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	UK Social Security and Child Support Commissioners' Decisions
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[2003] UKSSCSC CIS_2011_2003 (21 November 2003)

 


PLH Rhif ffeil/ Commissioner's File No: CIS 2011/03

DEDDFAU NAWDD CYMDEITHASOL 1992-1998

SOCIAL SECURITY ACTS 1992-1998

APÈL YN ERBYN DYFARNIAD TRIBIWNLYS APÈL

YNGHYLCH CWESTIWN CYFREITHIOL

APPEAL FROM DECISION OF APPEAL TRIBUNAL

ON A QUESTION OF LAW

DYFARNIAD Y COMISIYNYDD NAWDD CYMDEITHASOL

DECISION OF THE SOCIAL SECURITY COMMISSIONER

Cais am/ Claim for: Income Support

Tribiwnlys/Appeal Tribunal: Cardiff

Rhif achos/Tribunal Case Ref: U/03/188/2002/06995

Dyddiad/Tribunal date: 19 March 2003

Rhesymau/Reasons issued: 24 March 2003

[GWRANDAWIAD/ ORAL HEARING]

This appeal brought on behalf of the claimant is dismissed, as in my judgment there was no error of law in the decision of the Cardiff appeal tribunal consisting of a chairman sitting alone on 19 March 2003, who held the claimant was not entitled to income support because a fund of over £163,000 administered on her behalf by the Court of Protection had to be counted as capital of hers for income support purposes.

The claimant is a lady now aged 44, who suffers from severe learning disability. She is unable to manage her own property or affairs and these are in the control of the Court of Protection. The appeal arises out of an application for income support made on her behalf on 22 August 2002 by Mr Rhys Thomas, the receiver of her income appointed under the Court's first general order dated 1 March 2000 at pages 54 to 55. By this he is empowered to operate a receivership bank account, receive and give a discharge for all payments of income due to her, and apply so much as may be necessary of her net income for her maintenance and general benefit, with a provision for him to apply to the Court for resort to capital in case her income should be insufficient for those purposes.

There is no dispute that for income support purposes the claimant's capital must be taken to include a sum of £4,110-odd held in the receivership bank account at Barclay's Bank at the date of the claim. The issue pursued on the claimant's behalf by the receiver in the appeal to the tribunal, and in this further appeal to me, is whether a much larger capital fund of £163,030.82 must also be taken into account at its full value. This is held in Court on the claimant's behalf and represents money she inherited from her late father. The contention of the receiver is that for practical purposes its value should be disregarded as negligible, on the ground that the interest of an incapacitated person in funds in Court so held is unmarketable and must be worth very little indeed.

I held an oral hearing of this appeal which had been directed by another Commissioner. Eason Rajah of Counsel, instructed by Mr Thomas's firm "Emeritus Legal", solicitors, appeared on behalf of the claimant, and Vaughan Lewis of the solicitor's office, Department for Work and Pensions, appeared for the Secretary of State. Mr Rajah helpfully provided me with a detailed skeleton argument and copy extracts from Heywood and Massey's Court of Protection Practice and other authorities.

It is worth recalling that the questions at issue in this appeal arise out of a claim for income support. This, it has been said many times, is the benefit of last resort, intended to provide State assistance only for persons without sufficient income or capital of their own available to provide for their own basic weekly necessities. A person can thus qualify for income support under section 124 Social Security Contributions and Benefits Act 1992 only if he or she has no income, or income that does not exceed the prescribed "applicable amount", pitched at a basic subsistence level; and by section 134 only if he or she has less than a prescribed amount of capital (in this case, £8000).

How a person's income and capital is to be calculated for these purposes is governed by section 136, and an elaborate set of provisions in the Income Support (General) Regulations 1987 SI No. 1967. Those relevant to whether the claimant had capital over the limit are in Part V Chapter VI of, and schedule 10 to, the Regulations:

"Calculation of capital

46.- (1) For the purposes of [Part VII of the 1992 Act (Income-Related Benefits)] as it applies to income support, 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 …

(2) There shall be disregarded from the calculation of a claimant's capital under paragraph (1) any capital, where applicable, specified in Schedule 10. 

…

Calculation of capital in the United Kingdom

49. Capital which a claimant possesses in the United Kingdom shall be calculated –

(a) except in a case to which sub-paragraph (b) applies, at its current market or surrender value, less –

(i) where there would be expenses attributable to sale, 10%; and

(ii) the amount of any incumbrance secured on it;

(b) [not applicable]."

Schedule 10 (Capital to be disregarded) sets out a large number of detailed (and much amended) provisions for leaving certain types of asset out of the reckoning of a claimant's capital, the only ones of potential relevance being:

"12. Where the funds of a trust are derived from a payment made in consequence of any personal injury to the claimant, the value of the trust fund and the value of the right to receive any payment under that trust.

…

44. Any sum of capital administered on behalf of a person by … the Court of Protection, where such sum derives from –

(a) an award of damages for a personal injury to that person; or

(b) compensation for the death of one or both parents where the person concerned is under the age of 18."

The appeal to me is against the decision of the tribunal chairman, confirming that of the Secretary of State, that the £163,000 fund managed on the claimant's behalf at the Court of Protection fell to be included as her capital under the above provisions, and could not be given a heavily discounted or negligible value. As the chairman Mrs Curran recorded the argument in the statement of reasons at pages 102 to 103:

"There is no dispute that the sum [i.e. the £163,000] is a capital asset and that the income it produces is relevant for the purposes of income support. The sole issue is the valuation of the asset. It is accepted that none of the disregards in Schedule 10 applies … the argument put to me was that the funds held by the Court of Protection were analogous to those held by a discretionary trustee. A beneficiary of Court of Protection funds can no more gain access to those funds than a beneficiary of funds held under a discretionary trust. As the value of the funds is the market value, a nil or low valuation should be placed on those funds."

In her carefully reasoned decision that argument was rejected, on the ground that assets administered at the Court of Protection for an incapacitated person are nonetheless the patient's own assets, and

"Capital and income are only disregarded if the provisions of Scehdule 10 apply. There is no disregard for funds held by the Court of Protection, save where such funds are held in the circumstances referred to in para 12 of Schedule 10. Without express provision it cannot have been the intention of Parliament that funds held by the Court of Protection should be accorded a low or nil market value. To take an extreme example, is a fund of £10 million producing substantial income to be given a nil or low value merely because of its availability to the patient under the Court of Protection scheme?"

In argument before me Mr Rajah expressly confirmed that the capital from time to time in the separate receivership bank account, and held and administered on behalf of the claimant by the receiver as her statutory agent, had to count in full as capital of the claimant herself for income support. He further confirmed that as already conceded below there was no question of any of the express disregard provisions in Schedule 10 applying: since although funds in court and administered by the Court of Protection were to be regarded as assets subject to a trust, neither paragraph 12 nor paragraph 44 covered the claimant's funds as none of them represented payments in respect of personal injury or compensation for the death of a parent.

It was further conceded, and contended, in the written notice of appeal by Mr Thomas dated 29 April 2003 at pages 108-111 that as regards the claimant's funds in Court subject to the jurisdiction of the Court of Protection:

"The correct analysis is that such funds are held on a bare trust for [the claimant]. ... Accordingly, [the claimant's] undoubted beneficial interest in the fund forms part of her capital resources. It is NOT [her] case that she has no beneficial interest in the fund or that there is an applicable disregard in respect of her interest in the fund … the critical issue is the valuation of her interest in that fund taking into acount the unique features of the statutory scheme of the Court of Protection. The test is what price would be paid by a willing buyer to a willing seller ... for the interest in that fund."

That was the argument repeated and developed by Mr Rajah at the hearing before me. His submission was that before one could arrive at a proper valuation of a person's capital, it was essential to identify the asset belonging to that person which was to be valued. In the present case, because of the unfortunate circumstance of the claimant's inability to deal with them, the capital funds she has inherited are all locked away safely in Court. Any assessment of her interest must take into account that neither she nor the receiver is able to insist on any part of them being released unless the Court of Protection in its discretion so directs. Hence the market value of what she actually has is so small as to be negligible. Who would give anything at all for such a limited interest, if either she or the receiver tried to realise it or raise money on it?

Therefore so far as having any commercial value was concerned, Mr Rajah argued that the true nature of what had to be assessed as the claimant's capital was indistinguishable from the interest of a beneficiary under a discretionary trust or power of appointment, who was not in a position to insist on being paid anything at all. In this he claimed support from some observations of Mr Commissioner Heald QC in case CIS 368/94, a case involving a capital fund representing personal injury damages held at the Court of Protection. The question was whether the fund counted as held "in trust" so as to be within paragraph 12 of schedule 10, at a time before paragraph 44 had been added. The Commissioner held that it did and said at paragraph 10 of his decision:

"10. In my view the use of the word 'trust' should be understood in simple terms, used to cover the situation where the legal estate of property is in one person, but the beneficial estate is in another person. With regard to paragraph 12 of Schedule 10, it does not seem to me material whether there is a particular trust deed which has been set up to define the extent and limits of a particular trust, or a statutory scheme involving, for example, the Court of Protection, and giving a discretion as to the administration of any particular funds to the discretion [sic] of that court. The capital can only be paid out to the Receiver in the present case with the approval of the Court, and for the benefit of the beneficiary. It is entirely in accord with similar provisions in a discretionary trust set up by deed."

Accordingly in Mr Rajah's submission, whatever the precise juridical nature of the trust under which the money itself is held at the Court of Protection, regard must be had to the reality that the claimant's own interest in it is of negligible market value, and analogous to that of a purely discretionary beneficiary unable to insist on anything. Passages such as paragraph 3 of the decision of Mr Commissioner Henty in CIS 7127/95 holding that a patient's funds under the control of the Court of Protection, if not derived from damages for personal injury etc., were capital in which he or she retained the entire beneficial interest and so had to be counted at full value, and some observations of my own in CIS 929/00 paragraphs 14-15, were wrong insofar as they suggested otherwise. They should not be followed, as inconsistent with what Mr Heald QC had said.

Mr Lewis on the other hand submitted that the position was much simpler than that. There was no real inconsistency between the authorities, though admittedly the previous cases referred to in CIS 7127/95 did not establish the proposition in nearly as clear terms as the Commissioner himself did in that decision. The true analysis was that unless and until the Court of Protection thought it right to exercise its special powers under the Mental Health Act to make some disposition out of a patient's property, by way of formal settlement or otherwise, the entire beneficial interest in the funds administered remained with the patient to whom alone they belonged. The fact that the Court had discretionary powers of control over the management of the patient's property for his or her benefit did not mean that the patient's absolute beneficial ownership had suddenly disappeared, or that its existence became a matter of discretion. The capital that had to be taken into account was therefore the property or funds themselves. The way these had to be valued was by taking their full market value less any allowance for expenses under regulation 49. Mr Lewis (rightly) disclaimed reliance on an earlier departmental submission that this was a case of a "surrender value" under regulation 49.

In my judgment, despite Mr Rajah's attractively presented and well argued submissions, the analysis put forward by Mr Lewis on behalf of the Secretary of State (which was substantially the same as that accepted by the tribunal) was correct and must be preferred. I do not think there can be any doubt that as a matter of general law, assets being administered on a patient's behalf either at the Court of Protection or by his or her receiver are still the patient's own assets: and a fund of capital held in Court for such a patient remains as a matter of law his or her absolute beneficial property, unless or until there is an actual exercise of the special powers of the Court under the Mental Health Act to dispose of it out of that beneficial ownership, for example by making a settlement for the patient's benefit so as to include other beneficial interests.

That in my judgment is demonstrated by the relevant provisions of the mental health legislation themselves, now in Part VII Mental Health Act 1983; and in particular sections 95 and 96, which make clear that the jurisdiction and functions of the Court depend on the property over which they are exercised being that of the patient. The basis of any exercise of those special powers is that it is for the benefit of the patient that the Court should do, by way of disposal out of his own beneficial property, what it is satisfied he would have done if of sound mind: see re C.L. [1969] 1 Ch 587, Cross J. The principle that the beneficial ownership in a patient's own assets remains unaffected by the management of his affairs passing into the hands of the Court of Protection or the appointment of a receiver also underlies those authorities such as re Oppenheim [1950] Ch 635, cited to me, which show that these events do not cause a forfeiture of a protected life interest, as there is no change in the person entitled: cf. per Harman J at 637.

It is true that in such a situation the legal title and beneficial ownership in the assets become separated, so as to meet Mr Heald QC's "simple" test for the existence of a trust in CIS 368/94. However as rightly conceded in the notice of appeal, this is a trust of the most simple kind: a "bare trust", where the entire beneficial ownership remains with one person, and to answer the question what belongs to the beneficiary under such a trust one must look through the legal title to the assets themselves. Nor, as a matter of general law, are assets so held to be regarded as having a reduced or negligible value by reason of the administrative arrangements under which they are held or the incapacity of the person they belong to. The intrinsic value of the asset remains the same whether it belongs to a person sui juris, one unable to dispose of it because of legal incapacity during minority, a person temporarily oblivious to his affairs because he is a patient in hospital undergoing an operation, or a person more permanently unable to attend to them for himself who has to have this done for him as a patient in the Court of Protection.

What has to be determined in the present appeal is therefore whether anything requires this claimant's capital to be treated for income support purposes as consisting of anything other than the money and assets which are her own absolute property under the general law; or requires its value to be taken as anything other than their actual value.

I accept of course that as Mr Rajah says the fact that an argument is a novel one is not a sufficient reason for rejecting it. It is nevertheless remarkable that if such a basic point on the nature and value of the patient's asset is correct, it has not been successfully raised before: even though it would of course have provided the easiest of shortcuts to victory for the claimant in CIS 368/94, CIS 7127/95 and no doubt other cases as well. Moreover as noted in CIS 929/00 it is implicit throughout the Court of Appeal's judgment in R(IS) 10/01 Beattie v Secretary of State, where the matter was fully argued by leading and junior Counsel, that assets under the control of the Court of Protection belong beneficially to the patient and the only issue is whether their (actual) value is disregarded under schedule 10: cf. also CIS 4037/99, Bell v Todd and Tyneside MBC (Burnton J 25 June 2001); CIS 929/00 paragraphs 10, 14-15.

In my judgment however even approaching the matter on principle and as one of first impression, there can be no warrant for artificially excluding from this claimant's capital for income support the actual value of the funds in Court which, under the general law, are her property. The "property of a patient" within sections 95, 96 Mental Health Act 1983 must inescapably come within "the whole of his capital" under regulation 46 cited above. It must thereby come into the reckoning for income support purposes, subject only to any special provisions in the income support legislation for excluding particular assets or their value. Here, as is conceded, there is no provision of schedule 10 for the value of these funds to be excluded or disregarded. Under regulation 49 the normal rule as to valuation must therefore apply, so that the property itself must be brought in at its current market value, less any appropriate allowance for sale expenses. The express exclusions in schedule 10 for some, but not all, trust or Court of Protection funds confirm the intention of the legislation that apart from such exceptions, such funds are to be included as capital of the claimant concerned and valued in the normal way despite any incapacity of the person for whose benefit they are held.

Accordingly in my respectful view the decision of the Commissioner in case CIS 7127/95 that apart from any express exclusion such funds must be included as the claimant's capital at their actual value was soundly based in principle and authority, and I ought to follow it. In the passage from CIS 368/94 cited above on which reliance was placed the Commissioner was concerned only with the single issue of whether any form of trust (in the simple sense of an asset legally held by one person but belonging beneficially to another) existed, or not: cf. paragraph 7 of that decision. His reference to "similar provisions in a discretionary trust set up by deed" is plainly only to what he had described just before as "a discretion as to the administration of any particular funds" (my emphasis). He does not purport to say that the beneficial interest of a patient in his or her absolute property at the Court of Protection is anything less than it actually is, nor in any event could his comment provide authority for such a proposition as Mr Rajah sought to make it do, since that was not the issue before the Commissioner.

Accordingly since the size of the fund held for the claimant in the present case makes it quite clear that her capital was far in excess of the income support limit even with the most generous allowance for realisation costs, including any application to the Court of Protection that would be needed, the claim for income support was rightly rejected by both the Secretary of State and the tribunal and I now dismiss this appeal.

(Signed)

P L Howell

Commissioner

21 November 2003