[5].
8. The provisions in the relevant schedule in relation to repayments
of monies overpaid are as follows:
(1) Where sums have been paid to a qualified lender under Regulation 34A
which ought not to have been paid for one or both of the reasons mentioned in
sub-paragraph (2) of this paragraph, the qualifying lender shall, at the
request of the Secretary of State, repay the sum over-paid.
(2) The reasons referred to in sub-paragraph (1) of this paragraph are -
(a) that -
(i) the rate at which the borrower pays mortgage interest has been reduced
...... or the amount outstanding on the loan has been reduced, and
(ii) as a result of this reduction the applicable amount of the relevant
beneficiary has also been reduced, but
(iii) no corresponding reduction was made to the specified part; or
(b) .........
9. That is the background against which the present proceedings were
launched. Overpayments were made between February 1992 and March 1995. The
applicant was first informed in March 1995 of the overpayments. She was told
that the mortgagee had been asked to refund the amounts overpaid as soon as
possible. She sought the advice of SHELTER who entered into a correspondence on
her behalf. Shelter referred to a case decided by this court (Sir Richard Scott
V-C, Roch and Henry LJJ) on 1 July 1996 : R v Adjudication Officer and
Secretary of State for Social Security, ex parte Michael Golding. In that
case the Vice-Chancellor said this:
"...... the Secretary of State accepts that the machinery of set-off, to recoup
from a mortgage lender over-payments that under paragraph 11 of Schedule 9A the
Secretary of State is entitled to require the mortgage lender to repay, can
only be used if its use does not adversely affect the position of the
beneficiary mortgagor.
The purpose of the set-off is, it was explained, simply to avoid the necessity
of a cheque being sent by the Secretary of State to the mortgage lender and
cheque for the same amount then being sent by the mortgage lender to the
Secretary of State. If, on every occasion on which the Secretary of State
deducts over-paid sums from the "specified part" payable to the mortgage
lender, the lender then credits the beneficiary borrower's mortgage interest
account with a corresponding sum, the position of the beneficiary borrower will
not, as it seems to me, have been adversely affected by the set-off. But if
the lender does not do so, and calls upon the beneficiary borrower to pay the
mortgage interest that, in the absence of such a credit, will have remained
outstanding and due, the beneficiary borrower's position will have been
adversely affected by the set-off. The statutory scheme places the Secretary
of State under a statutory obligation to pay the mortgage interest element of
the beneficiary's income support to the lender. If the set-off is accompanied
by a credit to the borrower's mortgage interest account of the set-off sum, the
arrangement can fairly be regarded as equivalent to payment of the mortgage
interest. But, in the absence of such crediting, the Secretary of State would,
as it seems to me at present, be in breach of his statutory obligation to pay
the "specified part".
As I understand the position, the Secretary of State may not, in fact, know
what accounting system is employed by lenders in general, or, indeed, by the
[mortgagee in that case] in particular, when the machinery of set-off is used
to recoup over-payments previously made in respect of mortgage interest. The
accounting treatment may differ from lender to lender and may depend on whether
the over-payments were, when received by the lender, credited to the borrower's
capital account or to his interest account or were placed to some separate
reserve account. My present opinion is, as I have said, that the use of
set-off machinery to recoup over-payments is only permissible if it is
accompanied by a credit to the beneficiary borrower's interest account with the
lender of an amount equal to the set-off sum."
10. Following a lengthy correspondence the Department sent a letter
dated 10th September 1998. They asserted that Mrs. Craigie had not been
disadvantaged in any way by the course taken by the Department. On 9th
December 1998 Shelter on Mrs. Craigie's behalf lodged a Form 86A. the decision
in respect of which she sought relief was described thus:
"The decision by the Benefit Manager of the Benefits Agency communicated by
letter dated 10th September 1998.....
A: upholding the decision to withhold current mortgage interest benefit
throughout the period November 1995 until September 1996 as a means of
recouping over-payments during the period 1992 - 1995, purported relying upon
Social Security (Claims and Payments) Regulations 1987 Schedule 9A paragraph
11.
B: justifying putting the applicant in seriously (sic) arrears of her
mortgage by such failure to make mortgage payments.
C: refusing to pay to the applicant or her mortgagee the full sum so
deducted by non-payments.
The relief sought was
1. An order for certiorari for quashing the decision.
2. An order for mandamus requiring the respondent do (sic) make a further
determination according to law.
3. A declaration that the respondent is not entitled to rely upon internal
procedural changes to derogate from its public law duty only to use the said
recoupment method if it did not adversely affect the position of the
claimant.
4. Damages to place the applicant in the same financial position she would
have been in but for the respondents said unlawful act and decision."
11. The Judge records that before him it was common ground that the
Secretary of State was entitled to use the powers given to him by paragraph 11
of Schedule 9A to recover the over-payments that arose in this case. The
argument was entirely about whether or no the applicant had been disadvantaged
by what had been done. The Judge said:
" In this case, it seems plain to me that the applicant could not claim to
be worse off than she would have been [if the proper payments had been made at
the relevant time] since she has had what is, in effect, an accelerated payment
in respect of some of these interest charges. Furthermore, not even the whole
of the over-payment has been recovered."
The Judge said in relation to the passage from the judgment of the
Vice-Chancellor which we have set out:
"It is seems to me plain from this passage in the Vice-Chancellor's judgment
that he is simply requiring that in the case of a set-off the money which would
have been recovered by the Secretary of State in the normal way - by way of a
cheque to the Secretary of State from the lender - must actually be used to the
benefit of the applicant in relation to her account. Otherwise the Secretary
of State would not be meeting his statutory obligation to make the interest
payments. That is precisely what occurred in this case."
12. The Notice of Appeal asks for an order that the judgment be set
aside and that there be an order for certiorari quashing the decision
complained of in the Form 86A. There is no suggestion either in that document
or in the skeleton argument submitted on behalf of the appellant that it would
be submitted that the conditions in paragraph 11 of Schedule 9A had not been
fulfilled. The grounds were concerned entirely with disadvantage allegedly
suffered by the applicant.
13. We endeavoured during the course of the hearing to obtain from Mr
Timothy Carlisle, counsel for the appellant, a clear submission as to the
manner in which it was alleged that Mrs Craigie had been disadvantaged by the
action of the Secretary of State. Notwithstanding some extra time over the
short adjournment Mr Carlisle was not in a position to show that she had been
disadvantaged in any way. He could not show either (i) that in principle what
the Secretary of State did was likely to disadvantage Mrs Craigie or (ii) that,
by reason of the way the mortgagee had treated the matter in the statement of
Mrs Craigie's account with them she had in the event been disadvantaged. He
pointed out that during the time in 1995 and 1996 that the mortgagee was not
credited with the specified part of the income support Mrs Craigie's
indebtedness to the mortgagee increased so that it was higher at the end of
that period than it had been at the beginning. That is no doubt true. It is
exactly what one would expect in the case of a deferment mortgage where the
payment rate was lower than the charging rate. However the fact is that, had
the Secretary of State between 1992 and 1995 only done what he was obliged to
do, namely, paid to the mortgagee interest at the payment rate (rather than at
the charging rate) then Mrs Craigie would have been debited at that time, month
by month, with the difference between the two interest rates and so the
indebtedness would have increased gradually over the years 92-95. This did not
happen. What happened was that the increase in indebtedness was postponed until
1996/97. What happened to her did not leave her any the worse off than she
would have been if the Secretary of State had not made the mistake in the first
place.
14. Since the Secretary of State did not in fact keep for himself the
whole amount of the overpayment but, for reasons which do not presently matter,
returned some of it to the lender, it seems probable that she was rather better
off by reason of the mistake. However, because of the poverty of the underlying
material before the court relating to the state of Mrs Craigie's account with
the mortgagee and the inability of counsel to fill in the gaps we are not in a
position to assert this with absolute confidence.
15. I therefore consider that the judge was right in the conclusion
to which he came and in the reason which he advanced for that conclusion.
16. However, I suggested during argument that what had been done by
the Secretary of State arguably did not fall within paragraph 11. It seemed to
me then, and still seems to me, that the phrase in subparagraph (2)(i) "the
rate at which the borrower pays interest" in the context of a deferred interest
mortgage refers to the payment rate not to the charging rate. My reason for so
thinking is that
1. that is the natural meaning of the words used when applied to a deferred
interest mortgage,
2. the "applicable amount" referred to in subparagraph (2)(ii) is calculated by
using the payment rate not the charging rate and this reinforces the view as to
the natural meaning of "the rate at which the borrower pays interest".
17. Mr Carlisle, although the point had not been advanced in the
notice of appeal or the skeleton argument which had been drafted by another
counsel sought leave to withdraw the concession which had been made by them in
the court below to the effect that the action of the Secretary of State fell
within the wording of the subparagraph. That was not objected to by Mr Kovats,
who appeared on behalf of the Secretary of State and we were content that he
should be able to adopt the point.
18. Mr Kovats, while appreciating the force of the point, faintly
argued that there were policy considerations which required the paragraph to be
construed as though "the rate at which the borrower pays interest" meant "the
rate at which the borrower is charged interest". The policy reason was not
spelt out but was presumably that it is in the public interest that sums which
have been unnecessarily disgorged by the public purse should be recoverable. I
see the force of that. However, two points can be made on the other side. 1.
The proposition clearly did not attract the framer of the Regulations in its
full breadth otherwise he would not have inserted subparagraph (2). 2. There
is no right of appeal against a decision by the Secretary of State to recover
an over-payment under paragraph 11 of Schedule 9A and there may well be other
methods whereby overpayments can be recovered.
19. The point, not having been taken below and not having been
foreseen when counsel prepared their submissions, I do not think it right to
express a concluded view on the basis of the limited argument which we heard.
But I am prepared to assume in Mrs Craigie's favour that on the facts of this
case there was no obligation on the mortgagee to repay the sums overpaid
because the conditions inn subparagraph 11(2) were not fulfilled.
20. In those circumstances should we grant Mrs Craigie any relief and
if so what? I put it that way because Mr Carlisle never clearly formulated what
he was asking the court to do and the mortgagees are not parties to the present
action.
21. The point is sought to be taken for the first time years after it
could have been taken. In the circumstances, the discretion of the court is
bound to be involved whether one looks at the matter as one involving amendment
of the notice of appeal, allowing a point to be raised which was expressly not
taken below, giving permission for an amendment of the pleadings, or giving
permission for judicial review long out of time. I start from the position that
it has not been shown that Mrs Craigie has suffered any damage by reason of the
error by the Secretary of State. On the contrary she has had the benefit of
overpayments which, in all probability, have reduced the amount which she would
otherwise have owed to the mortgagee. So I would be disinclined to exercise any
discretion in Mrs Craigie's favour.
22. That being the case, and there being no specific application on
her behalf, the proper course is simply to dismiss this appeal on the basis
that the judge rightly rejected the case which she advanced before him.
LORD JUSTICE BUXTON:
23. I agree that this appeal should be disposed of as my Lord
proposes. I add only three footnotes.
24. First, although Mr Kovats did not oppose the application to
withdraw the express concession on which the case has proceeded throughout,
that the Secretary of State was given power by paragraph 11 to act as he did,
the disadvantages of an appeal proceeding on a basis different from that
adopted in the trial court rapidly became apparent. I agree with my Lord that
the wording of paragraph 11(2)(a)(i) naturally directs itself to a case where
the amounts actually paid by the mortgagor have been reduced in the course of
the mortgage, and that reduction has not been reported to the Secretary of
State. Contrary to what I at first thought, it is unnatural to characterise a
reduction of the payment rate below the charging rate as a condition of a
deferred interest mortgage as being a reduction of the kind envisaged by
paragraph 11(2)(a)(i).
25. In its relevance to this case, however, that exclusion of
paragraph 11 from consideration rests on the assumption that the lending
relation between the parties was from the start a deferred interest mortgage.
If it were not, and the deferred interest terms were rather introduced at any
later stage of the relationship, then the condition stated above, of the "rate
at which the borrower pays interest" being reduced, would be fulfilled. And
that would bring the case within paragraph 11, and do so without artificiality
or unreason: because I consider the exclusion of the present case from
paragraph 11 as accidental in the light of the obvious and proper aim of the
Regulations to protect public funds, and as only arising because deferred
interest mortgages, and the possibility that mortgagors like Mrs Craigie would
report the charging rate and not the payment rate, was not in the draftsman's
mind.
26. This possibility does not arise because, so far as we can tell,
the deferred interest arrangement was the original arrangement between the
parties to the loan. But I have to say, so far as we can tell, because the
evidence does not clearly establish that point: the point, on the case as
originally argued, not having been in issue. Were there not other and telling
reasons for dismissing this appeal in any event, I would think it necessary, if
the paragraph 11 point were to be admitted and pursued, for the case to be
remitted for the evidential position relevant to that, new, point to be
clarified.
27. Second, while the argument proceeded on the assumption that an
obligation, expressed in entirely general terms, not to act to the disadvantage
of the applicant had been imposed on the Secretary of State by this court in
ex p Golding, that was a matter of assumption only. I am far from
certain that the judgments in that case went any further than to say that
benefits actually obtained from the lender must accrue to the advantage of the
borrower. I should not be taken as deciding any wider rule.
28. Third, as to the issue of disadvantage, the Judge held that the
burden was on the applicant to establish relevant disadvantage, and that she
had not done so. Neither of those findings was specifically appealed, the
Notice of Appeal contenting itself with saying, in general terms, that "the
learned judge ought to have found that there was sufficient evidence of an
adverse effect to have quashed the decision". It will therefore be appreciated
that it was a considerable concession to Mrs Craigie to permit those issues to
be explored at all before this court.
MR JUSTICE JACOB:
29. I agree with the judgments of Lord Justice Schiemann and Lord
Justice Buxton.
ORDER: Appeal Dismissed with costs, not to be enforced without the
leave of the court. Detailed assessment of funded client's costs.
(Order does not form part of approved Judgment)
