DECISION OF THE UPPER TRIBUNAL
(ADMINISTRATIVE APPEALS CHAMBER)

The DECISION of the Upper Tribunal is to allow the appeal by the appellant.

The decision of the Colchester First-tier Tribunal dated 02 November 2010 under file reference 132/09/01476 involves an error on a point of law and is set aside.  The appellant’s appeal against the District Council’s decision in relation to housing benefit dated 01 October 2009 is remitted to be reheard by a different First-tier Tribunal, subject to the Directions below.

This decision is given under section 12(2)(a) and 12(2)(b)(i) of the Tribunals, Courts and Enforcement Act 2007.

DIRECTIONS

The following directions apply to the re-hearing:

(1)	The re-hearing will be at an oral hearing; 

(2)	The new tribunal should be differently constituted from the First-tier Tribunal which considered this appeal at the hearing on 02 November 2010;

(3)	The new tribunal must consider all the evidence afresh and is not bound in any way by the decision of the previous tribunal.  

These directions may be supplemented or modified as appropriate by later directions by a District Tribunal Judge in the Social Entitlement Chamber of the First-tier Tribunal.  

REASONS FOR DECISION

The decision in summary
1.		I allow the (now sadly deceased) appellant’s appeal to the Upper Tribunal, as the FTT’s decision involves an error on a point of law. The FTT’s decision is set aside. The Upper Tribunal is not in a position to substitute (or to “re-make”) its own decision for the one that the FTT made. This means that the appeal will need to be re-heard by a differently constituted tribunal.

2.	The outcome of the re-hearing depends on the view taken by the new FTT of all the evidence in the case. The fact that this appeal has succeeded on a point of law is no indicator one way or the other as to the likely result of the re-hearing, which will be determined on the facts.

A summary of the appeal to the First-tier Tribunal
3.	The appellant, who now acts through his daughter and appointee, was an elderly disabled gentleman born in 1921. In 1995 he and his late wife moved into the ground floor annexe of a property owned by their daughter and son-in-law. In June 2009 the appellant made a claim for housing benefit in respect of the annexe.

4.	First of all the local authority refused the claim on the basis that the appellant was living with, and paying rent to, a close relative. On further enquiry, the local authority accepted that the annexe was self-contained. The council then refused the claim on the basis that the tenancy was contrived. After further representations, the local authority refused the claim on 1 October 2009 on the ground that the tenancy was non-commercial. The appellant lodged an appeal against this decision.

5.	The FTT held an initial hearing on 18 May 2010. The District Tribunal Judge adjourned the case with directions to both parties to produce specified further evidence. The case came back before a different tribunal judge on 2 November 2010. She dismissed the appeal, with a decision notice confirming the local authority’s decision that the tenancy was non-commercial in nature. The FTT’s subsequent statement of reasons concluded as follows:

“The tribunal judge was satisfied that the monies paid by the appellant had been a contribution towards the running costs of the house and found that the tenancy agreement had been contrived to take advantage of the housing benefit scheme and was not a commercial agreement.”

The grounds of appeal to the Upper Tribunal
6.	The appellant’s daughter applied for permission to appeal on his behalf. In short she put forward two inter-related challenges. The first was a complaint that there had been a breach of natural justice – in particular, she said that the local authority’s further submission, including a copy of a lengthy Upper Tribunal decision, had been presented to her only minutes before they all went into the hearing and she did not have time to digest its contents. The second was the related contention that the tribunal judge had asked for copies of certain papers during the hearing, and it was unclear whether all the parties did in fact have the same evidence before them.

7.	The District Tribunal Judge gave the appellant permission to appeal, but not for the reasons that the appellant’s daughter had cited. It was apparent that the appellant had originally contributed some £90,000 to the purchase price of the whole property (at the time, about one-third of the overall cost). The District Tribunal Judge gave permission on the basis that the FTT may have erred in not investigating the ownership and capital position. He added:
“If there is no persuasive evidence of immediate gift and there is evidence of a tenancy should the Tribunal have gone on to consider whether the initial investment in the property was a capital asset and to examine whether it value was in excess of the capital limit?”

8.	At the initial adjourned FTT hearing in May 2010, the District Tribunal Judge noted the daughter’s evidence in the record of proceedings as follows: “Father and late mother came to live in annexe in 1995. We moved in at the same time and they provided some capital of £90k and there was a mortgage of £175k. Agree they provided ⅓ of the purchase price from selling their home. It was decided that they would pay rent from the outset.” There was a similar note at the final hearing, although this included the note “up to 2001 beneficial interest”. This reflected the daughter’s evidence, in a letter sent to the local authority between the two hearings, which explained that her parents’ “interest as proprietors was revoked in 2001 when our mortgage was changed”. The FTT referred briefly to this background in its statement of reasons, but did not appear to rely on it as part of its reasoning.

9.	I have to say that I take the view that the ground on which the District Tribunal Judge gave permission to appeal is something of a judicial red herring. It is the case, of course, that payments by an owner do not qualify for housing benefit (see Housing Benefit Regulations 2006 (SI 2006/213), regulation 12 (2)). That might well have been a bar to housing benefit entitlement had a claim been made back in 1995. However, at least on the evidence before the FTT, it is difficult to see how the appellant was an “owner” by the time the housing benefit claim was made in 2009. The circumstances of the 2001 re-mortgage were not fully investigated, but this would not have raised any material capital issue. The simple reason for this is that the appellant was in receipt of the guarantee credit of state pension credit. For such a claimant “the whole of his capital and income shall be disregarded” for the purposes of assessing housing benefit entitlement (Housing Benefit (Persons who have attained the qualifying age for state pension credit) Regulations 2006 (SI 2006/214), regulation 26)).

10.	However, the grant of permission to appeal still stands. In any event there are ample other grounds for giving permission to appeal against the FTT’s decision.

The proceedings in the Upper Tribunal
11.	 Both parties’ representatives have made written submissions on the appeal. The appellant’s daughter essentially restates the case on her late father’s behalf. She argues that the FTT misapplied the law and made a series of factual findings which were not justified on the evidence. She also re-asserts that the “bundle was incomplete at the start of the hearing. Copies were provided but not shown to allow the appellant to confirm all relevant (considerable in number) papers were indeed present.” She also reiterates her argument that the tenancy was on a commercial basis.

12.	The local authority has made a brief submission. It simply supports the original decision that the tenancy was on a non-commercial basis, pointing to various factual matters which it says support that conclusion (including, amongst other matters, the fact that the appellant originally had a beneficial interest in the property).

The Upper Tribunal’s analysis
13.		I have no hesitation in allowing this appeal because of a breach of natural justice. In doing so, I accept the two grounds of appeal to the Upper Tribunal initially put forward by the appellant’s daughter.

14.	The Upper Tribunal is used to seeing grounds of appeal by unsuccessful parties alleging a breach of natural justice. Quite often, on closer investigation, it transpires that there is no real substance to the challenge. For example, it may simply be based on a misunderstanding in the heat of the moment.

15.		In the present case, however, there is ample independent evidence, drawn from three different sources, to support the grounds of appeal.

16.		First, in the FTT’s record of proceedings at the final hearing, the tribunal judge noted as follows: “Documents from both parties previously provided to Birmingham [the relevant FTT regional office] in July 2010 but not included in the [FTT] file”. Although individual items were not noted in the record of proceedings, this documentation (“the missing correspondence”) seems to have included the following:

(a) letter from local authority to appellant dated 27 May 2010;
(b) submission from local authority to FTT dated 2 June 2010, including a copy of Commissioner’s decision CH/1487/2008;
(c) appellant’s reply to local authority letter (a) above dated 25 June 2010 with enclosures;
(d) further letter from local authority to FTT dated 1 July 2010 with enclosure;
	(e) letter from local authority to appellant also dated 1 July 2010;
	(f) appellant’s reply to local authority dated 12 July 2010 with enclosures;
(g) letter from local authority to FTT dated 7 September 2010, enclosing appellant’s letter of 27 August 2010 with enclosures;
(h) reply from local authority to appellant also dated 7 September 2010.

17.		Second, the original FTT bundle and administrative file, sent to the Upper Tribunal when this further appeal was lodged, did not include any of the items listed at paragraph 16(a) – (h) above. These documents were, however, found (with a different numbering system) in the local authority’s bundle of papers, which was also sent to the Upper Tribunal office.

18.		Third, the FTT’s GAPS computer records refer to various items of correspondence being received by the Birmingham office in June, July and September as being in the “unlinked post folder”. I understand “unlinked” to mean the letter has not been linked to the correct appeal file. The GAPS record also shows that nothing appears to have been sent out to the parties between May 2010 and October 2010 (other than the notification of the hearing date), and nothing at all to suggest that the missing correspondence was copied and sent out.

19.	Most of the missing correspondence referred to in paragraph 16 was between the local authority and the appellant. There may have been no real direct disadvantage to the appellant, given that he and his daughter were aware of the contents of those letters. The tribunal judge, however, was in a less than ideal position as she would not have had the opportunity to consider these documents while previewing the case. In itself that may well not amount to an error of law, as tribunal judges are well used to being presented with documentary evidence at the eleventh hour and digesting its contents quickly and efficiently.

20.	However, the submission from local authority to FTT dated 2 June 2010, including a copy of Commissioner’s decision CH/1487/2008 (paragraph 16(b) above), had not been sent to or seen by the appellant or his daughter. This was a significant omission. That letter dealt both with the “owner” point (which may, in the end, have not been material) and the non-commerciality issue (which plainly was material). The decision of Judge Ovey in CH/1487/2008 was relevant to both those issues. It was plainly inadequate for the appellant to be offered a copy of that on the day without any consideration of the need for an adjournment. I am satisfied that the procedural irregularity involved here amounted to a clear breach of natural justice.

21.	For the avoidance of doubt I should stress that this finding involves no criticism of the local authority. The council had been asked by the FTT to provide a further submission. It did so by letter dated 2 June 2010. It was entitled to assume that the FTT office would send a copy of that out to the appellant and retain one for the FTT hearing bundle in the usual way. The breach of natural justice (and the consequent delay in resolving this appeal) was caused by a breakdown in administrative procedures in the FTT regional office in Birmingham.

22.	I should also add that even if this breach of natural justice had not occurred, there are other good reasons for allowing this appeal. The FTT’s conclusion, cited at paragraph 5 above, suggests that it may have misunderstood the proper statutory test. Reading the FTT’s decision as a whole, it is not entirely clear whether the basis for the FTT’s decision was that (a) there had been no rent payable or paid at all, properly so called, as the monies were simply “a contribution towards the running costs of the house”; or (b) there was a tenancy but it was non-commercial in nature; or (c) the tenancy had been contrived to take advantage of the housing benefit scheme. 

23.	If the true basis for the decision was point (a), then that required consideration of the requirements of regulations 8 and 12 of the 2006 Regulations. If the FTT’s decision was based on point (b), then regulation 9(1)(a) was applicable.  It was only if that provision (or any other head in regulation 9(1)(a)-(k)) did not apply that the contrived tenancy rule in regulation 9(1)(l) came into play. So a tenancy cannot be both non-commercial and contrived at one and the same time. I am not satisfied that the FTT did enough to disentangle these various possibilities by making sufficiently clear findings of fact.

24.		I am conscious that in reaching this decision I have not addressed in any detail the various ways in which the appellant’s daughter argues that the FTT misunderstood the evidence and made findings of fact for which there was no basis or which were unwarranted on the material available. Those are issues which will need to be resolved by the new FTT that re-hears this appeal against the local authority’s decision.

25.		I simply point out that the new FTT will need to make careful findings of fact on all the evidence before it. There are certainly some respects in which the previous FTT’s findings may not have been justified. For example, the FTT found – by implication in relation to the period before the date of the housing benefit claim – that the rent had always been kept below the HMRC threshold for letting rooms. The FTT found that “the rent had increased by at least a third when applying for housing benefit with no justifiable explanation”. However, the letter from the appellant’s daughter dated 25 June 2010 referred to evidence that the rent had been kept below the HMRC limit between 2005 and 2008, but that the limit was exceeded in December 2008 (some six months before the housing benefit claim) and duly notified to HMRC (see accountant’s letter dated 11 June 2010 at doc 113).

Directions to the new tribunal
26.		Standard directions to the new FTT are listed at the start of this decision by the Upper Tribunal. Given that the local authority had expressly made its own decision on the basis that the tenancy was non-commercial, and in doing so had revised its earlier decision that it was a contrived tenancy, it would doubtless be wise for the new FTT to focus on the issue of commerciality or non-commerciality. There is ample guidance in the case law on this issue. In particular, the agreement and the relationship between the parties must be looked at in the round. In doing so, the FTT will, as noted above, need to make careful findings of fact. In doing so, it may help to consider those factors which point to the arrangement being commercial, and those which point to it being non-commercial, and to consider the parties’ explanations and arguments on each of these matters. It is, however, not simply a question of “totting up” the pros and cons in a purely arithmetical way.  Particular factors may carry more or less persuasion, and the weight to be attached to specific matters is ultimately a question for the FTT’s evaluation on the facts. 

27.		Finally, I should just add that the FTT’s statement of reasons does not use paragraph numbering, contrary to the Practice Statement by the Senior President of Tribunals on the Form of Decisions and Neutral Citation: First-tier Tribunal and Upper Tribunal on or after 3 November 2008. This provides that “First-tier and Upper Tribunal decisions must be prepared for delivery, or issued as approved decisions, with paragraph numbering.” Compliance with the Senior President’s Practice Statement is a matter of good judicial practice, not least as it enables the Upper Tribunal and the parties easily to identify particular passages in the statement of reasons, although a failure to do so is not an error of law. FTTs are understandably irritated when tribunal bundles are not properly paginated, preventing easy access to particular passages. By the same token a FTT’s statement of reasons should have consistent paragraph numbering.

Conclusion
28.		I conclude that the decision of the First-tier Tribunal involves an error of law for the reasons summarised above. I therefore allow the appeal and set aside the decision of the tribunal (Tribunals, Courts and Enforcement Act 2007, section 12(2)(a)). The case must therefore be remitted for re-hearing by a new tribunal subject to the directions above (section 12(2)(b)(i)).  

Signed on the original			Nicholas Wikeley
on 4 September 2012			Judge of the Upper Tribunal