Southwark Law Centre, R (on the application of) v Legal Services Commission

These two claims have been heard together because they each depend upon the true construction of Regulation 24 of the Community Legal Service (Financial) Regulations 2000 as amended (the 2000 Regulations). The occupants had failed to pay rent due under the tenancies and were facing eviction. Each sought legal representation to try to avoid eviction. In each case, the solicitors or legal representatives granted legal representation under their devolved powers having taken full instructions and applied their understanding of the manner in which means should be assessed. However, when they sought the necessary funding from the defendant, it was denied because the defendant took the view that the clients’ disposable income exceeded the level which entitled them to public funding.

There is a factual difference between the two claims in that in Ms Dennis’ case, no order for possession had been made so that she remained a tenant. In the Southwark case, the client, Ms Lewinson, had had an order for possession made against her which, albeit containing internal inconsistencies, had terminated her tenancy on 4 January 2006. Thereafter and at the material time she was a tolerated trespasser.

The salient facts of the cases are as follows:-

(1)

Southwark Law Centre

(i)

In 2003, Ms Lewinson was granted a secure tenancy by the London Borough of Southwark of a flat in Peckham. She is a single parent and occupied the flat with her young daughter, who had been born in January 2003. In order to enable Ms Lewinson to work, her daughter had to be placed in a nursery during working hours. The fees payable were £665 per month, but she was entitled to a partial rebate at the end of each term. She got into financial difficulties and was unable to keep her rent up to date so that on 7 December 2005 the Council obtained a possession order based on arrears of rent of £2,859.16.

(ii)

The order gave possession on 4 January 2006, but stated it was not to be enforced “so long as the defendant pays the claimant the rent arrears and the amount for use and occupation and costs totalling £3,135.41 by the payments set out below in addition to the current rent”. The payments required were £20 per week. The order was technically flawed in that, since the tenancy came to an end on 4 January 2006, there could no longer be any current rent. However, it was clear what was intended, namely that there would be no eviction provided that Ms Lewinson paid the amount required by her tenancy agreement together with £20 per week off the arrears.

(iii)

Unfortunately, Ms Lewinson did not make the necessary payments. The Council applied for a warrant for possession which was due to be executed on 19 June 2006. On 15 June, Ms Lewinson applied in person to the court for a suspension but her application was refused.

(iv)

On the same day, she sought assistance from Southwark Law Centre. It is a company limited by guarantee and a registered charity offering legal advice and assistance to those living in Southwark. It has a general civil contract with the defendants and so can grant emergency funding if it considers it appropriate to do so. It will then recover its fees from the defendants provided that they accept that the grant met the conditions set out in the Regulations.

(v)

Ms Lewinson filled out the necessary Financial Assessment Form. The solicitor whom she saw, while recognising the difficulties, took the view that there were grounds for a fresh application to suspend the warrant and that Ms Lewinson met the criteria which entitled her to financial assistance.

(vi)

Ms Lewinson had paid nothing over the 6 months since the possession order was made. She had, however, paid £500 on 14 June 2006, which she was able to do because she had received a rebate in respect of her daughter’s nursery fees. On 16 June, she made two further payments amounting to £3,500 having obtained a loan from a friend. In the result, her application succeeded and on 18 June 2006 the court ordered that the warrant be suspended on payment of the amount due under the tenancy agreement and £30 per month off the arrears.

(vii)

When Southwark Law Centre applied to the defendant for the necessary funding, it was refused on the basis that Ms Lewinson’s disposable income exceeded that which would have made her eligible for assistance. The Law Centre will not make her pay, although she is now liable to do so, but have instituted this claim.

2.

Ms Dennis

(1)

The claimant was an assured tenant in Hackney. On 15 September 2006, she sought assistance from her solicitors, Traymans, because she was faced with possession proceedings based on arrears of rent amounting to £1,484.44. She had not paid because of health problems, but she informed the solicitors that she had arranged to borrow enough money from her mother to pay the arrears, which, by the time she sought advice, stood at £2,171.14. Traymans decided that in the circumstances she had a good defence and, in the exercise of their devolved powers, granted her emergency public funding to cover representation at the County Court. They got her to fill in the necessary financial assessment form and decided that her means entitled her to funding, albeit she was likely to have to make a contribution.

(ii)

On 28 September 2006, before the hearing, she was able to pay all that was owing. Accordingly, at the hearing on 6 October 2006, the claim was dismissed.

(iii)

Traymans sought the necessary funding from the defendant. It was decided that her disposable income was greater than that which would have entitled her to assistance and so the application was refused. This decision rendered her liable to pay her solicitors’ costs personally.

In each case, the defendant’s decision was based on its contention that, in assessing the amount to be deducted from gross income in respect of the cost of accommodation, it was appropriate and accorded with the Regulations to take into account the amount actually paid in respect of rent or charges for such accommodation rather than the amount payable. In Ms Dennis’ case, nothing had been paid and so it was decided that there should be no deduction. In Ms Lewinson’s case, account was taken of the £500, which had been paid on 14 June. This payment was attributed to the arrears and, since nothing had been paid for 6 months, the defendant divided it by 6 to reach a notional monthly payment of £83.66.

The reason why the defendant was concerned to identify a monthly payment was because of Regulation 7 of the 2000 Regulations. This provides, so far as material:-

“(2)

When calculating:

(a)

disposable income for the purposes of regulation 5 … (6) [which set a figure of £632 per month as the limits of eligibility]; .. the period of calculation shall be one month.

(3)

For the purposes of this regulation …, one month means the period of one calendar month which ends on the date on which the application is made, or such other equivalent period as the Commission considers appropriate.

(4)

Where the assessing authority calculates that a client has disposable income … of an amount which makes him ineligible to receive funded services, it shall refuse the application.”

I confess to some difficulty in construing Regulation 7(3), since it is not easy to fathom what other period could be considered to be equivalent to one month which ends on the date of the application. However, some assistance is I think gathered from Regulation 16, which reads:-

“The income of the person concerned from any source shall be taken to be the income which that person may reasonably expect to receive (in cash or in kind) during the period of calculation, but where the eligibility of the person concerned is being assessed under regulation 5(6), in calculating such income the Commission may have regard to his average income during such other period as it considers appropriate …”

Regulation 16 is aimed at calculating gross income. There are those (for example, the self employed or those entitled to commission on sales made by them over a particular period) for whom a month before application may be unrepresentative. In such cases, an average based on a longer period can be used. While there is no explicit reference in the regulations to an application of the same principle in relation to accommodation expenses, it is submitted on behalf of the defendant that the wording of regulation 7(3) permits the same approach. Since regulation 7(3) is concerned with calculation of disposable income and so with appropriate deductions from gross income, that submission seems to me to carry some weight. However, it is necessary for those exercising devolved powers to be able to assess disposable income based on criteria which are applicable to all cases. There is a real difficulty for them if the defendant is able in any given case to adopt a different period to that set out in the regulations. Those exercising devolved powers are entitled to act in accordance with the regulations. Thus in my view the power to select another equivalent period is to cater for a situation where amounts are due in respect of a particular period but are not payable until later, for example a rent payable quarterly in arrears. Alternatively, an amount representing more than one month’s rent is payable in the relevant month: it would in the circumstances be wrong to treat all that as deductible from gross income.

I have deliberately used the word ‘payable’ since that is what the wording of the relevant regulation appears to require when consideration is given to what amount should be deducted from gross income in respect of charges for accommodation. So far as material, regulation 24 reads:-

“(2)

Paragraphs (3) to (5) apply only if the person concerned is a householder

(3)

In calculating the disposable income of the person concerned, the net rent payable by him in respect of his main or only dwelling, or such part of it as is reasonable in the circumstances, shall be deducted;

(4)

For the purpose of this regulation, “net rent” includes:

(a)

any monthly rent payable

(b)

any monthly instalment (whether of interest or capital) in respect of a debt secured by a mortgage or charge on the property

(6)

If the person concerned is not a householder, a reasonable amount in respect of the cost of the living accommodation shall be deducted.”

The claimants submit that this means that liability rather than actual payment is relevant for the purpose of calculating disposable income. It is apparent that the regulations distinguish between liability to pay and actual payment. Thus in Regulation 24 itself, 24(5) provides:-

“In calculating the amount of net rent payable, there shall be deducted:

(a)

any housing benefit paid …

(b)

any proceeds of sub-letting …”

This means that only amounts actually received can be deducted from the rent payable. Similarly, Regulation 18(2), which deals with tax and national insurance, states:-

“In calculating the disposable income of the person concerned, any income tax and national insurance contributions paid or, in the case of an assessment under Regulation 5(6), payable on that income in respect of the period of calculation shall be deducted.”

The defendant submits that the words “or such part of it as is reasonable in the circumstances” give it a discretion which enables it to allow against gross income only such part (if any) of the rent as has been paid during the relevant month or other period adopted by it. This is said to be in accordance with the Funding Code which the defendant is required to prepare to set out the funding criteria: see s.8 of the Access to Justice Act 1999. It is to be noted that s.8(2)(c) draws specific attention to the importance of the matters in relation to which the services can be provided for the individual. It is obvious that it will almost always be of the greatest importance to the individual concerned that he has somewhere to live. However, the Code cannot produce a result which does not accord with the regulations. They must prevail.

Part 1 of the Funding Code contains criteria for deciding whether to fund or continue to fund services. Section 10 deals with housing. 10.3.2. reads:-

“Full representation will be refused if the client has no substantive legal defence to the proceedings or the prospects of successfully avoiding an order for possession … are poor.”

This replaces the general criteria, which read (in 5.7.2):-

“Full representation will be refused if:

(i)

prospects of success are unclear,

(ii)

prospects of success are borderline and the case does not appear to have a significant wider public interest or to be of overwhelming importance to the client, or

(iii)

prospects of success are poor.”

The defendant has produced a manual in four volumes which gives guidance to suppliers (namely, solicitors’ firms and others such as Southwark Law Centre who are able to exercise devolved powers) on how to calculate means. Part F of Volume 2 relates to ‘Financial Eligibility.’ Paragraph 6.4 deals with Housing Costs. This reads, so far as material,:-

“In calculating disposable income an allowance can be made in respect of mortgage or rent payable for the period of calculation in respect of the client’s main dwelling. The amount allowed should be net of housing benefit i.e. what the client actually pays from the assessed income (housing benefit being one of the disregarded benefits for the purposes of calculating disposable income). For client’s with no dependents i.e. where no dependents allowances have been made (see section 6 paragraph 2 above) the maximum monthly allowance in this respect will be £545. No excess over the amount can be allowed. Where any dependents allowance(s) have been made then the rent or mortgage repayments can be allowed in full.

The amount to be allowed in the assessment is the monthly rent or mortgage payable. In practical terms it will not be easy to identify separately arrears of mortgage payments, as the client will generally declare these as a single revised monthly mortgage payment. If the client has already come to an arrangement to pay off arrears by increasing their monthly rent or mortgage payment, then, provided those increased payments are actually being paid by the client, that increased rent or mortgage payment can be treated as the monthly rent or mortgage payable in the assessment. This is different from a situation whereby a client has commenced paying off arrears in order to reduce their disposable income with a view to qualifying for funding. Such a situation would be regarded as intentional deprivation of income and only the normal monthly rent or mortgage payments should be allowed in the assessment in such circumstances. Mortgage repayments include the monthly premiums of any lined life insurance/endowment policies, PEPs, or other instruments which will be used to repay the capital sum borrowed. ”

The first sub-paragraph is ambiguous. The words “what the client actually pays” when read with ‘payable’ can, and should, mean no more than what he has to pay. That is an entirely possible and in the context reasonable construction of the words used. The second sub-paragraph is less easy to construe in accordance with the regulation because of the words “provided those increased payments are actually being paid by the client”. Those words are inconsistent with the advice to treat the amount resulting from the increased payments due as the rent payable. But, whatever may be the meaning of 6.4, it cannot prevail over the proper construction of Regulation 24(3).

Ms Hewson seemed in her skeleton to be suggesting that where, as in Ms Lewinson’s case, there was no defence to the claim for possession, it was not appropriate to provide legal assistance. That was not pursued. It is contrary to paragraph 10.3.2 of Part 1 of the Funding Code. It is clear, and Ms Lewinson’s case provides an example, that representation can produce a suspension of a possession order and so avoid eviction. The supplier will have to consider the merits and if it is apparent that the client has been profligate or has shown no good reason for the failure to pay what was due, public funding would not be appropriate. Regulation 12 requires the supplier to disregard any deliberate action by the client to reduce his disposable income so as to render him eligible for public funding. That is referred to in paragraph 6.4 to be found in Part F, Volume 2 of the defendant’s manual. The defendant is of course entitled to examine the circumstances of any given case to see whether that has happened and the supplier must always be careful to ensure that it has not.

The draftsman of the Regulations was obviously alive to the difference between payable and paid. He deliberately used the word payable in Regulation 24(3). This is in my view not surprising since it will only be when arrears have been accumulated and payments due to avoid eviction have not been made that eviction will be sought. If only what has been paid during the relevant period can be deducted from gross income, many will be unable to qualify although it is clear that they cannot fund any legal representation. I do not accept that the words “or such part of it as is reasonable in the circumstances” enable the defendant to take only what is paid unto account. That would be tantamount to rewriting the regulation so that it applies not to rent payable but only to rent paid. Unless there has been some deliberate action caught by Regulation 12, what is payable and not what has been paid must be taken into account. It follows that the defendant has misconstrued the Regulation and the decision is accordingly flawed.

Although the point was not referred to in the skeleton arguments (albeit Ms Hewson touched upon it), the Southwark case raises a further problem. Ms Lewinson was no longer a tenant at the material time. Regulation 24(3) applies to householders and refers to rent. A trespasser cannot pay rent since, however wide a meaning is given to it, it presupposes some sort of tenancy or grant from a landlord. Furthermore, sums ordered by a court to be paid off arrears of rent in order to avoid eviction are not usually regarded as rent. The Shorter Oxford English Dictionary defines ‘householder’ as “a person who owns or rents a house, flat etc as his or her own dwelling”, although “occupies” is used instead of ‘rents’ in other versions. A trespasser does not readily come within this definition.

Ms Etiebet drew attention to the word ‘includes’ in Paragraph 24(4). It is apparent that the draftsman was intending to give an extended meaning to rent since the expression was to include mortgage repayments. In addition, in the paragraph as originally enacted there was a sub-paragraph (c) which read:-

“…a sum in respect of yearly outgoings borne by the householder including, in particular, any water and sewerage charges, and a reasonable allowance towards any necessary expenditure on repairs and insurance.”

It follows that the use of the word ‘includes’ was entirely understandable since rent was being given an extended meaning. That still applies because of 24(4)(b) despite the repeal of (c). I do not think that ‘includes’ can be relied on for other extensions of the meaning of rent.

It is clear in my judgment that what a person has to pay in order to be able to live in premises should prima facie be taken into account in deciding on his disposable income. Charges such as those which used to be within Regulation 24(4)(c) must now not be taken into account. But sums equivalent to rent and arrears should be. Non-payment can result in a possession order in the same way as non-payment of rent.

I do not think it necessary to reach a final conclusion whether sums payable by a tolerated trespasser or by for example a licensee fall within Regulation 24(3). As I think will be apparent I am inclined to the view that they do not. But in that case Regulation 24(6) will apply. Ms Hewson in my judgment rightly accepts that the approach to what is a reasonable amount must follow mutatis mutandis that which is set out in Paragraphs 24(3) to (5).

In the result, in my judgment the defendant’s decision was not in accordance with the law and must accordingly be quashed. The defendant must reconsider the claims in accordance with this judgment. As it seems to me, that can only mean that they will succeed.