Millbank Tower Millbank London SW1P 4QP

Millbank Tower Millbank London SW1P 4QP

Report

on an investigation into

complaint no 08 019 113 against the

London Borough of Newham

28 September 2009

Millbank Tower Millbank London SW1P 4QP

Investigation into complaint no 08 019 113

against the London Borough of Newham

Table of ContentsPage

Report summary

Introduction

Legal and administrative background

My jurisdiction

Council tax discounts

Recovery of council tax

Investigation

Background to Ms Scott’s debts

Leading up to the bankruptcy order

After the bankruptcy order

Conclusion

Jurisdictional issues

The Council’s actions leading up to bankruptcy proceedings

Finding

Proposal for settlement

Key to names used

Ms ScottThe complainant

DavidHer son

Report summary

Subject

Ms Scott suffered from a mental illness which affected her ability to manage her finances. The Council was aware of this illness. Over a period of several years council tax debts accumulated and the Council finally made her bankrupt for these, despite being aware of her mental state. The Council properly exercised its discretion to award Ms Scott an exemption due to her mental health for the post-bankruptcy debts, even though she did not fully qualify for the whole period. Ms Scott’s solicitor applied to the court to have the bankruptcy annulled, on the grounds that she did not owe the debt as she was entitled to an exemption but the courts rejected this application.

The Ombudsman found that the Council had been aware of Ms Scott’s illness at the time it decided to make her bankrupt but did not consider,in view of this, if bankruptcy was a suitablerecovery method.

Finding

Maladministration causing injustice, remedy agreed.

Recommended remedy

The Council has agreed to apply to the court to annul the bankruptcy. The Council's policies had already been changed before my investigation started so I have no recommendations there. I do recommend that it use its discretion when deciding whether to backdate any mental health exemption, even if Ms Scott does not technically qualify for this.

1

08 019 113

Introduction

  1. Ms Scott’s solicitor complained to me about the actions of the London Borough of Newham in making Ms Scott bankrupt for non-payment of council tax on 12 July 2004. They say that as she suffers from a severe mental illness she had no understanding of the council tax arrears, the legal proceedings or the bankruptcy petition. At the point her solicitor complained to me Ms Scott’s house was on the point of being sold by the Trustee in Bankruptcy.
  2. During the course of this investigation one of my investigators has inspected the Council's files and computerised records concerning its dealings with Ms Scott. He has also spoken to officers of the Council who have knowledge of the case. The Council and Ms Scott’s solicitor and son have seen a draft of this report and their comments have been taken into consideration.
  3. The Council has expressed some concerns that I intended to publish a report when the Council had already taken steps to resolve the matter by having the bankruptcy annulled. I can understand the Council's concerns, especially as MsScott would not have been made bankrupt under the Council's current policies. But I consider the case has some particular aspects, mainly concerning my jurisdiction and council’s discretion, which should be brought to a wider audience.
  4. For legal reasons[1] the names of those mentioned in this report are not their real names.

Legal and administrative background

My jurisdiction

  1. There are a number of sections of the Local Government Act 1974, as amended by the Local Government and Public Involvement in Health Act 2007, which define my powers and which have to be considered in reaching a decision on MsScott’s complaint.
  2. First, the Act says that I cannot conduct any investigation into

“the commencement or conduct of civil or criminal proceedings in any court of law”.[2]

However, I retain jurisdiction to investigate administrative actions prior to the issue of court proceedings and, where the Council instructs agents for enforcement of court orders, the actions of those agents (unless they are agents of the Court).

  1. Second Section 26(6) of the Act says that -

“A Local Commissioner shall not conduct an investigation under this Part of this Act in respect of any of the following matters, that is to say,

(c) any action in respect of which the person affected has or had a remedy by way of proceedings in any court of law:

provided that a Local Commissioner may conduct an investigation notwithstanding the existence of such a right or remedy if satisfied that in the particular circumstances it is not reasonable to expect the person affected to resort or have resorted to it.”

This is often referred to as having an alternative remedy.

  1. I have no jurisdiction to consider a complaint if proceedings have been issued in respect of an alternative right or remedy.[3] However, I retain jurisdiction to investigate if Court proceedings have been sought that are misconceived; that is where there is no legal basis for the action being sought.
  2. Third, the Act also says that normally I should not investigate a complaint unless it was made to me, or to an elected councillor, within 12 months from the day when the complainant first knew something had happened that affected him or her.[4] However, this is again a discretionary bar and I can investigate where I am satisfied that there are special reasons to accept a complaint about matters the complainant has been aware of for a longer period than 12 months.

Council tax discounts

  1. Council tax is payable by most people who occupy their own home: and local authorities have a duty to collect council tax where it is due. Council tax is partly a personal tax and partly a property tax. If there are two or more persons present then normally the full tax is paid. If only one person is resident there is a 25% discount. But certain categories of persons are not counted - disregarded – for this purpose; for example those under 18, students, or those resident in hospital. In some cases if all residents are disregarded then there is a 100% exemption on the property element of the tax – in other words no council tax is payable.
  2. Those who are severely mentally impaired - that is, who suffer, for whatever reason, from severe impairment of intelligence and social functioning which appears to be permanent - are disregarded for council tax purposes[5]. If there are two occupants, one of whom received the disregard, that would result in a 25% reduction in their council tax bill as the remaining resident would be treated as the sole resident. In order to qualify for this disregard a doctor’s certificate must be supplied confirming that the applicant is severely mentally impaired and is entitled to one of a number of specified state benefits, including certain disability benefits. If the only resident in a property is disregarded as being severely mentally impaired then there is an exemption for the property element and no tax is payable.

Recovery of council tax

  1. Where a sum of council tax is unpaid, a council may seek an order from the Magistrate’s Court, known as a liability order, showing the amount owed. The Council then has a number of options available to it to try to recover the debt. The most commonly used methods are deductions from wages or benefits or the removal of goods by bailiffs. But if these are not possible a Council is left with the alternatives of attempting to have the debtor committed to prison, having a charging order made on their property, or making them bankrupt.
  2. Before making a person bankrupt a statutory demand must be served on them, which details the debts owed. If no suitable arrangement is made and the debt is still owed then the creditor may issue a bankruptcy petition. A County or High Court judge will decide if the debtor is to be made bankrupt. If a bankruptcy order is made then the case will be passed to the Official Receiver, who may appoint a Trustee in Bankruptcy to realise the debtor’s assets for the benefit of the creditors.
  3. Newham Council has a debt recovery policy which has been updated regularly to take account of changing circumstances, such as the recommendations in reports issued by the Local Government Ombudsman. I consider it reflects well current local authority thinking on the use of bankruptcy, charging orders and committal and is fit for purpose. But at the time the Council decided to make Ms Scott bankrupt the Council’s policy, in common with many other authorities, was less advanced in setting out checks to be made on debtors before commencing action.

Investigation

Background to Ms Scott’s debts

  1. Ms Scott has been diagnosed as suffering from schizophrenia. It appears this began to manifest itself around 1992. In 1993 she was compulsorily detained in hospital under Section 3 of the Mental Health Act 1983, for diagnosis and treatment, and she was prescribed medication. But as she did not think there was anything wrong with her she was reluctant to take this. Her son and daughter both lived with her until 1996 when her daughter moved out. Ms Scott claimed and received council tax benefit, but this did not cover all the tax due as her children worked.
  2. In 1997 she was twice compulsorily detained under Section 3 of the Mental Health Act; as a result of this the Community Mental Health Team[6] (CMHT) became involved with Ms Scott and a care plan was put in place. Each detention involved, as is usual in such cases, a social worker employed by the Council.
  3. She was detained again in 1999. A social worker contacted the council tax team and asked if Ms Scott could receive a reduction as being severely mental impaired. Unfortunately when her doctor was asked to confirm her condition he said she was no longer registered with him. The council tax team wrote to MsScott about this and her son, David, replied saying that the Council should approach the hospital in which his mother was detained for details of her condition. In response the Council awarded a 25% discount as Ms Scott was in hospital, but David still lived at the property. David was also warned that his mother owed just over £1,800 council tax.
  4. Also in July 1999 a social worker from the CMHT replied to a letter from the council tax team which had asked for proof of Ms Scott’s benefits for the purpose of the application for the severely mentally impaired reduction. The social worker said that David was Ms Scott’s appointee and could be contacted at her home. Proof of Ms Scott’s entitlement to incapacity benefit and income support was provided. As Ms Scott was on benefits the Council started making deductions from those benefits to pay her council tax.
  5. Ms Scott’s condition improved and she was able take up paid work. As a result, her state benefits stopped, her council tax benefit claims stopped, and the Council could no longer take deductions from her benefits for her council tax debts. Her employment lasted until 2001 when she lost her job because of incidents resulting from the deterioration in her mental condition. She became reluctant to allow the Council’s social workers to contact her. David was living with her at the time. He expressed his concern to his mother about whether she had claimed benefits or not, but Ms Scott became aggressive and confrontational when questioned.

Leading up to the bankruptcy order

  1. Ms Scott was detained in hospital again from May to September 2003. By late 2003 Ms Scott was neither claming council tax benefit nor making payments towards her council tax debt. Bailiffs had been unable to recover the debt and over £2,000 council tax and costs were owed to the Council. One of the notes from the bailiffs referred to Ms Scott having mental health problems and her son was attempting to assist. In October 2003 there is a note that David returned a Council officer’s telephone call. The note says that it appeared Ms Scott was severely mental impaired but not claiming any benefits and David and Ms Scott’s social worker were trying to get her to claim benefits. David’s work telephone number was noted on the file. In December 2003 the CMHT noted she was not in receipt of benefits or co-operating so that an application for benefit could be made on her behalf.
  2. There was no further contact from David. He told my investigator he was finding it difficult trying to help his mother and he moved out on 18 December 2003. In February 2004 a letter was sent to Ms Scott warning of the possibility of bankruptcy, and giving details of the process and possible costs involved.
  3. In response, her daughter called the Council about the debts. She said she would speak to her mother and brother and get back in touch, but nothing further was heard from her. David told my investigator his sister found it harder to deal with his mother than he did, and now cannot recall details of what happened. In June 2004 a further warning letter was sent, saying that a charging order, bankruptcy or committal were options. The council tax computer contains the note –

“N[ote]B[ook] states ab[o]v[e] SMI [Severe Mental Impairment]. Bankruptcy letter sent with SMI appl[ication] letter.”

  1. There was no response to this letter or when the statutory demand (the first stage in making someone bankrupt) was served. A bankruptcy petition was served and Ms Scott was declared bankrupt in July 2004 for a debt of £3,022.71 council tax and costs.

After the bankruptcy order

  1. In 2006 Ms Scott was again detained under the Mental Health Act. David visited her home and found unopened mail about her council tax debts and the bankruptcy. Ms Scott was now receiving treatment and support from the Council and the NHS.
  2. In September 2006 the Council received an application for a 100% reduction in liability for council tax on the grounds of an exemption for severe mental impairment. Technically Ms Scott only qualified from July 2006, as that was when she started receiving one of the qualifying benefits. However the Council backdated the exemption to April 2005, when Ms Scott’s post-bankruptcy liability started. This left the only council tax debts as those proved in the bankruptcy.
  3. The Trustee in Bankruptcy started action to sell Ms Scott’s house to clear the bankruptcy debts. As a result, in June 2007 David asked the solicitor to apply for the bankruptcy to be annulled on the ground that it should not have been made, because of her mental condition Ms Scott should have been receiving an exemption and the action was an abuse of process as the Council should have known Ms Scott was a patient.
  4. The conduct of subsequent legal proceedings is outside my jurisdiction, and Icannot comment on them. In July 2008 the annulment application was dismissed.The Trustee continued with the action to sell Ms Scott’s house. This led to the complaint to me, made in February 2009.

Conclusion

Jurisdictional issues

  1. Before considering whether Ms Scott has suffered injustice through maladministration, I need to look at the extent of my jurisdiction to investigate this complaint (see paragraphs 5 to 9).
  2. First, I have considered the provisions on the “conduct or commencement” of legal proceedings. In this connection it is clear that I have the power to investigate a complaint up to the point at which bankruptcy proceedings commenced with the issue of the petition. The history of the subsequent period is therefore recounted in this report purely as background information. Nothing prevents me from considering whether anything that was done by the Council after proceedings commenced remedied any earlier administrative errors that I might find.
  3. The events covered by this complaint took place more than twelve months before it was made to me. Nevertheless, I consider it reasonable to exercise my discretion to investigate the complaint because Ms Scott has mental health difficulties that impair her ability to act in her own interests. Given the seriousness of the situation, Ms Scott’s mental condition and the reasonable delay in the complaint to me caused by the legal proceedings I have exercised my discretion to investigate matters from the start of Ms Scott’s indebtedness to the Council.
  4. In previous reports[7] Ombudsmen have taken the view that applying to the court to have a bankruptcy set aside may engage Section 26(6) of the 1974 Act (the ‘alternative remedy’). In these earlier cases the Ombudsmen took the view that the proceedings were misconceived and so they retained the power to investigate. However, I have taken further legal advice and have reconsidered the position on whether a complainant who applies to the court to have the bankruptcy set aside directly engages the alternative remedy or not. This is akin to the complainant defending themselves in legal proceedings taken by the council, such as a formal defence to a possession action by the council. In such cases I have taken the view that the remedy is not engaged and there is, therefore, no automatic bar to an investigation.
  1. On balance I consider that an application for annulment of a bankruptcy order is not a resort to an alternative remedy.