QUEENS BENCH DIVISION
London, WC2A 2LL
B e f o r e :
| The Queen on the application of Isle of Anglesey County Council
|- and -
|Secretary of State for Work and Pensions
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr N. Giffin Q.C. (instructed by The Solicitor, Department for Work and Pensions) for the Defendant
Crown Copyright ©
Mr Justice Lindsay :
"… It is necessary to safeguard the public purse both against the charging of unreasonably high rents and against the situation in which claimants are occupying properties in excess of their reasonable needs. For this reason, the legislation provides for benefit to be paid against "eligible rent", which cannot normally exceed the "maximum rent". The maximum rent in rent allowances cases is set by the Local Authority on the basis of determinations made by Rent Officers. This requires claims to be referred to the Rent Officer in the circumstances set out in Regulation 12 A of the Housing Benefit (General) Regulations 1987. Broadly speaking, claims must be referred unless they relate to a tenancy which is an excluded tenancy e.g. regulated tenancies under the Rent Act 1977. The Rent Officer's determination represents an independent judgment on the question of whether the dwelling occupied exceeds what is, in accordance with statutory criteria, the appropriate size of home for the claimant, and as to what is an appropriate rent for the property. The current role of the Rent Officer has been a feature of the housing benefit system since 1989. All new rent allowance claims have to be referred. An award of housing benefit is for a defined period which will not normally exceed 60 weeks. A claimant who wishes to continue to receive housing benefit must then make a further claim. That renewed claim must also be referred to the Rent Officer. A reference to the Rent Officer is also required when certain changes in circumstances occur."
"In the view of the Department, that claims should be referred to a Rent Officer when the regulations so require is an extremely important part of the system. Referrals upon an initial claim protect the public purse against inflated claims. That danger may be less great upon a renewed claim, although it is obviously possible, for example, if rental values are falling. Referrals upon a renewed claim may also serve to protect the interest of the claimant (or the landlord, if the landlord is unable to charge the claimant a higher rent than housing benefit will meet). If the housing benefit payable has been limited by an earlier determination of the Rent Officer, and rental values have subsequently risen, then a further referral may lead to an increase in the amount of housing benefit payable."
Whilst the more obvious cause for a loss to the public purse arising upon a failure to obtain a Rent Officer's determination on a renewed claim is where, as Mr Gorst says, rents have fallen since the initial determination, a similar although, no doubt, less likely loss will occur when premises, appropriate to the claimant at the time of the initial Rent Officer's determination, have since become excessive in relation to a claimant's diminished needs. If, for example, children have left home or parties separate or an elderly occupant leaves to go into care, a claimant's needs may shrink so as to render the initially appropriate premises no longer appropriate to his or her needs. In such cases a lower benefit than previously paid may be appropriate.
"Subsidy under the Subsidy Order [Income Related Benefits (Subsidy to Authorities) Order 1998] is initially paid to Local Authorities by way of interim subsidy, paid by instalments during a subsidy year in question. The amount of these interim payments is based upon estimates of subsidy expenditure submitted by Authorities before the start of the year and at midway through the year. By the 30th September following the end of the subsidy year (i.e. 31st March), an Authority must submit its initial final claim for subsidy, based upon the expenditure which it has actually incurred during the year in question. A balancing payment will be made at that stage. By the 31st December the claim must be audited by the Authority's external auditor, leading to a further adjustment. Depending on how the initial final claim and the audited final claim compare with the amounts actually paid, payments may be made either by the Authority to the DWP, vice versa."
"1. Subsidy shall be paid by the Secretary of State in such instalments, at such times, in such manner and subject to such conditions as to claims, records, certificates, audit or otherwise as may be provided by order of the Secretary of State.
2. The order may provide that if an Authority has not, within such period as may be specified in the order, complied with the conditions so specified as to claims, records, certificates, audit or otherwise, the Secretary of State may estimate the amount of subsidy payable to the Authority and employ for that purpose such criteria as he considers relevant.
3. Where subsidy has been paid to an Authority and it appears to the Secretary of State –
(a) that subsidy has been overpaid; or
(b) that there has been a breach of any condition specified in an order under this section,
he may recover from the Authority the whole or such part of the payment as he may determine. Without prejudice to other methods of recovery, a sum recoverable under this subsection may be recovered by withholding or reducing subsidy.
4. An order made by the Secretary of State under this section may be made before, during or after the end of the year to which it relates."
"…. this Part also applies in a case where an Authority is required, under Regulation 12 A of the Housing Benefit Regulations (Requirement to refer to Rent Officer), to apply for a determination in relation to a dwelling during a relevant year which a Rent Officer would be required to make, but the Authority fails to apply for that determination, and, in such a case, the appropriate amount shall be nil."
"The Secretary of State decided that, in order to satisfy the provisions of s. 140 C (3), he will decide whether, and if so how much of, the overpayment should be recovered, with regard to the following criteria, some of which may overlap."
I will not cite all the criteria. It is not said any is inappropriate but the first is:-
"The degree of impact on the public purse; for example where the case has not been referred to the Rent Officer, we would have regard to the movement in rent levels since the date referral should have occurred."
Nothing suggests that if there is no impact on the public purse then there should necessarily be no recovery under section 140 C (3). Any such rigid rule would in any event conflict with that provision. The circular also said:-
"In addition to these criteria, the Department would also consider any other circumstances which the Authorities might wish to put forward."
Paragraphs 7 and 12 of the circular, so far as may be material, said as follows:-
"7. After careful consideration of all the relevant facts a decision will be made and Authorities will be informed of the outcome. Where the Secretary of State decides that it is appropriate to seek recovery of all, or part, of the overpayment, we will write to Authorities giving details of the amount and the reasons for the decision. Authorities will be given an opportunity and adequate time to respond. The Department will consider the financial circumstances, having particular regard of [sic] each Authority's financial commitment and size of the recovery in setting an appropriate timescale for repayment."
"12. Authorities should be aware that the Department will consider a recurrence of the same failure to be an important factor in any future decision regarding recovery of subsidy that has been overpaid as a result of that failure."
"He is therefore entitled to expect that an Authority will act with reasonable diligence to properly discharge its functions in accordance with the law when administering housing benefit. The Secretary of State considered that the inadequate supervisory/management checks shows that your Authority failed to maintain a strong control environment and in doing so failed to exercise due care in discharging your functions in relation to administering housing benefits."
The letter indicated that, given the financial circumstances of the Authority, the recovery of overpaid subsidy would be spread over a 12 month period from November 2002.
"The basic position on housing benefit is that your Authority has received £2,223,305 which the legislation provides you are not entitled to. The Secretary has decided to recover only £444,661 of this. Your Authority has therefore benefited from £1,778,644 to which you were not entitled. The Secretary of State is of the view that it must be clear from this that he has taken into account mitigating factors in your case. The Secretary of State fails to see how you can argue that this is unreasonable."
Mr Drabble makes the point that the alleged benefit of £1,778,644 is illusory; the Housing Benefit to the full extent of the £2,223,305 had been dispersed to claimants by Anglesey. However I do not understand it to be disputed that £2,223,305 is the correct total of housing benefit paid out by Anglesey in cases where, on renewed claims, determinations should have been applied for from the Rent Officers but were not. The total paid out by Anglesey for Housing Benefit in the relevant years is far larger than £2.2m, perhaps of the order of £15m..
Is paragraph 6 unlawful?
"…. It is important to take into account that the Court is concerned with two areas of Government in which it is clear that the judicial arm must give the greatest deference to the legislature and to the elected executive. The first concerns the allocation of resources: how much is to be raised by the Government, by taxation or otherwise, and how the monies available for expenditure by the Government are to be spent. Those matters are not justiciable. In a different context in R -v- DPP, ex parte Kebeline, R –v- DPP, ex parte Rechachi  4 All ER 801 at 844, 2 AC 326 at 381, Lord Hope of Craighead said:-
"In this area difficult choices may have to be made by the Executive or the legislature between the rights of the individual and the needs of society. In some circumstances it will be appropriate for the Courts to recognise that there is an area of judgment within which the judiciary will defer on democratic grounds to the considered opinion of the elected body or person who act or decision is said to be incompatible with convention."
These words were applied to the distribution of State benefit by Laws LJ (with whom the other members of the Court of Appeal agreed (in R (on the application of Waite) -v- Hammersmith and Fulham London BC  EWCA Civ 482 at , . Laws LJ said at ): "… the distribution of State benefit lies peculiarly within the constitutional responsibility of elected Government". In Steele Ford & Newton (a firm) –v- CPS  2 All ER 769 at 774,  1 AC 23 at 33, Lord Bridge of Harwich referred to –
"….. the special constitutional convention which jealously safeguards the exclusive control exercised by Parliament over the levying and the expenditure of the public revenue"."
"72. Undoubtedly, as illustrated by the facts of the present case, section 127 (3) may be drastic, even harsh, in its adverse consequences for a lender. He loses all his rights under the agreement, including his rights to any security which has been lodged. Conversely, the borrower acquires what can only be described as a windfall. He keeps the money and recovers his security. These consequences apply just as much where the lender was acting in good faith throughout and the error was due to a mistaken reading of the complex statutory requirements as in cases of deliberate non-compliance. The consequences also apply where, as in the present case, a borrower suffered no prejudice as a result of the non-compliance as they do where the borrower was misled. Parliament was painting here with a broad brush.
73. The unattractive feature of this approach is that it will sometimes involve punishing the blameless pour encourager les autres. On its face, considered in the context of one particular case, a sanction having this effect is difficult to justify."
Then at paragraph 74 Lord Nicholls continued:-
"Despite this criticism I have no difficulty in accepting that in suitable instances it is open to Parliament, when Parliament considers the public interest so requires, to decide that compliance with certain formalities is an essential prerequisite to enforcement of certain types of agreement. This course is open to Parliament even though this will sometimes yield a seemingly unreasonable result in a particular case. Considered overall, this course may well be a proportionate response in practice to a perceived social problem. Parliament may consider the response should be a uniform solution across the board. A tailor-made response, fitting the facts of each case as decided in an application to the Court, may not be appropriate. This may be considered an insufficient incentive and insufficient deterrent."
In his paragraph 75 Lord Nicholls said:-
"It must be open to Parliament to decide that, severe though this action may be, it is an appropriate way of protecting consumers as a matter of social policy."
In his paragraph 79 Lord Nicholls continued:-
"The Court should simply have regard to the relevant statutory provision and its policy objective and consider whether the provision bears so unfairly on the applicant that it was not open to Parliament to adopt this provision, even as part of an overall package, in response to the social problem in question."
"It is argued that the legislature could have made the sanction discretionary. Maybe. But it does not follow that the view that the sanction should here be automatic was not a permissible view."
Lord Scott took the view that the protection offered by section 127 (3), harsh though it might be in some cases in the way it bore upon lenders, was not disproportionate – paragraph 169.
"49. As regards, first of all, the principle of proportionality, it is settled law that, in order to establish whether a provision of Community law complies with that principle, it must be ascertained whether the means which it employs are suitable for the purpose of achieving the desired objective and whether they do not go beyond what is necessary to achieve it (see, inter alia, Case 426/93 Germany –v- Council  ECR I-3723, paragraph 42).
50. The Court has also stated on numerous occasions that, where the evaluation of a complex economic situation is involved, the Community institutions enjoy a wide measure of discretion. In reviewing the legality of the exercise of such discretion, the Court must confine itself to examining whether it is not vitiated by a manifest error or misuse of power or whether the institution in question has not manifestly exceeded the limits of its discretion (see, to that effect, Joined Cases C-296/93 and C-307/93 France and Ireland –v- Commission  ECR I-795, paragraph 31)."
Is the exercise of the discretion vulnerable?
"….. We took a position of nil recovery as our starting point, and considered what grounds there were to impose some higher level of recovery, rather than starting with an assumption of full recovery and asking whether there were grounds to recover something less than the full amount of the overpayment."
Nor was it the case, once a percentage banding had been allocated to a particular Authority, that there was no consideration of what it meant in monetary terms. Mr Gorst says:-
"When we met to discuss the recovery decisions to be made and identified what we thought were the right percentages to be recovered, we did also calculate what that would mean in terms of the actual sum recovered and asked ourselves whether we regarded the figure as appropriate."
MR JUSTICE LINDSAY: I hand down the judgment in this matter. Mr Giffin.
MR GIFFIN: May it please your Lordship, I apply for the Secretary of State's costs to be the subject of detailed assessment if not agreed. I understand that is not controversial.
MR JUSTICE LINDSAY: Ms Patry.
MS PATRY: My Lord, that is not controversial.
MR JUSTICE LINDSAY: I make that order, Mr Giffin.
MS PATRY: My Lord, two matters. First of all, apologies on behalf of Mr Drabble and Mr Kolinsky for being unable to attend, I appear in their place.
I do ask for permission to appeal in this case. As you are well aware, my Lord, the criteria for granting permission is contained in 52.3 subparagraph 6, either going through prospects of success or some other compelling reason why the appeal should be heard, and I rely on all propositions. I deal with the latter in more general propositions first, and that is obviously the compelling reason.
I have three submissions. The first is that the sums involved, as explained in the claimant's evidence that you heard, are very substantial sums for the claimant. They equate to a levy of £6.70 per head of population in Anglesey or an increase of £17 on the Band D Council Tax, that is consistent in your judgment. Therefore, the outcome of this case is very important to the claimants as a council and obviously to the population of Anglesey as well.
Secondly, and more importantly, this is in effect a test case on the Secretary of State's approach to the recovery of housing benefit subsidy of councils. There are, as I am sure you are aware, many other councils affected by the repayments. This applies both to the financial years which were referred to in this present case and the financial years in the future.
The Secretary of State's decision-making appeared as a whole in the publication of the circular and, under the new circular, this is the first case to come to court. In my submission, this case will therefore set a real precedent as to the approach which the Secretary of State is able to take. It will have a profound impact, in my submission, on the approach which the Secretary of State takes to the recovery of housing benefit and will have a considerable impact on the finances of many local authorities up and down the country. It is therefore, in our submission, of very considerable importance.
Thirdly, Sullivan J granted permission in this case after an oral hearing, he saw the force of describing what was happening as a penalty. In our submission, that means that there have been at least two different approaches to this question by two different judges now, and given how important this issue that I have described will be to local authorities all over the country, it is our submission that it is crucial that this case be considered by the Court of Appeal.
Those are the general submissions on compelling reason. I address you very briefly on the specific issues under the heading, "real prospects of success". We say there is a real prospect that the Court of Appeal will take a different view in this case. Again, I have three submissions.
Firstly, in relation to comparable context which we discussed at hearing, I would say that unlike the other examples of subsidy regimes which were advanced by Mr Giffin in argument and relied upon in your judgment, it cannot be said that the claimants benefit from the sums to which they are entitled. We say that they pay those sums to housing benefit recipients.
The decision to recover here was made by the Secretary of State on the basis that there was no loss to the public purse, I think that is uncontroversial, there is no gain to the council. We say therefore that any parallel from other subsidy regimes which have been relied on are therefore incomplete.
Secondly, on the word "penalty", my Lord, I appreciate that you did not deem the word "penalty" appropriate in the circumstances, but we will seek to argue to the Court of Appeal that it is entirely apt. There are two points here, really. Mr Gorst himself, the Secretary of State's witness, described the recovery of housing benefit subsidy as a sanction which on his evidence was imposed because of maladministration. It is worth noting, as I have already said, that Sullivan J granted permission; he saw the force of describing the sanction as a penalty, and as such another judge has taken a different view of this issue.
MR JUSTICE LINDSAY: Well, he has made no ruling whatsoever.
DEFENCE COUNSEL: No, that is absolutely right. He did not even rule. I can only put it as high as saying that he saw force in the argument and made no definitive ruling.
My first submission is that we say that there is a serious vice contained in paragraph 6 of schedule 4 which unless corrected through the use of discretion, and which is sensitive, will lead to unlawful results. We say that the paragraph lumps together, if I can put it that way, all sorts of mistakes in the administration of housing benefit and then deems that subsidy as nil. Unlike Wilson and Others v Secretary of State for Trade and Industry  UKHL 40, upon which your Lordship relied, we say that there is no policy justification or imperative for vesting the same consequences in different situations. We say, in our submission, it could be easily disentangled.
On these two grounds therefore, real prospects of success and compelling reason for this case to go to the Court of Appeal, I would ask you to grant permission. Thank you very much.
MR JUSTICE LINDSAY: Mr Giffin, do you wish to say anything?
MR GIFFIN: My Lord, it is very much a matter for your Lordship as to whether, having heard all the arguments, your Lordship deems there is a real prospect of success. I submit that your Lordship has come to a clear conclusion in the judgment, and that in those circumstances there cannot really be said to be a compelling reason.
MR JUSTICE LINDSAY: Well, one can be clear but wrong.
MR GIFFIN: One can, but your Lordship has I suppose at this stage to take a view as to whether it is a case of doubt and uncertainty or one where ultimately your Lordship thought the answer was clear. That is a matter where your Lordship knows better than the submissions.
MR JUSTICE LINDSAY: I am more likely to be impressed by the compelling reason side, that it is a test case with some substantial effects to local authorities and people up and down the country.
MR GIFFIN: My Lord, that it has potentially wider significance in so far as it is an attack on the generality of the Secretary of State's approach can hardly be denied, because the Secretary of State has adopted a common approach. Your Lordship has seen from the evidence that there are already numbers of decisions which have been made to recover a percentage of the over-payment, 5 per cent or 10 per cent, and none of those authorities with the exception of one have sought to challenge that, as far as I am aware. The one that did challenge was not a challenge to the approach as such, and that failed to get permission on the papers and was not renewed, and so that does not suggest that there is a great queue of local authorities waiting to challenge the fundamental approach. It is a matter for your Lordship.
I would only say this: that if your Lordship was minded to grant permission on that basis, the logic, in my submission, would be to limit it to Anglesey's main ground of challenge, which was really issues 1, 2 and 3 of the 6 that were identified. Those three are very much interrelated. Issues 4, 5 and 6 are much more specific to Anglesey's facts, and as your Lordship will recall, were really not pressed at any great length or with great vigour in argument. Unless I can assist your Lordship any further.
MR JUSTICE LINDSAY: If I were to grant a leave to appeal, would there need to be a stay of the payment of £444,661?
MR GIFFIN: My Lord, that has never been sought. I have lost track of the dates, but the position must be that the bulk of it has already been recovered, I think, by way of deduction from other subsidy payments. There certainly has not been a stay in place hitherto, and with respect, it would perhaps be decidedly odd for one to come into play at this point. As your Lordship well knows, the normal practice is not to stay at the first instance simply because an appeal is pending, and certainly there is no suggestion that Anglesey is put in any huge financial difficulty if it has to make the payment now and get it back later, it does have reserves well in excess of the amount in question.
MR JUSTICE LINDSAY: Ms Patry, what do you say about a possible stay?
MS PATRY: I am afraid I am in some difficulties, your Lordship, because I have no instructions on that particular point. I am certainly not instructed to seek a stay on that basis, but I am in some difficulties because that precise point was not raised by me. I have taken instructions this morning, but I am afraid the position simply is not clear. I know that I am not instructed to ask for a stay.
MR JUSTICE LINDSAY: I will give permission to appeal. It seems to me that on the compelling reasons limb of Ms Patry's argument, it is worth going forward with. The sums involved are substantial, it is in a sense a test case on its own limited point, it may even be something of a guide as to discretions under subsidiary legislation generally, and so I do grant permission to appeal.
However, having heard both council, I make no decision as to there being a stay in terms of a stay of the payment of £444,661.
Mr Giffin, is there anything else I need to do, having made the order for costs which you requested and which Ms Patry did not contend?
MR GIFFIN: My Lord, I think not. May I just clarify one point in relation to costs: the costs of the oral permission hearing were reserved, and would your Lordship specify --
MR JUSTICE LINDSAY: They go as in part of the bulk of costs overall.
MR GIFFIN: My Lord, quite so. Other than that, I do not think there is anything else.
MR JUSTICE LINDSAY: Ms Patry, that is right, is it not?
MS PATRY: My Lord, that is right, yes. I do have one further matter to trouble your Lordship with if that is convenient. I simply would ask for an extension of time within which to file the appellant's notice. If your Lordship would take up rule --
MR JUSTICE LINDSAY: How long do you have in any case?
MS PATRY: We have 14 days in any case, but the position is that the appellant must ask the law court for permission to extend that time.
MR JUSTICE LINDSAY: Why do you need an extension?
MS PATRY: The problem is that, as you will probably see from my attendance today, Mr Drabble and Mr Kolinsky are both on vacation and are away for a week. That already limits us to seven days.
More importantly than that, the claimants as you know are a local authority and therefore have to go through a rather unwieldy decision making process which involves not only taking advice from council but thereafter going back, possibly to members, and it takes time for the relevant meetings to be organised and the relevant committee meetings to take place. It is not simply a question of a normal claimant who can take advice and then decide straight away whether or not to go ahead and pursue the appeal. It really is a rather detailed procedure that has to be gone through. The notes in the White Book on the extension of time do illustrate that when there is a rather unwieldy decision-making process, that would be an example of a good reason for seeking an extension of time. We are only asking for a modest extra 14 days, so a total of 28 days.
MR JUSTICE LINDSAY: So you want 28 days from today?
MS PATRY: 28 days from today, my Lord.
MR JUSTICE LINDSAY: Mr Giffin, do you oppose that?
MR GIFFIN: My Lord, no.
MR JUSTICE LINDSAY: I am sorry to hear that councils cannot decide anything within 14 days, but there you are. I will grant you an extension so that you have 28 days from today.
MS PATRY: Thank you very much.
MR JUSTICE LINDSAY: Thank you.