England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		27/02/2009

Michael Supperstone Q.C. (Sitting as Deputy High Court Judge)

Introduction

1. This application for judicial review concerns the practice of the Defendant, the Secretary of State for Work and Pensions, of seeking to recover overpaid Social Security benefit other than under Section 71 of the Social Security Administration Act 1992 ("the 1992 Act"). Permission to apply for judicial review was granted by Underhill J at an oral hearing on 6 February 2008.
2. Section 71 of the 1992 Act confers on the Defendant a statutory power to recover, subject to specified conditions, a payment of any relevant benefit from any person who has misrepresented or failed to disclose any relevant fact, where the payment would not have been made but for such misrepresentation or non-disclosure.
3. The Defendant's position is that Section 71 neither expressly nor by necessary implication removes his power to claim repayment at common law of money paid by mistake. The Claimant contends that the Defendant's practice is unlawful where the original payment was made pursuant to and in accordance with a valid determination and where the pre-conditions for recovery under Section 71 are not met.

Factual Background

4. The Defendant has adopted a practice of writing to claimants who he considers have been overpaid benefit, but who have not misrepresented or failed to disclose any relevant fact, letters claiming that he has a common law cause of action to recover the overpayment. The letters (with some variations) are in standard form, and are accompanied by a document headed "Questions you might have about the overpayment" ( see exhibit "SW1" to the witness statement of Mr Stewart Wright at pp 28 and 30 in the Court Bundle). I am informed that during the period between March 2006 and February 2007 such letters have been sent in some 65,000 cases.
5. The material part of the letter dated 10 July 2006 (CB, p28) states:

"We are writing to you because too much Income Support has been paid.

This is because of your Child Benefit ending or reducing.

Although this money is not recoverable under Social Security law we are asking for it back as it was money that should not have been paid."

6. The accompanying document (CB, p30) includes the following:

"Why should I have to repay this money if the overpayment was not my fault?

A: Under common law anybody who receives money to which they are not entitled can be asked to pay it back. We are asking for it back because we have a right to recover this money and a duty to protect public funds."

"What if I don't agree that I should pay this money back?

A: This money is recoverable under common law, as you were not entitled to receive this money. We are allowed to ask for the money back on this basis and could seek recovery through the courts if necessary.

In some circumstances we would not ask for the money back. For example where you thought that you were entitled to the money and all of the money has now been spent."

7. In some letters the Defendant stated that the overpayment "was our mistake and we are sorry that it has happened. However you have been paid public money that you were not entitled to and it should be paid back" (CB, p80).
8. The evidence is that though the Defendant regards overpayments made by mistake as recoverable in principle, subject always to any applicable defences, the practice of the Department for Work and Pensions depends on the circumstances. In particular (i) requests for repayment are not generally pursued beyond an initial request in cases where the claimant is unlikely to have been aware of the overpayment at the time it was made, and (ii) where the Department is aware that a vulnerable customer is involved the practice is to write the amount off immediately without making any request for repayment. It appears that no common law proceedings following despatch of the letter have so far been brought to recover an overpayment of benefit outside Section 71. Nevertheless it is clear from the evidence that receipt of a letter by a benefit recipient asserting a legal duty to pay what may be a substantial sum, enforceable if necessary by court action, is capable of causing very substantial distress.

The Legislative Framework

9. By Section 8(1) of the Social Security Act 1998 ("the 1998 Act") it shall be for the Defendant to decide any claim for a relevant benefit.
10. Section 9 of the 1998 Act provides, in so far as is material, that any decision of the Defendant under Section 8 or Section 10 of the 1998 Act may be revised by the Defendant and regulations may prescribe the procedure by which a decision of the Defendant may be so revised. By Section 9(3) a revision under this Section shall take effect as from the date on which the original decision took (or was to take) effect.
11. Section 10 of the 1998 Act provides, in so far as is material, that any decision of the Defendant under Section 8 or this Section, whether as originally made or as revised under Section 9, may be superseded by a decision made by the Defendant, either on an application made for the purpose or on his own initiative. A decision under this Section shall take effect as from the date on which it is made or, where applicable, the date on which the application was made (s. 10(5)), or any other date prescribed by regulations (s.10(6)).
12. Any decision made in accordance with the above provisions shall be final (s.17(1) of the 1998 Act).
13. The terms of an award of benefit are governed by the Social Security (Claims and Payments) Regulations 1987 (as amended).
14. Section 71 of the 1992 Act, which is the first section in Part III of the 1992 Act entitled "Overpayments and Adjustments of Benefit", provides:

"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 misrepresentation 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."

By sub-section 5A of section 71 of the 1992 Act an amount shall not be recoverable under sub-section (1) unless the determination in pursuance of which it was paid has been reversed or varied on an appeal or has been revised under Section 9 or superseded under Section 10 of the 1998 Act.

15. By Regulation 3(5) of the Social Security and Child Support (Decisions and Appeals) Regulations 1999 a decision of the Defendant under Section 8 or Section 10 of the 1998 Act:

"(a) which arose from an official error; or

(b) except in the case of a disability benefit decision or an incapacity benefit decision where there has been an incapacity determination … where the decision was made in ignorance of, or was based upon a mistake as to, some material fact and as a result of that ignorance of or mistake as to that fact, the decision was more advantageous to the claimant than it would otherwise have been but for that ignorance or mistake;

may be revised at any time by the Defendant".

The Parties' Submissions

16. It is common ground that an overpayment can be recovered only after the relevant award has been revised or superseded.
17. Further it is not suggested on behalf of the Claimant that Section 71 of the 1992 Act expressly abrogates the Defendant's common law rights of restitution. Accordingly the issue is whether it does so by necessary implication.
18. The Defendant accepts that the principle established in the case of Auckland Harbour Board v. R [1924] AC 318 which provides that payments made by a government minister out of the Consolidated Fund without specific authority of Parliament are illegal and ultra vires and can be recovered by the government has no application in the present case.
19. Mr Drabble Q.C., for the Claimant, submits that Section 71 of the 1992 Act forms part of a coherent piece of adjudication machinery and that once the statutory scheme is considered as a whole, it can be seen that there is no room for any of the common law causes of action that the Defendant seeks to rely on. Mr Drabble referred me to the legislative history for a comparison of the statutory adjudication scheme of which Section 71 forms part dating back, at least, to the Social Security Act 1986 ("the 1986 Act") and the current adjudication machinery. The 1992 Act was a consolidating Act. In the adjudication scheme under the 1986 Act and the 1992 Act as originally enacted, there was a division of responsibility between the Secretary of State and an independent officer called an Adjudication Officer. The Secretary of State was responsible for processing a claim for benefit; once processed he had a statutory duty to submit the claim for determination to the Adjudication Officer. If the Adjudication Officer made a determination that the claimant was entitled to benefit, the result was an award of benefit. At that time Section 71 of the 1992 Act operated in a context where the Secretary of State was not responsible for deciding either the facts or the law. Mr Drabble submitted that the operative cause of the payment of benefit by the Secretary of State was a statutory duty to pay, which remained in place unless and until the decision of the Adjudication Officer was reviewed in accordance with the statutory machinery. This machinery was revised by the 1998 Act. The way the current adjudication machinery now works means that where there is in place a valid extant award, the Secretary of State is bound by the terms of that award and must pay benefit. He has a statutory duty to do so. The statutory scheme creates a comprehensive code in which benefit paid under a valid award can only be recovered if the conditions set out in Section 71 are met.
20. Mr Drabble contends, in response to the Defendant's claim that in addition to section 71 there is a further basis for recovery of benefit overpayment under a mistake of fact or law in accordance with normal restitutionary principles, that this assumes that the effective cause of the overpayment is a mistake of fact or law. This assumption, he argues, is incorrect. He submits that the operative cause of the payment is a statutory duty to pay which continues until the duty is removed.
21. Mr Henshaw, for the Defendant, responds that it is fallacious to contend that a sum paid pursuant to an award which has been revised with retrospective effect through the operation of Section 9 of the 1998 Act cannot be regarded as having been paid by mistake. Regulation 3(5) of the 1999 Regulations which permits retrospective revision expressly includes instances of error or mistake, which would prima facie found a claim for common law restitution. At the moment of payment the sum was paid pursuant to a valid award. Mr Henshaw submits that if the award was itself made by mistake (and but for the mistake would not have been made, or made in the terms it was), and once revision has occurred the award is retrospectively altered, there is no bar to a claim for recovery of any overpayment on the grounds of mistake.
    
22. In support of his submission that Section 71 of the 1992 Act is part of an exhaustive code Mr Drabble referred me to the decision in R (Steele) v. Birmingham City Council [2006] 1 WLR 2380 where at paragraph 16 Sir Martin Nourse said:

"Mr Stagg has advanced an alternative submission in relation to the principal question. He says that Mr Steele was under a common law obligation to make repayment of the overpaid benefit by way of restitution as soon as he was paid it. Accordingly, Mr Stagg submits that Mr Steele was under an "obligation incurred before the commencement of the bankruptcy" within Section 382(1)(b) of the 1986 Act. This submission was based on a misunderstanding of something which was said by myself (Millett LJ expressed himself in similar terms) in Chief Adjudication Officer v. Sherriff Court of Appeal (Civil Division) Transcript No. 789 of 1995; The Times, 10 May 1995. The main question in that case was whether the claimant had had the necessary mental capacity to make a claim. I said:

"The claim and the misrepresentation being indivisible, if the claimant lacked the capacity to make a misrepresentation, she lacked the capacity to make the claim. In that event benefit was paid to her in the mistaken belief that a claim that had not been made had been made and, there being no power to pay without a claim, it is recoverable by the Secretary of State, not under Section [71(1)] but on ordinary principles of restitution."

"Millett LJ spoke to the same effect. It is clear that our observations were directed simply to the case where the benefit is paid without a claim having been made. Once a claim is made, the machinery of Section 71 is invoked and there is no room for recovery at common law, whether by way of restitution or otherwise. Mr Stagg's alternative submission must be rejected.""

Whilst the exact status of this passage may be unclear, Mr Drabble submits that at the least, the approach of Sir Martin Nourse is highly persuasive. However, as Mr Henshaw points out the making of a claim does not in fact invoke the machinery of Section 71 of the 1992 Act; it invokes the machinery of Section 8 and subsequent Sections of the 1998 Act. Section 71 is a free-standing provision that operates if the Secretary of State chooses to operate it. In an overpayment case, if there is a valid claim for repayment, recovery can be made under Section 71; the making of a benefit claim does not invoke Section 71. Certainly what Sir Martin Nourse says is consistent with Mr Drabble's principal submission, but there is no consideration in that judgment as to why the existence of Section 71 necessarily abrogates the Secretary of State's common law powers of recovery in restitution in circumstances outside the ambit of Section 71 claims. Sir Martin Nourse's comments were made in the context of a case which was about contingent liabilities within the meaning of section 382 of the Insolvency Act 1986.

23. Further there is no consideration in Sir Martin Nourse's judgment of the breadth of the principle laid down by the House of Lords in Attorney-General v. De Keyser's Royal Hotel Limited [1920] AC 508 on which Mr Henshaw relies. The Legislature had given to the Crown statutory powers relating to the Defence of the Realm which rendered the exercise of the Royal Prerogative unnecessary, because the statutory powers that had been conferred were wider and more comprehensive than those of the prerogative itself. However the legislation could not be said to have abrogated the prerogative in any way. The intention is that when powers covered by the statute are exercised by the Crown it must be presumed that they are so exercised under the statute, and therefore subject to the equitable provision for compensation which is to be found in it (Lord Moulton at p.554). Lord Parmoor stated

"The constitutional principle is that when the power of the Executive to interfere with a property or liberty of subjects has been placed under Parliamentary control, and directly regulated by statute, the Executive no longer derives its authority from the Royal Prerogative of the Crown but from Parliament, and that in exercising such authority the Executive is bound to observe the restrictions which Parliament has imposed in favour of the subject" (p.575).

However in the present case the issue is whether Parliament has taken away common law rights, not expressly but by implication. A fortiori, Mr Henshaw submits, and I agree, where Parliament has given the Secretary of State wider powers than would exist at common law in the circumstances to which Section 71 applies, it does not follow that in situations where Section 71 does not apply common law powers of restitution have been abrogated. To this Mr Drabble responds that he does not accept that there is any need to consider whether section 71 should be regarded as removing any common law right of recovery of benefit. For the reasons given in paragraph 19 above the statutory scheme creates a comprehensive code which only permits recovery of benefit paid under a valid award if the conditions set out in section 71 are met.

24. Further Mr Drabble submits that section 75 of the 1992 Act (Overpayment of Housing benefits) and section 119 of the Social Security Act 1975 (effect of adjudication on payment and recovery) make it clear that there is no room for common law recovery in cases involving those sections. However section 75 is differently worded from section 71 and no reference has been made to the case-law in relation to section 75. Section 119 is in different legislation and allows recovery in circumstances different from the current common law position concerning change of position. In my view neither of these provisions assist to determine the issue in the present case.
25. However in Hinchy v. Secretary of State for Work and Pensions [2003] 1 WLR 2018, Aldous L.J., considering the construction of Section 71, stated (at p.2023):

"The general law provides a remedy for money mistakenly paid by the Secretary of State, but that remedy is subject to known defences. Section 71 gives the Secretary of State an entitlement to recover in certain circumstances without the general law applying. However that entitlement is limited to cases where there is an omission, namely a failure to disclose, or a positive act, namely a misrepresentation of material fact. Absent such a failure to disclose or a misrepresentation, Section 71 does not provide a remedy. Parliament did not provide a statutory right to repayment if the payment was due to an administrative error. The entitlement to recover an overpayment under Section 71 only arises if: (1) a person has misrepresented or failed to disclose a material fact, and (2) as a consequence of such a misrepresentation or failure to disclose, a payment has been made which should not have been made."

Mr Henshaw accepts that this passage is obiter, but observes that certainly it was not Aldous L.J.'s first impression that Section 71 was inconsistent with common law rights of recovery. However, there was no argument before the Court of Appeal on the issue with which we are concerned, namely whether or not section 71 is part of a comprehensive code. Further as Mr Henshaw observes the point was not directly addressed by the House of Lords, but references made by Baroness Hale to section 71 are at least consistent with the view that section 71 provides augmented rights in a discrete category of case but does not remove common law rights (Hinchy v Secretary of State for Work and Pensions [2005] 1WLR 967, at para 50).

26. Another authority I was referred to was Jones v. Department of Employment [1989] 1 QB 1. In that case the Court of Appeal held that no claim lay in negligence against an Adjudication Officer who had disallowed a claim for unemployment benefit, because any such claim was precluded by a predecessor provision to Section 17(1). The plaintiff's claim for unemployment benefit had been disallowed by an Adjudication Officer but allowed on appeal by the Social Security Tribunal. The Court held that to allow a negligence claim against the Adjudication Officer would be to allow his decision to be attacked or challenged by a route other than that set out in the statute. Mr Drabble submits that the principle in the case applies equally in the present context. I do not agree. I accept Mr Henshaw's submission that for the Secretary of State to seek recovery of an overpayment, after revising his own decision on the ground that it was mistaken, could not be described as a collateral challenge to his decision; rather, it is part of the working out of the consequences of the correction of the Secretary of State's own error.
27. After the conclusion of oral argument Mr Drabble asked me to receive submissions in writing from the parties on the decision in Munro v Revenue and Customs Commissioners [2009] Ch 69, which I did. The case concerned section 33 of the Taxes Management Act 1970 which provided the taxpayer with a right to recover overpaid tax, subject to limitations, which he would not otherwise have had.
28. Mr Drabble relies on the passage in the judgment of Arden LJ where she says as follows:

" "22 In my judgment, the authorities give clear guidance that if Parliament creates a right which is inconsistent with a right given by the common law , the latter is displaced. By "inconsistent" I mean that the statutory remedy has some restriction in it which reflects some policy rule of the statute which is a cardinal feature of the statute. In those circumstances the likely implication of the statute, in the absence of contrary provision, is that the statutory remedy is an exclusive one.

23 Undoubtedly Mr Munro paid money under mistake of law, and a remedy at common law in general exists in that situation. Such a right can, however, be excluded by express words or necessary implication. In this case the implication arises because Parliament has created a specific remedy with a limitation to exclude payments made under generally accepted practice. That limitation would be defeated if the court permitted an action to be brought at common law. That principle applies even though the statute is a taxing statute which must be interpreted so as not to impose burdens on the taxpayer unfairly. I have already discussed the obvious purpose of subsection (2A). It would make a nonsense of that purpose if it were possible to bring an action at common law for the recovery of money in circumstances where section 33(1) applies.""

29. In Munro the taxpayer's claim "fell squarely within the conditions laid down by s. 33(1)" (per Longmore LJ at para 39; and Arden LJ at para 23, see above). This distinguishes the circumstances of Munro from those the House of Lords was concerned with in Deutsche Morgan Grenfell Group Plc v IRC [2007] 1AC 558 ("DMG"). However both Munro and DMG confirm that the court ought not to infer the exclusion of common law rights unless Parliament has covered the same ground, by legislating specifically in relation to the circumstances which have arisen in the instant case. As Lord Hoffman stated in DMG at para 19 :

" "----I see no reason to infer that Parliament intended to exclude a common law remedy in all cases of mistake (whether of fact or law) in which the Revenue was unjustly enriched but did not fall within s 33."

(Also see Lord Hope at para 53, and Lord Walker at para 135).

30. In the present case Parliament has made no provision for recovery by statute of overpayments caused by mistake of fact or law by the Defendant. I accept Mr Henshaw's submission that there is no inconsistency between the augmented rights given to the Defendant by statute in the limited category of cases to which s71 applies, and survival of common law rights, subject to common law defences, in other cases such as cases of mistake.

Conclusion

31. In my view Section 71 of the 1992 Act neither expressly nor by necessary implication removes the Defendant's power to claim repayment at common law of money paid by mistake.
32. I am fortified in reaching this conclusion by the fact that if Section 71 did have that effect it would render irrecoverable overpayment of benefit even in circumstances in which it was obvious to the recipient that he was not entitled to the sum paid. Clerical or computer errors, especially if replicated in relation to multiple claimants, may involve substantial sums of money that would be lost to the public purse.
33. In my judgment a common law power to recover the overpayment of benefit paid by mistake of fact or law exists. Accordingly in such cases the Defendant is entitled to ask for money back on the basis that the recipient was not entitled to receive it. So understood the practice of sending the standard form letter is not unlawful. The accompanying document refers to the common law position. However Mr Drabble criticises the wording of the standard form letter and the document, in particular, on the basis that they suggest there is a cause of action, irrespective of whether there has been a mistake or not. The Defendant should make clear that the basis of recovery at common law is money paid by mistake. However it seems changes are underway. I note the more recent letters, since November 2007, refer expressly to a mistake/error having been made by the Department for Work and Pensions and some contain an expression of sorrow for what has happened (see CB at pp 77, 80, 82, 119, 131 and 134). Even if I was satisfied that the past practice of sending the standard form letter was unlawful, which I am not, I do not consider that it would be just and convenient in all the circumstances of this case to grant the declaratory relief sought. No doubt the Defendant will give further consideration, in the light of this judgment, to the wording of the letter and any accompanying document sent to recipients of benefit when seeking to claim repayment at common law of monies paid by mistake.
34. In my judgment for the reasons that I have explained this claim will be dismissed.