Neutral Citation Number: [2007] EWHC 759 (Admin)
Case No: CO/7636/2006
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
DIVISIONAL COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

03 April 2007

Before :

LORD JUSTICE LAWS 
and 
MR JUSTICE DAVIS
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Between :

	The Queen on the application of JOHN BALDING	Claimant	
	- and -		
	The Secretary of State for Work and Pensions	Defendant	
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(Transcript of the Handed Down Judgment of
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Mr Paul Stagg (instructed by Leicester Law Centre) for the Claimant
Miss Katherine Olley (instructed by Treasury Solicitors) for the Defendant

Hearing date: 15th March 2007
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Judgment
Mr Justice Davis : 
Introduction
1.	This is another case which requires consideration of the interrelationship between the Social Security Administration Act 1992 (“the 1992 Act”) and the Insolvency Act 1986 (“the 1986 Act”):  although the actual issue here arising has not, according to the researches of counsel, itself been the subject of any previous decision.  The issue, put compendiously, is this.  Where it has been determined pursuant to s.71(1) of the 1992 Act that an individual has been overpaid benefits and  the Secretary of State for Work and Pensions has decided to recover them by way of deduction from subsequently payable prescribed benefits, and the individual then goes bankrupt, is that individual released from liability to repay the overpayments, by reason of s.281 of the 1986 Act, upon his subsequent discharge from bankruptcy?
The facts
2.	The background facts giving rise to these proceedings can be shortly stated.
3.	Mr Balding, the Claimant, had received income support over a number of years.  Investigations in due course were made.  A review decision was reached on the 12th June 1994 that Mr Balding had been overpaid £8680.45 by reason of a failure on his part to disclose a material fact as to his residence (and mortgage interest payable in respect of it).  On 6th July 1994 an Adjudicating Officer determined under s.71 of the 1992 Act that the sum of £8680.45 was recoverable.  Mr Balding, as was his right, challenged the decision by way of appeal to the Leicester Social Security Tribunal.  By decision, after a hearing on 23rd October 1995, notified on the 8th December 1995 the Tribunal determined that Mr Balding had failed to disclose that he was not living at a particular address and that income support of £8,335.48 had been overpaid, which amount was recoverable.  The original decision was thus in effect upheld.  Neither the original review nor the Tribunal made any finding, however, of fraud in this regard; and it is not suggested before us that Mr Balding had been fraudulent.
4.	In the meantime Mr Balding had presented his own bankruptcy petition on 15th June 1995 and he was declared bankrupt by order of the Leicester County Court on the 16th June 1995.
5.	On the 23rd December 1995 the Benefits Agency wrote to the Official Receiver to say that “In addition to his right to prove for this debt in the bankruptcy in the normal way” the Secretary of State might, without prejudice to any other method of recovery, recover overpayments by deduction from prescribed benefits; and that “debts recovered in this way are outside the scope of [the] bankruptcy legislation”.  On the 1st April 1996 the Secretary of State commenced recovery, by way of deduction from prescribed benefits payable to Mr Balding.  On 30th July 1996 the Benefits Agency wrote a lengthy letter to Mr Balding (who had queried the entitlement to make deductions in view of his bankruptcy) saying among other things that entitlement to, and the power to recover from, benefits were “free standing provisions of law operating quite outside the law of insolvency”.
6.	Deductions thereafter from prescribed benefits payable to Mr Balding were, for various reasons, sporadic.  At all events, on 16th June 1998 Mr Balding was discharged from bankruptcy.  Recoveries stopped shortly thereafter:  in part at least because Mr Balding was now in prison.  Deductions recommenced on 4th October 2000 but were stopped on 17th July 2001, at a time when the outstanding balance was £7,621.60.  The matter was referred to Central Recovery Group.
7.	On the 6th August 2003 Mr Balding presented a further debtor’s bankruptcy petition and he was declared bankrupt, for the second time, by order of the Leicester County Court on 7th August 2003.  In his statement in the bankruptcy proceedings he listed the outstanding overpaid income support as a bankruptcy debt.  Mr Balding has not yet been discharged from that bankruptcy.
8.	On the 2nd February 2004 the deductions recommenced.  There are indications in the papers that the Department for Work and Pensions had first proposed execution process and court proceedings against Mr Balding but did not pursue these when it learned of the second bankruptcy; and instead proceeded to make deductions.
9.	At the end of 2005 solicitors instructed on behalf of Mr Balding wrote to the Department for Work and Pensions asserting that, by reason of Mr Balding’s discharge from his first bankruptcy, the overpayment ceased to be recoverable.  The matter was debated, with no particular sense of urgency, in correspondence in 2006, deductions being suspended in the meantime.  A detailed letter of claim was sent on 27th June 2006.  On 18th July 2006, there was a response by the Department to the effect that discharge from bankruptcy on 16th June 1998 did not release Mr Balding from his liability to repay the overpayment.  These proceedings, claiming wide ranging relief, were issued on the 12th September 2006.  Permission was granted on 13th November 2006.
10.	In the Statement of Facts in support of the claim Mr Balding  referred to his discharge from his first bankruptcy and said:  “I hoped that following the indignity of bankruptcy I would have a new start free of debt”.  Rather curiously, Mr Balding nowhere in his statement mentioned the fact of his subsequent (second) bankruptcy.  However, the argument before us proceeded on the footing that the second bankruptcy has no bearing on the issue now raised.
11.	Since Mr Balding had been discharged from his first bankruptcy on 16th June 1998, it is a point of comment that these proceedings – which heavily rely on the fact of that discharge – were not issued until over 8 years later.  Of course, the Secretary of State asserts an ongoing entitlement to deductions:  and at all events Miss Olley (appearing on behalf of the Secretary of State before this court) disclaimed any argument to the effect that delay was a bar to this claim.  For his part, Mr Stagg (appearing on behalf of Mr Balding) accepted that the delay might have a bearing on at least some aspects of the remedies claimed if these proceedings were otherwise well-founded.
12.	At the outset of the hearing, this Court granted to the Secretary of State an extension of time in respect of its Grounds of Defence and supporting evidence.
The legislation
13.	Overpayments and adjustments of benefits are dealt with in Part III of the 1992 Act (as amended).  Section 71 provides, in the relevant respects, as follows:
“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…
 [(10A)  Where –
(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.
14.	Section 78 of the 1992 Act relates to social fund awards.  That in part provides as follows:
“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”
						.	.	.	.	.
15.	By s.187 of the 1992 Act it is provided that certain benefit is to be inalienable.  Section 187(1) provides as follows:
“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
					.	.	.	.	.”
16.	The Social Security (Payments on account, Overpayments and Recovery) Regulations 1988, SI 1998 No 664, make further provision for the recovery of overpayments by deduction from prescribed benefits:  see in particular Regulations 15 and 16.  Regulation 16 places certain restrictions on the amount that may be so recovered in respect of any one benefit week.
17.	Turning, then, to the 1986 Act (as amended) the principal relevant provisions are these.
18.	Section 278 provides that bankruptcy commences on the day on which the bankruptcy order is made and continues until the individual is discharged under the provisions of the Act.  Sections 279 and 280 then make provision for discharge.
19.	Section 281 reads as follows:
“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.”

20.	It is the general scheme of the 1986 Act that there is to be protection of the bankrupt’s estate during the bankruptcy:  this is dealt with in Chapter 2 of Part IX of the 1986 Act.  “Bankrupt’s estate” is defined in s283(1) (and subject to certain specified exceptions not material for present purposes) as follows:
“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.
21.	Section 285 of the 1986 Act places restrictions on proceedings and remedies.  It provides as follows:
“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.”

22.	Proof of any bankruptcy debt is provided for in s.322 (and subject to mutual credits and set-off), essentially by reference to the Insolvency Rules.  Insolvency Rule 12.3 provides that, subject as there follows, in bankruptcy all claims by creditors are provable as debts against the bankrupt, whether they are present or future, certain or contingent, ascertained or sounding in only damages.  Certain specific exceptions which are not provable are set out:  these exceptions do not include recoveries of overpayment under s.71 of the 1992 Act.
23.	Finally, it may be noted that by s.434 the provisions of the 1986 Act deriving from the Insolvency Act 1985 bind the Crown in relation to (among other things) discharge from bankruptcy.
The Submissions
24.	The submissions of Mr Stagg on behalf of Mr Balding had the great attraction of being clear, straightforward and logical.  They can be summarised in this way:
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.
25.	The argument of Miss Olley on behalf of the Secretary of State was altogether more elusive (although “subtle” was her own chosen epithet).  At all events, at the outset of her argument she emphasised what she said were the applicable policy considerations which, she submitted, showed that there was not here a “bankruptcy debt” with the meaning of s.281 of the 1986 Act.
26.	In that regard she drew attention to the Witness Statement dated 1st February 2007 of Mr Milner, of the Debt Repayment Operational Policy Unit of the Department of Work and Pensions, in particular at paragraphs 22 to 28.  But, with respect, I did not find that cast much light on the present matter.  That Statement asserts first that the Secretary of State, in pursing recovery of overpaid benefit by deductions, is in a very different position from an ordinary creditor.  That may be so; but it hardly bears on the current issues of statutory interpretation.  Mr Milner goes on to say, secondly, that the statutory scheme “strikes a balance between the need to protect the public purse by recovering overpaid benefit and the need to ensure that excessive hardship is not caused to the claimant”.  No doubt that is an underlying policy approach; but again it does not seem to me to assist very much, as a generalised position, in determining the issue of statutory interpretation now before the court.  The third and final point made is that the consequence of the restrictions on the amount of benefit which can be recovered by deduction (applying the 1998 Regulations) is that “the Secretary of State may well have to wait a very long time to recover any overpaid benefit”.  Leaving aside the fact that the Secretary of State is in any event not precluded from other forms of recovery, I cannot see how this point as so advanced has any real bearing on the issue of statutory interpretation arising in this case.
27.	At all events, the arguments advanced on behalf of the Secretary of State then, as I understood them, proceeded as follows:
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.
28.	We were referred to a number of authorities.
29.	In Steele v Birmingham City Council [2006] ICR 869, [2005] EWCA Civ 1824 the question was whether liability to repay certain overpaid social security benefits constituted a “bankruptcy debt” and, if they did, whether the benefits authority concerned could continue to recover such overpaid benefits by way of deduction from ongoing entitlements after the claimant was discharged from bankruptcy.
30.	However there was a material and crucial distinction of fact in that case as compared to the present case.
31.	As noted by Gibbs J at first instance in the Steele case [2005] EWHC 783 (Admin) there can be said to be four categories into which overpayment can fall where an individual is made bankrupt and then discharged:
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.
32.	It is expressly agreed by counsel on the facts of the case before us that Mr Balding is within category 1, the relevant decision having been made before the date of bankruptcy.  (It was not suggested to us that the subsequent appeal to the Tribunal affected that.)  But in Steele, on its facts, the matter fell within Category 2 – since no decision by the Secretary of State or authority that the overpaid benefits were recoverable was made prior to the date of bankruptcy.
33.	The principal argument thus raised in Steele was whether (for the purposes of s.382 of the 1986 Act) the liability of Mr Steele to repay in respect of previous overpayments was a “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”; and whether the debt or liability could be properly categorised as “contingent”, for the purposes of s.382.  At first instance, Gibbs J held that the liability did fall within the definition of “bankruptcy debt”, he taking the view that there was a contingent liability for the purposes of s.382 (3).  He further held that he could not find any provision in the statutory scheme which would exclude the liability to repay from the definition of “bankruptcy debt”, whether expressly or impliedly.  Having so decided, he went on to hold that Mr Steele was released from the liability on his discharge from bankruptcy, stating “I can find no basis in the authorities cited, given that it is a bankruptcy debt, for holding that the claimant is not released by virtue of s.281(1) on his discharge from bankruptcy”.
34.	That decision was reversed by the Court of Appeal.  The Court of Appeal held that, until the Secretary of State had made his determination under s.71(1) of the 1992 Act, the claimant was under no obligation to repay the overpaid benefit; and since there had been no such determination in the case of Mr Steele prior to the date of his bankruptcy he was not subject to a “contingent liability” for the purposes of s.382 of the 1986 Act.  Accordingly there was no “bankruptcy debt” which could be released on discharge from bankruptcy under s.281 of the 1986 Act.  The Court having reached that conclusion, the question of whether s.281 had the effect of precluding the recovery of overpayment did not fall for decision.  Sir Martin Nourse (at p877A) and Arden LJ (at p879E) recorded that they preferred to express no opinion on that matter.  It may, however, be noted that counsel then appearing for the Secretary of State had apparently conceded that if there were a contingent liability constituting a bankruptcy debt then it was released, by reason of s.281(1), on discharge from bankruptcy:  see at p.873B.  In the present case before us Miss Olley initially made the same concession.  However, after Mr Stagg had made his closing submissions in reply, she then indicated that she withdrew the concession.
35.	In R v Secretary of State for Social Security ex p. Taylor and Chapman [1997] BPIR 505 the question before the Court was whether the right to recover overpayments under s.71(8) and s.78(2) of the 1992 Act continued after the relevant individuals had become bankrupt.  That case did not, therefore, it should be noted, involve the consideration of the position after discharge from bankruptcy:  rather it primarily involved a consideration of the relationship between s.71(8) and s.78(2) of the 1992 Act on the one hand and s.285(3) of the 1986 Act on the other hand (that section, of course, relating to restrictions on proceedings and remedies during the currency of a bankruptcy).
36.	In the court of his judgment, Keene J rejected a submission that the 1992 Act was to be taken as excluding the bankruptcy legislation or as taking precedence over it.  He went on, however, to hold that the deductions made did not constitute a “remedy against the property” of the bankrupt, for the purposes of s.285.  In so holding, Keene J followed the approach of the Court of Appeal in Bradley-Hole v Cusen [1953] 1 QB 302.  In that case, a tenant had overpaid rent to a landlord contrary to the provisions of the Increase of Rent and Mortgage Interest (Restrictions) Act 1920.  The landlord then became bankrupt.  Section 14(1) of the statute provided that where any such sum had been so overpaid then “the sum so paid shall be recoverable from the landlord… and any such sum… may, without prejudice to any other method of recovery, be deducted by the tenant or mortgagor from any rent or interest payable by him to the landlord or mortgagee”.  It was argued that the tenant’s right was restricted to proving in the bankruptcy and that any other method of recovery would be barred under the bankruptcy legislation and would unduly prefer the tenant.  It was held, however, that the statutory right of deduction remained available and the trustee in bankruptcy could be in no better position than the landlord.  It seems to me, I might add, that it is reasonable to assume that the draftsman of the 1992 Act would have been aware of the implications of adopting a drafting technique similar to that used in the statute considered in Bradley-Hole.
37.	In the course of his judgment in Taylor Keene J (at p513D) stated that the claimant’s entitlement under the 1992 Act was “on the facts of the case” only to the net amount after deduction.  Mr Stagg challenged the correctness of that statement.  He submitted that the question of entitlement to the prescribed benefits was one for the adjudicating officer:  which is to be distinguished, he said, from what is then actually paid, the Secretary of State having power to withhold by way of deductions.  I regard that as a semantic quibble.  The reality is that the claimant is indeed only entitled to the net amount of the prescribed benefit just because of the election to make deductions pursuant to s.71(8).  I would add that it seems to me that the comments of Keene J were not intended to be a generalised comment on the effect of s.71 but only a comment on the factual situation where the method of recovery actually chosen is by way of deduction.
38.	We were also referred to the House of Lords decision in the Scottish case of Mulvey v Secretary of State for Social Services [1997] SC(HL) 105, [1997] SLT 753.  That considered the relationship between s.78(2) of the 1992 Act and the relevant Scottish bankruptcy legislation.  The question – corresponding to that in the case of Taylor – was whether, where the relevant individual had been made bankrupt, the Secretary of State was entitled to continue making deductions under s.78(2).  It was submitted that to recover by way of deductions was tantamount to suing the debtor personally for enforcement of a pre-bankruptcy obligation or in any event was doing diligence contrary to s.32 of the Bankruptcy (Scotland) Act 1985 – which, as I understand it, broadly, although not precisely, would correspond to s.285 of the 1986 Act.
39.	In the course of his speech Lord Jauncey noted that, by reason of s.187 of the 1992 Act, the income support payable to the bankrupt could not be part of the estate or pass to the trustee.  He further noted that, could such deductions not continue to be made, bankruptcy would confer an immediate financial advantage on the bankrupt:  which would be particularly unacceptable where the overpayments had been obtained by fraud.  He went on to find that nothing in s.32(5) of the Bankruptcy (Scotland) Act 1985 affected such a conclusion.  He went on at p756F to say this:  “The deductions made by the respondent were not, as in the normal case of compensation in bankruptcy, a result of the bankruptcy but were made in pursuance of a statutory scheme which was already in operation at the time of sequestration and with which the permanent trustee can have no concern.  Prior to sequestration the appellant had no right to receive by way of income support benefit more than her gross entitlement under deduction of such sum as had been notified to her…”.  Reference was also made, without disapproval, to the Bradley-Hole decision.
40.	These authorities make clear that the right to make deductions under s.71(8) and s.78(2) continues after the onset of bankruptcy.  But what they do not decide is the effect of discharge from bankruptcy.  The point (although decided by Gibbs J at first instance) was left open by the Court of Appeal in Steele.  In Mulvey that point also did not fall for decision, Lord Jauncey’s observations at p756F being “Even assuming that the appellant’s obligation to repay the social fund awards would be discharged under sec.55 [viz. of the Bankruptcy (Scotland) Act 1985] after three years, a point on which I do not find it necessary to express a view…”
Disposition
41.	In my view, the submissions of Mr Stagg reflect the actual wording of the statutory provisions and are correct.
(1)  Bankruptcy Debt
42.	The first question is whether there was here a bankruptcy debt.
43.	It seems to me to be beyond argument that the overpaid benefit was recoverable from Mr Balding just because, by reason of the determination, he was liable to repay the overpaid benefit.  That liability arises in this case under s.71(1) of the 1992 Act.  As such, it is a liability to pay money under an enactment for the purposes of s.382(4) of the 1986 Act; and in all other respects falls within the ambit of a “bankruptcy debt” as defined.
44.	Miss Olley emphasised that the entitlement is only to the net amount after deduction.  But that does not seem to me to displace the fact that there is here a liability under an enactment.  The overpaid income support can be recovered by deduction just because there is a liability to repay.
45.	This is, as I see it, confirmed by the fact that s.71(8) confers the right to recover by deduction “without prejudice to any other method of recovery”.  Miss Olley necessarily had to accept that in any particular case where an individual is not bankrupt the Secretary of State could sue for recovery of the overpaid amount as a debt.  Section 78(9) expressly provides that amounts recoverable under the provisions mentioned in sub-section (8) may be recovered by execution issued from the County Court or otherwise as if payable under an order of the Court.  On bankruptcy, moreover, as was conceded, the Secretary of State could also elect, as a creditor, to prove in the bankruptcy – an option, indeed, alluded to in the Benefits Agency’s letter of 23rd December 1995 to Mr Balding’s trustee in bankruptcy.  It is to be noted that s.322 of the 1986 Act relates to the “proof of any bankruptcy debt”:  and Insolvency Rule 12.3 does not specifically exclude recovery of sums under the 1992 Act from the categories of provable debts.
46.	Miss Olley’s approach in any event seems to assume that the individual is only ever entitled to the net benefit after deduction.  But in my view that is not right.  That will no doubt be so if the Secretary of State has actually elected – as he did in this case - to recoup the overpaid benefit by deduction at source from subsequent prescribed benefits.  But the Secretary of State may in other cases decide to effect recovery by other means.  The fact that he has not done so in this particular case is no answer to the question of statutory interpretation arising.  As I see it, the liability to repay cannot be said to be not a “bankruptcy debt” (as defined) if one form of recovery – viz by deduction under s.71(8) or s.78(2) – is adopted but can be a “bankruptcy debt” if another form of recovery is adopted.  The liability arising under s.71 of the 1992 Act, upon determination made prior to bankruptcy, either is or is not on a subsequent bankruptcy a “bankruptcy debt”, as defined.  In my view, it is.
(2)  Discharge
47.	The next question, on the footing that there is here a bankruptcy debt, is whether discharge released Mr Balding from liability for recovery of the overpaid benefit.
48.	In my view, that must follow given the wording of s.281, which in terms releases a bankrupt from “all the bankruptcy debts”.  Further:
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.
49.	The logic of Miss Olley’s argument, as she found difficult to dispute, would be that after discharge the Secretary of State could, in a particular case, discontinue recovery by way of deduction and sue for the balance outstanding.    If, as Miss Olley’s argument connotes, discharge does not affect the Secretary of State’s entitlement to continue to make deductions at source from prescribed benefits, then that must be because the liability under s.71 continues. But if that liability continues then the right of recovery by way of deduction under s.71(8) continues “without prejudice to any other method of recovery”.  Accordingly, on the argument advanced, the right to sue or to levy execution would continue after discharge.  That does not fit with the wording of, or policy behind, s.281 at all; and my view, such a result would simply compel a conclusion that what is here involved is indeed a “bankruptcy debt” which is released on discharge.  It is to be noted that s.281 operates as a release from bankruptcy debts:  it does not operate (in contrast to s.285, which applies during the currency of a bankruptcy) as a release from or restriction on methods of recovery of such debts.
50.	Accordingly, and in agreement with the approach of Gibbs J at first instance in the Steele case on this point, I conclude that, there being a bankruptcy debt, the claimant was released from it on his discharge from bankruptcy.
51.	I would however add this.  Underlying the arguments advanced by the Secretary of State was, I think (although not explicitly advanced in argument before us), a perception that the operation of these provisions of the 1992 Act and 1988 Regulations was simply not intended to be subject to the bankruptcy legislation.  That would not be an empty proposition.  As Gibbs J pointed out at the conclusion of his first instance judgment in Steele, there may be good policy reasons why the framework of these statutory benefits should be separated from the bankruptcy legislation and why the right to deduct overpayments should be exempted from such legislation.
52.	In this context, each of Categories 2, 3 and 4 identified by Gibbs J are – as was agreed before us – outside the reach of the bankruptcy legislation so far as deductions are concerned.  Further, as has been authoritatively decided, Category 1 is outside the reach of the bankruptcy legislation during the currency of the bankruptcy so far as deductions are concerned.  Further, the effect of s.187 of the 1992 Act (reinforced by the definition of “bankrupt’s estate” in s.283 of the 1986 Act) is that specified benefits, whether gross or net of deduction, would not be part of the estate available for distribution among creditors (leaving aside s.310 of the 1986 Act).  One rationale for s.285 – in addition, of course, to the need for an orderly administration of the bankruptcy – can be said to be that by having his estate surrendered by operation of statute for the benefit of creditors the bankrupt, both as to his person and property, is to be protected from proceedings.  A similar rationale – in addition to the “wiping the slate clean” rationale – may play a part in the discharge provisions of s.281.  But that seems altogether less powerful when the benefits in question never were part of the estate or available for distribution among creditors.  Further, as put by Keene J in Taylor (albeit in the context of the case before him at p.513G):  “It is difficult to see why someone who goes bankrupt should be in a better position so far as state benefits are concerned than someone who does not”.  A similar viewpoint appears in the speech of Lord Jauncey in Mulvey; although Mr Stagg observed that discharge generally puts a bankrupt in a better position than he previously would have been in.
53.	However, it seems to me that Mr Stagg was right to warn against, in effect, judicial speculation as to Parliament’s intentions and right to submit that such considerations cannot operate to subvert the clear words of the legislation.  Moreover the result here is not one which would be contrary to sense or without any purpose:  on the contrary, it would fall within the general purpose underpinning s.281.  If Parliament had desired to provide that – exceptionally – the liability to restore overpaid benefits (being a bankruptcy debt) was to be excluded from the operation of s.281 on discharge from bankruptcy then it behoved it so to provide.  It has not done so.  Moreover:
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.
Conclusion
54.	In my judgment, therefore, this claim succeeds.  I think that it will be necessary to hear counsel as to the form of order that should be made in consequence.
Lord Justice Laws:
55.	I agree.

	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.