QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
London WC2A 2LL
B e f o r e :
|THE QUEEN ON THE APPLICATION OF|
|EUNICE PAYNE and GAIL COOPER||Claimants|
|SECRETARY OF STATE FOR WORK AND PENSIONS||Defendant|
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MR PAUL STAGG (Instructed by Public Law Project) appeared on behalf of Mrs Cooper
MR DENIS EDWARDS (instructed by DWP/DH Legal Services, Litigation Division) appeared on behalf of the Defendant
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MR. JUSTICE CRANSTON:
The Factual Background
Recovery of overpaid benefit
"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 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 received,
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."
Section 71(8) of that legislation provides:
"Where any amount paid ... is recoverable under (a) subsection (1) above; ... it may, without prejudice to any other method of recovery, be recovered by deduction from prescribed benefits"
Incapacity benefit is a prescribed benefit for the purpose of section 71(8): Social Security (Payments on Account, Overpayments and Recovery) Regulations 1988, SI 1988/664, regulation 15(1) ("the 1998 Regulations"). In addition to deductions from ongoing benefit overpayments can also be recovered by instalments, a lump sum or civil proceedings. For those who are in receipt of benefit the Secretary of State's preferred recovery method is by way of deductions from that person's benefit.
Social Fund loan repayments
"…be repayable upon such terms and conditions as before the award is paid the Secretary of State notifies to the person by or on behalf of whom the application for it was made."
The applicant for a loan must agree the terms and conditions as to repayment: Social Fund (Applications and Miscellaneous Provisions) Regulations 2008, SI 2008/2265, regulation 7
"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..."
Under section 78(3) a recovery may be from, amongst other persons, the person to whom it was made. Income support is a prescribed benefit for the purposes of recovery under section 78(2): Social Fund (Recovery of Deductions from Benefits) Regulations 1988, SI 1998/35, regulation 3.
Debt relief orders
"An individual who is unable to pay his debts may apply for an order under this Part ('a debt relief order') to be made in respect of his qualifying debts."
Qualifying debts are debts for liquidated sums payable immediately or in the future and which are not "excluded debts" (section 251A(2). Excluded debts are listed in the Insolvency Rules, rule 5A.2. Overpaid social security benefits and social fund loans do not fall within the categories of excluded debt set out there, although there seems no reason why they should not be so specified. Applications for debt relief orders are made under 251B and are determined by the Official Receiver (section 251C). In practice, the functions of the Official Receiver are exercised by the Insolvency Service.
"(1) A moratorium commences on the effective date for a debt relief order in relation to each qualifying debt specified in the order ('a specified qualifying debt').
(2) During the moratorium, the creditor to whom a specified qualifying debt is owed -
(a) has no remedy in respect of the debt, and
(b) may not -
(i) commence a creditor's petition in respect of the debt, or
(ii)otherwise commence any action or other legal proceedings against the debtor for the debt, except with the permission of the court and on such terms as the court may impose.
(5) Nothing in this section affects the right of a secured creditor of the debtor to enforce his security."
"(a) any debt or liability to which he is subject at the commencement of the bankruptcy."
As a result of section 382(4) a debt for the purposes of the definition may include a liability…
"…to pay money or moneys worth, including any liability under an enactment, any liability for breach of trust, any liability in contract…and any liability arising out of an obligation to make restitution."
Under section 278 a bankruptcy commences on the date that a bankruptcy order is made and continues until the bankrupt is discharged. During the bankruptcy enforcement of bankruptcy debts is limited. In particular, section 285(3) of the Insolvency Act 1986, which is derived from section 7 of the Bankruptcy Act 1914, provides:
"(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
(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."
"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."
Discharge from bankruptcy under section 281 releases the bankrupt from all bankruptcy debts subject to specified exceptions. Those specified exceptions do not include overpayment of social security benefits or outstanding social fund loans. There is power in section 281(6) to prescribe other categories of bankruptcy debt by regulations. That has not been exercised in relation to overpayment of benefits or loans.
"Diligence (which, for the purposes of this section, includes the making of a deduction from earnings order under the Child Support Act 1991) in respect of a debt or obligation of which the debtor would be discharged under section 55 of this Act were he discharged under section 54 thereof shall not be competent against income vesting in him under subsection (1) above."
Discharge under the Scottish legislation is set out in sections 54 and 55.
"Section 78 seems to me to be providing one element in the calculation of the amount of income support which the claimant is to receive. The Secretary of State is not exercising against the trustee a right to retain a payment due to the claimant in order to offset a payment due by the claimant, but deducting from the amounts of income support otherwise due certain sums which may go towards meeting her indebtedness in respect of the award from the social fund, so as to leave a net amount which she is entitled to receive in respect of income support and with which the trustee is not concerned at least until it is actually received by her. As senior counsel for the Secretary of State put it, the Secretary of State is not making a claw-back but is making a deduction at source."
The doctrine of compensation did not arise. Lord Clyde continued that the purpose of the legislation was to secure a fund of limited resource which could be replenished by repayment and could provide financial assistance in particular circumstances of need. Income related benefits were expressly declared by section 187 of the Social Security Administration Act 1992 not to pass to the trustee on bankruptcy and the calculation and payment of benefits was intended to be distinct from the operation of the bankruptcy provisions. Consideration of the fate of sums received by the bankrupt was a different matter from consideration of the sum which the bankrupt was entitled to receive, and the making of deductions in the quantification of that sum was a different matter from the equitable settlement of the claims of a bankrupt's creditors.
"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 by the respondent prior to payment of the award by the respondent. This was the result of the statutory scheme and she could not have demanded more. The respondent's continued exercise of a statutory power of deduction after sequestration was unrelated thereto and was not calculated to obtain a benefit for him at the expense of other creditors. The only person who had any realistic interest in the deductions was the appellant, from which it follows that the respondent was not seeking to exercise any right against the permanent trustee."
"The claimant's entitlement under the 1992 Act, and before giving any consideration to the Insolvency Act, is on the facts of the present cases only to the net amount. Were such a person not bankrupt, he could only claim the net amount and would have no entitlement to more than that." (Page 513 D-E)
"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 section 71(8) or section 78(2) of the 1992 Act - is adopted but can be a 'bankruptcy debt' if another form of recovery is adopted. The liability arising under section 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."
As I have said, the reasoning of Davis J in the Divisional Court was approved by Mummery LJ in the judgment of the Court of Appeal.
Moratorium against exercise of "remedy".
"It has long been a rule of construction that when Parliament uses a word or term the meaning of which has been the subject of judicial ruling in the same or similar context, then it may be presumed that the word or term was intended to bear the same meaning."
Lord Lloyd drew on the so-called Barras principle derived from Barras v Aberdeen Steam Trawling and Fishing Co Ltd  AC 402. Bennion on Statutory Interpretation, section 210(3), 5th edn, 208, says that under the Barras principle, where an Act uses a form of words with a previous legal history, that may be relevant to interpretation, although "the question is always whether or not Parliament intended to use the term in the sense given by this earlier history." In my view the Barras principle does not offer a solution in this case.