lose the social security advantages guaranteed them by the legislation of one Member State, especially where those advantages represent the counterpart of contributions which they have paid."

It is worth recalling Article 42:

"The Council shall, acting in accordance with the procedure referred to in Article 251, adopt such measures in the field of social security as are necessary to provide freedom of movement for workers; to this end, it shall make arrangements to secure for migrant workers and their dependants:

(a) aggregation, for the purpose of acquiring and retaining the right to benefit and of calculating the amount of benefit, of all periods taken into account under the laws of the several countries;

(b) payment of benefits to persons resident in the territories of Member States.

The Council shall act unanimously throughout the procedure referred to in Article 251."

43. The problem of distinguishing between social security and hybrid benefits led to references to the Court of Justice relating to the proper categorisation of the benefits concerned. Correct categorisation does not depend merely on the classification attached by national legislation. Accordingly, the Court has had to consider the purpose of the benefit and the conditions under which the benefit in question is granted (see e.g. Molenaar v AOK Baden-Würrtemberg [1998] 1 ECR 843 §19 and Leclere v Caisse National des Prestations Familiales [2001] ECR I-4265). These disputes, as the recitals, by their reference to Jauch and Leclere explain, led to further amendment to 1408/71 in order to clarify the distinction between the benefits referred to in Article 4.1 and those in Article 4.2a. By Regulation (EC) No 647/2005 of 13 April 2005, Art 4. 2a now reads:

"2a. This Article shall apply to special non-contributory cash benefits which are provided under legislation which, because of its personal scope, objectives and/or conditions for entitlement has characteristics both of the social security legislation referred to in paragraph 1 and of social assistance.

'Special non-contributory cash benefits' means those:

(a) which are intended to provide either:

(i) supplementary, substitute or ancillary cover against the risks covered by the branches of social security referred to in paragraph 1, and which guarantee the persons concerned a minimum subsistence income having regard to the economic and social situation in the Member State concerned; or

(ii) solely specific protection for the disabled, closely linked to the said person's social environment in the Member State concerned, and

(b) where the financing exclusively derives from compulsory taxation intended to cover general public expenditure and the conditions for providing and for calculating the benefits are not dependent on any contribution in respect of the beneficiary. However, benefits provided to supplement a contributory benefit shall not be considered to be contributory benefits for this reason alone; and

(c) which are listed in Annex IIa." ...my emphasis)

44. It was on the occasion of this amendment that the United Kingdom included State Pension Credit in Annex IIa, as a special non-contributory cash benefit. But for these amendments to 1408/71, Ms Patmalniece would have been in the same position as Mr Ullusow; her claim to State Pension Credit would have been regarded as a claim for social assistance and her complaint that the imposition of a right to reside qualification was discriminatory regarded as outwith the scope of the Treaty. I must, accordingly, resolve the question whether the classification of State Pension Credit as a special non- contributory benefit precludes reliance on a justification relevant to social assistance.
45. The justification on which the United Kingdom relies must be assessed in the context of the purpose of 1408/71 (see e.g. the reference to Article 39 EC ex 48 in Borawitz §23, cited above at §18). The purpose of 1408/71 remained unaltered after the inclusion of State Pension Credit within its scope. Its purpose was to provide coordination of unharmonised social security schemes, so as to preserve the greatest possible freedom of movement for migrant workers. 1408/71 was designed to promote, as the Court in Jauch made clear, the objectives of those articles within the Treaty which enshrined the rights of workers to move and establish themselves within the territories of the Community (Articles 39-42EC).
46. In order to achieve that objective, workers and their families and those seeking work must not be inhibited from exercising their rights of movement within the Members States by being exposed to disadvantage in relation to social security benefits. The requirement of economic integration which the conditions in Regulation 2(1)(a) of the 2002 Regulations imposes in its reference to "a worker" or to a "qualified person" is consistent with that objective. Absent economic integration, the imposition of a requirement of social integration, which the right to reside condition in Regulation 2(2) imposes, does not impede the objective underlying 1408/71.
47. Once it is acknowledged that the purpose of 1408/71 was to prevent obstacles to free movement of workers, their families and others seeking economic integration, there can be no reason why the country of residence should not be permitted to justify conditions of entitlement which reflect either economic integration or a sufficient degree of social integration. The requirement of a right of residence does not in any way affect Ms Patmalniece's right to her Latvian pension, which she is entitled to export to the United Kingdom by virtue of Regulation 10.1 of 1408/71. It does not inhibit the objective of 1408/71. It imposes no disadvantage whatever on her in the exercise of freedom of economic migration within the Community. It merely ensures that, since Ms Patmalniece is not working, she must achieve the necessary degree of social integration before she becomes a burden on the United Kingdom's social assistance system (unless and until she acquires a right of residence under Directive 2004/38, (see §23 Kaczmarek) or under the Immigration (European Economic Area) Regulations 2006).
48. The United Kingdom's objective in restricting the right to reside to those who have sufficient resources to avoid becoming a burden on its social assistance system is in no way rendered illegitimate by the inclusion of State Pension Credit within the scope of Article 3 of 1408/71. Once it is recognised that the purpose of that inclusion was to identify those benefits which could be made the subject of a residence condition, nothing stands in the way of advancing a justification which applies to benefits which are identified as social assistance under the legislation of the domestic state and as hybrid special non-contributory benefits under 1408/71.
49. State Pension Credit does not cease to be part of the United Kingdom's system of social assistance merely because it is also identified within 1408/71 as a hybrid benefit. It has been brought within the scope of that Regulation because it shares features close to those of social security (described in the second recital of the amending regulation 1247/92, above §40). Such benefits are now described in the recital of the consolidated version of 1408/71 (cited § 44) as falling "simultaneously" within social security and social assistance. They do not lose their social assistance characteristics merely because they also share features of social security. In so far as they are regarded as social security they are included within the Regulation to protect the interests of migrant workers. But the features they share with social security, as described within the Regulation, do not trigger any entitlement to export those benefits or any entitlement whatever. Entitlement depends on the legislation of the country of residence.
50. Thus the fact that such benefits as State Pension Credit share features with social security benefit does not deprive them of their characteristics of social assistance. It follows that if social assistance may justifiably be restricted to those who have sufficient economic or social integration within the country of residence in which the institution responsible for payment is situated, so too may benefits which share the characteristics of social assistance. Mr Commissioner Rowland took the view that the justification upheld in Abdirahman applied to State Pension Credit because that benefit had "particularly strong characteristics of social assistance" (§21). I do not think it is necessary to weigh the extent of a hybrid benefit's social assistance characteristics. It suffices that the benefit falls simultaneously within the category of both social security and social assistance; such a benefit retains its place within the system of social assistance of the country of residence and restrictions on entitlement may be justified by reference to the need to protect the country's public finances.
51. The widening of the scope of 1408/71 preserved the right of the country of residence to legislate as to the conditions of entitlement provided that they did not discriminate on the grounds of nationality. It did not preclude justification of covert discrimination on bases independent of nationality.
52. Once it is accepted that State Pension Credit has not lost its characteristics of social assistance, despite its inclusion within the scope of 1408/71, it would be inconsistent with Trojani, Abdirahman and Kaczmarek to conclude that indirect discrimination in the application of the right of residence condition is unjustified. Mr Cox accepts, as he must, that Article 3 is a "specific manifestation", to use his words, of Article 12 EC. Those cases teach that the scope of Article 18 EC, and thus of the prohibition against discrimination in Article 12 EC, may be restricted to those who are economically or socially integrated with the country whose social assistance they seek for the purpose of protecting the public finances of that country. It would be inconsistent to interpret Article 3 of 1408/71, derived as it is from Article 12 EC, as precluding reliance on the very circumstances which justify limiting the scope of Article 12 EC. In short, just as protection of the public finances of the host country justifies limiting the scope of Article 18 EC and thus Article 12 EC, so too it justifies the indirect discrimination of which Ms Patmalniece complains.
53. It is true that this court's comments on the justification for the indirect discrimination in Abdirahman were obiter, since the prohibition against discrimination fell outwith the scope of the Treaty. But its conclusions that the limitations to the right of residence imposed under Directive 90/364 (§33) were proportionate to the legitimate objective of protecting the finances of the host state were part of its reasoning. They apply with the same force in the context of justification. The grounds for limiting entitlement to State Pension Credit to those who have become either economically or socially integrated are the same as those which limited Mr Ullusow's entitlement in Abdirahman. They are grounds independent of Ms Patmalniece's nationality. For the reasons I have given, 1408/71 does not have the effect of rendering the purpose of the right of residence requirement illegitimate. It imposes no disadvantage on Ms Patmalniece in the exercise of any rights under the Treaty; she retains her right to her Latvian pension. She is not claiming as an economic migrant. For the reasons given in Abdirahman and Kaczmarek, she has no right of residence under the Treaty.
54. Mr Cox further contended that the justification for restricting entitlement to those economically or socially integrated with the United Kingdom is undermined by the special treatment for Irish nationals. Article 2 of the Protocol on the application of certain aspects of Article 14EC (ex 7a) confirms that the United Kingdom and the Republic of Ireland are entitled to "continue to make arrangements between themselves relating to the movement of persons between their territories (Common Travel Area)". Mr. Cox submits that 1408/71 concerns rights to benefit and is not concerned with arrangements relating to movement between the United Kingdom and Ireland. I disagree; 1408/71 stems, as I have demonstrated, from Article 42, and is designed, as its recitals state, to remove inhibitions on the exercise of a worker's freedom of movement.
55. Mr Cox finally sought to resurrect an argument which failed in Abdirahman (§§ 47-48) that the United Kingdom's only remedy was not to deprive Ms Patmalniece of State Pension Credit but to remove her. He based this contention on a paragraph in Trojani:

"45. It should be added that it remains open to the host Member State to take the view that a national of another Member State who has recourse to social assistance no longer fulfils the conditions of his right of residence. In such a case the host Member State may, within the limits imposed by Community law, take a measure to remove him. However, recourse to the social assistance system by a citizen of the Union may not automatically entail such a measure."

56. These observations, as the previous paragraph and the opening words of this paragraph makes clear, relate only to those, who, like Mr Trojani, lawfully reside in the host Member State. Mr Trojani had a residence permit and was thus lawfully resident. The observations have no application to a claimant, such as Ms Patmalniece, lawfully present, but without a right of residence (a distinction recognised in Abdirahman (§19) and Kaczmarek (§5)). Absent that degree of economic or social integration which both EU and domestic legislation recognise as a justifiable condition for entitlement, there is no unlawful discrimination in refusing her a benefit which has the characteristics of social assistance. I would dismiss this appeal.

Lord Justice Sullivan:

57. I agree.

Lord Clarke of Stone-cum-Ebony, MR:

58. I also agree.