Case Nos. CO/3793/2010
CO/4048/2010 
Neutral Citation Number: [2010] EWHC 2162 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION 
THE ADMINISTRATIVE COURT 
Royal Courts of Justice 
Strand
London WC2A 2LL 

Date: Monday, 26 July 2010
 
B e f o r e: 

MR JUSTICE CRANSTON
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Between: 
THE QUEEN ON THE APPLICATION OF
EUNICE PAYNE and GAIL COOPER 
Claimants 
v 

SECRETARY OF STATE FOR WORK AND PENSIONS 
Defendant 

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MR DESMOND RUTLEDGE (instructed by Edwards Duthie) appeared on behalf of Mrs Payne 
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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J U D G M E N T 

MR. JUSTICE CRANSTON:  

Introduction 
1.	These test cases raise the lawfulness of the Secretary of State making deductions from ongoing social security benefit to recover the overpayment of incapacity benefit and the repayment of a social fund budgeting loan during the moratorium period of a debt relief order.  The debt relief order, introduced in 2007, is a device less expensive than bankruptcy enabling low income, small debtors to discharge their debts.  There is a moratorium period, usually a year, before discharge.  The claimants' case is that the existence of the debt relief order specifying the overpayment and the loan as debt prevents the Secretary of State from exercising his statutory powers to recover the overpayment and to ensure that the social fund loan is repaid.
The Factual Background 
2.	The evidence of Peter Madge, a Citizens Advice specialist, is  to the effect that these claimants are typical of small debtors on benefit who have obtained debt relief orders.  The first claimant, Gail Cooper, suffers from health problems and was in receipt of incapacity benefit and disability living allowance.  She began working part time which had the effect of disqualifying her from incapacity benefit during that period.  On 6th August 2009 a decision‑maker, acting on behalf of the Secretary of State, determined that she had been overpaid £1,195.07 of incapacity benefit and that the overpayment was recoverable from her.  On 4th December the Secretary of State began to recover the overpayment by making deductions of £128.44 every four weeks from her benefits.  With the assistance of a Citizens Advice Bureau she applied for a debt relief order and listed the Department of Work and Pensions as a creditor in her application.  The following day a debt relief order was granted and the overpayment was listed as a qualifying debt.  The Secretary of State refused to cease making deductions and ultimately these proceedings were issued.  
3.	The second claimant, Eunice Payne, is also incapable of work due to health difficulties and is reliant on state benefits.  In September 2007 she was granted a budgeting loan from the social fund.  Budgeting loans are for the purpose of meeting an intermittent expense.  Other payments which the Secretary of State can make from the social fund are crisis loans awarded for the purpose of meeting an immediate short term need, and community care grants which, unlike budgeting loans and crisis loans, are not required to be repaid.  Social fund loans are interest free.  Mrs Payne's budgeting loan of £843 was for a replacement washing machine and cooker.  It was a condition of that loan that it should be repaid.  Recovery of the loan did not commence immediately.  In August 2009 Mrs Payne and her husband applied for a debt relief order with the assistance of a Citizens Advice Bureau.  At the time they faced a desperate financial problem, which was exacerbating Mrs Payne’s serious health problems.  The debt relief order was quickly approved by the Insolvency Service.  At that point the Secretary of State had not begun deductions from her benefit entitlement but on being informed of the debt relief order began recovery of the loan at a rate of £23.59 per week.  After the intervention of the Citizens Advice Bureau that was reduced to £11.64 per week.  Ultimately these proceedings were taken.
Legislative Framework 
Recovery of overpaid benefit 
4.	Overpayment of social security benefit may be recovered under section 71 of the Social Security Administration Act 1992, which reads 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 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.  
5.	A maximum rate for overpayment recovery for deductions from income related benefits is prescribed.  The current maximum weekly rate for recovery of non‑fraud debt from income based benefits is £9.90.  For other benefits only the maximum deductible rate for contribution based jobseeker's allowance is prescribed, set at one‑third of the personal rate of the benefit.  To ensure consistency the maximum rate of deduction for other non‑income related benefits is set administratively at one‑ third of the personal rate of the benefit or pension concerned.  Within these maximum rates the Secretary of State's policy is to set the actual rate of recovery so as to avoid undue hardship and to take account of the financial and personal circumstances of the recipient.
Social Fund loan repayments 
6.	Provision is made in section 138(1)(b) of the Social Security Contributions and Benefits Act 1992 for social fund budgeting loans and Directions 2, 3 and 8 of the Social Fund Directions made by the Secretary of State provide for details.  A determination may be made that a social fund budgeting loan is to be repayable.  Section 139(4) provides that if it is repayable it is to… 
"…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

7.	Section 78 of the Social Security Administration Act 1992 provides for the recovery of social fund loans.
Subsection 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..."
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 
8.	Debt relief orders are one of the new forms of debt relief constituted by Part V of the Tribunals, Courts and Enforcement Act 2007.  As a result of section 108 of that legislation, Part 7A and Schedule 4ZA were inserted in the Insolvency Act 1986.  The Insolvency Amendment Rules 2009, SI 2009/642, were made under Part 7A and insert new provisions into the Insolvency Rules 1986, SI 1986/1924 ("the Insolvency Rules").  Section 251A(1) of the Insolvency Act 1986 provides:  
"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.

9.	The conditions that must be satisfied for the making of a debt relief order are specified in schedule 4ZA.  Monetary limits are prescribed in the Insolvency Proceedings (Monetary Limits) Order 1986, SI 1986/1996, as amended by SI 2009/465.  In particular, an applicant must not have been the subject of a debt relief order within the previous six years (paragraph 5); the applicant's debt must not exceed the prescribed amount (paragraph 6), currently £15,000; the debtor's monthly surplus income must not exceed the prescribed amount (paragraph 7), currently £50; and the value of the debtor's property must not exceed the prescribed amount (paragraph 8), currently £300.  
10.	A debt relief order has the effect of imposing a moratorium on the obligation to pay "qualifying debts".  Section 251G provides:  
"(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."
11.	By virtue of section 251H the moratorium period generally lasts for one year from the effective date of the debt relief order.  At the end of the moratorium period, and importantly in this context, the debtor is discharged from all qualifying debts except debts obtained by fraud (section 251I(1)).  When a debt relief order is made a debtor becomes subject to a number of duties under section 251J.  In particular, the debtor must notify the Official Receiver if there is an increase in income or any property is acquired during the moratorium period (section 251J(5)).  Creditors have a right to object to a debt relief order under section 251K.  In certain circumstances the official Receiver may revoke or amend a debt relief order (section 251L).  Under section 251M the acts and omissions of the Official Receiver may be appealed to the court. 
Bankruptcy  
12.	Bankruptcy debt is defined in the Insolvency Act, section 382(1), as including:
"(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."

13.	Vesting of a bankrupt's estate in the trustee is provided for in section 306.  Under section 310 the court may make an order that payments of income to a bankrupt are handed over to the trustee for the benefit of creditors.  However, section 187 of the Social Security Administration Act 1992 provides for the inalienability of social security benefits: 
"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.   
14.	Under the Bankruptcy (Scotland) Act 1985, section 31, the bankrupt's estate vests in the trustee at the date of sequestration.  Section 32(1) vests income in the debtor received by him after the date of sequestration if that income is not derived from the estate vested in the trustee.  By section 32(2) the trustee may apply to the court for any of the debtor's income in excess to his needs for distribution among creditors.  Section 32(5) provides as follows: 
"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.
Case-Law
15.	There is a trilogy of authorities which, although not directly applicable to the claimants' cases, have an important bearing on their outcome.  The first is Mulvey v Secretary of State for Scotland 1996 SC 8, [1997] UKHL 10, 1997 SC(HL) 105.  In that case the Secretary of State continued to deduct from income support sums for the repayment of a loan from the social fund after Mrs Mulvey was made bankrupt.  She claimed that was contrary to the Scottish rule of compensation, in that a creditor is not entitled to retain from a bankrupt after the date of sequestration sums in compensation for or set off against sums due prior to that date.  Those sums can only be recovered from the trustee in bankruptcy.  There was no provision in the social security legislation that the common law rule was not to apply to the repayment of social fund awards.   
16.	In the First Division of the Court of Session, (1996 SC 8), the  Lord President, Lord Hope, with whose judgment Lord Allanbridge agreed, held at the outset that social security law and bankruptcy law had to be read together.  Lord Hope continued that the key to a proper understanding of the matter lay in section 187(1) of the Social Security Administration Act 1992.  That made it clear that social benefit did not pass to the trustee.  It was only when it was in the hands of Mrs Mulvey that the net amounts fell to be treated as income received by her for the purposes of section 32, including the right under section 32(2) of the trustee to apply to the court for the payment of any excess over necessary amounts.  
17.	The working out of the entitlement of Mrs Mulvey was solely a matter between the Secretary of State and her.  The issue then became, said Lord Hope, whether the common law rule had any application in the working out of the relationship between the Secretary of State and Mrs Mulvey.  Broadly stated, that rule prevented post‑sequestration income being set off against a pre‑sequestration debt, but the context in which that rule was applied was whether the trustee was seeking to enforce a debt due to the estate on behalf of the general body of creditors.  Here, under section 187, the right to receive income support after the date of sequestration did not pass to the trustee.  So the Secretary of State was not seeking to exercise a right of setoff vis‑a‑vis the trustee.  Finally, Lord Hope held that the Secretary of State was not seeking to  exercise diligence against Mrs Mulvey's income as prohibited by section 32(5).  
18.	What the Secretary of State had been doing was making deductions authorised by section 78(2) of the Social Security Administration Act 1992 before the income support was paid out to her.  This was something which he was empowered to do … in order to obtain repayment of awards from the social fund which were paid on the condition that they were repayable.  What the Secretary of State had been doing could not properly be described, in these circumstances, as obtaining an unfair preference to the prejudice of the general body of creditors.   
19.	Lord Clyde's separate opinion focused on the compensation argument.  The problem was not one of dealing with the balancing of accounts in bankruptcy or with any dispute between the trustee and the Secretary of State.  Lord Clyde said (15H-I):  
"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.   
20.	An appeal to the House of Lords was dismissed: [1997] UKHL 10, 1997 SC HL 105.  Lords Browne‑Wilkinson, Mustill, Slynn and Lloyd agreed with the speech of Lord Jauncey.  Lord Jauncey said that the purpose of 187(1) was to make it clear that the trustee could have no interest in any entitlement of the debtor to receive the social security benefits to which it applied.   The purpose of the common law doctrine was to prevent a creditor obtaining a preferential advantage over other creditors, thereby diminishing the assets otherwise available for equitable distribution.  But, said Lord Jauncey, Mrs Mulvey was seeking to invoke a common law rule against setoff of a pre‑sequestration debt against a post‑sequestration obligation to a benefit.  Sequestration would therefore confer an immediate financial advantage on her.  Even more bizarre, said Lord Jauncey, would be the situation where overpayments obtained by fraud were being recovered by deduction from benefits.  On sequestration the fraudster would immediately receive gross benefit.  It was difficult to believe that Parliament would have intended such a result.  The common law doctrine was never intended for the personal benefit of Mrs Mulvey.  Lord Jauncey said (109H to 110A):   
"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."
21.	Lord Jauncey invoked in support Bradley‑Hole v Cusen [1953] 1 QB 300, [1953] 1 All ER 87, where Jenkins LJ held that a tenant's statutory right to deduct prior overpayments of rent from future rent payable by him was not an ordinary case of setoff and could continue to be exercised against the bankrupt landlord.  In that case it had been argued that section 7 of the Bankruptcy Act 1914 barred any method of recovering the overpaid rent, except for proving in the bankruptcy.   
22.	In the course of his speech Lord Jauncey also considered the statutory prohibition in section 32(5) Bankruptcy (Scotland) Act 1985, preventing diligence against income vesting in a debtor after sequestration.  He said that in the first place it only applied to income received by the debtor, and the deductions were never received, and in the second place that by no stretch of the imagination could the Secretary of State's exercise of his statutory right be described as diligence for the purposes of the law of Scotland.   
23.	The second case in the trilogy is R v Secretary of State for Social Security, ex parte Taylor and Chapman [1997] BPIR 505.  There the applicants for judicial review were social security claimants.  Their benefits were being deducted before payment, as in the present case, so as to recover a loan from the social fund in the case of one claimant and to recoup an overpayment of income support in the case of the other.  Both claimants had been made bankrupt.  Their argument was founded on section 285(3)(c) of the Insolvency Act 1986 that, as a creditor of the applicants, the Secretary of State could not, after the making of a bankruptcy order, have any remedy against the property or persons in the bankruptcy in respect of a debt.  It was said that the statutory right of deduction was such a remedy and in consequence could not be relied on after the applicants' bankruptcy.   
24.	Keene J first held that the social security code and the insolvency code had to be considered together and that nothing in the social security code, in particular the Social Security Administration Act 1992, took precedence over the provisions of the Insolvency Act 1986 and precluded consideration of the effect of section 285(3).  That, he continued, left the important issue of the interpretation of section 285(3).  In considering that he referred, first, to Bradley‑Hole v Cusen.  In that case, he said, the Court of Appeal seemed to be saying that the tenant making the deductions was in effect not exercising a remedy against the property of the landlord;  he was simply refraining from making a payment and could then use the pre‑existing debt owing to him as a defence against any action brought by the landlord or his trustee in bankruptcy.  Moreover, said Keene J, it seemed that the usual rights of a pledgee over the property of the bankrupt could have been enforced despite the provisions of section 285(3).  That was because, on his approach, a specific provision had to be included by Parliament in the shape of section 285(5), preventing the pledgee from realising his security until he had given the trustee in bankruptcy a reasonable opportunity of inspecting the goods, and of exercising the bankrupt's right of redemption.  That, said Keene J, suggested that the word "remedy" in section 285(3) was to be narrowly construed.  
25.	Even if that were not the case, said his Lordship, he would take the view that the Secretary of State was not seeking to ‘go against’ the property of the bankrupt.  He then cited the passage which I have quoted in Lord Clyde's judgment in Mulvey.  At the time of Keene J's judgment Mulvey had not yet been decided by the House of Lords.  Keene J commented that there was considerable force in Lord Clyde's approach:
"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)
26.	Keene J then said that it was valuable to consider whether the purposes of section 285 were being undermined if the Secretary of State succeeded in the proceedings.  There were two purposes which that section was intended to achieve.  The first was to prevent other creditors suffering from preferential treatment being given to a particular creditor, but as the social security benefits in question did not form part of the bankrupt's estate, that purpose was not likely to be frustrated.   The other purpose that section 285 was designed to effect was to protect the bankrupt.  But it was difficult to see why someone who went bankrupt should be in a better position so far as state benefits were concerned than someone who did not.  That would be particularly so where the bankrupt party had been fraudulent.  
27.	R (Balding) v Secretary of State for Work and Pensions [2007] EWCA (Civ) 1327, [2008] 1 WLR 564, [2008] 3 All ER 217 is the last of the trilogy.  In that case the claimant had been overpaid income support as a result of failing to disclose material facts.  The Secretary of State recovered overpayment by way of deduction from benefits payable to the claimant.  The claimant was then declared bankrupt but those deductions continued during the bankruptcy and after the claimant had been discharged from bankruptcy.  The Divisional Court, ([2007] EWHC 759 (Admin), [2007] 1 WLR 1085, [2007] All ER 422), granted the claimant judicial review.  It held that where the Secretary of State had determined prior to bankruptcy that there was a liability for repayment pursuant to section 71(1) of the Social Security Administration Act 1992, that was a "liability to pay money ... under an enactment", and thus a bankruptcy debt within the meaning of section 382 of the Insolvency Act 1986.  Thus the claimant was released from liability for overpaid benefit on  his discharge from his bankruptcy.  The Court of Appeal endorsed the Divisional Court's judgment.  
28.	In the course of his judgment in the Divisional Court, with which Laws LJ agreed, Davis J referred with approval to Keene J's judgment in Taylor and Chapman, [36].  However, Davis J noted that in the course of his judgment in that case Keene J had stated that the claimant's entitlement under the 1992 Act was "on the facts of the case" only to the net amount after deduction.  Davis J held that the comments of Keene J were not intended to be a generalized comment on the effect of section 71, but only a comment on the factual situation where the method of recovery actually chosen was by way of deduction, [37].  Davis J referred to Mulvey and quoted the passage from Lord Jauncey's speech which I have quoted, referred to Bradley‑Hole and said that those authorities made clear that the right to make deductions under section 71(8) and section 78(2) continued after the onset of bankruptcy, [40].  At [46] is this important passage:  
"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.
Issue 1 
Moratorium against exercise of "remedy".  
29.	The first question for determination is whether the Secretary of State, by making deductions from the claimant's ongoing benefit entitlement to recover overpayment or loan, is purporting to exercise a "remedy in respect of the debt" within the meaning of section 251G(2)(a).  It is accepted by the Secretary of State that the overpayment and loan are qualifying debts for the purposes of a debt relief order.  "Remedy" is not defined in the Insolvency Act 1986 definition section, 251X or 436.  In my view, remedy should be given its ordinary meaning, the legal means to enforce or recover a right, and as such includes self‑help measures such as set off, see Jowitt's Dictionary of English Law, 2010, 3rd edn, 1964.  The right to make deductions from ongoing benefit to secure repayment of an overpayment or social fund loan is accordingly a remedy within the normal meaning of the word.  It is in effect the statutory equivalent of a right of set off.  
30.	That ordinary meaning of remedy is supported by reference to section 251G(2)(b) which would be superfluous if remedy was confined to remedies which may be granted by a court.  For the Secretary of State Mr Edwards tried to confine the meaning of "remedy" in this way and made much play of the conjunction "and" between subsections (2)(a) and (2)(b) in section 251G.  In my view, that argument gets nowhere.  If correct it would have the effect of rendering subsection (2)(a) largely otiose.  Thus, in my view "remedy" in section 251G(2)(a) covers the range of methods used by the Secretary of State for the recovery of overpayment and social fund loans, including deduction from ongoing benefit.  
31.	In his cogent submissions on behalf of the Secretary of State Mr Edwards advanced other arguments that "remedy" should have a narrow construction.  First, he referred to the statutory language of sections 71 and 78 of the Social Security Administration Act 1992.  Section 71 confers the power to recover overpayment of social security benefit In Mr Edwards' submission both its language, "shall be entitled", and clear policy carry an expectation that the power will be exercised.  In his submission section 78 expressly confers a duty to recover social fund loans.  Furthermore, both sections 71(8) and 78(2) expressly provide that deduction from benefit payments is "without prejudice to any other method of recovery".  In his submission use of those words and not, for example, "without prejudice to any other remedy" demonstrates the clear Parliamentary intention that the Secretary of State’s powers in sections 71 and 78 are not to be treated as a remedy in law.  
32.	In my view that conclusion does not follow as a matter of the statutory language.  There is clear authority that the Secretary of State has a discretion as to whether to recover an overpayment under section 71: B v Secretary of State for Work and Pensions [2005] EWCA (Civ) 929, [2005] 1 WLR 3769 [41]-[43].  As regards section 78 there is no need for me to decide whether the Secretary of State is correct in his assertion that he is obliged to recover a social fund loan, the statutory language overriding the ordinary rules that a creditor can always waive repayment of a debt or that the Secretary of State can exercise executive discretion.  In any event, the Secretary of State certainly has a discretion under the legislation whether to recover an overpayment or   a social fund loan by deduction from ongoing entitlement, over other methods, and he also has a discretion as to how much is deducted, subject to the statutory limits to which I have referred.  Thus deductions are not made automatically but occur because the Secretary of State elects to make them.  They constitute a remedy in law.  
33.	Secondly, Mr Edwards invokes the authorities.  He refers to the consideration in Mulvey of diligence, in its various forms, on debts in Scots law and its prohibition in section 32(5) of the Bankruptcy (Scotland) Act 1985.  In the House of Lords Lord Jauncey held that the Secretary of State's statutory powers of deduction could by no stretch of the imagination be described as diligence for the purposes of the laws of Scotland, [1997] SC HL 105, 109F.  In Mr Edwards' submission that was a shorthand way of saying that they were not remedies in law.  In my view this submission gets nowhere in the absence of expert evidence about the compass of diligence in Scots law.  
34.	Mr Edwards turned to Taylor and Chapman [1997] BPIR 505 where Keene J considered the meaning of section 285(3)(a) of the Insolvency Act 1986, which prevents a creditor after the making of a bankruptcy order exercising any remedy against the property or person of the debtor.  In Mr Edwards' submission Keene J in effect decided that the statutory power of deduction was not a remedy under that section.  In my view Keene J's judgment is no clear authority for that conclusion.  In referring to Bradley‑Hole [1953] 1 QB 300, Keene J said that the Court of Appeal there seemed to be saying that the tenant making a deduction was in effect not exercising a remedy against the property of the landlord but simply refraining from a payment and could then use the pre‑existing debt to him as a defence against any action brought by the landlord or his trustee in bankruptcy.  With respect, that analysis of Bradley‑Hole is not comparable to the situation involving the Secretary of State and a benefit recipient.  The benefit recipient is not in a position to sue the Secretary of State in the event of non‑payment, so that there is no question of the Secretary of State using his pre‑existing right to recover overpayment or social fund loans as a defence.  Rather, the statutory right of the Secretary of State is to deduct from benefits or to pursue in other ways benefit overpayment or the repayment of a social fund loan.  
35.	Keene J then reasoned from the specific mention of pledges in section 285(5) which, in his view, suggested that the word "remedy" in section 285(3) was to be narrowly construed.  In my view section 285(5) is confirmation of the ordinary meaning of "remedy" in section 285(3).  That is because it was necessary to confirm in section 285(4) that a secured creditor could realise its security because otherwise such realisation would be regarded as a remedy within section 285(3).  Section 285(5) then qualifies that right in relation to pledge, which is a specific form of security.  In other words, section 285(3) underlines that “remedy” in section 285(3)(a) has a wide, not a narrow meaning. 
36.	In any event, Keene J went on to rest his conclusion on the basis that benefit recipients have only a net entitlement under the Social Security Administration Act 1992 after deduction for overpayment and social fund loan repayments.  It is to the so‑called net entitlement principle I now turn and whether it inhibits what I regard as the moratorium imposed by section 251G(2) against the remedy which the Secretary of State has of deducting from ongoing benefit to recover the debts owed him for overpaid benefit or a social fund loan.
Issue 2
Net Entitlement  
37.	The Secretary of State contends that even if "remedy" in section 251G(2)(a) of the Insolvency Act 1986 is given a meaning which catches the deduction from ongoing benefit of overpayment and social fund repayment, that section cannot bite because of the net entitlement principle.  In Mr Edwards' submission the locus classicus of the net entitlement principle is contained in the passage from Lord Jauncey's speech in Mulvey, quoted earlier in this judgment, [1997] SC HL 105,109G.  Neither the beneficiary nor anyone one else has a property, personal or any other right in the gross entitlement to a social security benefit.  His or her entitlement is to the benefit after deductions authorised by section 71(8) to recover an overpayment, or section 78(1), to ensure repayment of a social fund budgeting loan.  Although Keene J's decision in Taylor and Chapman [1997] BPIR 505 came before the House of Lords' decision in Mulvey, in Mr Edwards' submission is that he adopted the net entitlement theory in that case, as espoused by Lord Clyde in the passage I also quoted earlier in this judgment.  
38.	In Mr Edwards' submission R (Balding) v Secretary of State for Work and Pensions is consistent with the earlier case law.  Thus, he submitted, the force of these dicta means that the net entitlement principle applies equally in the case of debt relief orders, irrespective of the debt which a debt relief order specifies and whether the order  includes benefit overpayment or social fund loan repayments. Entitlement to continuing social security benefits is to the net entitlement.  Deductions by the Secretary of State from gross entitlement to benefits, made pursuant to the statutory scheme put in place by the social security legislation, operate prior to the payment of benefit and are not affected by a person's bankruptcy or the operation of a debt relief order.
39.	In my view the net entitlement principle is not determinative of this case.  Putting aside the issue of how section 32(5) of the Bankruptcy (Scotland) Act 1985 is to be interpreted, the Inner House in Mulvey was considering the application of the Scottish common law doctrine of compensation in the particular context of the role of a trustee in bankruptcy.  It was in that context that it was held that the provisions of the bankruptcy legislation did not take effect until the stage of payment of the benefit when the net amount payable fell to be treated as income and vested in the recipient.  That was the same context in which Lord Jauncey gave the opinion of the House of Lords in Mulvey on appeal.  It is clear from the passage in the speech invoked by the Secretary of State, which I have quoted, that the rule about compensation in bankruptcy could not apply because the Secretary of State's exercise of the statutory power of deduction after sequestration was not calculated to obtain a benefit for him at the expense of other creditors (page 110A).  In Taylor and Chapman Keene J rested his decision on the reach of section 285(3) of the Insolvency Act 1986 since the Secretary of State was not, as he put it, going against the property of the bankrupt.  That was because, as his Lordship continued, the claimant's entitlement under the Social Security Administration Act 1992, on the facts of that case, was only to the net amount after  deduction of the overpayment.  
40.	The decision in Taylor and Chapman was explained in Balding, a decision binding on me.   In the judgment of the Divisional Court, endorsed by the Court of Appeal, Davis J said that the comments of Keene J were not intended to be a generalized comment on the effect of section 71 of the Social Security Administration Act 1992, but only a comment on the factual situation where the method of recovery the Secretary of State choses is by way of deduction.  In the Divisional Court judgment Davis J specifically rejected the Secretary of State's contention that a benefit recipient is only ever entitled to the net benefit after deduction: at [46]  Davis J then said that, although this might be right in the case where the Secretary of State proceeds by way of deduction, that was "no answer to the question of statutory interpretation arising".  In other words, the Divisional Court expressed the clear view that there is no net entitlement principle which is determinative of what in each case must be a specific exercise of statutory interpretation.  Thus, on my reading of the authorities, there are no trump cards emblazoned "net benefit principle" which the Secretary of State can play in these proceedings to determine the outcome of the necessary exercise of statutory interpretation.  
41.	No doubt before a debt relief order is made a social security recipient may be subject to deduction from ongoing benefits for overpayment and repayment of a social fund loan.  His or her entitlement is to a net benefit payment.  That is the effect of the social security legislation, in particular sections 71 and 78 of the Social Security Administration Act 1992.  For the Secretary of State to continue to make deductions after the debt relief order is made, however, would be to exercise a remedy in respect of the debt which the benefit recipient owes.  That in my view is prohibited by the plain words of section 251G(2)(a) of the Insolvency Act 1986.
Issue 3 
Parliamentary Intention  
42.	The final issue to be considered is whether the reconciliation of the social security and bankruptcy codes I have adopted is contradicted by the Parliamentary purpose behind the relevant statutory provisions.  It will be recalled that both Lord Jauncey in Mulvey and Keene J in Taylor and Chapman drew on what they saw as the Parliamentary intention in their approach to the relevant legislation.  
43.	For the Secretary of State Mr Edwards submitted that Parliament had provided debt relief orders in the same insolvency legislation which provides for the effects of bankruptcy.  In a number of cases the courts have explained the relationship between bankruptcy, social security debts and the operation of sections 71 and 78.  In the absence of express provision to the contrary, Parliament should be taken as intending that what the courts have said about sections 71 and 78 in the case of bankruptcy should apply to debt relief orders;  in other words, debt relief orders do not affect the well established rule that a recipient of benefit is only entitled to his or her net entitlement to benefit after deductions authorised by social security legislation, at least until he or she is discharged from the debt relief order.  
44.	In my view these submissions are stated too widely.  Parliament incorporated the debt relief order provisions as Part 7A and Schedule 4ZA of the Insolvency Act 1986 in 2007.  That was against the backdrop of the authorities, in particular Taylor and Chapman.  But that has no purchase as a matter of legal analysis unless the statutory language and context are such as to demand that the interpretation of the provisions governing bankruptcy should apply to the interpretation of the provisions governing debt relief orders.  In Lowsley v Forbes [1999] AC 329,340F, Lord Lloyd said:  
"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 [1933] 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.  
45.	Whilst there is a similarity of language between section 285(3) of the Insolvency Act 1986 governing bankruptcy, which Keene J interpreted in Taylor and Chapman, and section 251G(2) of the same Act, governing debt relief orders, it is not identical.  Section 285(3) provides that after the bankruptcy order a creditor has no remedy against the property or person of the bankrupt in respect of the debt.  Section 251G(2) provides that during the moratorium of a debt relief order the creditor has no remedy in respect of the debt.  Mr Edwards submits that the additional reference to "the property or person" of the bankrupt in section 285(3) is a difference without a significance, for against what else can a creditor exercise a remedy but the property or person of the debtor?
46.	Putting to one side the possibility of a remedy not being exercisable against the “property or person” of a debtor, in my view, the language of "property of the debtor" is not without some import in the bankruptcy context when with bankruptcy the estate will vest in the trustee.  The contrast between social welfare benefit which as a result of section 187 of the Social Security Administration Act 1992 vests in the benefit recipient, and other property of the debtor, which vests in the trustee, was important to the decision in Mulvey.  Moreover, the context of bankruptcy and debt relief orders is different.  As Mr Edwards conceded, being subject to a bankruptcy order and a debt relief order have different implications, since one object of the bankruptcy is to preserve assets for a bankrupt's creditors, whereas to obtain a debt relief order a person will have no real assets.  The differences in my view is significant.  Debt relief orders as their name suggests have the sole purpose of debt relief, whereas Mr Edwards recognised bankruptcy is based on the realisation of the bankrupt's estate for the benefit of creditors.  Moreover, the schemes have different machinery, with the debt relief order procedure being more informal and less expensive than an application for bankruptcy.  The debtor's estate does not pass to anyone when a debt relief order is made, by contrast with the position in bankruptcy.  Finally, the schemes have different subject groups.  Under the statutory scheme debt relief orders are clearly intended for people with little by way of assets or disposable income.  Bankruptcy covers a wider range of persons who are unable or will not pay their debts.
Conclusion 
47.	The Secretary of State accepts that, as in bankruptcy, so in the case of debt relief orders, at the point of discharge all specified debts, including any social security debts owing to him, are released and no recovery can be made. In my view the construction of section 251G(2)(a) of the Insolvency Act 1986 is such that the term "remedy" includes the Secretary of State's statutory powers under sections 71 and 78 of the Social Security Administration Act 1992 to recover overpayment of social security benefits and repayment of social fund loans.  Thus, when a benefit recipient has obtained a debt relief order specifying the overpayment or loan as a debt covered by the order, the Secretary of State is also precluded from pursuing that overpayment or loan during the moratorium period.  
48.	In reaching this conclusion I have approached the matter as one of statutory construction.  Larger matters of public policy were agitated before me.  Thus, the claimants submitted evidence from Citizens Advice Bureaux to illustrate the hardship caused to clients in receipt of benefit by the Secretary of State's policy of continuing to make deductions from their benefits after a debt relief order had been made.  On the other hand, the Secretary of State adduced evidence, for example from the National Audit Office, of the very significant issues facing him in the management of the debt stock from overpayments and social fund repayments.  These public policy issues are irrelevant to the legal issue before me.  If it is thought desirable as a matter of public policy that section 251G(2)(a) should not affect the power to make deductions from ongoing benefit entitlement when there is a debt relief order in place, the Secretary of State has the power readily to take steps to achieve that goal. 
49.	MR. STAGG:  In the light of that judgment I ask for quashing orders in both cases to quash the decisions of the Secretary of State to continue to make deductions.  No declaratory relief is necessary.  We seek an order that all payments withheld should be made forthwith to the claimants. 
50.	MR. JUSTICE CRANSTON:  Yes. 
51.	MR. EDWARDS:  I am instructed to seek permission to appeal.  
52.	MR. JUSTICE CRANSTON:  What about the order? 
53.	MR. EDWARDS:  It depends on whether your Lordship grants permission to appeal.  If you do I would be seeking a stay of your Lordship's decision.  I know that this is an exceptional course.  I say that it is justified.  If the Secretary of State were to win an appeal there would be prejudice in the circumstances.  Money would be repaid.  It would be difficult to get it back.  The Secretary of State would be prejudiced.    The first question I can put briefly.  We would seek to appeal on the construction of the word "remedy".  The authorities are unclear, we say.  There is a decision in the Court of Appeal.  There is Davis J's judgment and there is this issue about the inheritance of the language in sections 71 and 78, if there was a Parliamentary intention to use that language deliberately in order to try and escape the bite.  We seek permission to appeal also on the second issue.  We submit that the higher courts need to look again at the net entitlement argument which has its status by the Court of Session and by the House of Lords and by Keene J and accepted  by Davis J. 
54.	MR. STAGG:  There are two issues.  On permission it is a matter for your Lordship to consider whether it is worthy of the attention of the Court of Appeal.  On the question of stay we oppose the notion that there should be a stay.  We have two ladies who are suffering from substantial financial hardship as a result of what you have held to be the Secretary of State's unlawful actions in continuing to make deductions from their benefits.  If the Secretary of State is to have permission to appeal that should be without a stay so that these ladies have the benefit of your judgment in the meantime.  It is to be recalled that, all other things being equal, within a year of the DROs being made, late last year in the case of Mrs Payne and early this year in the case of Mrs Cooper, it is accepted that they will be discharged from those debts anyway, so the effect, if you grant a stay, will be that unless we can get the matter on before the end of the year they will lose the benefit of your judgment.  These deductions are causing hardship now.  They should not be deprived of your Lordship's clear ruling. 
55.	MR. EDWARDS:  If you grant permission to appeal we seek a stay of the judgment.  It would be a stay on any repayment and also on the continuing ability of the Secretary of State to continue to make deductions, both in these and other cases. 
56.	MR. JUSTICE CRANSTON:  It is only in relation to these cases.  I am going to give permission to appeal, given the importance of the issue.  I am not going to grant the stay in relation to these two cases. 
57.	MR. STAGG:  We both seek an order that the Secretary of State pay our costs.  Assessment of publicly funded costs. 
58.	MR. JUSTICE CRANSTON:  Yes.