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1990s
1991
CIS/236/1991. Notional capital - decision maker had not proved that a claimant who had lost capital speculating on the stock market had done so to obtain income support.
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Decision
SOCIAL SECURITY ACT 1986
APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A
QUESTION OF LAW
DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. My decision is that the decision of the social security appeal tribunal given on 6 November 1990 is erroneous in point of law and accordingly I set it aside. However, as I consider it expedient to make new findings of fact and to give such decision as I consider appropriate in the light of them, I further decide that the claimant is entitled to income support from 2 February 1990, because he is not to be treated as possessing capital which exceeds the prescribed amount of £6,000.00.
2. This is the claimant's appeal against the decision of the social security appeal tribunal of 6 November 1990, leave having been granted by the tribunal chairman. I held two oral hearings of the appeal. The claimant attended and conducted his own appeal on both occasions. At the first oral hearing the adjudication officer was represented by Mr M D Jobbins and at the second oral hearing by Mr G Roe both from the Central Adjudication Service.
3. The claimant was born on 1 November 1929. He was employed as an electronic service engineer technician from 1973 to 26 September 1986, when he was made redundant. He received a redundancy payment of £3,700. He lived in rented accommodation at 56 Kenton Road, Harrow, Middlesex with his wife and two non- dependent children. He was in receipt of unemployment benefit followed by income support because he remained unemployed. He agreed to vacate the premises by 15 March 1989 in consideration of £90,000. He took a shorthold tenancy for one year of a flat at 90 Hartford Avenue, Harrow from 20 February 1989. His monthly rent was £625 and he paid an additional month's rent as a deposit. It is not in dispute that the claimant received £87,646 net. In a letter dated 17 March 1989 the claimant's solicitors reported on the completion of the transaction and the transfer of £2,000 to the claimant's Barclay Bank Account and £82,750 to his Abbey National Building Society Account.
4. The claimant returned his order book for income support after cashing the order for 27 March 1989 stating that he wished his claim to be cancelled as he now had savings of over the then prescribed amount of £6,000. However on 2 February 1990 the claimant made a further claim for income support stating that his savings amounted to only £1,200. The claimant was interviewed by an adjudication officer on 22 February 1990. In answer to queries as to how and why his capital had reduced to £1,200, the claimant explained that he had repaid debts amounting to £10,000; he had spent £15,000 on living expenses including rent and the balance of the money had been invested, but lost on the Stock Exchange.
5. On 7 March 1990 the adjudication officer rejected the claim on the ground that the claimant had actual and "notional capital" resources in excess of £6,000 (increased to £8,000 from 9 April 1990) being the then prescribed limit in regulation 45 of the Income Support (General) Regulations 1987 (the General Regulations) for the purposes of entitlement to income support. Thereupon the claimant appealed to the tribunal.
6. In his written observations on the claimant's appeal the adjudication officer took the view that as the claimant had lost £54,000 through continuous dealings on the stock market which had not paid off over a period of 10 months, he had deprived himself of the money for the purpose of securing income support in terms of regulation 51(1) of the General Regulations, with the result that the resources were to be treated as still possessed by the claimant. The adjudication officer made no submission with regard to the claimant's other items of expenditure.
7. The claimant attended the hearing of the appeal before the tribunal on 10 July 1990. In the event the tribunal, rightly in my view, decided to adjourn the hearing of the appeal because "the tribunal experienced very great difficulty in their efforts to elicit facts from the appellant". The tribunal suggested that he should be represented at the next hearing and submit "collated written evidence of his financial state from mid-March 1989 until the date of claim". The chairman recorded very full and detailed notes of evidence.
8. The claimant submitted in evidence the statements from Sheppards, his brokers, in respect of his "ordinary" dealings and traded options accounts. He also submitted in evidence his Abbey National Building Society and Barclays Bank statements. The claimant attended the hearing of the appeal before a differently constituted tribunal on 6 November 1990. The chairman again recorded detailed notes of evidence. In the event the tribunal confirmed the adjudication officer's decision. The findings of fact so far as relevant read:
"... The Tribunal having viewed all the evidence produced by the appellant find that the assessment of the chairman's notes of evidence of the tribunal held on 10 July 1990 are correct ... on the appellant's own evidence more than £6,000 was lost in Stock Exchange deals over the matter of some 8 months."
The reasons for decision read so far as material:
"The tribunal held that the issue before it was whether the disposal of £60,000 over a matter of some 8 months by speculation on the Stock Exchange involved firstly the appellant depriving himself of a resource, and secondly that he had done so for the purpose of securing or increasing income support, and thirdly that it was appropriate to exercise the discretion to treat the resource as still possessed by the appellant ... the appellant moved income producing capital from a comparatively safe investment in the Abbey National to his brokers account. Secondly he could have invested the £82,000 which he received for the sale of 56 Kenton Road, Harrow to another property in which he could have lived. The tribunal did not accept the appellant's view that he could not get a suitable accommodation for that money. The appellant had a choice of owner-occupancy and a terraced house could have been bought in this area for £65,000 at the relevant time. The appellant chose to rent property and to have a large capital sum at his disposal for investment. He must have known that if the Stock Exchange fell rather than rose he was liable to lose money and would then have to depend upon income support, as he had done previously. The tribunal was of the view that the appellant had deprived himself of a resource by his very actions in losing £60,000 over a matter of 8 months, he had done so for the purpose of securing income support which he must have known was his only source of income when his money disappeared and that it considers it appropriate to exercise a discretion to treat that resource as still possessed by the appellant."
9. Regulation 25(2)(b) of the Social Security (Adjudication) Regulations 1986 provides that every tribunal chairman shall record a statement of the reasons for the tribunal's decision and of their findings on material questions of fact. The record of the proceedings indicate that the tribunal took considerable time and care over the present appeal, but nevertheless for the reasons set out below the decision was inadequate and failed to comply with the statutory requirements. As a result the decision is erroneous in law.
10. Section 22(6) of the Social Security Act 1986 ("the Act") provides that no person shall be entitled to an income related benefit if his capital or a prescribed part of it exceeds the prescribed amount. Regulation 46 of the General Regulations provides, so far as material:
" 46. - (1) For the purposes of Part II of the Act 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."
Paragraph 3 of Schedule 10 to the General Regulations provides for the disregard from the calculation of the claimant's capital of:
"Any sum directly attributable to the proceeds of the sale of any premises formerly occupied by the claimant as his home which is to be used for the purpose of other premises intended for such occupation within 26 weeks of the date of sale or such longer period as is reasonable in the circumstances to enable the claimant to complete the purchase."
11. Regulation 51(1) of the General Regulations provides:
" 51. - (1) The claimant shall be treated as possessing capital of which he has deprived himself for the purpose of securing entitlement to income support or increasing the amount of that benefit."
It will be noted that two elements are necessary - that the person has deprived himself of actual capital and that his purpose was to secure entitlement to or increase the amount of income support. Unlike the provisions of regulation 4 of the Supplementary Benefit (Resources) Regulations 1981, the provisions are mandatory and there is no discretion as stated by the tribunal. However I consider the error made by the tribunal in this respect to be venial because in the event it did not affect the outcome of their decision.
12. The claimant initially submitted that his capital fell to be disregarded because he was entitled to the benefit of the provisions of paragraph 3 of Schedule 10 to the General Regulations. Although he did not pursue this argument before me I should mention for completeness that I reject it. The claimant received £90,000 in consideration of vacating 56 Kenton Road. The claimant took a lease for one year of 90 Hartford Avenue from 20 February 1989 and he manifestly had no intention or purchasing another property.
13. I turn now to the issue of whether the claimant is caught by regulation 51(1) of the General Regulations. In Decisions R(SB) 38/85 and R(SB) 40/85 the Commissioners considered similar issues albeit for supplementary benefit purposes. Once it is shown that a claimant did possess, or received, a resource, the onus of proving on balance of probability that he no longer has the whole or part of the resource at the date of claiming benefit rests on the claimant, since it is for him to establish entitlement to income support (R(SB) 35/85). If he cannot satisfactorily account for the way in which a resource which he says he no longer has was disposed of, the proper conclusion is that it remains a part of his actual resources, to be valued under regulation 51(1) of the General Regulations.
14. The word "deprived" is an ordinary English word whose meaning is not a question of law. In Decision R(SB) 40/85 a Commissioner considered the meaning of the word in the context of regulation 4(1) of the Supplementary Benefit (Resources) Regulations 1981. In my view the same interpretation applies to regulation 51 of the General Regulations. In paragraph 8 of the said decision the Commissioner stated:
".. in my judgment it does not change its meaning by reference to the consequences of deprivation. It is in my judgment perfectly proper for adjudication officer or tribunal to conclude that a person has deprived himself of the resource if as the result of his own act he ceases to possess that resource whether or not he becomes possessed of some other resource in its place. He may thus be held to have deprived himself of a resource if he gives it away, if he uses it up in living frugally or prodigally, or to pay for a holiday or in any other manner that leaves no resource at the end of the day; .."
15. Under the terms of the agreement dated 15 March 1989, executed by the claimant and each member of his family, the claimant received £90,000 in consideration of vacating the premises on that day and relinquishing all legal and/or beneficial interests that they might respectively have had in 56 Kenton Avenue and any statutory rights that they might have to possession of the property. The agreement provided for the sum of £2,000 to be paid to the claimant at an earlier date "solely for the purpose of utilising the said monies as the deposit of rent on an alternative property". The claimant paid £625 as rent in advance from 20 February 1989 and a deposit of the same amount, totalling £1,250. Following completion on 15 March 1989 the claimant's solicitors held £88,750 to his account. In a letter dated 17 March 1989 they stated that they transferred the sum of £2,000 to the claimant's Barclay Bank account and £82,750 to his Abbey National Account and withheld £4,000 in respect of the proportion of legal costs payable to the legal aid fund in connection with proceedings for possession against the claimant. In due course the claimant received a balance of £1,646 from his solicitors. As stated it is not in dispute that the claimant received £86,396 net. The relevant period for determining whether or not the claimant deprived himself of any resource is from 15 March 1989 to 2 February 1990, when he claimed income support. At that date he declared that his actual capital was £1,200 and as a result I have to consider whether the balance of £85,196 falls to be taken into account as capital under the provisions of regulation 51(1) of the General Regulations.
16. The claimant repaid several debts. He told me that the owner of 56 Kenton Avenue had initially offered him £50,000 on the basis that only he and his wife occupied the property. However the amount was increased to £90,000 after it was established that the claimant's non-dependent son and daughter also occupied the property. As they were required to execute the agreement to vacate property, the claimant had promised to pay them £5,000 each although they considered they were entitled to £20,000 each. In the event he paid his daughter £2,000 and his son £3,500. In my view the claimant had a legal obligation to pay these sums at the time he did. The claimant told me that he also repaid loans of £500 each to Mr Shafi and Mr Hill. The claimant was unable to submit any evidence in support of such a finding but I am satisfied in this particular case that these amounts were owing. The Abbey National Building Society Account shows two separate withdrawals for £500 each by cheque at approximately the dates specified by the claimant. The tribunal's decision was inadequate because it is silent on the issue of debts repaid by the claimant with the exception that they found as fact that the claimant owed Barclay Card £1,400. The claimant explained that during the relevant period he spent £15,000 including rent on general living expenses. In addition he paid £750 removal expenses. In my view the claimant reasonably disposed of the total of £23,650.
17. The claimant declared that he possessed £1,200 actual capital at the date of claim. Accordingly I now have to consider whether he deprived himself of the balance of £61,546. The claimant told me that he had always speculated on the Stock Exchange. He borrowed money from various banks to finance his operations. In addition he worked a considerable amount of overtime so that his weekly earnings enable him to meet his financial commitments. However in 1982 his employers lost a valuable customer with the result that overtime was banned. The claimant was unable to meet his financial commitments and Court orders were made against him for debts owing to various banks and to his then brokers for approximately £12,500. The claimant ceased investing. Following his redundancy he claimed income support. At the same time his wife was diagnosed as suffering from schizophrenia, requiring periods of hospital in-patient treatment. In March 1989 he renewed his activities on the Stock Exchange. He placed £40,000 with the Abbey National Building Society and speculated with the balance. He bought and sold ordinary shares on a daily basis and bought traded options with a three months life span period. The claimant explained that Sheppards required a deposit of £8,000 in order to operate his activities. As his investments failed, he was obliged to withdraw money from his building society account and pay it into his various trading share accounts. In July 1990 his wife became seriously ill and threatened his daughter's life. His daughter left home and his wife was admitted to hospital under section 2 of the Mental Health Act 1983. She was discharged a month later but suffered a further relapse in September when she attacked the claimant and "battered him". She was re-admitted to hospital. The claimant told me that, not surprising, these incidents had affected his health and judgment so that he failed to appreciate that the market was heading for a crash. As a result he lost nearly everything in October 1989 and although he continued trading on the Stock Exchange with very limited funds, he found that by 1 February 1990 he had sustained trading losses of £61,454.26.
18. The claimant submitted in evidence copies of statements and contract notes with Sheppard relating to traded options and "ordinary" dealings and copies of account statements from the Abbey National Building Society and Barclays Bank. As these documents were incomplete, I directed the claimant to submit the balance of the documents required to cover the whole period together with particulars of any other bank or building society accounts held by him during this period. In the light of this further evidence I directed the adjudication officer to submit a full analysis of the claimant's traded options and "ordinary" dealings from 1 March 1989 to 1 February 1990.
19. In reply to my direction the claimant provided copies of all the documents required and Mr Jobbins submitted an admirable analysis of the claimant's various transactions. In his written submission dated 13 January 1992 Mr Jobbins explained the claimant's trading losses and provided detailed statements in support of his conclusion. At paragraph 5 he stated, so far as material:
"... the claimant sustained trading losses up to 1 February 1990.
1. In traded options 34,332.88.
2. In "ordinary" dealings £6,804.97.
3. Total £51,127.85
6. I submit that there were several likely factors which caused the claimant's losses. The chief of these was probably the downturn in the stock market in September- October 1989. The claimant had invested heavily in traded options and numerous speculations seemed to have been virtually worthless well before their expiry. At the end of the periods for which the options were valid those still on his hands were completely worthless. Other options were sold for sums greatly below their purchase price. ... At the end of October 1989, a cumulative trading profit of £5,518.18 turned into a loss of £25,336.78 by the loss on unsaleable items which had cost £30,494.94. Thereafter any "gains" were very small and the losses continued to mount, so that by 31.1.90 there was an overall loss of £44,148.51. To support this operation £49,148.51 was put into the traded options current account from various sources." Mr Roe accepted the above analysis of the claimant's trading losses.
20. I have considered all the voluminous documentary evidence before me with care. I accept Mr Jobbins analysis of the loss in traded options amounting to £34,322.88. However, with regard to the "ordinary" dealings, Mr Jobbins analysis reflects the claimant's losses of £6,804.97 from 14 July 1989 to 7 January 1990 and fails to take into account the losses sustained by the claimant from March to 13 July 1989. The statement of account with Sheppards relating to "ordinary" dealings show that on 25 April 1989 the claimant paid £8,000 into the account by a cheque from the Abbey National Building Society; on 18 May he paid £7,894.54 by cheque from the same account; on 1 June he paid £3,377.22 by cheque from the same account and on 28 June he paid £2,130.50 by cheque from the same account. Corresponding debits are shown in the Abbey National Building Society Account. During that period the claimant injected a total of £21,402.26. Although I have not analysed the precise loss during that period, I am satisfied that the claimant sustained losses in relation to his "ordinary" dealings in excess of £20,000. As a result I find that during the whole of the period in issue the claimant deprived himself of the balance of £61,546 for the purposes of regulation 51(1) of the General Regulations.
21. I now have to consider whether the claimant deprived himself of this sum for the purpose of securing entitlement to income support or increasing the amount of that benefit. The claimant had been in receipt of income support previously and he readily conceded that he was aware of the capital limit. The tribunal concluded that the claimant had such intention and based their decision on the fact that the claimant had speculated with his capital and had chosen to rent accommodation instead of purchasing a property. In my view looking at the evidence as a whole these facts are not sufficient to show intent for the purposes of regulation 51(1). The claimant had speculated on the Stock Exchange for a number of years and although he had sustained losses before he had also profited from the exercise. He believed he could make a substantial gain and I accept that the greater part of his losses were sustained over a few days in October 1989, when the market collapsed. I accept that the claimant's wife suffered from schizophrenia and I note that in proceedings before a housing benefit tribunal the claimant submitted a consultant psychiatrist's letter in support. I accept the claimant's evidence that because of his domestic problems in August and September 1989 his judgment was marred and he failed to take appropriate action to avoid these losses. In my view the adjudication officer has not discharged the burden of proving on the balance of probability that the claimant deprived himself of the net proceeds of sale of his home "for the purpose of securing entitlement to income support or increasing the amount of that benefit". Mr Roe supported the appeal on this ground. 22. I should add for completeness that Mr Jobbins and Mr Roe submitted in the alternative that the claimant, as "a professional investor", was running a business and as such his action should be determined accordingly and his earnings calculated under regulation 30(1)(b) of the General Regulations. I reject this submission. The evidence before me indicates that there were no dealings by the claimant from 1 February 1990 with the exception of one item, 1 May 1990. I consider this negligible and the true position was that the claimant ceased speculating after the date of claim for income support.
23. For the reasons stated above the tribunal's decision was erroneous in law. However, as I consider it expedient to give the decision the tribunal should have given, I give the decision set out in paragraph 1 as I am empowered by section 23(7)(a)(ii) of the Social Security Administration Act 1992.
(Signed) R.F.M. Heggs
Commissioner
(Date) 9 October 1992 MJG/SH/5
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