Scottish Court of Session Decisions

The petitioner and reclaimer is Ian Cantwell who was, until 1992, a serving police constable. In normal course he would have retired on 16 April 1996. Unfortunately, however, on 21 May 1992, in the course of his duties, the petitioner was assaulted by a man whom he was arresting for attempted murder. As a result of the attack, he suffered severe soft tissue injuries to his right shoulder and had to be retired from the police force on medical grounds on 1 June 1993. On his medical retirement the petitioner received, in addition to invalidity benefit, a gratuity, an injury pension and an ill-health pension, part of which he commuted into a lump sum. The remainder of his ill-health pension took the form of a continuing annual pension, which is taxable. However, as counsel for the petitioner emphasised, the effect of the relevant police pension regulations is that a person who receives an ill-health pension can never become entitled to an ordinary retirement pension. Accordingly, having received an ill-health pension, the petitioner did not become entitled to the ordinary retirement pension on reaching his normal retirement age on 16 April 1996.

The petitioner made an application for compensation to the Criminal Injuries Compensation Board but that application was refused by a single member on the ground that:

Although it is not explained in detail in the decision, it is common ground that the key point in the member's decision was that, applying the Board's settled interpretation of the relevant provisions of the Criminal Injuries Compensation Scheme ("the scheme"), one half of the petitioner's ill-health pension up to his normal retirement date should be deducted from his claim for loss of earnings up to that date and that the whole of the ill-health pension should be deducted from any claim for loss of pension after that date.

The petitioner applied for a hearing which was held in Glasgow and took place before five members, including Lord Carlisle, the chairman, because the petitioner was challenging the Board's established interpretation of an important provision in the scheme. In their judgment issued on 17 April 1997, the Board by a majority confirmed the decision of the single member. In July 1997, the petitioner lodged a petition for judicial review, seeking reduction of the decisions of the single member and of the Board but the Lord Ordinary refused that application on 28 July 1998. The petitioner now reclaims against the decision of the Lord Ordinary.

The scheme, which was introduced in 1964, has been superseded by new arrangements and is being wound down, but the Board continues to deal with applications lodged under it. As is well known, payments under the scheme have no statutory basis: rather, ex gratia payments are made to applicants by the Secretary of State under the Royal Prerogative. The basis on which the payments are to be made is set out in the scheme, which was originally published in 1964 and has undergone revisions over the years. Following a report by an interdepartmental working group in 1978, the scheme was revised in 1979. Another interdepartmental working group reported in 1986 and, after that report, the scheme was again revised in 1990. The petitioner's application fell to be considered under the 1990 version of the scheme. The text of that version is divided by a number of cross headings. One of these headings is "Basis of Compensation", which covers paragraphs 12 to 21. The opening sentence of paragraph 12 is as follows:

The remainder of paragraph 12 deals with provisional and interim awards. Paragraph 13 permits the Board, in certain limited circumstances, to reopen an assessment and paragraph 14 limits the level of an award for loss of earnings or earning capacity by reference to the gross average industrial earnings at the date of assessment and also provides that there shall be no element of exemplary or punitive damages. Paragraphs 15 and 16 deal with awards in cases of fatal injury, while paragraph 17 deals with damage to property and paragraph 18 with the cost of private medical treatment, which is only reimbursed if the Board think it reasonable to do so. Paragraph 19 provides that compensation is to be reduced by the full value of any present or future entitlement to United Kingdom social security benefits, payments of criminal injuries compensation under arrangements in force in Northern Ireland and social security benefits from other countries. It also provides that compensation will be reduced by the full value of payments under insurance arrangements "except as excluded below". Paragraph 19 also provides that in assessing the entitlement account will be taken of income tax liability likely to reduce the value of the benefits and further that the Board:

Paragraph 20 is the most important provision for the present purpose. It provides:

In their decision, the Board first dealt with the question whether the ill-health pension which became payable to the petitioner on his medical retirement was a pension which fell within paragraph 20 of the scheme. It was argued to the Board that the ill-health pension did not come within paragraph 20 because it was not a pension accruing as a result of the injury. On that point, the Board say:

The last sentence above quoted represents a critical step in the Board's reasoning, since it expresses their view that paragraph 20 operates to limit or reduce the amount which would otherwise be recoverable by the claimant and is not an independent provision governing the treatment of ill-health pensions and similar payments generally. The Board return to that point later in their decision, after having referred to Parry v. Cleaver [1970] AC 1 and to Smoker v. London Fire and Civil Defence Authority [1991] 2 A.C. 502 and Lewicki v. Brown & Root Wimpey Ltd. 1996 S.C. 200. They point out that, in terms of those decisions, the Board would be correct in deducting the full net value of the ill-health pension from the net value of the pension which the petitioner would otherwise have received during the period after his normal retirement date. They suggest that the rationale for the decision in Parry v. Cleaver, that such a pension should not be deducted from loss of earnings prior to the normal retirement date, was that a wrongdoer should not benefit from the fact that an individual had chosen to provide for his own misfortune or that he was receiving benefits from the public at large or benevolence from friends or relations. They continue:

The Board then refer to part of the 1978 interdepartmental working party report as supporting that interpretation of the intention of paragraph 20. Finally, the Board record that they were not unanimous, in relation to the post retirement period, and that the minority were of the view that, on a proper construction of paragraph 20, the rule that only one half of the ill-health pension should be deducted applied to the post-retirement period as well as to the pre-retirement period.

Before the Lord Ordinary, counsel for the petitioner advanced an argument which was not dealt with in the decision of the Board, to the effect that the "common law" position in Scotland, in terms of section 10 of the Administration of Justice Act 1982, was that the ill-health pension should be left out of account altogether in assessing the petitioner's claim. Counsel also advanced the arguments which had been rejected by the Board, namely that the petitioner's pension should be excluded from consideration by the last sentence of paragraph 20 and that, alternatively, only 50% of the pension should be deducted, both before and after the normal date of retirement. The Lord Ordinary rejected these arguments. He held - without explaining his conclusion - that there was no sound reason for concluding that the effect of section 10 of the 1982 Act was to alter the common law position in Scotland to the effect contended for by the petitioner and, with regard to the other two points, he agreed with the reasoning of the majority of the Board.

Accordingly, the decision of the Board, with which the Lord Ordinary agreed, is built up in the following way: (i) the first step is to ascertain what the damages recoverable at common law would be, with the result that any ill-health pension received after the normal retiring age must be deducted in ascertaining the loss after that date: (ii) the police ill-health pension which the petitioner receives is not excluded from this rule by paragraph 20 of the scheme because it is not a pension which is paid solely in consequence of payments made by the petitioner: and (iii) once the common law rule has been applied, the provisions of paragraph 20 come into operation and require the deduction of one half of the pension received before normal retirement age in ascertaining the loss to that date.

As against that, Mr. Sutherland on behalf of the petitioner submitted that, in assessing compensation in a case like this, the Board should first calculate the petitioner's loss of earnings to his normal retiring age and the value of the ordinary retirement pension which would have been payable to him after his normal retirement age. He made a number of alternative submissions as to what should happen next. Firstly, he submitted that because the petitioner's pension was one which accrued "solely as a result of payments by" the petitioner, it should be disregarded in terms of the last sentence of paragraph 20. Alternatively, if the pension did not fall within that sentence, then in terms of paragraph 20 the Board should deduct from the loss of earnings element one half of the value of the ill-health pension payable up to the petitioner's normal retirement age. So far as the period after normal retirement age was concerned, Mr. Sutherland submitted that the Board should not deduct the ill-health pension payments since they fell within the scope of either head (a) or (b) in section 10 of the Administration of Justice Act 1982. Finally, if he were wrong in these submissions, all the pension payments fell squarely within the terms of paragraph 20 and the Board should therefore deduct only one half of them, for the period after the normal retirement date as well as for the period up to that date.

Counsel for the Board submitted that in assessing the petitioner's claim, the Board had first to calculate his loss due to the attack which he had suffered. That loss comprised two elements: loss of earnings down to his normal retirement date and loss of pension after that date. There was no dispute about the calculation of the petitioner's loss of earnings, which would be done in the way in which that was always done in damages claims. The dispute between the parties revolved around the calculation of the second element, the petitioner's loss of pension after his normal retirement date. The Board contended that, to ascertain what loss of pension the petitioner had suffered, it was necessary first to calculate the value of the pension which he would have received if he had retired at his normal retirement date: then to deduct from that the value of the ill-health pension which he would receive during that period. The difference represented the petitioner's loss of pension. In order to calculate the petitioner's gross loss the Board would then add together the loss of earnings and loss of pension so calculated. Then, because of the requirement of paragraph 20, they would deduct from the total - but strictly speaking from the element representing the petitioner's loss of earnings - one half of the ill-health pension payments attributable to the period down to the petitioner's normal date of retirement. Alternatively, if the full value of the ill-health pension was not to be deducted for the period after the normal retirement date, one half at least should be deducted or, in other words, paragraph 20 should be applied uniformly to the ill-health pension payments, whether before or after the normal retirement date.

It is convenient to deal first with the question of the possible application of the last sentence of paragraph 20. Payment of the ill-health pension, as well as other benefits, received by the petitioner is, as we understand the position, governed by the Police Pension Regulations 1987 (S.I. 1987/257) as amended by further regulations in 1990 (S.I. 1990/805) and 1996 (S.I. 1996/867). Under Regulation G2(1) of the 1987 Regulations, the petitioner, as an officer who had not elected out of paying contributions in terms of Regulation G2(3), paid contributions to the police authority at the rate of 1p. per week less than 11% of his pensionable pay. Election out of paying such contributions could be made under Regulation G4(1) by notice in writing. It was not suggested, either to the Lord Ordinary or to us, that the contributions made by police officers such as the petitioner fully funded the benefits arising under the scheme. Nevertheless it was submitted that the pension and other benefits arose under the scheme in respect of contributions made by the petitioner which depended upon earnings and benefits being quantified by reference to years of service and earnings during those years. In addressing us, however, Mr. Sutherland accepted that, although there might be no other contributor to any fund apart from the policemen themselves, the payments of benefits were made by police authorities and a fund created by contributions from policemen would not necessarily meet the cost of the payments made. Counsel for the respondents submitted that the consequence of that concession was that the pension payments could not be regarded as rights accruing solely as a result of payments by the victim. In our view, that is correct and as a result the ill-health pension payable in the present case is not excluded from the ambit of paragraph 20 of the scheme.

We shall deal next with the argument as to whether paragraph 20 only falls to be applied to reduce the amount of compensation which would be payable on a common law based calculation. We assume, for the moment, that in such a calculation the amount of ill-health pension received after normal retirement date would be deducted from any loss of retirement pension claimed after that date. The general approach to the interpretation of provisions in the scheme is not in doubt. As Lawton L.J. said in R. v. Criminal Injuries Compensation Board ex parte Webb [1987] Q.B. 1974:

The words of the scheme should be given "their ordinary sensible meaning": R. v. Criminal Injuries Compensation Board ex parte Staten [1972] 1 W.L.R. 569. Further, it is legitimate to take into account anything that can be learnt from the interdepartmental working party reports as to the intention lying behind any alterations to the scheme which have been made from time to time. It can immediately be said that it is clear that the working party report of 1986 proceeded on the assumption that the general law was as laid down in Parry v. Cleaver supra and for that reason, and also because there is no doubt that in the law of England Parry v. Cleaver still represents the general law in England and Wales and the scheme applies both in Scotland and England and Wales, we shall put aside for the moment the petitioner's argument in relation to section 10 of the 1980 Act.

It is, however, necessary to have careful regard to what Parry v. Cleaver supra decided, both for the purposes of the application of the scheme and for the purposes of the section 10 argument. The case was one in which a plaintiff in pensionable employment was disabled by the negligence of the defendant and received a disablement pension. Lord Reid began his opinion by stating that the questions were how damages for the financial loss were to be assessed and in particular how the disablement pension was to be dealt with. He continued:

Lord Reid then referred to British Transport Commission v. Gourley [1956] AC 185 which, he said, established, if it was not clear before, that it is a universal rule that the plaintiff cannot recover more than he has lost and that realities must be considered rather than technicalities but that the decision in Gourley's case had nothing to do with the question whether sums coming to the plaintiff as proceeds of insurance or by reason of benevolence should be deducted. He continued:

Lord Reid then referred to the decision in Redpath v. Belfast and County Down Railway [1947] N.I. 167 and continued:

At page 16, Lord Reid said:

Lord Reid went on to consider a wide range of authorities and at page 20 reaffirmed his view that the pension up to the retiring age of the plaintiff should not be brought into account. He then said that thereafter the position was different and continued:

The approach of the court in Parry v. Cleaver was followed in Smoker supra although the House of Lords in that case was urged to reconsider Parry v. Cleaver on the ground that it departed from the fundamental principle that a plaintiff could only recover his actual net loss. The importance of that principle was reaffirmed in Hussain v. New Taplow Paper Mills [1988] A.C. 524 and Longden v. British Coal Corporation [1998] A.C. 668. Both of those cases recognised the primacy of the exceptions for benevolence and the products of insurance and both were concerned with what Lord Bridge, in the former case, described as one of a number of borderline cases in which there could be divergences of judicial opinion as to what justice, reasonableness and public policy might require. Lord Bridge in Hussain also noted that some of the problems arising were resolved by legislation, sometimes in the form of a compromise solution providing that only a proportion of benefits should be taken into account.

As we have mentioned, in their decision the majority of the Board took account of the report of the 1978 interdepartmental working party. In particular, they quote paragraph 16.2 of that report which is headed "Pensions in Non Fatal Cases" and states:

With reference to that paragraph, the Board comment, in their decision in the present case:

In our view, that is a correct assessment of the intention of the working party as expressed in the preceding passage which he have quoted from their report. It is clear that the intention was to displace the rule applied in consequence of Parry v. Cleaver in so far as that rule applied to the period up to normal retirement date.

However, the 1978 report also contains recommendations in regard to the amount of any pension which should be deducted and a question does arise as to the effect of those recommendations. In paragraph 16.3 the report recommends an end to a previous distinction between fatal and non-fatal cases. In fatal cases, before 1978, compensation was reduced by four fifths of the value of any pension and the working party comment that neither the principle nor the fraction was defensible. In paragraph 16.5, the working party say:

In the following paragraphs the working party consider whether an allowance should be made for pension contributions and come to the conclusion that there is a case for making some such allowance and that again it should be dealt with by a simple pension percentage deduction. Putting the two matters of allowance for income tax and contributions together, the working party recommended a deduction of 50% of the gross pension. That, plainly, was the recommendation which was put into effect in the scheme which followed the report. The working party report which preceded the 1990 scheme recommended a change in this part of the scheme. It recommended that the income tax liability should be taken into account but that there should be no allowance for pension contributions and therefore recommended that there should be an allowance at the basic rate of income tax only. That recommendation, however, was apparently not taken forward into the 1990 scheme which, as we have seen, continues to allow for a simple 50% deduction.

The position therefore seems to be that the recommendation that a flat 50% deduction should be made does not rest on any consideration of principle or equity but primarily on considerations of convenience and simplicity. That being so, it is arguable, that the same considerations apply to the period after the normal retirement date, and that the same rule should be applied. In addition, counsel for the reclaimer submitted strongly that the straightforward terms of the scheme had one simple meaning, namely that in all cases 50% of the taxable pension was to be deducted. The terms of paragraph 12 show that the common law rule, whatever it may be, is to be applied subject to, among other things, paragraph 20 and it was submitted that there is nothing in the terms of the scheme to support the two-stage approach which would apply a common law deduction in full at one stage and take account of something which would not be deducted under common law at a later stage and in a different way.

The petitioner's argument has some appeal, but we find it difficult to envisage that, if the working party had had in mind some modification of the Parry v. Cleaver rules in relation to the post-retirement period, they would not have mentioned it expressly: and there is no such express mention in the report. Further, we think that we must respect the settled practice of the Board, which has been followed since the modification to the Scheme introduced after the 1978 report. Looking to all the circumstances, it seems to us that the correct view is that the relevant provisions of the Scheme were designed to regulate the position before normal retirement. We therefore agree with the decision of the Board and of the Lord Ordinary on this point.

We proceed to deal with the arguments concerning section 10 of the 1982 Act. As we have already mentioned, the rule laid down in Parry v. Cleaver was attacked, in some cases, on the ground that it failed to give proper effect to the principle that a claimant can only recover his net loss. Section 10 of the 1982 Act followed on a consultation paper and a report issued by the Scottish Law Commission. The terms of the report do not differ materially from those of the consultation paper. It is not necessary to quote from the report at length: it is sufficient to say that the whole concern of the report is whether the approach taken in Parry v. Cleaver should be accepted and, if so, how a number of problem or borderline cases should be dealt with; and whether such cases required particular legislation. The conclusion of the report, like that of an English Law Commission report at a slightly earlier date, was that the Parry v. Cleaver approach should be accepted. There is not a trace in the Scottish Law Commission report of any disagreement with that view, nor of any suggestion that post-retirement pensions should be disregarded; indeed there is no discussion of the position of post-retirement pensions at all. It would therefore be surprising to find that some important change in the Parry v. Cleaver rule had been made in the statute following on the Scottish Law Commission recommendations, particularly in view of the way in which the applicable principles were explained by Lord Reid in the passages quoted above. There is not a trace of any reasoning which might support a departure from Lord Reid's argument that a comparison of an ill-health pension with a post-retirement pension is a comparison of like with like and therefore that a deduction can properly be made in assessing post-retirement loss. No more is there any argument which would justify a situation in which a pursuer could receive his ill-health pension, post-retirement, in full, and also compensation for what could only be regarded as a notional post-retirement loss. Moreover, the interpretation of section 10 for which the petitioner contends would introduce a sharp difference between the common law in Scotland and in England, and one for which no justification seems to exist.

The question remains, however, why, if the above is correct the 1982 Act is expressed as it is. Counsel for the respondents struggled nobly, but with little success, to suggest circumstances in which section 10(a) of the 1982 Act, might have been meant to apply, other than those of the present case. Section 10 provides:

On its plain terms, that provision excludes any deduction in respect of a contractual benefit, whether that benefit relates to a period before or after normal retirement date. Section 10 applies to the assessment of damages, without any restriction: its application is not limited to any part or element of loss. The benefit in issue in this case is a contractual benefit. Section 10(a) therefore requires that it should be left out of account in assessing "common law" damages: and counsel for the Board accepted that in the initial stage of the Board's assessment of a claim, the assessment of "common law" damages must proceed on the basis of the common law as modified by statute. It is difficult to see how any other approach could reasonably be taken. The result seems to us to be very unfortunate, for the reasons which we have indicated above. We have therefore considered very carefully whether we could see any meaning which could properly be given to the statutory words which would lead to a different result, but we have not been able to do so. The only other argument put forward by the respondents was that section 10 simply did not have in view the question of assessment of post-retirement loss. To give effect to that argument, however, would amount to holding that the plain terms of the statute should not be given effect because, in our judgment, that effect cannot have been intended. We are not aware of any authority which would justify a court in making such a decision. In these circumstances, we find ourselves obliged to hold that the effect of section 10 is that no deduction fell to be made in respect of the petitioner's pension for the period after his normal retirement date. The results appears to us to be inequitable, and we think that consideration ought to be given to amending the statute. In the present case, we require to sustain the petitioner's plea in law, repel the respondents' pleas, reduce the decision of the Board and remit to them to reconsider the petitioner's application.