UK Social Security and Child Support Commissioners' Decisions

R(CR) 1/95

(Hassall v. Secretary of State for Social Security)

(Pether v. Secretary of State for Social Security)

CA (Nourse and Henry LJJ and Potts J) CCR/1/1993
14.12.94 CCR/2/1993

Benefits in payment prior to accident suffered by claimant - whether relevant that same amount of benefit would have been paid if accident had not occurred - whether relevant that benefit would have been paid on different basis if accident had not occurred - whether recovery limited to element of income support personal to claimant

In each case the claimant was paid the balance of damages by the compensator after deduction of benefit in favour of the Secretary of State in accordance with a certificate of total benefit paid to the claimant. The claimant appealed the decision of a social security appeal tribunal to the Commissioner who substituted a decision that because the basis of payment of income support had changed, the totality of the benefit paid to the claimant, being or including income support, was paid in consequence of the accident and was therefore recoverable by the Secretary of State. The claimant appealed to the Court of Appeal on the grounds that (i) the same amount of benefit would have been paid had the accident not happened so it was not paid as a consequence of the accident, (ii) income support would have continued as the claimant was still unemployed, and (iii) that in any event recovery of income support was limited to that part of the applicable amount relating to the claimant himself.

Held, dismissing the appeal, that:

as to argument (i), benefit paid after the accident was founded on medical certificates dealing with injuries caused by the accident and was therefore paid as a direct consequence of the accident;

as to argument (ii), there are no specific words or other reasons to limit recovery of income support as suggested by the claimant;

as to argument (iii), the unfairness to the claimants in these cases does not stem from the operation of the legislation for recovery of benefit from compensation payments but from the failure to claim damages in respect of the benefit recoverable by the Secretary of State.

DECISION OF THE COURT OF APPEAL

Mr. G. Burrell (instructed by Alan Farnell and Co., Sheffield, and Clarke Willmott and Clarke, Yeovil) appeared on behalf of the Appellants.

Mr. P. Vallance QC (instructed by the Treasury Solicitor) appeared on behalf of the Respondent.

HENRY LJ: We have before us two appeals from one of the social security Commissioners, Mr. J. J. Skinner QC, challenging the recoupment by the Secretary of State for Social Security of certain social security benefits paid to the applicants from sums due to them as damages under the compromise of personal injury actions brought by them following their involvement in separate road traffic accidents. This recoupment was found to have been authorised by the relatively new statutory scheme for the recoupment of social security benefits that was introduced by section 22 of, and Schedule 4 to, the Social Security Act 1989, now contained, in an amended form in Part IV of the Social Security Administration Act 1992. The Secretary of State is the respondent to these proceedings. The tortfeasors were not represented before us, though insurers may have an interest in the reasoning by which the conclusion is reached.

The facts in both cases are the same. Each applicant was unemployed at the time of the accident. Mr. Hassall was in receipt of unemployment benefit and income support. Mr. Pether had been unemployed for more than twelve months and so was in receipt of income support only. Those benefits were then available to them because they complied with the statutory requirements of what is now section 124 of the Social Security Contributions and Benefits Act 1992, namely each man was over 18, he had no income, he was unemployed, but was available for and was actively seeking employment. In each case the benefit paid to the applicant was higher than it would otherwise have been because he was a married man, with young children in Mr. Pether's case.

In each case they continued to receive approximately the same amount in benefit after the accident as they had before: Mr. Hassall in the form of sickness benefit, invalidity benefit, and income support, and Mr. Pether, income support. But they received the post-accident benefits on a different basis, namely that while still unemployed and without income, by their production of weekly medical certificates relating to the injuries sustained in their accidents, each applicant was exempted from the requirements to be available for work because he was incapable of work, being entitled to sickness benefit: see regulation 8(1) of, and paragraph 5 of Schedule 1 to, the Income Support (General) Regulations 1987, SI 1987 No. 1967.

Each applicant settled his personal injury action on the basis that no claim could be made for loss of earnings during the time of incapacity because he would not have been able to find work even if fit. So effectively the claims were solely for general damages for pain, suffering, and loss of amenity. What then happened can be illustrated from the figures in Mr. Hassall's case. His claim was settled for £22,500. He had received post-accident benefits of roughly £7,500, and these benefits were recouped by the Secretary of State, the tortfeasor (who is called the "compensator" under the statutory scheme) paying £15,000 to Mr. Hassall and £7,500 to the Secretary of State.

It is that recoupment, approved by the Commissioner, which is challenged in this case. As the justification for such recoupment turns on the statutory scheme, the question is purely one of construction. But the applicants contend that the result achieved by the recoupment is so unfair that the statue should be construed so as to avoid that result.

First, it was pointed out that under the law as it was until the passing of the Social Security Act 1989, the £7,500 of benefit would not have been deducted from the general damages for pain, suffering and loss of amenity. In so far as the benefits paid were the benefits specified in section 2(1) of the Law Reform (Personal Injuries) Act 1948, no deduction from the damages payable would have been made as such a deduction could only be made by way of set-off against "any loss of earnings or profits" and there was no such claim here. And under the old law, income support was not a specified benefit: see Gaskill v. Preston [1981] 3 All ER 427. It could have been deducted at common law, but that would only have been in order to prevent double recovery, and there can be no element of double recovery in relation to income support where there is no loss of earnings or profit claim. As to the question of double recovery, see e.g. Hodgson v. Trapp [1989] AC 807. So under the old law Mr. Hassall would have been awarded his whole claim of £22,500. But the relevance of the old law is limited by the fact that the new statutory scheme represents a complete and radical change. There is no room for any general presumption of continuity.

Of more significance is the complaint the applicants make as to the unfairness of the result in these cases. This is perhaps best illustrated by considering a claim for the same injuries by someone who neither claimed nor received any social security benefits, nor made any loss of earnings claim in his personal injuries action, say an unemployed millionaire. He would recover the full amount of £22,500 under both the old law and the new. In a situation where there can be no question of double recovery, what justification can there be for a person who has to rely on accident related social security benefits to tide him and his family over until he recovered his damages recovering less damages than one who did not need to claim recoupable benefits because he could afford to wait? I will return to this question after consideration of the detail of the new statuory scheme.

The scheme bites on any "compensation payment" as defined by section 81(1) of the Social Security Administration Act 1992, a wide definition which includes any payment by the person alleged to be at fault to the victim in respect of the accident, whether by judgment or compromise or voluntary payment. The payments here undoubtedly fill that description. The maker of such a payment (the "compensator") shall not make such a payment to the victim until the Secretary of State has furnished him with a "certificate of total benefit, equal to the gross amount of any relevant benefits paid .... to or for the victim ... in respect of that accident" and he has deducted that sum from the payment and paid it to the Secretary of State: section 82(1) of the Act of 1992, I have omitted words irrelevant to this case. The victim may challenge the certificate of total benefit on the ground inter alia that the certificate included any benefit paid "otherwise than in consequence of the accident:" section 98(1)(b). That is what the applicants did here, and the question for us is whether the benefits recouped were paid otherwise than in consequence of the accident.

Before considering it however, I have three points to make. First, in my judgment the essential and fundamental difference between the new statutory scheme and its predecessor is that the state no longer subsidises the compensator. Under the old scheme based on the law Reform (Personal Injuries) Act 1948, relevant benefits provided by the state were not recouped by the state, but went to reduce the damages payable by the compensator i.e. those payments benefited the person at fault by reducing his liability to the victim. The form of subsidy has now been ended. According to the Parliamentary material we have been shown, it is estimated that the benefit to the state will be in excess of £50 million a year. Plainly that recoupment of benefit must be at the expense of either the victim or the compensator (in reality his insurers). Second, once the political decision to recoup has been taken, then the state has a direct interest in ensuring that proper recoupment is made. If in the new scheme recoupment were to be limited to recoupment against any loss of earnings component in the compensatory payment (as in the old) then not only would the words used have to make that plain, but such recoupment could easily be avoided, and the scheme thus frustrated, by the victim and compensator doing a deal to their mutual advantage whereby the award for pain, suffering and loss of amenity was artificially increased, and the claim for loss of earnings reduced or abandoned. It is quite clear as a matter of construction that the recoupment of benefit is to be made from the whole compensation payment and is not limited to one component of that payment. A ground of appeal suggesting the contrary has rightly been abandoned. Third, the new statutory scheme, and Part IV of the Act where that scheme is to be found, deals with recoupment ("Recovery from Compensation Payments"). It does not directly affect the measure of damages that the victim may be awarded against the compensator.

I turn then to the central issue. I will consider it first on the literal meaning of the words used, and then as to whether any looser construction is justified in order to avoid unfairness or absurdity. It is common ground that the benefits in question are all "relevant benefits" within the meaning of section 82(1) of the Act, as defined in regulation 2 of the Social Security (Recoupment) Regulations 1990, SI 1990 No. 322. The submissions on behalf of the applicants were (i) that as in each case the same amount of benefit was paid before as after the accident, so one should look to the substance and not to the "relabelling" of the benefits, and conclude that the post-accident benefits recouped were not paid as a consequence of the accident, because the same quantum of benefit would have been paid had the accident not happened; (ii) that the income support element of the post-accident benefits was in reality still being paid because the recipients were still unemployed with no income, and not because of the accident; (iii) that the recouped benefits certified was in any event too large because it sought to recover the totality of the benefits received by the applicants, including that part of the "claimant's weekly applicable amount" which is increased by the fact that he is "part of a "couple" and has a "child or young person who is a member of his family:" see regulation 17 of, and Schedule 2 to, the Income Support (General) Regulations 1987.

The first two submissions are easily dealt with. The post-accident benefits that were paid were clearly paid on the strength of the medical certificates dealing with the injuries caused by the accident and the applicants recovery from those injuries. Because of those medical certificates, only the post-accident form of benefits could be claimed the Commissioner said:

"But because of the accident the basis of the entitlement to income support changed .... [He] was [as a result of his doctor's statement in support of his claim] no longer required to be available for employment ..., nor was he required to be actively seeking employment .... He was relieved of his obligation to be available for work and that was in consequence of his accident."

It seems to me to be clear beyond argument that the post-accident benefits recouped were not "benefits paid otherwise than in consequence of the accident." They were clearly paid as a direct consequence of the accident. No other construction is possible.

The third submission is on first impression more troubling. These applicants were the claimants for the post-accident benefits. Both claims included income support, which we have been told is an income related "topping up" benefit. Regulation 17 of the Income Support (General) Regulations 1987 provides that the claimant's "weekly applicable amount shall be the aggregate" of (in our cases) amounts determined in relation as to whether he is single, or part of a couple, or has children who are members of his family. The aggregate benefit can be broken down into its components, so much for himself, his wife, or child. The submission was that all that can be recouped from him are the payments going to his support, and not that part of the benefit which is calculated for the support of his wife and children i.e. that relevant benefit paid "to or for the victim" in section 82(1) means only that part of the benefit paid in respect of the claimant himself. There are no specific words pointing to such a limitation. And in the ordinary case where there is a loss of earnings claim what will be claimed as damages is the loss of earnings which would have been used to support the whole family. And if all that was recouped from a damages award containing that claim was the victim breadwinner's portion, there would then be double recovery in relation to his wife and children's share. In these circumstances I am quite clear that section 82(1), which as we have seen does not distinguish between cases where there is a loss of earnings claim and others, cannot be construed in the way the applicants suggest.

This conclusion adverse to the applicants takes me back to the question of fairness. As demonstrated by the "unemployed millionaire" example the result in these individual cases is unfair. It would be unfair if the unemployed non-benefit claiming millionaire would receive greater damages for the same injuries. It would be unfair if the safety net of non-repayable benefit, which these unemployed men would have continued to receive had the accident not happened, were replaced by equivalent benefits that were repayable because they flowed from the accident if the lost non-repayable benefit could not be claimed as damages in the action. But those last words point the true analysis of the situation. In my judgment the unfairness identified stems not from either the construction or the operation of Part IV of the Act of 1992 but from the failure to claim in the original actions special damages in respect of what these applicants under the new statutory regime lost financially as a result of the accident. On the factual assumption that they would have been unemployed over their whole recuperation period (i.e. the period during which they were in receipt of recoupable benefits), what they lost was their entitlement to non-recoupable benefits over that period i.e. benefits payable otherwise than in consequence of the accident. Each claim would proceed on the following basis. The physical injuries sustained in the accident rendered the victim unfit, and therefore no longer available, for work. The pecuniary loss to him consequent on those injuries is not loss of earnings, because he would not have been able to find a job, but the loss of non-recoupable benefits which ceased to be paid as a result of the accident because his injuries rendered him no longer available for work, and so his non-recoupable benefits were replaced by benefits recoupable because they were paid in consequence of the accident. Once that entitlement is recognised, then there is no case for construing Part IV of the Act in any artificial or strained way in order to avoid unfairness that it has not caused. And with that entitlement, then for practical purposes, benefit-dependent unemployed and the hypothetical millionaire will be equally treated by the law.

I am indebted to the submission of Mr. Burrell for the applicants for the above solution. In his article in the 15 March 1994 issue of the Kemp & Kemp publication "Quantum" (Issue 2/94) he states that there is "no authoritative guidance on this point." That is true, but in my judgment the conclusion reached is justified on principle, and additionally receives some support, albeit obiter and by analogy, from the decision of this court in Berriello v. Felixstowe Dock & Railway Co. [1989] 1 WLR 695. This was a decision under the old statutory regime. The plaintiff, an Italian seaman, was injured in the course of his employment at Felixstowe docks. He received from a scheme administered by the Italian state a sum as indemnification for his temporary disability, and the benefit of a further capital sum to cover the income which the state body was committed to paying him because of those disabilities. The plaintiff claimed recovery of these sums from the defendants, and this court held that he was entitled to recover those sums from the defendant, and that they should not be deducted from the sum of damages payable to him. The editors of Kemp & Kemp, The Quantum of Damages, Looseleafed., vol. 1 (1992), comment on this decision as follows, at p. 10024, para. 10-029

"This decision is merely an illustration of the rule that a deduction from damages is made only to ensure that the plaintiff is not overcompensated for his loss: if the sums were deducted and he had then to repay them to the Seaman's Fund, he would clearly be unjustly under-compensated."

Dillon LJ said [1989] 1 WLR 695, 700:

"I understand that the normal practice is that where an employee has been injured by a third party, and his employer has made him interim payments in respect of lost wages on an undertaking by the employee to refund the interim payment if he recovers damages from the third party, the practice is that the interim payments are not taken into account when the court assesses the damages against the third party i.e. they are not deducted from the proved loss. The same should, in my judgment, apply in relation to these two sums recoverable by the Cassa Marittima. If English statute law provided that welfare benefits payable to a person in respect of injuries in an accident should be recoverable from him by the welfare authorities if and to the extent that he recovered damages from anyone else for the same injuries, I cannot conceive that the English courts would require the welfare benefits to be deducted in the assessment of the amount of damages payable to the injured person. I cannot see that it makes any difference in principle that the Cassa Marittima, the provider of the benefits, is a regional authority of a foreign state and not of the British state. I accordingly agree with the judge, albeit for different reasons, that these two sums are not deductible."

Bingham LJ in agreeing with that judgment first made the point that in that case (as in the cases before us) there was no risk of double recovery and then went on to say, at p. 698:

"If he recovers these sums as damages he will, it appears, be liable to repay the Italian fund. This is not, I think, a situation which has yet arisen in the case of British statutory welfare benefits but if it did I would expect the court to sanction recovery from the wrongdoer and repayment of the welfare benefit."

On analysis, the situation in that case is not the situation with which we are faced here. But I agree with the editors of Kemp & Kemp, The Quantum of Damages, that the reason for recoupment of the statutory benefits is to ensure that the plaintiff is not overcompensated (as he would be if in addition to those benefits he had recovered under a loss of earnings claim). But if there is no question of overcompensation, recoupment of benefit should equally not leave the plaintiff undercompensated.

In reaching the conclusion I have, I have found it a necessary step to examine whether the applicants, as a result of recoupment, were undercompensated for injuries they sustained, and second whether this was as a result of the new statutory scheme. I have concluded that they were undercompensated, but that this resulted not from the working of the statutory scheme, but from the fact that in their cases no pecuniary loss claim was made (for loss of non-recoupable benefits). I acknowledge that this is a point on which we have not had the benefit of adversarial argument as Counsel for the Secretary of State had no interest in disputing Mr. Burrell's suggestion that such a claim would provide the answer in other cases. This point lies on the fault line between damages and welfare benefits, and ideally should be decided in a case where all three interested parties, namely the victim, the compensator, and the Secretary of State are represented. But I have no doubt that as a matter of principle on the facts postulated the loss of non-recoupable benefit can be claimed as damages.

In the course of the hearing an application was made by the applicants that we should look at Parliamentary materials under the rule in Pepper v. Hart [1993] AC 593. It was contended before us that the unfairness identified either reflected an ambiguity in the legislation, or (more promisingly) the literal meaning of the Act led to an absurdity, it being absurd to contemplate that Parliament intended to create the injustice of under-recovery. Accordingly we admitted the Parliamentary material. For myself, while I have read the debate in committee, I did not get much assistance from it. But there was nothing in that debate to cast doubt on the view as to the legislative intention that I had already formed. In my judgment the Act is not ambiguous, and as I have endeavoured to explain, its plain meaning does not lead to unfairness. The Act does not restrict the plaintiff in the damages that he can claim against the compensator, and a claim properly formulated will in my judgment avoid the under-recovery complained of. Therefore I would dismiss this appeal for the reasons given.

POTTS J: I agree

NOURSE LJ: I also agree