R (Cooper) v Secretary of State for Work and Pensions

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLord Justice Mummery,Lady Justice Smith,Lord Justice Toulson,Re
Judgment Date14 Dec 2010
Neutral Citation[2010] EWCA Civ 1431
Docket NumberCase No: C1/2010/1908 & 1909

[2010] EWCA Civ 1431

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

ADMINISTRATIVE COURT

The Hon Mr Justice Cranston

Before: Lord Justice Mummery

Lady Justice Smith

and

Lord Justice Toulson

Case No: C1/2010/1908 & 1909

CO/3793/2010 & CO/4048/2010

Between
Secretary of State for Work & Pensions
Appellant
and
(1) Eunice Payne
(2) Gail Cooper
Respondents

Mr Clive Sheldon And Mr Denis Edwards (Instructed By Dwp/Dh Legal Services, Litigation Division) For The Appellant

Mr Richard Drabble Qc, And Mr Desmond Rutledge (Instructed By Edwards Duthie) For The 1 st Respondent

Mr Richard Drabble Qc And Mr Paul Stagg (Instructed By The Public Law Project) For The 2 nd Respondent

Hearing date: 20 th October 2010

Approved Judgment

Lord Justice Mummery

Lord Justice Mummery:

Introduction

1

This appeal is from orders of Cranston J dated 26 July 2010 based on his judgment [2010] EWHC 2162 (Admin) in two test cases. He allowed judicial review applications made by the respondents challenging the lawfulness of deductions made from their on-going social security benefit entitlements. The appellant Secretary of State made the deductions pursuant to ss 71 and 78 of the Social Security Administration Act 1992 (the 1992 Act). The judge granted leave to appeal on the basis that it “was a matter of public importance and the Secretary of State's submissions were, on the authorities, arguable”.

2

Section 71 creates an entitlement in the Secretary of State to recover sums from benefit claimants. It provides that:—

“(1) Where it is determined that, whether fraudulently or otherwise, any person has misrepresented or failed to disclose any material fact and in consequence of the misrepresentation or failure—

(a) payment has been made in respect of a benefit to which this section applies; or

(b) any sum recoverable by or on behalf of the Secretary of State in connection with any such payment has not been recovered

the Secretary of State shall be entitled to recover the amount of any payment which he would not have made or any sum he would have received but for the representation or failure to disclose.”

3

Section 71(8) confers a specific power to make deductions from prescribed benefits in order to recover public money:—

“Where any amount paid…is recoverable under—

(a) subsection (1) above”..

“it may, without prejudice to any other method of recovery, be recovered by deduction from prescribed benefits.”

4

In the case of the respondent Mrs Gail Cooper the deductions were made from her incapacity benefit, a “prescribed benefit” that she continued to receive, in order to recover an overpayment of benefit in the sum of £1,195.07 which occurred when, while in receipt of those benefits, she worked part time.

5

Section 78 provides for the recovery by the Secretary of State of Social Fund loans: —

“(1) A social fund award which is repayable shall be recoverable by the Secretary of State.

(2) Without prejudice to any other method of recovery the Secretary of State may recover an award by deduction from prescribed benefits…”

6

The respondent Mrs Eunice Payne obtained a Social Fund budgeting loan of £843 in September 2007. She was liable to repay that loan. Deductions started to be made in August 2009 from her income support, which is a “prescribed benefit”, to recover the Social Fund loan.

7

The core question is whether the making of a Debt Relief Order (DRO), which is available under Part 7A of the Insolvency Act 1986, as amended (the 1986 Act) as an alternative to the established process of bankruptcy, has a different impact than a bankruptcy order under the same Act on the statutory power of the Secretary of State to continue making the deductions from prescribed benefits.

8

Mrs Payne applied for and obtained a DRO in August 2009. Her Social Fund loan was specified in her DRO. The Secretary of State started to make deductions from her income support after the DRO was made.

9

Mrs Cooper applied for and obtained a DRO on 13 January 2010. The overpayment was one of the debts specified in her DRO. The Secretary of State continued to make deductions from her incapacity benefit.

10

In the case of a bankruptcy order against a debtor in receipt of benefit the authorities indicate that the Secretary of State has specific power, during the period of the bankruptcy order, to continue to make deductions from on-going entitlements, in order to recover an overpayment of benefits or a Social Fund Loan. This is so even though the 1986 Act provides that: (a) during a period of bankruptcy a creditor has no remedy against the property or person of the bankrupt in respect of any debt or liability to which a person is subject at the commencement of the bankruptcy, and (b) discharge from bankruptcy releases the bankrupt from all debts to which the bankrupt was subject at the commencement of the bankruptcy (bankruptcy debts) including liability for overpayments and for repayment of Social Fund Loans. They fall within “bankruptcy debts” which are released on discharge from bankruptcy: s281.

11

It is provided by s285 that:—

“(3) After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall—

(a) have any remedy against the property or person of the bankrupt in respect of that debt, or

(4) Subject as follows subsection (3) does not affect the right of a secured creditor of the bankrupt to enforce his security.”

12

The specific statutory power of deduction from the bankrupt's social security benefits, which, by virtue of s187 of the 1992 Act, are not vested in the trustee in bankruptcy for the benefit of creditors, is unaffected by that section. It is submitted on behalf of the Secretary of State that the controlling principle is that a recipient of social security benefits is only entitled to receive the amount of the benefit left after statutory deductions have been made (“the net entitlement principle.”)

13

The issue on the appeal is whether, as a matter of statutory interpretation, Cranston J was wrong to hold that the power to make deductions from the on-going benefits of Mrs Payne and Mrs Cooper ceased to be available when they became subject to DROs under the 1986 Act.

DROs

14

DROs made their appearance as a new form of personal insolvency procedure when they were introduced by amendments to the 1986 Act with effect from the 24 th February 2009: see the Tribunals, Courts and Enforcement Act 2007 s108 and Schedule 17 and the Insolvency Amendment Rules 2009 (SI 2009/642). They sit beside and complement bankruptcy. They form part of a legislative programme of debt-solution procedures, such as Debt Repayment Plans, Administration Orders and Individual Voluntary Arrangements, which provide a flexible choice of paths for the relief of those who are unable to pay their debts. The Consultation Paper produced by the Department for Constitutional Affairs in July 2004 (“A Choice of Paths—Better options to manage over-indebtedness and multiple debt”) estimated that in 2002 net lending rose by almost £10bn per month and that adults in this country owed an average of £18,000 each. The Paper predicted that if, in the context of “the historically high levels of borrowing”, there should be “an economic downturn….a far greater number of people would be at risk of financial difficulties.”

15

The scheme, structure and purpose of DROs broadly reflect the regime of bankruptcy orders: the effect of the order is to stay enforcement of the debts by creditors and the debts are discharged after a specified period (1 year in the case of DRO). While the order is in force the debtor is subject to similar restrictions and obligations as in bankruptcy. The main differences are that the DRO process does not require the intervention of the court and it is accessible to people who do not have the financial means to pay the higher fee for access to the bankruptcy procedure i.e. debtors who cannot afford to make themselves bankrupt. It is less elaborate, being initiated administratively by the Official Receiver on the application of the individual debtor via a debt advisor who is an “approved intermediary” and on the basis of specified criteria as to assets, income and liabilities. Unlike bankruptcy there is no trustee in whom the assets of the debtor are vested for distribution to creditors. DROs are thus meant for those over-burdened with debt who have relatively low levels of liabilities, no assets in excess of £300 in value and no monthly surplus income over £50 with which to come to an arrangement with creditors. The applicant must not have been the subject of a DRO within the previous 6 years.

16

An individual who is unable to pay his debts may apply via an “approved intermediary” to the Official Receiver for a DRO under Part 7A of the 1986 Act. The DRO is made in respect of the applicant's “qualifying debts” up to a maximum of £15,000. Overpayments of social security benefits and Social Fund loans are “qualifying debts”. (Secured debts are excluded, as are some other kinds of debt). The debts of Mrs Cooper and Mrs Payne to the Secretary of State were specified as such in the respective DROs obtained by each respondent.

17

The DRO has the effect of imposing a moratorium on “qualifying debts” for a period of 1 year at the end of which the debt is discharged from the specified qualifying debts: ss 251H and 251I.

18

Section 251G, which broadly mirrors s285, provides that, during the moratorium, the creditor to whom the specified qualifying debt is owed “has no remedy in respect of the debt” (subs (2)(a)) and may not commence a creditor's petition in respect of it or otherwise commence any action or other legal proceedings against the debtor for the debt, except with the permission of the court (subs (2)(b)).

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