[1997] UKSSCSC CIS_12263_1996 (04 September 1997)
MJG/RG/ZA/6
Commissioner's File: CIS/12263/96
SOCIAL SECURITY ADMINISTRATION ACT 1992
SOCIAL SECURITY CONTRIBUTIONS AND BENEFITS ACT 1992
APPEAL FROM DECISION OF SOCIAL SECURITY APPEAL TRIBUNAL ON A QUESTION OF LAW
DECISION OF THE SOCIAL SECURITY COMMISSIONER
- I allow the claimant's appeal against the decision of the social security appeal tribunal dated 25 September 1995, as that decision is erroneous in law and I set it aside. My decision is that, in ascertaining the claimant's entitlement to Income Support (in pursuance of his claim made on 17 January 1995) there is not to be treated as income a payment of £2,011.82 from the Hampshire County Council on 24 April 1995, (being the third instalment of a student grant for the Summer Term 1995), because the claimant abandoned his course on 27 April 1995. On that date the balance of the payment, amounting to £1,698.85, became immediately repayable to the Hampshire County Council, was subject to a trust in favour of the Council and ceased to be the claimant's income: Social Security Administration Act 1992, section 23.
- This appeal by the claimant, a man aged 33 years at the relevant time and at one time a mature student on an HND computing course at a College of Technology, was the subject of oral hearings before me on 14 November 1996 and 2 September 1997. The hearing of 19 November 1996 was adjourned because I was at that time informed that application was being made to the Court of Appeal for leave to appeal in another case involving the same point as this one (the Income Support treatment of grants paid to a student who then abandoned his course) in a case on file CIS/5185/95 (Grundy). Leave to appeal was subsequently granted by a Lord Justice of Appeal in that case. However, I was given to understand at the oral hearing before me on 2 September 1997 that, because of lack of Legal Aid, that appeal would not be pursued. I therefore agreed now to give a decision in this case.
- At the hearing before me on 19 November 1996 the claimant was present and was represented by Mr D Forsdick of Counsel instructed by the Child Poverty Action Group. The adjudication officer was represented by Ms J Hartridge of the Office of the Solicitor to the Departments of Health & Social Security. At the hearing on 2 September 1997, the adjudication officer was represented by Ms R Bamforth of the said Solicitor's Office. I am indebted to all those persons for their assistance to me at the hearings.
- The original tribunal clearly took considerable pains in this case and their record of decision (on form AT3) is completed in exemplary detail. I have reversed their decision only because I do not accept their conclusion that the balance of the student grant for the summer term was to be regarded as income in the claimant's hands, despite his immediate obligation to repay it to the Hampshire County Council who had made the grant.
- The facts are set out in detail in the tribunal's findings, reading as follows:-
"1. The claimant is 33 years of age and living in mortgaged, owner-occupied accommodation with his 2 dependent children.
2. The claimant worked for British Telecom until 12 August 1994 when he was made redundant. He made a claim to Income Support on 18 April 1994 but this was disallowed on the grounds that he had capital in excess of £8,000.
3. The claimant made a second claim to Income Support on 30 September 1994 when he commenced a 2-year HND computing course at [a] College of Technology. The claimant declared that he had income from Child Benefit and One-Parent Benefit and grant income of £2,372.70 basic award plus additional days attendance and £3,250 for the mature student and dependant's allowance. The adjudication officer decided that the claimant was not entitled to Income Support from 30 September 1994 as his income exceeded his applicable amount. The claimant re-applied for Income Support from 17 January 1995 when he became eligible for 100% of the interest on his mortgage. The claimant was awarded Income Support at a weekly rate of £10.98.
4. On 27 April 1995 the claimant abandoned his course at the Technical College for financial reasons. He had received his £2,011.82 grant cheque for the Summer Term on 24 April 1995. The claimant had spent this money on mortgage arrears and other debts. He asked the Benefit Agency to review his award of Income Support from 27 April 1995 on the grounds that he was no longer a student and the grant income had been spent on repaying debts.
5. The Adjudication Officer considered the change of circumstances and decided that the grant income could not be disregarded even though the claimant was no longer a student..."
- I should add to those findings of fact that the Hampshire County Council on being told by the claimant that he had given up his course forthwith notified him that he must repay the apportioned balance of the grant, namely £1,698.85 and sent him an invoice for that account. On 17 January 1996 the council obtained a default judgement in the County Court against the claimant for that sum. The standard form of declaration by the student, apparently on receiving each grant cheque, contains the following undertaking, "If, for any reason whatsoever, I cease to attend my chosen course before the normal date of the termination of the award, I undertake to repay such sum as may be determined by the County Treasurer to have been paid in respect of the period after my last attendance." It is clear from this that all of the grant, including that element attributable to maintenance for the student and his dependants, is solely for the purpose of enabling a claimant to start upon an approved course of study and to continue upon that course. The moment that he abandons the course, the apportioned amount of any term's instalment of the grant that has already been paid to him becomes immediately repayable (see, to this effect, paragraph 3.2 of a letter from the Council to the claimant, dated 10 July 1996). The terms of the undertaking which is given to the education authority by the student make this clear but, in my view, even if there were no such undertaking, the relevant portion of the grant would still be repayable under the terms of the general law of trusts and in particular under a constructive trust when events cause monies held by one person in fact to be held by operation of law for another (see Halsbury's Laws of England, 4th Edition, Volume 48, paragraphs 584-586).
- In my judgment, therefore, it is incorrect to regard the repayable portion of the grant as income in the student's hands. As soon as he abandons his course an obligation to repay to the education authority arises. He holds the money, as I have said, on trust for the Education Authority. The result is in that assessing the claimant's continuing entitlement to Income Support after he abandoned his course on 24 April 1995, there must not be taken into account the balance (£1,690.85) of the grant that was repayable to the education authority.
- In arriving at this conclusion I am aware that I have come to a different conclusion from that of another Commissioner who came to a contrary conclusion on not dissimilar facts in the decision of file CIS/5185/95 (Grundy) the case in which a Lord Justice gave leave to appeal to the Court of Appeal (see para 2 above). At paragraphs 6 to 10 of that decision, the learned Commissioner dealt in detail with the possibility (which he himself had raised by a direction) that once the student abandons his course the grant monies were impressed with a trust for the education authority. The Commissioner came to the conclusion, however, that no such trust existed on the facts. He was affected in his decision by the fact (as here) that the whole of the term's grant does not have to be repaid to the Council but only that proportion of the grant that is apportioned on a time basis. Similarly, in the present case, the Council's letter enclosing an invoice for repayment of £1,698.85 stated,
"Your award has now been terminated with effect from 27 April 1995 which was your last date of attendance as notified by the college. A reassessment of your award has been made to calculate the amount due to you for the time you have attended college. This shows you have been overpaid by £1,698.85. Please find enclosed my official account requesting repayment of this amount, together with notes explaining how this calculation has been made. Please arrange for repayment to be made as soon as possible."
- The learned Commissioner in his decision on file CIS/5185/95 referring to this 'time' apportionment, said (paragraphs 9 and 10),
"Now the effect of the above arrangement was to remove any possibility that the grant was clothed with a trust. Manifestly, the Council had renounced all beneficial interest in the grant once it had been made, and merely reserved to themselves the right to demand repayment of the sum calculated in accordance with the time formula. They retain no proprietary interest in the actual part of the grant still in the hands of the recipient. There was no right in rem against the residue; their right was in personam against the recipient for repayment of the contractual sum. It follows from what has been said above that it was not open to the claimant to say that he had no proprietary interest in the residue of the maintenance grant on his ceasing to be a student, and accordingly it had to be taken into account as 'income other than earnings' pursuant to regulations 29 and 42 [of the Income Support (General) Regulations 1987], without the concessions conferred by regulation 62."
- In coming to that conclusion, the learned Commissioner referred to what he described as the "Quistclose" principle, i.e., that enunciated in Barclays Bank Limited -v- Quistclose Investments Limited [1970] A.C.567, H.L. The Commissioner came to the conclusion that the Quistclose principle did not apply. However, as I understand it, that case (which did not relate to student grants) concerned what is known as a purpose trust, i.e., when a grant or loan is impressed ab initio with a particular purpose which then becomes legally enforceable. It did not deal with the situation that one has here, namely where there has arisen a constructive trust because a sum has been paid conditionally on the continuance of the payee as a student. The learned Commissioner in his decision on CIS/5185/95 (Grundy) did not in terms advert to the question of constructive trust but I consider that in using the word "trust" he had that variety of trust in mind.
- However, I have reached my conclusion on a different ground, namely that of constructive trust. I should add that it does not alter my conclusion that on the facts of this particular case the claimant, at the time of abandoning his course, immediately spent the term's grant on repaying mortgage and other debts. By so doing he was in breach of trust but there was still a constructive trust so far as the actual equivalent sum was concerned. The fact that it had been apportioned on a time basis does not alter that conclusion either, since the monies subject to a constructive trust could only be those which were legitimately due for repayment to the Council.
- I should add that I do not consider that the Court of Appeal's decision in the supplementary benefits case of R -v- Bolton Supplementary Appeals Tribunal Ex parte Fordham [1981] 1 All E.R. 50 (relied upon by Ms Bamforth) is contrary to the conclusion that I have arrived at in this case. That case depended on different facts, concerning the treatment of wages that had been paid to firemen who had come out on strike. As the firemen had been paid a fortnight's wages in advance they were informed by the County Treasurer that in due course "at some future date" they would be asked to repay the sum. The Court of Appeal held that, nevertheless, the advance wages were an income resource in the claimant's hands. At page 52 h-j of the report Lord Denning M.R. said, of the wages payable in advance,
"...no-one knew what was going to happen in the future. No-one knew how long the strike would last; whether [the claimants] would remain in the employment of the Council or not; or on what date or to what extent the refund would be made. It was so uncertain that no-one could properly take that into account in considering what the weekly resources and requirements were..."
He, therefore, concluded that the obligation to repay the money "...was so far ahead that it would not affect the immediate resources available to [the claimant]." (Cf. Waller L.J. at p.54d and Dunn L.J. at p.54g-h, to the same effect.)
- The position is very different in the present case where, as soon as the claimant abandoned his course on 24 April 1995, the balance of the grant in his hands (or which should have been in his hands if he had not spent it) immediately no longer belonged to him and was immediately the property of the Council. There was not the uncertainty as to the obligation to repay that was present in the Fordham case. Consequently I consider that that case, though of course binding on me, is nevertheless distinguishable on its facts.
- At the hearing on 2 September 1997, Mr Forsdick, for the claimant, drew attention to the immediate repayability of the relevant proportion of the grant, when once the claimant had given up his course. He submitted that such repayability meant that the balance of the grant could no longer be characterised as "income" at all. He cited paragraph 9(7) of R(SB) 20/83, where the learned Commissioner said that, but for a provision in the supplementary benefit legislation (which has no parallel in income support), "...'an accrual of money to a student under obligation to repay' would not in general be regarded as 'income' of that student..." I accept that submission as being correct and as a valid alternative route to arriving at the conclusion that the balance of the grant should not, when once repayable on abandonment of the course, be regarded as the claimant's income at all. The definition in regulation 61 of the Income Support (General) Regulations 1987, S.I. 1987 No.1967 (the "1987 Regulations") of "grant income" as "any income by way of a grant" applies only where the claimant is a student which, ex hypothesi, in the present case the claimant was not. He was not allowed disregards for books etc. (reg.62).
- As I have arrived at the conclusion that the £1,698.85 balance of the summer term's grant was not to be regarded as the claimant's income when ascertaining his continuing entitlement to Income Support, I do not need to deal with the further arguments that have been adduced to me on the claimant's behalf on the alternative footing that I might have held that the monies still remained income for Income Support purposes. I just note that those submissions were made and relate to the question of the period to which such a payment would become attributable under regulation 29 of the 1987 Regulations. It is contended that the "period" would in any event terminate as soon as the claimant abandoned his course. I express no opinion on that particular point as it is not necessary for me to do so, but I record that the contention was made.
- I should also note that a new paragraph (3A) was added by S.I.1990 No. 1549 to regulation 40 of the 1987 Regulations, relating to loans made under the Education (Student Loans) Act 1990. Paragraph (3A) provides that where such a loan has been made to a student "..and that person ceases to be a student before the end of the academic year in respect of which the loan is payable or, as the case may be, before the end of his course, a sum equally to the weekly amount apportionable under paragraph (2) of Regulation 66A shall be taken into account [as income] for each week, in the period over which the loan fell to be apportioned, following the date on which that person ceases to be a student; but in determining the weekly amount apportionable under paragraph (2) of Regulation 66A so much of that paragraph as provides for a disregard shall not have effect." Broadly that has the result for which the Adjudication Officer is contending this case. However, the critical difference is that I am not concerned here with a student loan under the Act of 1990 but an outright grant, which paragraph (3A) does not cover. Its terms cannot be applied by analogy.
- I should also draw attention to an amending regulation (S.I. 1997 No. 65, operative only from 7 April 1997 and thus not directly affecting this case) which, by regulation 5, adds a new paragraph (2B) to regulation 29 of the 1987 Regulations, reading as follows,
"(2B) where grant income as defined in chapter VIII [relating to students] of this part has been paid to a person who ceases to be a student before the end of the period in respect of which that income is payable and, as a consequence, the whole or part of that income falls to be repaid by that person, that income shall be taken into account over the period beginning on the date on which that income is treated as paid under regulation 31 and ending -
(a) on the date on which repayment is made in full; or
(b) on the last date of the academic term or vacation during which that person ceased to be a student,
whichever shall first occur."
That regulation does, of course, have the effect for which the adjudication officer contends in the present case. The regulation, however, was not in force at the relevant dates in this appeal.
(Signed) M J GOODMAN
Commissioner
(Date) 4 September 1997
