File number:  CH 1171 2002

DECISION OF THE SOCIAL SECURITY COMMISSIONER

1	I allow the appeal by the tenant and claimant.

2	The appellant is appealing, with my permission, against the decision of the Leeds appeal tribunal on 20 November 2001 under reference U 01 013 2001 02414. The decision of the tribunal was that the appeal is dismissed. 

3	For the reasons below, the decision of the tribunal is erroneous in law. I set it aside. I refer the appeal to a new tribunal be reheard in accordance with this decision (Social Security Act 1998 section 14(8) and (9)).

The council decision 

4	It is necessary to start this decision by referring not to the decision of the Council. This is because the tribunal’s formal decision was “Appeal is dismissed” without supportive detail, such as the date of decision, that should be, and is normally, included by a tribunal. Much of the disagreement between the Council’s solicitors and the appellant’s solicitors in this appeal arises because each is looking at a different decision, an approach made possible because the tribunal has failed to state clearly what it decided. As it is unclear how the tribunal actually decided the appeal in front of it, I regret that the tribunal decision must be set aside.   

5	The appellant claimed housing benefit in November 1999. The claim form seems to have been mislaid, and a new claim made in March 2000.  The council reached a decision in June 2000 to refuse housing benefit as the “tenancy is on a non-commercial basis.” The Council’s view (explanation of decision on document 1c) was that the tenant “enjoys a close relationship with her landlady to the point where she is let off paying rent and has been supported by her … there is not the normal landlady/tenant relationship.”

6	However, the submission to the tribunal states that the decision refusing housing benefit was made in February 2000. That refers to a review decision made in that month. The terms of that decision were  “ I find that [the tenant] was not liable for rent… The tenancy agreement was not bona fide and has been provided to mislead the Benefits Service into accepting that a commercial tenancy existed when in fact it did not. Although it was signed by both parties, there was no expectation of payment by the tenant on the part of the landlady “(document 45). That is of course an entirely different reason for the Council’s decision. 
	
7	The review decision was made by the Council under the former procedure rules applying to housing benefit. It is not necessary to get into the details, but it is necessary to note that the review was conducted, and that the terms of the final decision were those set out in the February 2000 letter. It was that decision (the review decision) that was challenged by the appellant’s solicitors. But the submission to the tribunal the Council reverted to the original justification for the decision to refuse benefit while giving the date of decision as that of the review decision.   That is clearly wrong. 

The tribunal decision 

8	As noted above, the formal decision of the tribunal fails to indicate whether it was looking at the original decision or the review decision. The submissions of the parties to the tribunal were at cross purposes, as is clear from the record of proceedings. The formal Council submission to the tribunal, as noted, confused the two. The tribunal did not resolve the confusion. It  “distances itself from”, and fails to deal expressly with, the review decision, resting its decision instead on the original decision. In so doing, it failed to decide the issue in front of it, namely the review decision of February 2000, and failed to make clear why it could therefore dismiss the appeal.  The solicitors to the appellant made those points, in my view rightly, in the grounds of appeal. 

Direction to the new tribunal

9	This must be reheard by another tribunal. The tribunal should first establish the basis for the appeal in front of it. At present, it appears to be an appeal from the review decision of February 2000 to the effect that the shorthold tenancy agreement between the landlord and tenant was not bona fide, and that no agreement actually existed. If that is so, then there is no tenancy, and the appellant cannot bring herself within section 130(1)(a) of the Social Security Contributions and Benefits Act 1992 as she is not a person liable to pay rent.

10	The tribunal, in considering this, should bear in mind the guidance of Lord Wilberforce giving the leading speech in Ramsay v Inland Revenue Commissioners [1982] AC 300 at 323. That case concerned a tax avoidance scheme, but in giving his judgment his Lordship restated “some familiar principles”, including:

	“3.  It is for the fact finding (tax appeal) commissioners to find whether a document, or a transaction, is genuine or a sham. In this context to say that a document or transaction is a “sham” means that while professing to be one thing, it is in fact something quite different. To say that a document or transaction is genuine mean that, in law, it is what it professes to be, and it does not mean anything more than that.”  

11	In what is often quoted as the “classic” case on a sham, Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (a hire purchase case, cited by Lord Fraser of Tullybelton in the Ramsay case), Diplock LJ, at 802, defined “sham” as follows:

	“it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intended to create. “

The letter of February 2000 appears to suggest that the agreement in this case was a sham, and that no rent was payable. It is that decision that the solicitors have challenged. It is a question of fact whether this is so and the tribunal must decide it. 

12	If the tribunal agrees that the agreement is not a sham, then there is a liability for rent. But that is not the end of the story. As the solicitors to the parties have been at cross-purposes on this point, I direct the tribunal to distinguish the separate and inconsistent contentions of the Council that there was in this case (a) a “tenancy agreement” that is a sham, and not a true agreement, and (b) a genuine agreement, but one that is not on a commercial basis. If (b) applies and not (a), the review decision is wrong in the sense that housing benefit is refused on the wrong grounds. If so, then the appellant has succeeded in the appeal. But to claim housing benefit the appellant must still establish that she meets the test of liability in section 130(1). This was put in issue in the original decision by reason of regulation 7(1)(a). If the review decision fails, the tribunal should consider regulation 7(1)(a).  More generally, as is clear from the judicial views noted below, there was no need for the Council to allege a sham if regulation 7(1)(a) applied.
 
13	Regulation 7(1)(a) provides that:

A person who is liable to make payments in respect of a dwelling shall be treated as if he were not so liable if –
(a) the tenancy or other agreement pursuant to which he occupies the dwelling is not on a commercial basis…

14	I draw the attention of the tribunal to the guidance in CH 627 2002, a decision of Commissioner Jacobs about regulation 7(1)(a) signed while this decision was being prepared. That decision cites reported decisions on judicial review about the forerunner of what is now regulation 7(1)(a), and related decisions of Commissioners.  The cases referred to in paragraph 11 of that decision as determined by Blackburne J have since gone to the Court of Appeal indirectly as R v Stratford-upon-Avon Borough Council ex parte White (1999) 31 HLR 126. The Court of Appeal decided that the decision of Blackburne J was correct on the points challenged before it, in particular in his conclusion  “that, as regards those matters which are capable of legal enforcement, the parties intended a legally enforceable contract.”	

15	In R v Poole Borough Council ex parte Ross (1996) 28 HLR 351, also cited in CH 627 2002 and to which I was directly referred, Sedley J also reviews previous decisions of the courts. He was considering the previous version of regulation 7(1)(a), in which the “commercial basis” test was in regulation 7(1)(a)(ii).  I draw the attention of the tribunal to the following guidance from Sedley J (at 359-60) in applying regulation 7(1)(a) to the facts of this appeal:

	“The appropriate test is in my judgment a dominant purpose test. The correct approach is for the [tribunal] to ask themselves whether the evidence has satisfied them on the balance of probability that the principal basis on which the agreement was made was a non-commercial one. If the test is not met the liability is not excluded. As Blackburne J pointed our in ex p Smith  ((1994) 28 HLR 36):

	In regulation 7(1)(a) the concern … is to exclude from benefit certain … arrangements which may not in fact be an abuse of the benefit scheme but which, by their very nature, are capable of being an abuse of the scheme. Rather than enquire whether in fact there was an abuse, those who framed the regulations have simply excluded them from benefit.”

For this reason it is necessary for decision-makers to move with great care for fear of excluding the payment of benefit to a person whose rental agreement is both genuine and necessary. While, as Kennedy LJ pointed out in ex p Simpson (1994) 27 HLR 41), abuse is not limited to bad faith, it is to the prevention of abuse that regulation 7 is directed. Because it operates, as Blackburne J pointed out, by creating notional categories of abuse rather than requiring abuse to be affirmatively found in each case, the phrase “other than on a commercial basis” must be construed and applied in order so far as possible to meet the regulation-maker’s purpose… it is to the truly personal arrangement which is merely clothed in the garments of a legal agreement or liability that regulation 7(1)(a)(ii) is directed.”
     
16	If the tribunal finds that the “agreement” was a sham it should dismiss the appeal. If the tribunal finds that there was a genuine agreement, but that the agreement between the tenant and her mother as landlady was not on a commercial basis, then it should substitute for the review decision of the Council a decision to that effect. In considering those issues it should consider the contention made for the appellant that it is common in commercial tenancies for the landlord to wait for rent from the tenant if housing benefit entitlement is under appeal. If it finds that the agreement was both genuine and on a commercial basis then it must allow the appeal in full, as no other grounds for refusal are in issue in this appeal. The issue about backdating the appellant’s claim will then arise for decision. 

17	The Council is directed to make a further submission to the tribunal dealing with the inconsistencies in its existing submission, and indicating whether it is still seeking to uphold the review decision in this case. That submission should be made within one month of issue of this decision, unless a district chairman directs otherwise. 

								David Williams
								Commissioner

								23 July 2002
[Signed on the original on the date shown]