Reply To: Ownership of capital dispute


I had a similar appeal recently. In my case the customer claimed that she was looking after £35,000 for her sister. Apparently the agreement between them was that the claimant would invest the capital and could use the interest generated, but not touch the capital. Apparently the claimant’s sister gave her the money to look after it because she (the sister) would spend the interest on jewellery(!).

The CAB initially advised her, and they quoted a passage from the CPAG Welfare Handbook which said words to the effect that a loan granted on the condition that you only use the interest do not touch the capital should not be counte as your capital because the capital element is not at your disposal.

This appeared to rely on a CD R(IS) 12/86, which relied on a hideously complicated trusts law case (Barclays Bank v Quistclose) to come to the conclusion that a loan granted on certain conditions should not be treated as capital.

I did some research and found a couple more CDs which you might find useful:

CSB 1137/85 – quistclose trust unlikely to be found in private/family transactions – normally only found in commercial situations

R (IS 5/99 – Loan to be taken into account until immediate obligation to repay arises.

R(IS) 8/92 – loan to be repaid on a specific date still available to the borrower

R(IS) 6/03 – need for immediate obligation to repay before loan can be disregarded as capital. ( also reported as Morrell v Sec State for Work and Pensions – CA)

Anyway the conclusion I came to was that the capital should be treated as the property of the claimant throughout because there was not enough evidence to suggest that a trust had been created, particularly the complicated kind found in the quistclose case. We also relied on the fact that the money was in the claimant’s name at all times and was therefore available to her. She had been given no set date on which to repay it.

In your case I think the solicitor’s statement may provide an insight into the nature of the agreement. Analyse it carefully to see whether there is any possibility of a trust being created here.

An interesting point was that I trawled through the regs for ages trying to find a reg which said that capital held by the claimant on trust for another should be disregarded, or something to the same effect as the passage quoted by the CAB about loans granted on a condition. I could find nothing in the regs to suggest that money held on trust should be disregarded! I think as a principle of law it probably should be though.

Sorry for long post, hope it is of some help!