Upper Tribunal (Administrative Appeals Chamber)

IN THE UPPER TRIBUNAL Case No.  CAF/1433/2012

ADMINISTRATIVE APPEALS CHAMBER

 

Before Upper Tribunal Judge Rowland

 

The Appellant appeared in person.

 

The Respondent was represented by Mr Adam Heppinstall of Counsel, instructed by the Treasury Solicitor.

 

Decision:  The claimant’s appeal is unsuccessful.  I set aside the decision of the First-tier Tribunal dated 4 October 2011 and I substitute a decision that the claimant’s basic disablement pension payable under article 6 of the Naval, Military and Air Forces Etc. (Disablement and Death) Service Pensions Order 2006 (SI 2006/606) should be abated by £1,012.43 per annum and his unemployability supplement payable under article 12 shall be abated by an amount equal to the amount by which the rate of that allowance exceeds the rate of any analogous social security benefit to which he may be entitled (currently being contributory employment and support allowance with the support component) so that the abatement at the date of the Secretary of State’s decision on 12  July 2010 is £940.80 per annum.  The total abatement of the claimant’s war pension at that date is therefore £1,953.23 per annum.

 

 

REASONS FOR DECISION

 

1. This is an appeal, brought by the claimant with the permission of the First-tier Tribunal, against a decision of that tribunal allowing in part his appeal against a decision of the Secretary of State dated 12 July 2010 that the claimant’s war pension be abated by £3,229 per annum in respect of £750,000 personal injuries compensation he had received.  The First-tier Tribunal substituted a variable figure, amounting to £1,220.08 per annum at the date of the Secretary of State’s decision.

 

2. The background facts are not in dispute.  The claimant served as an officer cadet and then commissioned officer in the Royal Air Force from 1989 until 2004.  On 11 May 2000, he was a flying instructor with the rank of Flight Lieutenant when he was very seriously injured in a road traffic accident, which involved the car he was driving being hit from behind by a vehicle driven by an airman who had had late second thoughts about trying to overtake him on a country road.  He sued the Ministry of Defence for damages in the High Court on the basis that his injuries had been caused by the negligence of the airman and, when he was invalided out of the Royal Air Force on 14 September 2004, he also made, or was deemed to have made, a claim for a war pension under the predecessor of the Naval, Military and Air Forces Etc. (Disablement and Death) Service Pensions Order 2006 (SI 2006/606).

 

3. The Secretary of State accepted that the claimant’s injuries were due to service.  The reasons for that decision are not immediately apparent from the documents before me but are not material to this appeal.  In due course, the claimant was awarded a pension, his retired pay being calculated initially on the basis of an assessment of disablement of 60%, presumably from 15 September 2004, which was increased after an appeal to 80% from 10 October 2005 and to 90% from 28 June 2007.  However, these assessments all included assessments in respect of conditions other than those arising out of the relevant accident.  The claimant’s disablement in respect of the conditions arising out of the relevant accident was, and it appears remains, assessed at only 40%.  Apart from the basic disablement pension (or “retired pay”), his war pension included at one time an allowance for lowered standard of occupation and later an unemployability supplement, an invalidity allowance, a mobility supplement (which, if it was ever paid to the claimant, ceased to be paid to him when a Motability agreement was made), a constant attendance allowance and a comforts allowance.  It is not recorded in the documents before me from what date or dates those allowances were paid.

 

4. Article 52 of the 2006 Order provides –

 

Adjustment of awards in respect of other compensation

52.–(1) Where the Secretary of State is satisfied that—

(a)   compensation has been or will be paid to or in respect of a person to or in respect of whom a pension or gratuity is being or may be paid; or

(b)   that any compensation which has been or will be paid will benefit such a person

the Secretary of State may take the compensation into account against the pension or gratuity in such manner and to such extent as he thinks fit and may withhold or reduce the pension or gratuity accordingly.

  (2) …

  (3) In this article “compensation” means—

(a)   any periodical or lump sum payment in respect of the disablement or death of any person, or in respect of any injury, disease or incapacity sustained or suffered by any person, being a payment—

(i) for which provision is made by or under any enactment, Order in Council (including this Order), Warrant, Order, scheme, ordinance, regulation or other instrument; or

(ii) which is recoverable as damages at common law; or

(b)   …; or

(c) any periodical or lump sum payment made in settlement or composition of, or to avoid the making of, any claim to any payment falling within subparagraph (a) or (b) of this paragraph, whether liability on any such claim is or is not admitted.”

 

5. On 7 July 2006, the Secretary of State decided that the claimant’s war pension should be abated under article 52 by £481.33 per month in the light of interim payments of £25,000 received by the claimant on 1 November 2004 and 23 December 2005 as a result of orders made by the High Court.  The claimant appealed against that decision and, on 19 October 2007 a Pensions Appeal Tribunal, having noted that no explanation for the amount of the abatement had been given, allowed the appeal, broadly on the ground that abatement was premature.  It is unnecessary for me either to set out the precise reasoning or to express any view on it.  The immediate result of the decision of the Pensions Appeal tribunal was that arrears of war pension were paid and the abatement was stopped.

 

6. The claimant’s action against the Ministry of Defence was listed for hearing on 13 October 2008 but was settled on 2 September 2008 following mediation.  Liability had already been accepted, subject to agreed contributory negligence of 5% on the part of the claimant.  £100,000 had been paid into court, most of which had already been paid to the claimant in interim payments, and the balance of £650,000 was to be paid to the claimant’s solicitors by 24 September 2008. 

 

7. It appears that the claimant first informed the Secretary of State of the receipt of the £650,000 on 14 March 2010, when he said that it had all been paid into a “disability trust” so that he did not have it himself.  He also said that he had “agreed under duress to accept a low offer for only limited special damages … not including loss of earnings”.  He subsequently sent a “schedule of special damage and future losses” submitted in the High Court proceedings, based on four options under which the claim was for £5,731,431.20, £4,448,985.42, £4,294,788.27 or £3,535,189.92, the differences reflecting different career scenarios and therefore different figures for lost earnings and pension rights.  The Secretary of State did not appreciate that the total compensation awarded was £750,000 and proceeded to make a new abatement decision under article 52 on the basis that the award was of £650,000

 

8. On 12 July 2010, he decided that the amount of the award of war pension was to be abated by £3,229 per annum.  The decision letter said –

 

“You were paid the sum of £650,000.00.  We have disregarded £565,352.52 of this money and converted the balance of £84,647.48 into the terms of an annual income which could be received as a Life Annuity bought on the date of the compensation was paid and calculated in accordance with the Ogden Tables, as recommended by the Government Actuary’s Department.

 

The annual income has been worked out at £3,329.96.  We are not able to abate by this full amount at the present time as we cannot abate by more than the current rate of 40% War Pensions as this is the percentage of War Pensions that relates to your accident and to what your compensation has been awarded for.  We will therefore abate by the current 40% pension rate which is £3229.00 per annum.  Your pension will be abated by this amount each year.  It will be revised at each uprating.”

 

This was put into effect from 15 July 2010.

 

9. The claimant appealed, arguing again that the payment did not include loss of earnings and also referring to part of the reasoning of the Pensions Appeal Tribunal in his earlier appeal.  The Secretary of State put in a hopelessly inadequate response to the appeal, which failed to explain how the amount of the abatement had been calculated beyond what had been said in the decision letter.  The claimant also had not provided relevant documents.  Accordingly, when the case first came before the First-tier Tribunal, to whom the functions of Pensions Appeal Tribunals in England and Wales had been transferred, the judge gave detailed directions for further evidence to be submitted.

 

10. This resulted in the number of documents in the bundle increasing from 37 to 646 (including documents supplied to the Secretary of State by the claimant), with further documents from the claimant in relation to his claim for loss of earnings taking it to 787.  Among the documents provided by the Secretary of State were paragraphs 10000 to 10039 of A Guide to War Pensions Policy, dealing with abatement in respect of what is called in the guide “Third Party Compensation” (abbreviated as “TPC”) and the detailed calculation made in the present case.  This part of the policy guide was written in January 1997 and appears not to have been amended since then.  I have been unable to find it on the Internet and so set out here the most relevant paragraphs –

 

“General policy

Reasons for the provisions

10006 It is a fundamental principle of the War Pensions Scheme that compensation should not be paid twice for the same disablement. This principle is justified for the following reasons:

·         but for the negligence of the third party, the State would not be paying a war pension or gratuity at all,

·         a service man/woman disabled in a "peacetime" accident should not be treated more favourably than one disabled in action against an enemy (when the question of pursuing a claim for Third Party Compensation (TPC) would not arise in practice).

10007 The policy intention is therefore that awards of war pension or gratuity should, if appropriate, be abated to prevent duplication of payment for the same disablement.

Disregards applied to TPC

10008 In determining the amount of the TPC award to be taken into account, the following items are disregarded in whole or in part:

Totally disregarded

·         any expenses incurred in pursuing the TPC claim which are not recovered from the third party;

·         special damages, other than for loss of earnings (see separate heading - Special Damages);

·         special damages paid for loss of earnings in respect of any period prior to the commencing date of war pension or notional commencing date of gratuity;

·         interest paid on general or special damages;

Partially disregarded

·         after disregarding the amounts at sub paragraphs Totally disregarded, 75% or £500, whichever is the greater, of the balance of general damages, and special damages for loss of earnings paid in respect of any period on or after the commencing date of war pension or the "notional" commencing date of gratuity.

10009 Very broadly, the disregard of 75% or £500 of the general damages - and special damages purports to treat war pensioners on a par with their civilian counterparts who sustain an industrial accident or disease for which a third party was to blame, and for which Industrial Injuries Disablement Benefit is payable. The disregard also serves:

·         as an incentive to claim damages,

·         to compensate for the notional time lapse in negotiating an annuity,

·         to allow for income tax arising on the life annuity (or other from of the investment of the damages in whatever way the pensioner may choose), because the war pension is not "taxable income" for income tax purposes.

10010 The balance, representing 25% of the total sum paid as "general damages" plus 25% of any "special damages" paid for loss of earnings in respect of any period on or after the commencing date of the war pension,^, or the notional commencing date of the gratuity or, if less, the amount in excess of £500, is normally taken into account against the war pension or gratuity as follows:

·         Gratuity payable: the gratuity payable is reduced (or abated) by the resulting sum.

·         Pension payable: since it is necessary to convert a lump sum TPC into a form that permits the equitable abatement of a continuing pension, the resulting sum is "translated" using tables supplied by the Government Actuary, into a life annuity, payable at a fixed weekly rate, which the resulting sum would be reckoned to purchase. This has regard to:,

o    the pensioners age; and,

o    the Price of 2½% Consols (undated Government Stock);

at the date of final settlement of the TPC claim.

10011 The weekly war pension payable is then reduced (or abated) by the amount of the weekly annuity from the time of settlement, or the commencing date of the war pension award if later.

10012 The concept underlying the annuitisation of the resulting sum taken into account is that for the rest of his or her life a continuing income could be available to the pensioner; an income which he or she would not have so acquired had it not been for the negligence of the third party, and but for which a war pension would not be payable.

Special damages

10013 Special damages are, broadly:

·         damages for a particularised loss, the amount of which does not depend on future contingencies, but can be computed more or less exactly by reference to what has already been lost.

·         made up of quantifiable sums and are not, in general, awarded for the actual disablement, death or incapacity of the injured person.

Special damages should not be taken into account against pension.

Examples of special damages

10014 This list is not exhaustive and there may be other instances.

·         the value of personal items destroyed in the accident. "Personal items" refers to articles such as clothes, a motor car or cycle.

·         the cost of repair of such personal items damaged in the accident.

·         husband's or wife's expenses in visiting their partner While in hospital as a result of the accident.

·         cost of extra nourishment during convalescence.

·         extra costs incurred because of a funeral.

·         loss of earnings, if any, between the date of the accident and the date on which the injured person returned to work.

Abatement of supplementary allowances

10015 If the weekly rate of the life annuity exceeds the amount of the basic war pension, the balance will reduce the amount of any supplementary allowances that may be payable.

10016 No supplementary allowance should be reduced below the amount of any alternative Social Security benefit to which there may be underlying entitlement, eg;

·         CAA should not be reduced below the appropriate rate of AA/DLA Care Component;

·         WPMS should not be reduced below the appropriate rate of DLA Mobility Component;

·         UNSUPP should not be reduced below the rate of any overlapping Social Security benefit intended for "day to day" maintenance, eg Retirement Pension, Sickness/Invalidity Benefit or Severe Disablement Allowance, Unemployment Benefit, Invalid Care Allowance or, for disabled women, National Insurance Widows Pension.

Abatement in respect of interim payments

10017 If and when any interim payment of TPC is made, the amount of war pension payable will be reviewed in the light of the amount received.

The effect of future upratings on abated War Disablement Pensions

10018 To determine the increased rate of pension payable following a general uprating the amount of war pension payable before abatement is uprated in the normal way.

10019 The new increased amount is then abated by the same fixed amount previously determined. This ensures that the pensioner gets the full percentage increase in his pension appropriate to his degree of disability.”

 

11. Against the background of that policy and his understanding that the claimant had received only £650,000, the Secretary of State based his calculation on the claimant’s schedule of special damage and future losses, taking the lowest of the four options.  As £650,000 is 18.39% of £3,535,189.92, he deducted 18.39% of the claimed losses other than loss of earnings and occupational pension rights (representing special damages to be totally disregarded) from the £650,000 and then deducted 75% of the balance.  Thus the total amount disregarded (see paragraph 10008 of the policy guide) was £565,352.52.  This produced the figure of £84,647.48, which was divided by 25.42 (the multiplier derived from Ogden Table 1 for a male aged 41, which was the claimant’s age when he received the compensation) to produce the figure of £3,329.96 per annum by which the war pension would have been abated had the relevant proportion of the basic disablement benefit not been lower than that figure.  As the current rate of basic disablement pension in respect of a 40% assessment was only £3,229 per annum, the whole of that £3,229 was abated.  However, there was no abatement of the unemployability supplement or the other allowances.

 

12. At the second hearing, the First-tier Tribunal considered that analysis but regarded it as “neither rational nor fair”.  Apart from the fact that the claimant had received £750,000 rather than £650,000, it pointed out that the Secretary of State’s calculation had made no allowance for part of the compensation being in respect of general damages or for part of it being in respect of loss during the period between the date of the accident and the date when the claimant first became entitled to a war pension.  It also considered that abatement should be on a “like-for-like” basis under which the basic disablement pension attributable to the relevant 40% assessment should be abated by an amount reflecting only the general damages but that the allowances should in principle be abated in respect of relevant elements of special damages and compensation for future losses.  This led to calculations even more complicated than those made by the Secretary of State.

 

13. The First-tier Tribunal accepted the claimant’s evidence that he had been advised that the appropriate amount of general damages for the relevant injuries would be £30,000 and considered that, since liability had been admitted on a 95% basis and the mediation had been concerned primarily with the quantum of special damages, it was reasonable to take £28,500 of the £750,000 as having been notionally paid in respect of general damages.  It then reduced that figure to £27,184 to reflect the fact it in part covered the period of over four years before the claimant became entitled to a war pension.  It did that by dividing £28,500 by 28.15 (multiplier for life: Ogden Table 1, male 33 – the claimant’s age at the date of the accident) and multiplying the resulting figure of £1,012 by 26.85 (multiplier for life: Ogden Table 1, male 37 – the claimant’s age at the commencement of the award of war pension).  It then divided £27,184 by 26.85 (multiplier for life: Ogden Table 1, male 37) and, unsurprisingly, reached the figure of £1,012 again as the amount to be abated annually from the basic disablement pension.  (I observe that the same result would have been obtained more simply by holding that the appropriate multiplier to be used as a divisor in respect of general damages was that applicable at the date of the relevant injury rather than at the date of the commencement of the award of war pension or, as the Secretary of State had decided, the date the compensation was received.)

 

14. The First-tier Tribunal then considered to what extent there should be any abatement of the additional allowances by reference to damages notionally paid for the same purpose.  In calculating the part of the £750,000 received that was to be treated as notionally paid in respect of each element of the claim, it made adjustments to take account of the facts that part of the award was for past loss during the period before the claim for war pension was made, that some elements of the claim were unlikely to have been reduced by much during the mediation process whereas others would have been very much in dispute, that one element was interest and that the overall claim included general damages.

 

15. It then decided that in principle the total amount of unemployability supplement and invalidity allowance, being income-replacement elements of the award, should be abated by an amount in respect of the damages notionally received for loss of earnings, but not so as to reduce them to a level below that of the equivalent social security benefit, which it considered to be contributory employment and support allowance with the support component.  On this basis, it concluded that the annual abatement of unemployability supplement should be £207.65, with no abatement of the invalidity allowance. 

 

16. It similarly decided that in principle the amount of the mobility supplement and constant attendance allowance should be abated by an amount in respect of damages notionally received in respect of, respectively, future transport costs and care needs, but not so as to reduce them below the amount of, respectively, the higher rate of the mobility component and the middle rate of the care component of disability living allowance.  On this basis, it concluded that there should be no abatement of constant attendance allowance because the amount of the allowance was less than the middle rate of the care component of disability living allowance.  In the case of the mobility supplement it decided that there should be no abatement because even a minor abatement would cause the claimant’s Motability Agreement to be cancelled. 

 

17. It also decided that the comforts allowance was not comparable to any of the claimed heads of special damage and so should not be abated.

 

18. The overall effect of the First-tier Tribunal’s decision was therefore that the total abatement as at the date of the Secretary of State’s decision on 12 July 2010 should be only £1,220.08 p.a and it would have required a recalculation following each annual up-rating of war pensions.

 

19. The claimant sought permission to appeal on the grounds that the First-tier Tribunal had no power to consider an abatement of the allowances when the Secretary of State had decided to abate only the basic disablement pension, that it had directed abatement for a longer period than that for which ordinary social security benefits would have been recovered under the Social Security (Recovery of Benefits) Act 1997 and that there had been errors in the calculation.  He was given permission to appeal on all three grounds.  His appeal was late but the Secretary of State has not argued that it should not be admitted.  In his response to the appeal, the Secretary of State opposes the first two grounds of appeal but accepts the third in part.  I held an oral hearing, which I have found helpful.  During the course of the hearing, I intimated that I might remit the case to the First-tier Tribunal but, on reflection, I have decided to substitute my own decision for that of the First-tier Tribunal

 

20. It is convenient to take the first and third grounds of appeal first and then consider the broader questions of policy raised by the third ground.

 

21. I reject the first ground of appeal.  The claimant is, of course, correct in asserting that the scope of an appeal is, absent special provisions to the contrary, determined by the scope of the decision being challenged.  However, identifying the scope of the decision being challenged needs to be done in a practical way that promotes justice for both parties.  The issue for the Secretary of State was how article 52 should be applied to all the elements of war pension that had been awarded to the claimant and the fact that he chose to abate only the basic disablement pension does not imply that he did not, or should not, have considered whether other allowances should also be abated.  Moreover, applying any sophisticated policy to abatement of the type argued for by the claimant or adopted by the First-tier Tribunal involves looking at all the elements of a war pension.  That should clearly be done looking at all the elements at the same time because, if the First-tier Tribunal had made a decision only in respect of the basic disablement pension on the basis that only that element had been considered by the Secretary of State, it would remain open to the Secretary of State subsequently to make decisions in respect of the other allowances in the light of the First-tier Tribunal’s decision, in respect of which there would be a separate right of appeal and a risk of inconsistent approaches being taken.  The claimant refers to section 5B(a) of the Pensions Appeal Tribunals Act 1943 but that merely has the effect that the First-tier Tribunal “need not” consider issues not raised by the parties, even though they are within the scope of the appeal.  Unlike section 5B(b), it does not limit the powers of the First-tier Tribunal.  What it does is limit the circumstances in which the Upper Tribunal may find the First-tier Tribunal to have erred in law by not addressing an issue because it means that the First-tier Tribunal cannot be criticised for not dealing with an issue that the parties have not raised unless the issue was “clearly apparent from the evidence” (Mongan v Department for Social Development [2005] NICA 16 (reported as R3/05 (DLA)) and Secretary of State for Work and Pensions v Hooper [2007] EWCACiv 495 (reported as R(IB) 4/07)).

 

22. As to the third ground of appeal, it is common ground that there were three errors in the First-tier Tribunal’s decision, even assuming that its overall approach was correct.

 

23. First, the parties agree that it had been wrong to work on the basis that he had received £750,000 in damages because he had in fact had to pay out of that sum two payments that ought to have been payable out of costs, due to an error by his solicitors.  I am not entirely convinced that this is an error of law, given the evidence before the First-tier Tribunal, and I am also not entirely convinced that the sum has not been, or could not be recovered from the solicitors but I would be content to accept that any calculation necessary for the purpose of re-deciding this case should be based on the claimant having received damages amounting to £734,666.63.

 

24. Secondly, although the Secretary of State based his calculation on Option 4 in the claimant’s schedule of loss, the First-tier Tribunal expressed a preference for Option 2, for reasons it explained but then actually used the figures from Option 4 when it came to the calculation.  Looking at its reasons and the options, I rather think it may simply have confused the option numbers.  However, the claimant has brought an additional challenge relating to Option 1, which I shall address below.

 

25. Thirdly, there is a point that was not part of the claimant’s original ground of appeal but which he now accepts: the First-tier Tribunal made a simple, but serious, arithmetic error which, being irrational, is a clear error of law.  Instead of dividing the various amounts under the various heads of special damage and future loss by 26.85 as it intended in order to annuitise them, it divided them by 1,012.43.  Mr Heppinstall suggested that that was probably the result of the judge clicking on the wrong figure on an electronic spreadsheet and, looking at the layout of the Appendix to the First-tier Tribunal’s decision which may have been taken from such a spreadsheet, that does seem likely.  In any event, it can easily be seen that the figures in the relevant column of the Appendix are too low by a factor of nearly 40.  This resulted in too little abatement on the First-tier Tribunal’s general approach.

 

26. Indeed, this third error renders the first two academic because, even without doing the detailed arithmetic, it is obvious that using the correct figures would have led the First-tier Tribunal to conclude that there should be an annual abatement of unemployability supplement equal to the difference between the total amount of the unemploybability supplement and invalidity allowance less the amount of employment and support allowance and would not otherwise have affected its decision, whichever option had been applied.  The abatement would have been £940.80 per annum at the date of the Secretary of State’s decision.  Thus correcting the error would result in a decision less favourable to the claimant than that actually made by the First-tier Tribunal.

 

27. The claimant argues that there are further errors.  First, he argues that the First-tier Tribunal ought to have taken Option 1 as the basis for calculation.  The Secretary of State argues that, although the First-tier Tribunal could have taken Option 1, it did not err in law in not doing so.  It considered Option 1 and simply considered Option 2 to be more likely, as it was entitled to do.  However, it seems to me that it did not really give any reasons for its view on the relative likelihood of the two options and indeed, as I have said, may simply have mixed up the option numbers.  On the other hand, as I have also said, it actually would not have made any difference which of the options was taken given the figures and the First-tier Tribunal’s general approach.  I therefore do not accept that any error on the part of the First-tier Tribunal as regards the choice between the options was in itself material.  Nevertheless, I would be content to take Option 1 as the basis of any calculation necessary in re-deciding the case, because I see no reason not to accept the claimant’s evidence that that was the scenario used as a starting point in the mediation and that his likely career prospects had not been substantially in dispute.

 

28. The parties agree that £30,000, being the value of the claim for general damages, would in any event have to be added to the relevant option to obtain the total value of the claim for compensation, but the First-tier Tribunal does not appear to have erred in that regard – see the deduction of general damages at paragraph 26(d) of the statement of reasons, which I think has the desired effect.  However, the claimant argues that the amount of general damages should have been reduced so that the amount taken into account was that proportion of the £30,000 that the whole claim bore to £734,666.63.  I reject the submission that the First-tier Tribunal erred in law in that regard.  Although the whole claim may notionally have been within the scope of the mediation, the First-tier Tribunal gave cogent reasons for considering that there would have been little scope for argument about general damages of £30,000 and that it was the claim for special damages that should be assumed to have been reduced.

 

29. I turn, then, to the second ground of appeal, which is that there should have been abatement only of the war pension received within five years of the accident.

 

30. Both parties agree that article 52(1) confers a very broad discretion and that the First-tier Tribunal was not bound by the Secretary of State’s policy.  The First-tier Tribunal referred to a passage in R(AF) 3/07 where I said –

 

While, on an appeal, a tribunal is not bound by the policy, it must exercise the discretion conferred by the legislation judicially which, again, means exercising it in a way that furthers the purpose of the legislation and is rational and, moreover, it should have regard to the Secretary of State’s policy and explain any departure from it.”

 

31. Indeed, the policy guide itself recognises at paragraph 10034 that there may be special circumstances that would justify not applying the general policy and, although the policy guide produced in this case dates from January 1997, the policy is in fact of sufficient antiquity to have been considered by the Court of Appeal in Payne v Railway Executive [1952] 1 K.B. 26, in which Singleton LJ, with whom Birkett LJ agreed, said –

 

“It is not suggested that the practice generally followed is binding, but no doubt it accords with justice and fairness in normal cases.  There is no reason why the Minister should adhere to it in every case; he has the right and, as I think, the duty, to consider each case on its merits.”

 

32. The issue in Payne v Railway Executive had been whether the amount of a war pension paid in consequence of a railway accident should be deducted from damages payable because the accident had been caused by negligence on the part of those responsible for operating British Railways.  The Court of Appeal decided that it should not and that approach continues generally to be taken in the courts.  However, as noted in paragraph 10022 of the policy guide, the law on that question is not entirely free from doubt.  Cohen LJ and Singleton LJ gave different and arguably not entirely consistent reasons for their concurrence in dismissing the defendants’ appeal and Birkett LJ merely agreed with both of them.  In Browning v War Office [1963] 1 Q.B. 750, the Court of Appeal held by a majority that Payne v Railway Executive was no longer good law, being inconsistent with a later decision of the House of Lords, but in Parry v Cleaver [1970] 1 AC 1, the House of Lords criticised the reasoning of both decisions in another split decision in which the three judges in the majority made separate speeches, as did the two dissenting judges.  Since neither Browning v War Office nor Parry v Cleaver was actually concerned with a war pension paid to a former member of the British armed forces, the latter decision has not made completely clear how common law damages are to be assessed in the light of entitlement to such a pension.  Happily, it is unnecessary to carry out a detailed analysis of the speeches in Parry v Cleaver.  It is recognised in paragraphs 10021 and 10024 of the policy guide that the general premise of the policy is that no account has been taken of the war pension in the assessment of damages and that a different approach would be necessary if the war pension had been taken into account.  In the present case, it has not been suggested that the claimant’s war pension was taken into account in the assessment of damages by either party and so abatement must be considered on that basis.

 

33. The First-tier Tribunal’s view that the Secretary of State’s policy was nonetheless “neither rational nor fair” was clearly a sufficient reason for departing from it if that view was justified.  While not necessarily agreeing with that description of his policy, the Secretary of State accepts that the First-tier Tribunal was entitled to consider that its approach was more rational and fairer than his and he does not challenge its general approach in this case.  He is of course hampered in any defence of his policy by the fact that it is so old and has been the subject of so little thought since it was first introduced that no-one can now remember why the policy is as it is.

 

34. There are certainly difficulties with the policy.  The rationale advanced at paragraphs 10006 and 10007 would, if taken to its logical extreme, require damages to be taken fully into account, which is not what is achieved by the partial disregard of general damages and special damages for loss of earnings described in paragraph 10008 and explained in paragraph 10009, where the rationale is said to be “to treat war pensioners on a par with their civilian counterparts who sustain an industrial accident or disease for which a third party was to blame and for which Industrial Injuries Disablement Benefit is payable”.  There is a tension between the different rationales.  Moreover, I am not sure how, either in January 1997 or in 1952, the partial disregard achieved the stated aim.  The industrial injuries scheme, first introduced by the National Insurance (Industrial Injuries) Act 1946 with effect from 5 July 1948, is similar to the war pensions scheme, which is not surprising because it was based on it.  The similarities were even more marked before the Social Security Act 1986 came into effect than they are now.  The industrial injuries scheme then made provision for disablement benefit, in the form of either a gratuity or a pension, and what were technically increases of disablement benefit, including unemployability supplement and constant attendance allowance, equivalent to many of the allowances under the war pensions scheme.  Section 2(1) of the Law Reform (Personal Injuries) Act 1948 provided that, in assessing damages for an injured person in respect of his injuries, there should be taken into account against any loss of earnings “one half of the value of any rights which have accrued or probably will accrue to him therefrom in respect of … industrial disablement benefit … for the five years beginning with the time when the cause of action accrued” and section 2(2) excluded constant attendance allowance altogether.  It is not obvious to me how the Secretary of State’s policy was ever thought to achieve a similar result for war pensioners.  The tax implications mentioned in paragraph 10009 of the policy guide cannot provide the answer because, like war pensions, industrial injuries benefits are not, and never have been, taxable and nor are many other social security benefits.

 

35. In any event, the approach to the assessment of damages for those injured in industrial or other accidents and entitled to civilian social security benefits has been radically changed as a result of legislation intended to ensure that the taxpayer does not bear the full cost of benefits paid to those injured through negligence or a breach of statutory duty.  The relevant provisions of the 1948 Act have been repealed.  Section 22 of, and Schedule 4 to, the Social Security Act 1989 first introduced a scheme under which the relevant Secretary of State recovered from tortfeasors the cost of benefits paid to the victims of torts.  However, it was widely accepted that that scheme was flawed and it was replaced with effect from 6 October 1997 (subject to a transitional saving) by a scheme set out in the Social Security (Recovery of Benefits) Act 1997.  Neither scheme seems to have resulted in any amendment to the Secretary of State’s approach to the abatement of war pensions.

 

36. Under the 1997 Act, a compensator making a payment to a person who has suffered an accident, injury or disease is required to pay to the Secretary of State an amount equal to the amount of social security benefits paid in consequence of the accident, injury of disease during the period before the payment is made or within five years of the accident, injury or disease, whichever is the shorter, but may deduct the amount of such benefits from compensation paid under the relevant head of damages (i.e., lost earnings, the cost of care or loss of mobility).  See, in particular, sections 1, 3, 6 and 8 and Schedule 2.  Under section 17, benefits are otherwise wholly disregarded in the assessment of damages.  Thus, the 1997 Act attempts to balance the respective interests of tortfeasors, claimants and the Secretary of State in a way that is not too administratively complicated.

 

37. The disregarding of war pensions in the assessment of damages and  abatement under article 52 of the 2006 Order or its forerunners have together always had the effect of allowing the Secretary of State to recover the amount of a war pension paid in respect of an accident, injury or disease indirectly from the tortfeasor.  However, the claimant’s argument is essentially that parity with those injured in industrial accidents requires that the period of abatement of a war pension should be limited to five years – at least in his case where his claim was settled more than five years after the accident.

 

38. In resisting that argument, the Secretary of State points to a number of differences between war pensions and benefits paid under the industrial injuries scheme, not all of which are material or even accurate.  I agree with the claimant that it is irrelevant that the link that the industrial injuries scheme requires between an accident and employment may be different from that required by the 2006 Order between an accident and service.  I also reject the Secretary of State’s assertion that the 1997 Act requires industrial injuries disablement benefit to be recouped in its entirety and, because article 52 provides that the Secretary of State “may take the compensation into account against the pension or gratuity in such manner and to such extent as he thinks fit and may withhold or reduce the pension or gratuity accordingly”, the 2006 Order is, “ultimately, more generous in that it would never lead to the reduction of a head of damage to nil”.  If the 2006 Order were necessarily more generous, the claimant would never have appealed to the First-tier Tribunal.  As he points out, the Secretary of State does not take into account the limited period in respect of which the 1997 Act allows recovery of benefits.  In any event, the 1997 Act does not necessarily require the basic industrial injuries disablement pension to be recovered in its entirety: it treats it as though it were compensation for loss of earnings, which is arguably anomalous but has the effect of protecting awards of general damages and ensuring that the basic disablement pension is recoverable only if compensation is calculated on the basis that the claimant has lost earnings and even then only in respect of a limited period. 

 

39. On the other hand, I do accept that it is relevant that, whereas a person is not entitled to industrial injuries disablement benefit “until after the expiry of 90 days (disregarding Sundays) beginning with the day of the relevant accident” (section 103(6) of the Social Security Contributions and Benefits Act 1992), a war pension is payable only after service in the regular armed forces has come to an end.  This has the effect that a war pension is likely to be payable in respect of only the latter part of the five years after the accident and, indeed, may not be payable until that period has elapsed.  Civilian employers are less likely to retain in employment on full pay a person who is unable to work for as long as the services are often prepared to do and, anyway, civilian benefits are often payable while a person is still in employment.  I also observe that the way in which the 1997 Act works has the effect that the amount of recoverable benefits to be taken into account when damages are assessed is always an already determined amount in respect of a past period, that recourse to the Ogden tables is unnecessary, and also that recovery of the benefits has no impact on future entitlement to any benefit.

 

40. Against that background, I will consider what approach I would have taken had I been in the First-tier Tribunal’s shoes, before considering whether, since an appeal to the Upper Tribunal lies only on a point of law, I should actually depart from the approach that the First-tier Tribunal took. 

 

41. First, I would accept the claimant’s submission that it is unlikely that Parliament, who ultimately authorise the award of war pensions, would wish injured ex-servicemen who are able to obtain common law damages in respect of personal injuries to be treated less favourably than injured industrial workers or other civilians.  Parity is a stated aim of the current policy and the Secretary of State has not explicitly argued for the abandonment of that aim.

 

42. Secondly, and in the light of that first consideration, I would accept that the amount of an abatement of war pension in respect of damages for personal injury should not be greater than the relevant elements of a war pension received in respect of the relevant injury over a period of five years.  However, I do not consider that the relevant period of five years should necessarily be the five years since the date of the accident.  The war pension scheme, unlike the social security system, has always allowed the Secretary of Secretary of State to retain through abatement the value of benefits that would otherwise be paid in order to avoid a duplication of payments and I am not persuaded that reasonable parity with those injured in industrial accidents requires the same five years to be taken when, as the Secretary of State has pointed out, awards of war pensions are much more likely to commence from a date substantially after the date of the accident.  It is enough that the amount of abatement should be calculated by reference to benefits received only within a period of five years.  Since the claimant’s case was settled over eight years after the relevant accident, it is unnecessary for me to consider whether the relevant period should be less than five years where compensation is paid within less than five years of the relevant accident.  The policy reasons for taking that approach in the 1997 Act – principally encouraging both parties to settle cases early – are less strong in the war pensions’ context where the policy might exert pressure on the claimant but not the defendant.

 

43. Thirdly, the period over which the amount of abatement is calculated need not be the same as the period over which abatement is carried out.  Provided that the total amount of war pension recovered does not exceed the relevant amount paid in five years, I would accept that the period over which the abatement takes place may be longer or, indeed, shorter and it may start later.  Thus, in the present case, I would consider that the period of five years in respect of which the amount of the abatement would be calculated should be the five years from the date that the award commenced upon the claimant leaving the Royal Air Force, even though abatement could not have commenced until the compensation was paid.

 

44. Fourthly, I would consider that the amount of abatement should be calculated in the same way as the amount of recoverable benefits is calculated under section 8 of, and Schedule 2 to, the 1997 Act, that is to say by taking account of each element of war pension to the extent to which it is duplicated by the relevant part of the payment of compensation. 

 

45. For these purposes, although I agree with the First-tier Tribunal that the basic disablement pension is akin to general damages, I would consider that it should be taken into account against compensation for loss of earnings – as under the 1997 Act and for the same reason: this approach protects awards of general damages when there is no award for loss of earnings. I agree with the parties that only the amount payable in respect of an assessment of 40% would be taken into account in this case.  As the First-tier Tribunal decided, unemployability supplement and invalidity allowance would also be taken into account against compensation for loss of earnings, as would an allowance for lowered standard of occupation.  Constant attendance allowance would be taken into account against damages in respect of care and a mobility supplement would be taken into account against damages in respect of loss of mobility.  At this stage of the calculation, those elements would all be taken into account in full if they were exceeded by the amount paid under the relevant head of damages; there would be no need to protect any element equivalent to civilian social security benefit or a Motability agreement. 

 

46. Calculation of the appropriate proportion of a payment of compensation to be allocated to each head of compensation is always likely to be difficult where a case has been settled without any agreement as to the precise basis of the settlement.  However, as in this case, it will often be possible to obtain from a claimant documents sufficient to show whether the claim included elements in respect of loss of earnings, the cost of care and loss of mobility and to make an informed judgement as to whether the likely basis of any settlement can be determined or whether all heads of claim should be taken to have been reduced by the same proportion.  Given the elements of estimation and assumption involved, I do not consider that it would usually be necessary to descend to the level of detail achieved by the First-tier Tribunal in this case.  The calculation also has a different end in mind.  It is to determine the amount of compensation under the relevant head that it is reasonable to attribute to the relevant period of five years.

 

47. Having done that calculation, it might be necessary to make adjustments to take account of, for instance, the recovery under the 1997 Act of civilian social security benefits awarded before the claim for war pension was made, if otherwise there would have been recovery of benefits over a period of more than five years or there would be some other unfairness to the claimant.

 

48. Finally, once the amount of abatement has been established, the war pension would be abated in order to recover that amount.  However, the rate at which it would be abated would need to take account of the claimant’s current circumstances.  It is at this stage that there might be a need, say, to leave a claimant entitled to constant attendance allowance or a mobility supplement if that might make a claim for personal independence payment unnecessary or would protect a Motability supplement.  There is no virtue in abatement that saves expenditure by the Secretary of State for Defence money but requires additional expenditure by the Secretary of State for Work and Pensions.  On the other hand, while it would be essential not to calculate the amount to be abated by reference to any part of the award not attributable to the relevant accident, it seems to me to be that it would be permissible to abate those other parts of the award where appropriate, particularly where, say, an allowance taken into account in calculating the amount of the abatement was not to be abated. Abatement would continue for as long as necessary to recover the sum calculated as above.

 

49. In this case, I would see no reason not to accept most of the First-tier Tribunal’s approach in calculating the amount of the total award of compensation to be attributed to the different heads of damage.  In particular, I would adopt its finding that the claim for general damages was £30,000 and that the agreement on liability would have reduced that by 5% to £28,500 but that the mediation in respect of quantum would not have led to any further reduction.  I would be prepared to take Option 1 as the basis of the calculation of the amount of special damages and compensation for future loss recovered but I would adopt the First-tier Tribunal’s finding that the claim for special damages in respect of past loss other than loss of earnings and loss of pension rights (worth £146,866.64) would have been reduced by only 20% in the course of mediation (to £117,493.31).  I would further adopt its finding that the interest on that sum would have been £20,000.  Taking the total sum received as £734,666.63 and deducting from it the amount of general damages and special damages for past loss (other than loss of earnings and loss of pension rights) and associated interest, would give a figure of £568,673.32, which would be the amount received in respect of past loss of earnings and loss of pension rights and all future losses.  The amount claimed in respect of those losses under Option 1 had been £5,473,187.98.  The amount received would therefore have been 10.39% of the amount claimed.  Like the First-tier Tribunal, I would take as a starting point an assumption that all these heads of claim were reduced by the same proportion.

 

50. On this basis, the claim for past personal care would have been reduced to 80% of the amount claimed and therefore to £7,802.  Past loss of earnings, future loss of earnings, and the cost of future care would have been reduced to 10.39% of the amount claimed and therefore to £50,380, £290,010 and £14,690 respectively.  Past losses were attributable to the period from the date of the accident, 11 May 2000, to the date of the payment, 24 September 2008.  However, the losses were not necessarily incurred evenly over that period.  In particular, loss of earnings was relatively limited while the claimant continued to be paid as a serving officer in the Royal Air Force and would have been greater from 15 September 2004 (which, of course, is also the date from when the war pension was awarded) and even greater from early 2005 when, it was assumed in the calculation of the claim for compensation, the claimant would have retired from the Royal Air Force and have become a commercial airline pilot.  It would be only the compensation paid for loss of earnings during the almost exactly four years immediately before the compensation was received that would have needed to be taken into account for abatement purposes.  Similarly, in relation to future loss of earnings, it would have been only the compensation in respect of losses during the period of just under a year after the receipt of the payment that would have needed to be taken into account.  Other things being equal, that annual sum would be ascertained by doing the calculation of lump sum compensation in reverse, i.e, dividing the sum received in respect of the relevant head by the multiplier that would have been used in the calculation of compensation.  The multiplier in respect of loss of earnings incurred over the remainder of a person’s working life would, however, generally be lower than the multiplier for losses incurred over the remainder of that person’s natural life.  Also, loss of future earnings includes loss of future promotion prospects, so that the loss of earnings in the initial years would be likely to be lower than those later.

 

51. I do not consider that it would be necessary to carry out any further detailed calculation in this case.  Looking at the figures, including the detailed estimates for particular periods, it would be tolerably clear that the sum recovered in respect of loss of earnings for the five years from 14 September 2004 was of the order of £10,000 per annum or more, which comfortably exceeds the total amount of basic disablement pension applicable to a 40% assessment, allowance for lowered standard of occupation or unemployability supplement and invalidity benefit in any one of the relevant five years.  This would seem reasonable both on the basis that something of the order of £40,000 of the £50,000 past loss of earnings could reasonably have been attributable to the post-service period before the compensation payment was made and also on the basis that the annual amount claimed to have been lost in the early years of the claimant’s assumed post-service career would have been about £100,000 per annum of which it would have been assumed that only 10.39% was recovered. 

 

52. Since £10,000 per annum exceeds the total amount of basic disablement pension applicable to a 40% assessment, unemployability supplement and invalidity benefit in any one of the relevant five years, the total sum to be abated as a result of the compensation received for loss of earnings would simply be the amount of disablement pension payable in respect of a 40% assessment together with the actual amount of allowance for lowered standard of occupation, unemployability supplement and invalidity allowance paid to the claimant during that five-year period.

 

53. In respect of care costs, the claim in respect of past care was again based on higher costs during the post-service period before the accident and then increased costs later in life.  The figures for past and future care calculated above would not be consistent with each other given the amounts claimed, suggesting that in this regard the claim for past care would have been inadequately discounted or the proportion of the claim for future care that was recovered would have been higher than calculated.  Taking a broad brush approach, I would estimate the annual value of the sum recovered to be £800, making a total of £4,000 over the relevant five years.  Since £800 per annum is less than any standard rate of constant attendance allowance, £4,000 would be the total amount that should be recovered through abatement if constant attendance allowance was paid throughout the five years.  An appropriate adjustment would have to be made if constant attendance allowance was not paid during the whole of that period.

 

54. I would also have considered whether any part of the mobility supplement should be recovered through abatement.  However, looking at the report on which the claim for transport costs was based, I would have considered it to be clear that the claimant claimed only for those transport costs he incurred after he had surrendered the mobility supplement under the Motability scheme, so there was not in fact any duplication of payments in this case.  It follows that no abatement in respect of the mobility supplement would be appropriate.

 

55. Thus the total amount of the abatement would be equal to the amount of disablement pension payable in respect of a 40% assessment together with the actual amount of unemployability supplement and invalidity allowance paid to the claimant during the period from 15 September 2004 to 14 September 2009, plus £4,000 (or a reduced amount if constant attendance allowance was not payable throughout that period).

 

56. As to the rate at which I would consider that the claimant’s war pension should now be abated, the amount already abated would be deducted from the total amount of the abatement calculated above and I would consider that the balance should be recovered through abatement of the claimant’s basic disablement pension at a rate equal to the rate of disablement pension payable in respect of a 40% assessment.  That would be roughly what the Secretary of State decided in the first place, but the decision would be more favourable to the claimant because the abatement would not continue for the whole of the claimant’s life as might be expected under the Secretary of State’s calculation.  In other circumstances, I might have suggested abatement at a higher rate, which would of course have ended sooner.

 

57.  However, on my approach, the overall effect of the claimant succeeding on his second ground of appeal would be less favourable to him than the First-tier Tribunal’s decision, even if the arithmetical error in the latter were to be corrected.  Even my approach were more favourable to him, I ought not to substitute a decision based on my approach for that of the First-tier Tribunal unless I am satisfied that the First-tier Tribunal’s approach was wrong in law.  If I consider that its only material error of law was arithmetical, I should do no more than correct that error.

 

58. As I have already said, the Secretary of State submits that the First-tier Tribunal’s approach was one that was open to it.  Given my approach, that submission is actually favourable to the claimant.  There are criticisms that I consider can be made of the First-tier Tribunal’s reasoning.  For instance, it decided not to abate retrospectively, by which it meant that it decided not to calculate the amount of the abatement by reference to compensation received for past loss of earnings and, at the same time, it decided to restrict the abatement in respect of compensation for loss of earnings to the difference between, on the one hand, the two relevant allowances in the war pension (unemployability supplement and invalidity allowance) and, on the other hand, employment and support allowance so that, at 12 July 2010, the maximum annual abatement of those two allowances could be £940.80.  It is arguable that that approach fails adequately to give effect to the purpose behind article 52 because the Secretary of State can never recover more than a fraction of the value of those allowances even if the amount of compensation received by the claimant in respect of loss of earnings greatly exceeds the amount of those allowances.  On the other hand, it did decide to abate the basic disablement pension through a separate calculation and it also decided that the abatement should continue for as long as the relevant parts of the award continued.  Thus, the overall effect is less unfavourable to the Secretary of State than might appear at first sight. 

 

59. I consider that my approach would better balance the legitimate interests of both the claimant and the Secretary of State and that it would be simpler to administer than the First-tier Tribunal’s approach.  However, given the breadth of the discretion conferred by article 52(1), I am not satisfied that the First-tier Tribunal’s approach was unlawful and I therefore confine myself to undoing the effect of the error identified in paragraphs 25 and 26 above.

 

60. Finally, I conclude by suggesting that, whatever approach the Secretary of State adopts in the future, he should in the event of an appeal provide in his response to the appeal a full explanation of his decision and a complete breakdown, with dates and amounts, of all the elements of war pension that have been paid to the appellant.  If he were to adopt my approach, he would also need, before making his own decision, to obtain from the claimant information about the basis upon which the payment of compensation had been made and, if that were not practical, the basis upon which the claim for compensation had been made.

 

 

 

Mark Rowland

14 November 2014