QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
MR JUSTICE DAVIS
| The Queen on the application of JOHN BALDING
|- and -
|The Secretary of State for Work and Pensions
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Miss Katherine Olley (instructed by Treasury Solicitors) for the Defendant
Hearing date: 15th March 2007
Crown Copyright ©
Mr Justice Davis :
"71. (1) Where it is determined that, whether fraudulently or otherwise, any person has misrepresented, or failed to disclose, any material fact and in consequence of the misrepresentations or failure
(a) a payment has been made in respect of a benefit to which this section applies; or
(b) any sum recoverable by or on behalf of the Secretary of State in connection with any such payment has not been recovered,
the Secretary of State shall be entitled to recover the amount of any payment which he would not have made or any sum which he would have received but for the misrepresentation or failure to disclose.
[ (2) Where any such determination as is referred to in subsection (1) above is made, the person making the determination shall [in the case of the Secretary of State or a tribunal, and may in the case of a Commissioner or court]
(a) determine whether any, and if so what, amount is recoverable under that subsection by the Secretary of State, and
(b) specify the period during which that amount was paid to the person concerned.]
(3) An amount recoverable under subsection (1) above is in all cases recoverable from the person who misrepresented the fact or failed to disclose it.
. . . . .
(8) Where any amount paid [, other than an amount paid in respect of child benefit or guardian's allowance,] is recoverable under
(a) subsection (1) above;
. . . . .
it may, without prejudice to any other method of recovery, be recovered by deduction from prescribed benefits.
(9) Any amount recoverable under the provisions mentioned in sub-section (8) above
(a) if the person from whom it is recoverable resides in England and Wales and the county court so orders, shall be recoverable by execution issued from the county court or otherwise as if it were payable under an order of that court
(a) a jobseeker's allowance is payable to a person from whom any amount is recoverable as mentioned in subsection (8) above; and
(b) that person is subject to a bankruptcy order, a sum deducted from that benefit under that subsection shall not be treated as income of his for the purposes of the Insolvency Act 1986.
. . . . ."
That last sub-section was introduced, by way of amendment, with effect from 7th October 1996 by certain provisions of the Jobseekers Act 1995. It is common ground that by sub-section (11) section 71 applied to the benefits paid to Mr Balding.
"78. (1) A social fund award which is repayable shall be recoverable by the Secretary of State.
(2) Without prejudice to any other method of recovery, the Secretary of State may recover an award by deduction from prescribed benefits"
. . . . .
"187.(1) Subject to the provisions of this Act, every assignment of or charge on
(a) benefit as defined in section 122 of the Contributions and Benefits Act;
[ (aa) a jobseeker's allowance;]
[ (ab) state pension credit;]
(b) any income-related benefit; or
(c) child benefit,
and every agreement to assign or charge such benefit shall be void; and, on the bankruptcy of a beneficiary, such benefit shall not pass to any trustee or other person acting on behalf of his creditors
. . . . ."
"281. Effect of discharge
(1) Subject as follows, where a bankrupt is discharged, the discharge releases him from all the bankruptcy debts, but has no effect -
(a) on the functions (so far as they remain to be carried out) of the trustee of his estate, or
(b) on the operation, for the purposes of the carrying out of those functions, of the provisions of this Part;
and in particular, discharge does not affect the right of any creditor of the bankrupt to prove in the bankruptcy for any debt from which the bankrupt is released.
(2) Discharge does not affect the right of any secured creditor of the bankrupt to enforce his security for the payment of a debt from which the bankrupt is released.
(3) Discharge does not release the bankrupt from any bankruptcy debt which he incurred in respect of, or forbearance in respect of which was secured by means of, any fraud or fraudulent breach of trust to which he was a party.
(4) Discharge does not release the bankrupt from any liability in respect of a fine imposed for an offence or from any liability under a recognisance except, in the case of a penalty imposed for an offence under an enactment relating to the public revenue or of a recognisance, with the consent of the Treasury.
(5) Discharge does not, except to such extent and on such conditions as the court may direct, release the bankrupt from any bankruptcy debt which
(a) consists in a liability to pay damages for negligence, nuisance or breach of a statutory, contractual or other duty, [or to pay damages by virtue of Part I of the Consumer Protection Act 1987, being in either case] damages in respect of personal injuries to any person, or
(b) arises under any order made in family proceedings [or under a maintenance assessment made under the Child Support Act 1991].
(6) Discharge does not release the bankrupt from such other bankruptcy debts, not being debts provable in his bankruptcy, as are prescribed.
(7) Discharge does not release any person other than the bankrupt from any liability (whether as partner or co-trustee of the bankrupt or otherwise) from which the bankrupt is released by the discharge, or from any liability as surety for the bankrupt or as a person in the nature of such a surety.
. . . . ."
"Bankruptcy debt" is defined in s382 as follows:
382. "Bankruptcy Debt", etc
(1) "Bankruptcy debt", in relation to a bankrupt, means (subject to the next subsection) any of the following-
(a) any debt or liability to which he is subject at the commencement of the bankruptcy,
(b) any debt or liability to which he may become subject after the commencement of the bankruptcy (including after his discharge from bankruptcy) by reason of any obligation incurred before the commencement of the bankruptcy,
(c) any amount specified in pursuance of section 39(3)(c) of the Powers of Criminal Courts Act 1973 in any criminal bankruptcy order made against him before the commencement of the bankruptcy, and
(d) any interest provable as mentioned in section 322(2) in Chapter IV of Part IX.
(2) In determining for the purposes of any provision in this Group of Parts whether any liability in tort is a bankruptcy debt, the bankrupt is deemed to become subject to that liability by reason of an obligation incurred at the time when the cause of action accrued.
(3) For the purposes of references in this Group of Parts to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in this Group or Parts to owing a debt are to be read accordingly.
(4) In this Group of Parts, except in so far as the context otherwise requires, "liability" means (subject to subsection (3) above) a liability to pay money or money's worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment and any liability arising out of an obligation to make restitution."
"283. Definition of bankrupt's estate
(1) Subject as follows, a bankrupt's estate for the purposes of any of this Group of Parts comprises-
(a) all property belonging to or vested in the bankrupt at the commencement of the bankruptcy, and
(b) any property which by virtue of any of the following provisions of this Part is comprised in that estate or is treated as falling within the preceding paragraph .."
This definition connotes that income accruing after the bankruptcy commences does not form part of the bankruptcy estate although s.310 empowers the court to make an income payments order for the benefit of the bankrupt's estate. The effect of s.283 of the 1986 Act and of s.187 of the 1992 Act therefore is that income support and other prescribed income benefits ordinarily are not part of the bankrupt's estate.
"285. Restriction on proceedings and remedies
(1) At any time when proceedings on a bankruptcy petition are pending or an individual has been adjudged bankrupt the court may stay any action, execution or other legal process against the property or person of the debtor or, as the case may be, of the bankrupt.
(2) Any court in which proceedings are pending against any individual may, on proof that a bankruptcy petition has been presented in respect of that individual or that he is an undischarged bankrupt, either stay the proceedings or allow them to continue on such terms as it thinks fit.
(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall-
(a) have any remedy against the property or person of the bankrupt in respect of that debt, or
(b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.
This is subject to sections 346 (enforcement procedures) and 347 (limited rights to distress).
(4) Subject as follows, subsection (3) does not affect the right of a secured creditor of the bankrupt to enforce his security.
(5) Where any goods of an undischarged bankrupt are held by any person by way of pledge, pawn or other security, the official receiver may, after giving notice in writing of his intention to do so, inspect the goods.
Where such a notice has been given to any person, that person is not entitled, without leave of the court, to realise his security unless he has given the trustee of the bankrupt's estate a reasonable opportunity of inspecting the goods and of exercising the bankrupt's right of redemption.
(6) References in this section to the property or goods of the bankrupt are to any of his property or goods, whether or not comprised in his estate."
i) The decision by the Secretary of State that the overpayment was recoverable antedated Mr Balding's bankruptcy on 16th June 1995 as well as his discharge on 16th June 1998.
ii) Mr Balding was thus liable to make payment of that overpayment under s.71 of the 1992 Act: and that is a "liability under an enactment" for the purposes of s.382 of the 1986 Act.
iii) Accordingly that liability was a "bankruptcy debt" for the purposes of s.281 of the 1986 Act.
iv) By reason of the provisions of s.281 discharge released Mr Balding from all his bankruptcy debts: and this particular liability (by reference to s.71 of the 1992 Act) is not within any of the exceptions set out in s.281.
v) Accordingly as from 16th June 1998, Mr Balding having been released from his liability to repay the overpayment, the Secretary of State had no continuing entitlement thereafter to make deductions from prescribed benefits payable to Mr Balding.
i) Under the statutory scheme of the 1992 Act and 1988 Regulations, properly understood, the claimant's only entitlement is to the net amount payable after deductions which the Secretary of State is entitled to make in respect of recoverable overpayment.
ii) The claimant's argument fails to differentiate between the question of whether the Secretary of State can, for example, sue in the County Court for the overpaid benefit after discharge and the specific powers of recovery by deduction of benefit under the 1992 Act and 1988 Regulations (which are the powers being exercised in this case).
iii) The claimant's entitlement to the net amount of benefit after deduction is not to be taken as being changed by the adventitious fact of discharge from bankruptcy.
i) The first category is where benefits are awarded and paid to an individual prior to the date of bankruptcy and the decision to recover is made prior to that date.
ii) The second category is where benefits are awarded and paid prior to the date of bankruptcy but the decision to recover is made after the date of bankruptcy.
iii) The third category is where benefits are awarded before the date of bankruptcy but are only paid, and in respect of which a decision to recover is made, after the date of bankruptcy.
iv) The fourth category is where benefits are awarded and paid, and in respect of which a decision to recover is made, all after the date of bankruptcy.
(1) Bankruptcy Debt
i) Such a conclusion is consistent with the perceived policy underpinning s.281, which is in effect to wipe the slate clean and, broadly speaking, enable the bankrupt to make a fresh start.
ii) It is provided by sub-section (3) that discharge does not operate as a release in respect of a bankruptcy debt incurred through any fraud. That would operate at least to mitigate the concerns expressed by Lord Jauncey in the Mulvey case. It is to be repeated that, in the present case, fraud is not alleged.
iii) Further, as Mr Stagg tellingly observed, s.281 provides for various exceptions. Liabilities arising under the 1992 Act are not among them. Further, s.281(6) expressly states that discharge does not operate as a release from such other bankruptcy debts, not being provable in the bankruptcy, as are prescribed. Nothing has been prescribed so far as the 1992 Act is concerned; and to the extent that such debts are indeed provable that would tend to confirm they are intended to be the subject of release on discharge.
i) In Taylor, as noted above, an argument was mounted to the effect that the 1992 Act and 1988 Regulations formed an exclusive code taking precedence over or operating independently of the insolvency legislation. Keene J rejected that particular argument. Miss Olley before us expressly accepted the correctness of Keene J's decision.
ii) In s.89(1), contained in Part IV of the 1992 Act, (since repealed) it was in terms provided that "where the intended recipient is subject to a bankruptcy order nothing in the Insolvency Act 1986 shall affect the operation of this Part of this Act". It is of note that no such provision is contained in Part III of the 1992 Act, in which sections 71 and 78 are found. Moreover, by s.71(10A) introduced by amendment by the Jobseekers Act 1995 it is expressly provided that a sum deducted from the benefit there mentioned "shall not be treated as income of his for the purposes of the Insolvency Act 1986". That hardly connotes an intention that s.71 is to operate independently of the insolvency legislation.
iii) If there was a viable argument that the 1992 Act and 1988 Regulations operated independently of or in precedence over the insolvency legislation it is rather difficult to see how the arguments and judgments in Mulvey and in Steele took the form that they did. In Steele, for example, the whole argument as to whether or not there was a "contingent liability" constituting a "bankruptcy debt" was predicated on the basis that the insolvency legislation potentially applied.
Lord Justice Laws:
LORD JUSTICE LAWS: Well, you have seen the judgment handed down. For the reasons given there, the claim succeeds. Mr Stagg?
MR STAGG: We are very grateful for your Lordship's judgment, my Lord. My learned friend Mr Buley appears for the Secretary of State today. I hope your Lordships will have seen a draft order that was submitted yesterday.
LORD JUSTICE LAWS: Yes.
MR STAGG: I am grateful. Paragraphs 1 to 5 of that order are agreed.
LORD JUSTICE LAWS: Yes.
MR JUSTICE DAVIS: I did just have two points. Firstly, it is clear, is it, that no interest is to be paid?
MR STAGG: No interest is to be paid, my Lord, that is right.
MR JUSTICE DAVIS: I just wonder whether that should be written in to avoid any --
MR STAGG: I am very happy to insert that there is no right of interest, I accept that.
MR JUSTICE DAVIS: Also the other point that just occurred to me, should not the sum to be repaid be paid to the trustee in bankruptcy of Mr Balding, rather than to Mr Balding direct?
MR STAGG: No, my Lord, because, as you may recollect, section 187 of the Act states that any benefits to which a bankrupt is entitled do not form part of his estate, and therefore a benefit claim --
MR JUSTICE DAVIS: So you are saying that the lump sum that will be paid is still to be treated as benefit -- it is just, I think, the trustee in bankruptcy should be notified of this, that is my personal provisional view.
MR STAGG: I will make sure my instructing solicitor notifies him, but that is what I understand the effect of section 187 to be anyway, because these payments are benefit they would not go into the bankruptcy estate, but I will certainly tell my instructing solicitor to notify the trustee.
LORD JUSTICE LAWS: Yes, thank you.
MR STAGG: My Lord, my learned friend has an application.
LORD JUSTICE LAWS: First of all, do you have anything to say about what was just passing between Mr Stagg and my Lord?
MR BULEY: My Lord, in relation to the second point, I think my learned friend Mr Stagg is correct. I must confess it is not something to which I have directed my mind previously, but I think it is correct simply because we are dealing with money arising after the discharge of the bankruptcy, and the logic, as I understand it, of your Lordship's judgment is that from that point on it cannot be set off against --
LORD JUSTICE LAWS: I see. Well, Mr Stagg is going to notify the trustee, and if the trustee wants to have a shout, no doubt he will find the means of doing so.
MR BULEY: Exactly right, my Lord.
LORD JUSTICE LAWS: You are content also that the point relating to interest should be embodied in a paragraph somewhere in this order. No doubt, you will agree a form of words.
MR BULEY: My Lord, my instructions are that we are content, yes.
LORD JUSTICE LAWS: Your application?
MR BULEY: My Lord, the application -- I hope your Lordship is aware that there is an application for leave to appeal.
LORD JUSTICE LAWS: Yes.
MR BULEY: I well recognise your Lordships have reached a clear view of this case, but I do seek to rely upon both limbs of CPR 52.6, namely real prospect of success and other compelling reason. My Lord, in a sense one can look at those issues in reverse order, in my submission. In terms of compelling reason, my Lord, I just point to two factors. First of all, although your Lordships reached a very clear view on the law, your Lordships did reflect in paragraphs 51 and 52 of the judgment very real concerns about policy issues and as to doubts, as it were, as to what the genuine real intention of Parliament was. I recognise what your Lordships say, that in itself does not give a reason to distort the clear words of the statute --
MR JUSTICE DAVIS: The point was also conceded in argument on behalf of your client.
MR BULEY: Absolutely, my Lord, I recognise that as far as it goes, but it does nevertheless, in my submission, provide some colour when one is considering the question of other compelling reason.
LORD JUSTICE LAWS: Well, I would have thought your submission was perfectly simple. This is a decision which will affect other cases, it is a matter of some importance for the distribution of public funds and the administration of benefit.
MR BULEY: My Lord, that is exactly right and the point which I was going to turn to. We do not have precise complete figures about that, but I have some figures which will perhaps give some colour to that submission, my Lord. My client has identified that this case will affect at least something of the order of 1,500 or 1,600 cases and an amount of money of the order of £3.5 million, and that is solely in relation to cases in a certain category, cases which may be closed but which may need to be re-opened --
LORD JUSTICE LAWS: Are those all in Gibbs J's categorisation, those are all category 1 cases, are they?
MR BULEY: So I understand, my Lord, those are my instructions.
LORD JUSTICE LAWS: Directly covered by my Lord's reasoning in this case.
MR BULEY: Exactly, my Lord. I make the further point that that does not include, for example, things like housing benefit cases, which fall outside of my client's responsibility altogether, but I think might be touched by the same logic. So there is, in my submission, a clear point of public importance and therefore a compelling reason.
Turning to real prospect of success, my Lord, I make two points on this also. First, while I recognise the matter has been dealt with very comprehensively and clearly by your Lordships, and I do not want to spend time criticising --
LORD JUSTICE LAWS: We are not sitting here to hear you re-argue the case this morning.
MR BULEY: Exactly, my Lord, I make therefore two brief points. First of all, my Lord, this was a point left open by the Court of Appeal in Steele, and in my submission that implies that it may well be appropriate again as a case to go back to the Court of Appeal, it is possible the Court of Appeal will take a different view. Just in relation to the merits, and putting the case in a nutshell for the Secretary of State, we simply say that this is at least a case which has some real prospect of success whether or not your Lordships have taken a different view, and it is this. The Secretary of State's case, as you are aware, is to insist upon a distinction between the right of recovery in section 71(8) of the statute by way of deduction from prescribed benefits and the right of recovery by way of a county court. The Secretary of State's position is, in a nutshell, that those two freestanding -- any right of recovery in this case is entirely a creature of the statute that creates it, section 71, it does not rely upon any underlying notion of debt. What you have here are two freestanding and independent rights by means --
LORD JUSTICE LAWS: I think we know what the arguments are.
MR BULEY: Exactly, indeed. I simply say, your Lordships have heard this argument at much greater length, there is a reasonable prospect of success.
LORD JUSTICE LAWS: Do you have anything to say about permission to appeal, Mr Stagg?
MR STAGG: Just that if your Lordships take the view there is not a reasonable prospect of success on appeal, the fact that this is a matter of wider importance should not lead to a grant of appeal, in my respectful submission, but other than that, I leave it to your Lordships.
LORD JUSTICE LAWS: We think that, given the potential consequences of the ruling of the court in this case, the matter is fit for consideration by the Court of Appeal. Whatever the prospects of success, as to which we say nothing, this is the kind of case where we think there is a compelling reason for the Court of Appeal to look at it, so permission will be granted. Thank you very much.